Discontinued Operations

9 Months Ended

Sep. 30, 2015

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

During the third quarter of 2014, the Company announced that it had reached an agreement to sell its Grid business in order to focus on its IIoT business and on future opportunities in this market. On September 30, 2014, the Company completed the sale of its Grid business to S&T, a publicly traded European IT systems provider.

The consideration received for the sale of the Grid business totaled approximately $4.9 million. Additionally, the Company could receive an additional $1.0 million if the revenues of the Grid business exceed $50 million for the calendar year 2015. Based on the historical results of the Grid business and near-term estimates, management of the Company does not believe the sales targets will be achieved. Due to the significant uncertainty in achievement, no value has been given to this contingent consideration. The Company also entered into a sub-lease arrangement as well as a supply arrangement for a component used in the manufacture of certain Grid products. At the time of the sale, each of these arrangements had a term of 39 months and each has been considered indirect cashflows as they were deemed to be insignificant. As a result of the Company's decision to terminate its corporate headquarters leases, the sub-lease arrangement will now expire in December 2015.

The sale of the Grid business resulted in a loss of $254,000, net of income taxes, recorded as loss on sale of discontinued operations for the three and nine months ended September 30, 2014.

The assets and liabilities of the Company's joint venture (see Note 16) were not included in the sale to S&T. As of December 31, 2014, the Company was in the process of negotiating the sale of the joint venture's remaining net assets and recorded the assets and liabilities of the joint venture at the lower of their carrying amount or fair value less cost to sell and had classified them as held for sale on the Company's condensed consolidated balance sheets. The remaining asset and liabilities principally relate to inventory, deferred revenues and the related deferred costs of sales, and accrued liabilities. As of September 30, 2015, the Company has determined that the joint venture's remaining net assets will not be sold and have been stated at their fair value.

As a result of restructuring activities during quarter ended September 30, 2014, a total of $1.4 million of restructuring costs is included in loss from discontinued operations for the three and nine months ended September 30, 2014. All of this amount has been paid as of September 30, 2015.

The Company has classified the results of operations of the Grid business as discontinued operations for all periods presented. There was no activity related to the Grid business during the three and nine months ended September 30, 2015. The table below provides a summary of the components of the net loss from discontinued operations for the three and nine months ended September 30, 2014, and excludes certain shared overhead costs that were previously allocated to the Grid segment as ASC 205-20 prohibits the allocation of general overhead costs to discontinued operations.

	Three Months Ended			Nine Months Ended
	September 30, 2014			September 30, 2014
Revenues (1)	$	5,467		$	18,392
Cost of revenues	3,433			11,774
Operating expenses	3,921			15,614
Loss from discontinued operations before income taxes	(1,887		)	(8,996		)
Income taxes	—			—
Loss on sale of Grid business	(254		)	(254		)
Net loss from discontinued operations, net of income taxes	(2,141		)	(9,250		)
Net loss from discontinued operations attributable to non-controlling interest, net of income taxes	179			535
Net loss from discontinued operations attributable to Echelon Corporation Stockholders, net of income taxes	$	(1,962	)	$	(8,715	)

⁽¹⁾ Includes related party amounts of $0 and $112,000 for the three and nine months ended September 30, 2014, respectively.

The sale agreement contains certain indemnification provisions related to the Grid business whereby the Company may have obligations related to the period it owned the Grid business. The Company believes the estimated fair value of these indemnification provisions are minimal and accordingly, no liability is recorded for these indemnifications as of September 30, 2015.