Discontinued Operations

6 Months Ended

Jun. 30, 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 June 30, 2017, this obligation totaled $1.6 million and was included in accrued liabilities.

 The Purchase Agreement provided for post-closing adjustments based on (i) net working capital (which resulted 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).

In May 2017, we entered into an agreement with Sharecare regarding the final working capital amount delivered at Closing, which resulted in a final net working capital surplus of $9.8 million and the ACER having an adjusted face value of $39.8 million (per the terms of the Purchase Agreement).  Of this amount, as of June 30, 2017 we have recorded the non-contingent portion of $19.8 million of face value (net of the contingent $20.0 million face value maximum negative cash flow adjustment) at its carrying value of $5.3 million, which is classified as an equity receivable included in other assets.  We will record the contingent portion of the ACER ($20.0 million face value) at its estimated fair value as of the date the contingency is resolved in accordance with the terms of the Purchase Agreement, which we currently expect to occur in the second half of 2017. 

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 and six months ended June 30, 2017 and 2016.

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)		2017			2016		2017			2016
Revenues	$	—		$	65,546		$	—		$	128,751
Cost of services		38			71,230			258			143,722
Selling, general & administrative expenses		20			5,055			157			12,115
Depreciation and amortization		—			10,701			—			21,575
Restructuring and related charges		—			2,722			—			8,424
Distribution from joint venture		98			—			98			—
Pretax income (loss) on discontinued operations	$	40		$	(24,162	)	$	(317	)	$	(57,085	)
Pretax loss on release of cumulative translation adjustment (1)		(3,044	)		—			(3,044	)		—
Pretax loss on sale of TPHS business		(134	)		(4,826	)		(444	)		(4,826	)
Pretax loss on impairment of held for sale asset group		—			(158,354	)		—			(158,354	)
Total pretax loss on discontinued operations	$	(3,138	)	$	(187,342	)	$	(3,805	)	$	(220,265	)
Income tax expense		535			8,112			88			8,292
Loss from discontinued operations, net of income tax	$	(3,673	)	$	(195,454	)	$	(3,893	)	$	(228,557	)

(1) During the second quarter of 2017, we substantially liquidated a foreign entity that was part of our TPHS business, resulting in a release of the cumulative translation adjustment of $3.0 million into loss from discontinued operations.

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

	Six Months Ended June 30,
(In thousands)	2017		2016
Depreciation and amortization on discontinued operations	$	—	$	21,575
Capital expenditures on discontinued operations		—		7,680
Share-based compensation on discontinued operations		—		1,763