Contract
Exhibit 99.1
Effective as of July 31, 2016, Healthways, Inc. (the "Company" or "HWAY") completed the sale of its total population health services business (the "TPHS Business") to Sharecare, Inc. ("Sharecare") pursuant to terms of the previously announced Membership Interest Purchase Agreement (the "Purchase Agreement") among the Company, Sharecare, and Healthways SC, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company ("Healthways SC"). The following unaudited pro forma condensed consolidated financial information are based on our historical consolidated financial statements adjusted to give the effect of the sale of the TPHS Business. Beginning in the second quarter 2016, TPHS business results will be reflected in our consolidated financial statements as discontinued operations.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2016 is presented as if the sale of the TPHS Business occurred on March 31, 2016. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and for the years ended December 31, 2015, 2014 and 2013 are presented in each case as if the sale of the TPHS Business occurred on January 1, 2013.
The pro forma condensed consolidated financial statements are based on information currently available including certain assumptions and adjustments that the Company believes are reasonable. They are presented for informational purposes only and do not necessarily represent what our financial position and results of operations would have been had the sale of the TPHS Business occurred on the dates above, or to project our financial performance for any future period. The unaudited pro forma condensed consolidated financial information and the related notes should be read in conjunction with our audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 and the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2016.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
|
Three Months Ended March 31, 2016
|
|||||||||||||
|
Historical HWAY
|
Sale of TPHS Business
|
Pro Forma HWAY Combined
|
|||||||||||
|
Revenues
|
$ |
189,217
|
$ |
(63,205
|
)
|
$ |
126,012
|
||||||
|
Cost of Services (exclusive of depreciation & amortization included below)
|
163,870
|
(72,493
|
)
|
91,377
|
|||||||||
|
Selling, general and administrative expenses
|
16,195
|
(6,784
|
)
|
9,411
|
|||||||||
|
Depreciation and amortization
|
12,746
|
(10,874
|
)
|
1,872
|
|||||||||
|
Restructuring and related charges
|
5,741
|
(5,702
|
)
|
39
|
|||||||||
|
Operating (loss) income
|
(9,335
|
)
|
32,648
|
23,313
|
|||||||||
|
Interest expense
|
4,382
|
(277
|
)
|
4,105
|
|||||||||
|
Operating (loss) income before income taxes
|
(13,717
|
)
|
32,925
|
19,208
|
|||||||||
|
Income tax expense
|
180
|
(180
|
)
|
-
|
|||||||||
|
Net (loss) income
|
(13,897
|
)
|
33,105
|
19,208
|
|||||||||
|
Less: net income attributable to non-controlling interest
|
312
|
(312
|
)
|
-
|
|||||||||
|
Net (loss) income attributable to Healthways, Inc.
|
$ |
(14,209
|
)
|
$ |
33,417
|
$ |
19,208
|
||||||
| Earnings per share from continuing operations: | |||||||||||||
| Basic (loss) earnings per share | $ | (0.39 | ) | $ | 0.53 | ||||||||
| Diluted (loss) earnings per share | $ | (0.39 | )(1) | $ | 0.52 | ||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||
| Basic | 36,109 | 36,109 | |||||||||||
| Diluted | 36,109 | (1) | 36,861 | ||||||||||
(1) The impact of potentially dilutive securities for the three months ended March 31, 2016 for Historical HWAY was not considered because the effect would be anti-dilutive in the period.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
|
Year Ended December 31, 2015
|
|||||||||||||
|
Historical HWAY
|
Sale of TPHS Business
|
Pro Forma HWAY Combined
|
|||||||||||
|
Revenues
|
$ |
770,598
|
$ |
(318,506
|
)
|
$ |
452,092
|
||||||
|
Cost of Services (exclusive of depreciation & amortization included below)
|
635,909
|
(317,849
|
)
|
318,060
|
|||||||||
|
Selling, general and administrative expenses
|
68,142
|
(32,596
|
)
|
35,546
|
|||||||||
|
Depreciation and amortization
|
49,855
|
(42,986
|
)
|
6,869
|
|||||||||
|
Restructuring and related charges
|
15,097
|
(14,395
|
)
|
702
|
|||||||||
|
Gain on sale of business
|
(1,873
|
)
|
1,873
|
-
|
|||||||||
|
Operating income
|
3,468
|
87,447
|
90,915
|
||||||||||
|
Interest expense
|
18,328
|
(332
|
)
|
17,996
|
|||||||||
|
Equity in loss from joint ventures
|
(20,229
|
) |
20,229
|
|
-
|
||||||||
|
Operating (loss) income before income taxes
|
(35,089
|
)
|
108,008
|
72,919
|
|||||||||
|
Income tax (benefit) expense
|
(3,771
|
)
|
33,056
|
29,285
|
|||||||||
|
Net (loss) income
|
(31,318
|
)
|
74,952
|
43,634
|
|||||||||
|
Less: net loss attributable to non-controlling interest
|
(371
|
)
|
371
|
-
|
|||||||||
|
Net (loss) income attributable to Healthways, Inc.
|
$ |
(30,947
|
)
|
$ |
74,581
|
$ |
43,634
|
||||||
| Earnings per share from continuing operations: | |||||||||||||
| Basic (loss) earnings per share | $ | (0.86 | ) | $ | 1.22 | ||||||||
| Diluted (loss) earnings per share | $ | (0.86 | )(1) | $ | 1.18 | ||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||
| Basic | 35,832 | 35,832 | |||||||||||
| Diluted | 35,832 | (1) | 36,928 | ||||||||||
(1) The impact of potentially dilutive securities for the year ended December 31, 2015 for Historical HWAY was not considered because the effect would be anti-dilutive in the period.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
|
Year Ended December 31, 2014
|
||||||||||||||
|
Historical HWAY
|
Sale of TPHS Business
|
Pro Forma HWAY Combined
|
||||||||||||
|
Revenues
|
$ |
742,183
|
$ |
(336,920
|
)
|
$ |
405,263
|
|||||||
|
Cost of services (exclusive of depreciation & amortization included below)
|
597,643
|
(325,243
|
)
|
272,400
|
||||||||||
|
Selling, general and administrative expenses
|
65,377
|
(33,302
|
)
|
32,075
|
||||||||||
|
Depreciation and amortization
|
53,378
|
(46,343
|
)
|
7,035
|
||||||||||
| Legal settlement charges | 17,715 | (11,805 | ) | 5,910 | ||||||||||
|
Operating income (loss)
|
8,070
|
79,773
|
87,843
|
|||||||||||
|
Interest expense
|
17,581
|
(1,082
|
)
|
16,499
|
||||||||||
|
Equity in loss from joint ventures
|
637
|
(637
|
)
|
-
|
||||||||||
|
Operating (loss) income before income taxes
|
(10,148
|
)
|
81,492
|
71,344
|
||||||||||
|
Income tax (benefit) expense
|
(4,587
|
)
|
32,521
|
27,934
|
||||||||||
|
Net (loss) income
|
(5,561 | ) | 48,971 | 43,410 | ||||||||||
| Less: net income attributable to non-controlling interest |
-
|
-
|
-
|
|||||||||||
|
Net (loss) income attributable to Healthways, Inc.
|
$ |
(5,561
|
)
|
$ |
48,971
|
$ |
43,410
|
|||||||
| Earnings per share from continuing operations: | ||||||||||||||
| Basic (loss) earnings per share | $ | (0.16 | ) | $ | 1.23 | |||||||||
| Diluted (loss) earnings per share | $ | (0.16 | )(1) | $ | 1.19 | |||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||
| Basic | 35,302 | 35,302 | ||||||||||||
| Diluted | 35,302 | (1) | 36,346 | |||||||||||
(1) The impact of potentially dilutive securities for the year ended December 31, 2014 for Historical HWAY was not considered because the effect would be anti-dilutive in the period.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
|
Year Ended December 31, 2013
|
|||||||||||||
|
Historical HWAY
|
Sale of TPHS Business
|
Pro Forma HWAY Combined
|
|||||||||||
|
Revenues
|
$ |
663,285
|
$ |
(303,851
|
)
|
$ |
359,434
|
||||||
|
Cost of Services (exclusive of depreciation & amortization included below)
|
547,387
|
(299,075
|
)
|
248,312
|
|||||||||
|
Selling, general and administrative expenses
|
61,205
|
(31,621
|
)
|
29,584
|
|||||||||
|
Depreciation and amortization
|
52,791
|
(46,388
|
)
|
6,403
|
|||||||||
|
Operating income
|
1,902
|
73,233
|
75,135
|
||||||||||
|
Interest expense
|
16,079
|
(331
|
)
|
15,748
|
|||||||||
|
|
|||||||||||||
|
Operating (loss) income before income taxes
|
(14,177
|
)
|
73,564
|
59,387
|
|||||||||
|
Income tax (benefit) expense
|
(5,636
|
)
|
29,732
|
24,096
|
|||||||||
|
|
|||||||||||||
|
Net (loss) income
|
(8,541 | ) | 43,832 | 35,291 | |||||||||
| Less: net income attributable to non-controlling interest | - | - | - | ||||||||||
|
Net (loss) income attributable to Healthways, Inc.
|
$ |
(8,541
|
)
|
$ |
43,832
|
$ |
35,291
|
||||||
| Earnings per share from continuing operations: | |||||||||||||
| Basic (loss) earnings per share | $ | (0.25 | ) | $ | 1.02 | ||||||||
| Diluted (loss) earnings per share | $ | (0.25 | )(1) | $ | 1.00 | ||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||
| Basic | 34,489 | 34,489 | |||||||||||
| Diluted | 34,489 | (1) | 35,237 | ||||||||||
(1) The impact of potentially dilutive securities for the year ended December 31, 2013 for Historical HWAY was not considered because the effect would be anti-dilutive in the period.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
ASSETS
|
|
March 31, 2016
|
||||||||||||||||||
|
Historical HWAY
|
Sale of TPHS Business
(a) |
Pro Forma Adjustments (f) (g)
|
Notes
|
Pro Forma HWAY Combined
|
|||||||||||||||
|
Current assets:
|
|||||||||||||||||||
|
Cash and cash equivalents
|
$ |
3,094
|
$ |
(2,225
|
)
|
$ |
869
|
||||||||||||
|
Accounts receivable, net
|
101,233
|
(46,002
|
)
|
55,231
|
|||||||||||||||
|
Prepaid expenses
|
10,057
|
(4,804
|
)
|
5,253
|
|||||||||||||||
|
Other current assets
|
4,314
|
(2,418
|
)
|
1,287
|
(b)
|
3,183
|
|||||||||||||
|
Income taxes receivable
|
1,293
|
(961
|
)
|
332
|
|||||||||||||||
|
Total current assets
|
119,991
|
(56,410
|
)
|
1,287
|
|
64,868
|
|||||||||||||
|
|
|||||||||||||||||||
|
Property and equipment
|
|||||||||||||||||||
|
Leasehold improvements
|
37,627
|
(9,953
|
)
|
27,674
|
|||||||||||||||
|
Computer equipment and related software
|
317,918
|
(284,259
|
)
|
33,659
|
|||||||||||||||
|
Furniture and office equipment
|
19,812
|
(6,290
|
)
|
13,522
|
|||||||||||||||
| Capital projects in process |
16,939
|
(15,007
|
) | 1,932 | |||||||||||||||
|
392,296
|
(315,509
|
) | 76,787 | ||||||||||||||||
|
Less accumulated depreciation
|
(242,546
|
)
|
187,052
|
(55,494
|
)
|
||||||||||||||
|
149,750
|
(128,457
|
) (h)
|
|
21,293
|
|||||||||||||||
|
|
|||||||||||||||||||
|
Other assets
|
17,255
|
(11,185
|
) (h)
|
6,070
|
|||||||||||||||
|
Intangible assets, net
|
60,480
|
(31,084
|
) (h)
|
29,396
|
|||||||||||||||
| Goodwill, net |
336,974
|
-
|
336,974
|
||||||||||||||||
| $ |
684,450
|
$ |
(227,136
|
)
|
$ |
1,287
|
$ |
458,601
|
|||||||||||
HEALTHWAYS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
March 31, 2016
|
||||||||||||||||||
|
Historical HWAY
|
Sale of TPHS Business
(a) |
Pro Forma Adjustments (f) (g)
|
Notes
|
Pro Forma HWAY Combined
|
|||||||||||||||
|
Current liabilities:
|
|||||||||||||||||||
|
Accounts payable
|
$ |
44,703
|
$ |
(19,747
|
)
|
$ |
24,956
|
||||||||||||
|
Accrued salaries and benefits
|
21,268
|
(14,650
|
)
|
$ |
14,650
|
(c)
|
21,268
|
||||||||||||
|
Accrued liabilities
|
47,695
|
(15,469
|
)
|
2,156 | (i) |
34,382
|
|||||||||||||
|
Deferred revenue
|
6,810
|
(6,230
|
)
|
580
|
|||||||||||||||
|
Contract xxxxxxxx in excess of earned revenue
|
13,967
|
(13,677
|
)
|
290
|
|||||||||||||||
|
Current portion of long-term debt
|
23,007
|
-
|
23,007
|
||||||||||||||||
|
Current portion of long-term liabilities
|
6,722
|
-
|
6,722
|
||||||||||||||||
|
Total current liabilities
|
164,172
|
(69,773
|
)
|
16,806
|
|
111,205
|
|||||||||||||
|
-
|
|||||||||||||||||||
|
Long-term debt
|
206,386
|
-
|
25,000
|
(d)
|
231,386
|
||||||||||||||
|
Long-term deferred tax liability
|
16,328
|
-
|
16,328
|
||||||||||||||||
| Other long-term liabilities |
28,192
|
-
|
28,192
|
||||||||||||||||
|
Stockholders' equity:
|
|
||||||||||||||||||
|
Preferred stock $.001 par value
|
-
|
-
|
-
|
||||||||||||||||
| Common stock, $.001 par value |
36
|
-
|
36 | ||||||||||||||||
|
Additional paid-in capital
|
304,121
|
1,086
|
305,207
|
||||||||||||||||
|
Retained earnings (deficit)
|
(4,550
|
)
|
-
|
(197,882
|
)
|
(e)
|
(202,432
|
)
|
|||||||||||
|
Treasury stock, at cost
|
(28,182
|
)
|
-
|
(28,182
|
)
|
||||||||||||||
|
Accumulated other comprehensive loss
|
(3,139
|
)
|
-
|
(3,139
|
)
|
||||||||||||||
|
Total Healthways, Inc. stockholders' equity
|
268,286
|
1,086
|
(197,882
|
)
|
71,490
|
||||||||||||||
|
Non-controlling interest
|
1,086
|
(1,086
|
)
|
- |
-
|
||||||||||||||
|
Total stockholders' equity
|
269,372
|
-
|
(197,882
|
)
|
71,490
|
||||||||||||||
|
Total liabilities and stockholders' equity
|
$ |
684,450
|
$ |
(69,773
|
)
|
$ |
(156,076
|
)
|
$ |
458,601
|
|||||||||
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
|
a
|
These adjustments reflect the elimination of the assets and liabilities of the TPHS Business.
|
| b | This adjustment represents the estimated settlement amount for positive net working capital transferred with the divested business. |
| c |
This adjustment reflects the Company's retention of salary and benefits liabilities otherwise part of the TPHS Business.
|
| d |
This adjustment reflects the incremental borrowing from the Company's revolving credit facility to fund the $25.0 million cash payment made by the Company to Sharecare in accordance with the Purchase Agreement.
|
| e |
This adjustment reflects the impact to retained earnings of the pro forma adjustments reflected within the Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2016.
|
| f | No tax impact is reflected as any tax expense or benefit would be offset by the corresponding change in the valuation allowance for deferred tax assets. |
|
g
|
Upon the completion of the sale of the TPHS Business, Sharecare delivered to the Company an Adjustable Convertible Equity Right (the "ACER") with an initial face value of $30.0 million. The purchase agreement provides for post-closing adjustments based on negative cash flows of the TPHS Business during the year following the closing 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). Management is currently working to determine the value of the ACER. Therefore, no pro forma adjustment is reflected within the Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2016.
|
| h |
In connection with the sale of the TPHS Business, a loss will be recognized based on the fair value less cost to sell. We estimated the fair value of the disposal group using a market participant approach, which considered our preliminary estimate of the purchase price for the sale of TPHS. This resulted in writing down the long lived (non-current) assets of the TPHS Business to zero as they are fully impaired.
|
| i |
This adjustment represents the transaction costs incurred through June 30, 2016 related to the sale of the TPHS Business. We expect to incur between $35 million and $45 million in additional charges, which includes the $25.0 million payment to Sharecare that we made at the closing of the transaction in accordance with the terms of the Purchase Agreement as well as non-cash share-based compensation modification and acceleration costs, incremental advisory fees and severance associated with the transaction. The actual loss will be reflected in the historical income statement to be included in our Quarterly Report on Form 10-Q for the quarter ending September 30, 2016.
|
