4.DISCONTINUED OPERATIONS AND DISPOSITIONS:

Disposition of Impact email business

In August 2016, the Company completed the sale of its Impact email business to Zeta Interactive for total consideration of $22.0 million, including a $4.0 million subordinated promissory note receivable with interest accruing at a rate of 6% per annum (see Note 5 - Other Current and Noncurrent Assets). The note is payable on the 12-month anniversary of the closing date, and is included in other current assets in the consolidated balance sheet. The Company also entered into a separate multi-year contract to provide Zeta Interactive with Connectivity and Audience Solutions services. Prior to the disposition, the Impact email business was included in the Marketing Services segment results.

The business did not meet the requirements of a discontinued business; therefore, all financial results are included in continuing operations. The Company recorded a gain on sale of $0.3 million, included in gains, losses and other items, net. The transaction also generated a $4.3 million income tax benefit.

Revenue and income (loss) from operations from the disposed Impact email business are shown below (dollars in thousands):


	2017		2016		2015
Revenues	$	20,375	$	60,199	$	64,634

Income (loss) from operations	$	(157)	$	10,105	$	18,659

IT Infrastructure Management business (“ITO”)

On May 20, 2015, the Company announced it had entered into a definitive agreement to sell its ITO business to Charlesbank Capital Partners and M/C Partners. The sale was completed on July 31, 2015. Beginning in the first quarter of fiscal 2016, the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to ITO as a component of discontinued operations in the consolidated financial statements. Prior to the discontinued operations classification, the ITO business unit was included in the IT Infrastructure Management segment in the Company’s segment results.

At the closing of the transaction, the Company received total consideration of $131.0 million ($140.0 million stated sales price less closing adjustments and transaction costs of $9.0 million). The Company may also receive up to a maximum of $50 million in contingent payments in future periods through 2020 subject to certain conditions. Due to the uncertainty of contingent payments, income will be recorded upon resolution of the contingency as a component of income from discontinued operations. In addition, the Company has the right to participate in distributions of the divested entity above a defined amount. The Company reported a gain of $9.3 million on the sale which is included in earnings from discontinued operations, net of tax.

The Company also entered into an agreement to amend its credit agreement (see Note 10 – Long-Term Debt). The effectiveness of the amendments contained in the agreement were conditioned on, among other things, the closing of the ITO disposition. Once the ITO disposition was completed and the amendment became fully effective, certain financial covenants in the credit agreement were modified for the quarters ending on September 30, 2015, December 31, 2015 and March 31, 2016. Additionally, the Company is not entitled to declare or pay any dividends during this time and share repurchases will be limited to no more than $100 million depending on the Company’s leverage ratio. After March 31, 2016, the financial covenants and dividend and share repurchase limitations returned to the requirements in the credit agreement in effect prior to the amendment. In addition, the amendment revised certain definitions in the credit agreement to clarify the effect of acquisitions and dispositions on certain financial covenants.

On July 31, 2015, the Company applied $55.0 million of proceeds from the sale to repay outstanding Company indebtedness to comply with the Company’s existing credit agreement (see Note 10 – Long-Term Debt). The Company allocated interest expense associated with the $55.0 million repayment of Company indebtedness to the ITO discontinued operating business. Allocated interest expense was $0.4 million and $1.3 million, respectively, for the fiscal years ended March 31, 2016 and 2015. We used the remaining proceeds from the sale to fund expansion of its common stock repurchase program and for general corporate purposes.

Summary results of operations of ITO for the fiscal years ended March 31, 2016 and 2015, respectively, are segregated and included in earnings from discontinued operations, net of tax, in the consolidated statements of operations. The following table is a reconciliation of the major classes of line items constituting earnings from discontinued operations, net of tax (dollars in thousands):


	2016		2015
Major classes of line items constituting earnings from discontinued operations, net of tax:
Revenues	$	69,410	$	215,148
Cost of revenue		50,837		167,524
Gross profit		18,573		47,624
Operating expenses:
Sales and marketing		1,192		2,771
General and administrative		6,053		10,736
Gain on sale of discontinued operations		(9,349)		—
Gains, losses and other items, net		367		2,037
Total operating expenses		(1,737)		15,544
Earnings from discontinued operations		20,310		32,080
Interest expense		(681)		(2,378)
Other, net		(230)		(334)
Earnings from discontinued operations before income taxes		19,399		29,368
Income taxes		3,598		11,973
Earnings from discontinued operations, net of tax	$	15,801	$	17,395

ITO was a provider of managed hosting and cloud infrastructure services, optimized for mid-tier enterprises. The Company entered into certain agreements with ITO in which support services, including data center co-location services, will be provided from the Company to ITO, and from ITO to the Company. Additionally, the Company entered into certain other agreements with ITO to provide or receive leased office space. The terms of these agreements range from several months to the longest of which continues through July 2020. The agreements generally provide cancellation provisions, without penalty, at various times throughout the term.

Cash inflows and outflows related to the agreements are included in cash flows from operating activities in the consolidated statements of cash flows. Revenues and expenses related to the agreements are included in income (loss) from operations in the consolidated statements of operations. The related cash inflows and outflows and revenues and expenses for the periods reported are shown below (dollars in thousands):


	2017		2016

Cash inflows	$	7,214	$	4,728
Cash outflows	$	4,140	$	4,165

Revenues	$	6,470	$	4,650
Expenses	$	3,284	$	4,617

U.K. call center operation

On May 30, 2014, the Company substantially completed the sale of its U.K. call center operation, 2Touch, to Parseq Ltd., a European business process outsourcing service provider. Some assets of the 2Touch operation were subject to a second closing, which occurred in March 2015, resulting in the complete disposal of the operation. The 2Touch business qualified for treatment as discontinued operations during fiscal 2015. The results of operations, cash flows, and the balance sheet amounts pertaining to 2Touch have been classified as discontinued operations in the consolidated financial statements.

Summary results of operations of the 2Touch business unit for the fiscal years ended March 31, 2016 and 2015, respectively, are segregated and included in earnings from discontinued operations, net of tax, in the consolidated statements of operations and consists of (dollars in thousands):


	2016		2015
Revenues	$	—	$	8,484

Earnings (loss) from discontinued operations before income taxes	$	(450)	$	4
Loss on sale of discontinued operations before income taxes		—		(1,888)
Loss from discontinued operations, net of tax	$	(450)	$	(1,884)