Discontinued Operations

3 Months Ended

Mar. 31, 2017

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 Closing to fund projected losses of the TPHS business during the year following Closing (the "Transition Year"). Pursuant to Sharecare's acquisition of the TPHS business, our ownership interest in the joint venture with Gallup (the "Gallup Joint Venture") 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 Gallup 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 2016 and will end in the fourth quarter of 2017. As of March 31, 2017, this obligation totaled $2.5 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 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 March 31, 2017, we recorded an estimate of the net working capital adjustment (a surplus), which resulted in an estimated fair value of the ACER of $5.4 million.  The working capital adjustment is subject to a review process, which is currently underway.

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.

The following table presents financial results of the TPHS business included in "loss from discontinued operations" for the three months ended March 31, 2017 and 2016.

	Three Months Ended March 31,
(In thousands)	2017			2016
Revenues	$	—		$	63,205
Cost of services		220			72,625
Selling, general & administrative expenses		137			7,061
Depreciation and amortization		—			10,874
Restructuring and related charges		—			5,702
Equity in income from joint ventures		—			132
Pretax loss on discontinued operations	$	(357	)	$	(32,925	)
Pretax loss on sale of TPHS business		(310	)		—
Total pretax loss on discontinued operations	$	(667	)	$	(32,925	)
Income tax (benefit) expense		(447	)		180
Loss from discontinued operations, net of income tax benefit	$	(220	)	$	(33,105	)

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

	Three Months Ended March 31,
(In thousands)	2017		2016
Depreciation and amortization on discontinued operations	$	—	$	10,874
Capital expenditures on discontinued operations		—		5,420
Share-based compensation on discontinued operations		—		768