Discontinued Operations

12 Months Ended

Dec. 31, 2016

Discontinued Operations [Abstract]

Discontinued Operations

3. Discontinued Operations

On July 27, 2016, we entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with Sharecare, Inc. ("Sharecare"), and Healthways SC, LLC ("Healthways SC"), a newly formed Delaware limited liability company and wholly owned subsidiary of the Company, pursuant to which Sharecare acquired the TPHS business, which closed effective July 31, 2016 ("Closing").

At Closing, Sharecare delivered to the Company an Adjustable Convertible Equity Right (the "ACER") with an initial face value of $30.0 million, which will be convertible into shares of common stock of Sharecare 24 months after the Closing, at an initial conversion price of $249.87 per share, subject to customary adjustment for stock splits, stock dividends and other reorganizations of Sharecare.  Additionally, pursuant to the Purchase Agreement, we paid Sharecare $25.0 million in cash at the Closing to fund projected losses of the TPHS business during the year following the Closing (the "Transition Year"). Pursuant to Sharecare's acquisition of the TPHS business, our ownership interest in the joint venture with Gallup was transferred to Sharecare. We agreed with Sharecare to be responsible for two-thirds of the remaining payment obligations in respect of the purchase price to be paid in connection with Sharecare's acquisition of additional membership interest in the joint venture. This obligation is currently expected to result in aggregate payments by us of approximately $4.2 million, payable in five equal quarterly installments that began in the fourth quarter of the 2016 calendar year and end in the fourth quarter of the 2017 calendar year. As of December 31, 2016, this obligation totaled $3.3 million and was included in accrued liabilities.

 The Purchase Agreement provided for post-closing adjustments based on (i) net working capital (which is expected to result in an increase in the face amount of the ACER due to a net working capital surplus, as further discussed below), (ii) negative cash flows of the TPHS business during the Transition Year in excess of $25.0 million (which may result in a reduction in the face amount of the ACER up to a maximum reduction of $20.0 million), and (iii) any successful claims for indemnification by Sharecare (which may result in a reduction in the face amount of the ACER, unless the Company elects, in its sole discretion, to satisfy any such successful claims with cash payments).

We recorded the ACER net of the $20.0 million face value maximum negative cash flow adjustment, or $10.0 million face value, at its estimated fair value of $2.7 million as of the Closing.  We have classified this amount as an equity receivable included in other assets.  We will record the $20.0 million face value contingent portion of the ACER at its estimated fair value as of the date the contingency is resolved, expected to be approximately 12 months from Closing. As of December 31, 2016, we recorded an estimate of the net working capital adjustment (a surplus), which resulted in an estimated fair value of the ACER of $5.7 million.  The working capital adjustment is subject to the review process set forth in the Purchase Agreement.

The terms of the Purchase Agreement also impacted other existing contractual commitments, including the elimination of the minimum fee requirements under our technology services outsourcing agreement with HP Enterprise Services, LLC ("HP").

Effective July 31, 2016, in connection with the Closing, the Company and CareFirst Holdings, LLC ("CareFirst"), agreed to terminate the Investment Agreement between them (see Note 7).  Also in connection with the Closing, all of the Commercial Agreements (defined in Note 7) between the Company and CareFirst relating to the TPHS business were transferred to Healthways SC that, effective at the Closing, became a wholly-owned subsidiary of Sharecare.  As a result, CareFirst no longer has the opportunity to earn CareFirst Warrants in respect of the periods following the Closing.  The Convertible Note, the Registration Rights Agreement and the CareFirst Warrants previously issued to CareFirst were not affected by the termination of the Investment Agreement.

The following table presents the aggregate carrying amounts of the major classes of assets and liabilities related to the disposition of the TPHS business:

(In thousands)	December 31, 2015
Cash and cash equivalents	$	1,637
Accounts receivable, net		57,587
Prepaid expenses		2,545
Other current assets		2,722
Income taxes receivable		819
Deferred tax asset		492
Property and equipment, net		146,404
Other assets		10,705
Intangible assets, net		31,791
Total assets	$	254,702
Accounts payable	$	19,851
Accrued salaries and benefits		14,380
Accrued liabilities		21,690
Deferred revenue		6,931
Contract billings in excess of earned revenue		12,792
Total liabilities	$	75,644

The following table presents financial results of the TPHS business included in "loss from discontinued operations" for the years ended December 31, 2016, 2015, and 2014.

	Year Ended December 31,
(In thousands)	2016			2015				2014
Revenues	$	151,780		$	318,506		$		336,920
Cost of services		173,302			317,849				325,243
Selling, general & administrative expenses		18,594			32,928				33,434
Depreciation and amortization		27,207			42,986				46,343
Restructuring and related charges		8,626			14,395				—
Legal settlement charges		—			—				11,805
Equity in income (loss) from joint ventures		243			(20,229	)			(637	)
Pretax loss on discontinued operations		(75,706	)		(109,881	)			(80,542	)
Pretax gain on sale of Navvis business		—			1,873				—
Pretax loss on sale of MeYou Health business		(4,826	)		—				—
Pretax loss on sale of TPHS business		(202,095	)		—				—
Total pretax loss on discontinued operations		(282,627	)		(108,008	)			(80,542	)
Income tax benefit		(97,921	)		(33,056	)			(32,145	)
Loss from discontinued operations, net of income tax benefit	$	(184,706	)	$	(74,952	)	$		(48,397	)

The depreciation, amortization and significant operating and investing non-cash items of the discontinued operations were as follows: 

	Year Ended December 31,
(In thousands)	2016		2015		2014
Depreciation and amortization on discontinued operations	$	27,207	$	42,986	$	46,343
Capital expenditures on discontinued operations		10,258		29,984		38,669
Assets acquired through capital lease obligations		—		898		6,321
Share-based compensation on discontinued operations		10,144		3,404		3,359