4. Discontinued Operations

In order to pay down a portion of its debt and improve its liquidity position and future cash flows, on September 1, 2016, the Company closed the Globus Transaction (described in Note 1). Following the closing of the Globus Transaction, the Company only sells its products in the U.S. market and is prohibited from marketing and selling its products outside the United States and its possessions and territories until the date that is two years following the termination of the Supply Agreement (as described below). As a result of the Globus Transaction, the Company has retrospectively revised the consolidated statements of operations and cash flows for the years ended December 31, 2015 and 2014 and the consolidated balance sheet as of December 31, 2015 to reflect the financial results from the International Business, and the related assets and liabilities, as discontinued operations.

At the closing of the Globus Transaction, Globus paid the Company $80 million in cash, subject to a working capital adjustment. On September 1, 2016, the Company used approximately $66 million of the consideration received to (i) repay in full all amounts outstanding and due under the Company’s Deerfield Facility Agreement (described in Note 6 below) and (ii) repay certain of its outstanding indebtedness under the Company’s Amended Credit Facility with MidCap (described in Note 6 below), in each case, including debt-related costs. Also on September 1, 2016, the Company entered into a five-year term credit, security and guaranty agreement with Globus (the “Globus Facility Agreement”), as further described in Note 6, pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement.

The following table summarizes the preliminary calculation of the gain on sale (in thousands):

Consideration received	$	80,000
Cash included in assets sold		(4,250	)
Transaction costs		(5,960	)
Net cash proceeds		69,790
Less:
Product supply obligation		(1,927	)
Working capital adjustment		(2,295	)
Carrying value of business and assets sold		(57,633	)
Net gain on sale of business	$	7,935

The Company is evaluating certain income tax related items that are pending final resolution.

The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the International Business. The allocations do not include amounts related to general corporate administrative expenses. Therefore, the results of operations from the International Business do not necessarily reflect what the results of operations would have been had the International Business operated as a stand-alone entity.

In connection with the Globus Transaction, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company agreed to supply to Globus certain of its implants and instruments (the “Products”), previously offered for sale by the Company in international markets at agreed-upon prices for a minimum term of three years, with the option for Globus to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. In accordance with authoritative guidance, certain intercompany sales transactions have been reported under continuing operations as the Company will have continuing involvement due to future sales to Globus under the Supply Agreement. In connection with the Globus Transaction, Globus received a credit of up to a $2.2 million to be applied against product purchases pursuant to the Supply Agreement during a six-month period commencing one month after the closing of the Globus Transaction, which has been included as a reduction of the consideration received for the sale of the International Business and will be recognized as revenue upon fulfilment by the Company of product purchases by Globus.

The agreements entered into concurrently with the sale of the International Business, including the Transition Services Agreement and the Supply Agreement, contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under authoritative accounting guidance (see Note 2). Several non-contingent deliverables were identified within the agreements. The Company identified the International Business, contract supply services, transition services and the Globus Facility as separate non-contingent deliverables within the arrangement. The Company determined the estimated selling price (fair value) for each of the non-contingent deliverables on a standalone basis by utilizing relevant market data and entity-specific factors. Based on the respective standalone fair values of the deliverables, there was no discount to allocate among the deliverables and the consideration received for each deliverable approximated standalone fair value. As such, none of the purchase consideration was allocated to these elements.

Included in the results of continuing operations for the years ended December 31, 2016, 2015 and 2014 are revenues of $10.3 million, $19.2 and $27.1 million, respectively, and cost of revenue of $8.9 million, $18.5 and $25.7 million, respectively, that represent intercompany transactions that, prior to the Globus Transaction, were eliminated in the Company's consolidated financial statements.

During the year ended December 31, 2016, the Company recorded $2.6 million in revenue and $2.3 million in cost of sales from the Supply Agreement that are included in the continuing operations.

In connection with the Globus Transaction, the Company included interest expense of $7.0 million, $8.6 million and $10.6 million for the years ended December 31, 2016, 2015 and 2014, respectively, under the Deerfield Facility Agreement and Amended Credit Facility (as further described in Note 6) in net loss from discontinued operations to the extent these debt facilities were repaid using the proceeds from the Globus Transaction.

The following table summarizes the results of discontinued operations for the periods presented in the consolidated statements of operations for the years ended December 31, 2016 and 2015 and 2014 (in thousands):

	Years ended December 31,
Discontinued operations	2016			2015			2014
Revenues	$	40,130		$	50,891		$	52,355
Cost of revenues		19,381			17,376			16,826
Amortization of acquired intangible assets		1,291			1,453			1,787
Gross profit		19,458			32,062			33,742
Operating (income) expenses:
Research and development		51			152			206
Sales and marketing		12,980			19,055			21,397
General and administrative		4,846			6,741			11,075
Amortization of intangible assets		622			1,200			—
Goodwill and intangible impairment		—			908			—
Restructuring expenses		794			591			706
Net gain on sale of business		(7,935	)		—			—
Total operating expenses		11,358			28,647			33,384
Operating income		8,100			3,415			358
Other income (expense):
Interest income		45			42			—
Interest expense		(7,004	)		(8,588	)		(10,594	)
Other income (expense), net		1,883			(466	)		(1,869	)
Total other income (expense)		(5,076	)		(9,012	)		(12,463	)
Income (loss) from discontinued operations before taxes		3,024			(5,597	)		(12,105	)
Income tax provision		6,648			1,826			679
Loss from discontinued operations, net of applicable taxes	$	(3,624	)	$	(7,423	)	$	(12,784	)

The following table summarizes the assets and liabilities of discontinued operations as of December 31, 2016 and 2015 related to the International Business (in thousands):

	December 31, 2016		December 31, 2015
Assets
Current assets:
Cash	$	159	$	4,934
Accounts receivable, net		—		11,449
Inventories, net		48		12,276
Prepaid expenses and other current assets		157		1,551
Total current assets of discontinued operations		364		30,210
Property and equipment, net		—		5,850
Intangible assets, net		—		12,810
Other assets		61		797
Total assets of discontinued operations	$	425	$	49,667
Liabilities
Current liabilities:
Accounts payable	$	43	$	627
Accrued expenses		689		8,616
Deferred revenue		—		648
Total current liabilities of discontinued operations		732		9,891
Other long-term liabilities		—		1,516
Total liabilities of discontinued operations	$	732	$	11,407

Included in the statement of cash flows for the year ended December 31, 2016 and 2015 are the following capital expenditures and non-cash adjustments related to the discontinued operations (in thousands):

	Year ended December 31,
	2016		2015		2014
Depreciation and amortization	$	3,836	$	5,261	$	6,595
Provision for doubtful accounts	$	—	$	170	$	—
Provision for excess and obsolete inventory	$	151	$	380	$	954
Capital expenditures	$	1,319	$	2,975	$	2,946
Interest expense related to amortization of debt discount and debt issuance costs	$	2,052	$	2,627	$	4,944