Investment in Equity Securities

12 Months Ended

Dec. 31, 2021

Equity Method Investments And Joint Ventures [Abstract]

Investment in Equity Securities

12. Investment in Equity Securities

At December 31, 2020 and during the first two quarters of 2021, we owned 159,309 shares of common stock of a predecessor (“Legacy Sharecare”) of Sharecare, Inc. (“Sharecare”) that we acquired in connection with the sale of our total population health services business to Legacy Sharecare in July 2016. These shares did not have a readily determinable fair value through June 30, 2021. As permitted under ASC 321, “Investments – Equity Securities” (“ASC 321”), we elected to measure such shares at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (of which there were none). The carrying value of the shares at December 31, 2020 of $10.8 million was

reported in “Other assets” on our consolidated balance sheet in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Form 10-K”) but has been reclassified in this report to a new line item, “Investment in equity securities, long-term.”

On February 12, 2021, Legacy Sharecare announced that it had entered into a merger agreement with Falcon Capital Acquisition Corp. (“FCAC”) and FCAC Merger Sub, Inc. (“Merger Sub”) pursuant to which Legacy Sharecare would merge with and into Merger Sub with Sharecare surviving as a wholly owned subsidiary of FCAC (the “Sharecare Transaction”).  The Sharecare Transaction was consummated effective July 1, 2021. As a result, our shares of common stock of Legacy Sharecare were converted into shares of common stock of Sharecare (“Sharecare Common Stock”), with 2.4% of such shares being converted into and paid to us in cash. Consequently, in July 2021, we received $2.7 million in cash as well as 11,079,331 shares of Sharecare Common Stock (“Sharecare Equity Security”).  Our cost basis in the Sharecare Equity Security is $10.5 million or $0.95 average cost per share. Sharecare Common Stock began trading on The Nasdaq Stock Market LLC on July 2, 2021 under the trading symbol “SHCR”.

The Sharecare Equity Security is subject to restrictions on resale, including a customary lockup period.  The lockup period continues until the earlier of one year after the effective time of the Sharecare Transaction or such other time at which the Sharecare Common Stock trades at a certain minimum price for 20 trading days in any 30-day trading period beginning on or after November 28, 2021.  In addition, between December 28, 2021 and March 27, 2022 (the “First Sale Window”), we are permitted to sell up to 750,000 shares.  Between March 28, 2022 and July 1, 2022, we may sell up to 750,000 shares plus any portion of the 750,000 shares we were permitted to, but did not, sell during the First Sale Window.

Subsequent to the consummation of the Sharecare Transaction in July 2021, the fair value of the Sharecare Equity Security became readily determinable. Accordingly, beginning in July 2021, we carry the Sharecare Equity Security on our consolidated balance sheet at fair value, and we recognize any changes in fair value of the Sharecare Equity Security in net income as unrealized gains or losses, as required under ASC 321. At December 31, 2021, the Sharecare Equity Security is reported as a current asset on our consolidated balance sheet in “Investment in equity securities”. During the year ended December 31, 2021, we recorded a realized gain of $2.5 million based on the $2.7 million cash proceeds received from the Sharecare Transaction, and we recorded an unrealized gain of $39.2 million based on the change in fair value of the Sharecare Equity Security. The realized and unrealized gain were each recorded to other (income) expense, net (see Note 17).

 During 2021, based on the positive evidence provided by the capital gains realized in the current year and anticipated to be realized from a future disposal of the Sharecare Equity Security that would allow a portion of these capital loss carryforwards to reduce taxable income, we reversed $10.6 million of a valuation allowance of deferred tax assets related to capital loss carryforwards. Such reversal resulted in an income tax benefit that fully offset the income tax expense that would have otherwise resulted from the combined realized and unrealized gains of $41.7 million. Therefore, there was no net income tax expense associated with the realized and unrealized gains related to the Sharecare Equity Security during the year ended December 31, 2021. The capital loss carryforwards expire on December 31, 2025, if unused.  We currently expect to dispose of the Sharecare Equity Security prior to the expiration of the capital loss carryforwards.