Discontinued Operations

Sale of Assets - Heritage Labs and Hooper Holmes Services

On April 16, 2014, the Company entered into an Alliance Agreement with CRL pursuant to which, among other things, the Company has agreed to sell certain assets comprising the Company’s Heritage Labs and Hooper Holmes Services business units (the “Business”) to CRL. Under the terms of the Alliance Agreement, CRL has agreed to pay $3.7 million in cash for certain assets of the Business, which such assets exclude, among others, all accounts receivable, and to assume specified liabilities related to the Business. The net book value of assets to be sold was approximately $1.1 million as of June 30, 2014, consisting primarily of inventory and property, plant and equipment. The transaction is expected to close in the third quarter of 2014. The Company will retain certain aspects of its sample kit assembly operations relating to the Health and Wellness segment and all other supply chain fulfillment capabilities, which continue to support Health and Wellness operations and other customers. The Company decided to sell the Business as the transaction will provide the Company with additional capital to invest to focus on growth in the Health and Wellness operations.

The assets to be sold to CRL qualified as assets held for sale in April 2014, and the sale of the Business to CRL is accounted for as discontinued operations in this Report. The sale of Heritage Labs and Hooper Holmes Services to CRL represents a strategic shift in the Company's ongoing operations. Accordingly, the operating results of Heritage Labs and Hooper Holmes Services are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented. The assets and liabilities to be sold to CRL have been reclassified and reported as assets held for sale in the consolidated balance sheet as of June 30, 2014.

The Company also entered into the Limited Laboratory and Administrative Services Agreement (the “LLASA”) with CRL pursuant to which, among other things, CRL will become the Company’s exclusive provider, subject to certain exceptions, of laboratory testing and reporting services and will also provide administrative services in support of the Company’s Health and Wellness operations. The Company will become a member of CRL’s preferred provider network for wellness programs during the term of the LLASA. The LLASA will become effective upon the closing of the transaction contemplated by the Alliance Agreement and will continue for five years from such date and auto-renew for an additional five year renewal period unless sooner terminated by either party in accordance with the LLASA. CRL will be providing services to the Health and Wellness operations based on an arms' length pricing structure, and the Company will have not have the ability to exercise influence over the operations of either the Heritage Labs or the Hooper Holmes Services businesses.

The following table summarizes the major classes of line items constituting the pretax results of operations of Heritage Labs and Hooper Holmes Services for the three and six month periods ended June 30, 2014 and 2013, which are reported as a component of discontinued operations in the consolidated statement of operations. There was no income tax recorded in discontinued operations for Heritage Labs and Hooper Holmes Services for any period presented.



	Three Months Ended						Six Months Ended
	June 30						June 30
(in thousands)	2014			2013			2014			2013
Revenues
Heritage Labs	$	1,405		2,615			$	3,717		$	5,526
Hooper Holmes Services	$	2,607		$	3,883		$	5,595		$	7,947
Total revenue	$	4,012		$	6,498		$	9,312		$	13,473
Cost of Sales
Heritage Labs	$	1,222		$	1,811		$	2,982		$	3,750
Hooper Holmes Services	$	2,296		$	3,342		$	4,878		$	6,829
Total cost of sales	$	3,518		$	5,153		$	7,860		$	10,579
Selling, General & Administrative Expenses
Heritage Labs	50			$	167		$	251		$	362
Hooper Holmes Services	$	1,215		$	592		$	1,682		$	1,158
Total selling, general & administrative expenses	$	1,265		$	759		$	1,933		$	1,520
(Loss) income from Discontinued Operations
Heritage Labs	$	133		$	637		$	484		$	1,414
Hooper Holmes Services	$	(904	)	$	(51	)	$	(965	)	$	(40	)
Total (loss) income from discontinued operations	$	(771	)	$	586		$	(481	)	$	1,374

The assets of the discontinued Heritage Labs and Hooper Holmes Services operations to be sold to CRL are recorded in assets held for sale in the consolidated balance sheet as of June 30, 2014 and include inventory of $0.4 million and property, plant and equipment of $0.7 million. The assets to be sold to CRL recorded in assets held for sale as of December 31, 2013 include inventory of $0.8 million and property, plant and equipment of $0.8 million.

Operating cash flow from discontinued operations during the six month period ended June 30, 2014 was $0.9 million. Changes in working capital from discontinued operations during the six month period ended June 30, 2014 was $0.6 million. The Company recorded non-cash operating charges for depreciation and bad debt expense of $0.2 million and a non-cash operating charge of $0.6 million for the remaining operating lease payments associated with the discontinued Hooper Holmes Services operations (refer to Note 10). There were no significant investing or financing activities from discontinued operations during the six month period ended June 30, 2014. The determination of operating cash flow from discontinued operations for the six month period ended June 30, 2014 includes a degree of management judgment and estimates. The Company has not allocated any general corporate overhead to discontinued operations.

The Company has not historically tracked accounts receivable, accounts payable and other balance sheet accounts by service line. The continuing operations and the Portamedic, Heritage Labs and Hooper Holmes Services discontinued service lines had customers and suppliers in common. The continuing and discontinued operations also shared certain selling, general and administrative services. As a result, the Company does not have reliable information for the historical impact of Portamedic, Heritage Labs and Hooper Holmes Services on our cash flows six month period ended June 30, 2013.

Sale of Portamedic

On September 30, 2013, the Company completed the sale of certain assets comprising the Portamedic service line to Piston Acquisition, Inc., a subsidiary of American Para Professional Systems, Inc. (“Piston”). Pursuant to the terms of the Asset Purchase Agreement, the Company sold assets associated with the Portamedic service line to Piston, including, among other things, fixed assets, inventory and intellectual property, and Piston assumed certain specified liabilities. The adjusted purchase price was approximately $8.1 million in cash, adjusted from $8.4 million at announcement due to changes in working capital. Piston held back $2.0 million of the purchase price as security for the obligations under the Asset Purchase Agreement and certain other agreements between the Company and Piston.

The Holdback Amount includes two components. The first holdback is $1.0 million, subject to adjustments, and is released in total as follows: within three business days after the date on which final closing adjustments for inventory and other current assets are determined and paid (the “Closeout Date”). The remaining $1.0 million of the Holdback Amount, less any deductions or adjustments with respect to fixed assets, indemnification claims and any amounts in respect of any indemnification claims then in dispute, will be paid on the first anniversary of the Closeout Date. During the first quarter of 2014, the Company received $0.7 million of the first Holdback Amount. As a result, the amount remaining related to the first Holdback Amount was written off during the six month period ended June 30, 2014 as a charge to the adjustment to gain on sale of Portamedic and subsidiary in the statement of operations. The Company has recorded the receivable related to the second Holdback Amount at the amount it believes will be collected, however there cannot be any assurance that the remaining the Holdback Amounts will be collected by the Company. The Company currently anticipates finalization and collection on the second Holdback Amount in the first quarter of 2015.

The table below summarizes the operating results of Portamedic which are reported as a component of discontinued operations in the accompanying consolidated statement of operations. Income taxes relating to the operations of Portamedic were less than $0.1 million for the three and six month periods ended June 30, 2013.



	Three Months Ended						Six Months Ended
	June 30						June 30
(in thousands)	2014			2013			2014			2013
Revenues	$	—		$	21,857		$	—		$	45,505
Loss from discontinued operations	$	(99	)	$	(1,900	)	$	(69	)	$	(2,433	)
Adjustment to gain on sale of Portamedic and subsidiary	$	—		$	75		$	(150	)	$	75

Sale of Basking Ridge Real Estate

As of June 30, 2014, the Basking Ridge, New Jersey real estate continued to be classified as assets held for sale as the Board authorized the sale of the real estate during the fourth quarter of 2013. The land and building owned in Basking Ridge, New Jersey of $0.7 million are recorded as assets held for sale at June 30, 2014 and December 31, 2013. On May 13, 2014, the Company entered into an agreement for the sale of the Basking Ridge, New Jersey property to MDMC for a purchase price of $3.05 million. On July 18, 2014, the Company and MDMC entered into an amendment to the Purchase and Sale Agreement that provides for the Company to deposit into an escrow account at closing an aggregate of $0.3 million of the purchase price to satisfy amounts paid by MDMC in connection with certain repairs and other expenses identified in the course of the property inspection. The sale closed on August 7, 2014 resulting in cash proceeds of $2.54 million, which is net of customary closing costs and broker fees.