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Discontinued Operations | 3 Months Ended
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Mar. 31, 2017
Discontinued Operations And Disposal Groups [Abstract] |
Discontinued Operations | 4. Discontinued Operations In order to pay down a portion of its debt and improve its liquidity position and future cash flows, on September 1, 2016, the Company closed the Globus Transaction (described in Note 1). Following the closing of the Globus Transaction, the Company only sells its products in the U.S. market and is prohibited from marketing and selling its products outside the United States and its possessions and territories until the date that is two years following the termination of the Supply Agreement (as described below). As a result of the Globus Transaction, the Company has retrospectively revised the condensed consolidated statements of operations and cash flows for the three month periods ended March 31, 2016 to reflect the financial results from the International Business as discontinued operations. At the closing of the Globus Transaction, Globus paid the Company $80 million in cash, subject to a working capital adjustment. On September 1, 2016, the Company used approximately $66 million of the consideration received to (i) repay in full all amounts outstanding and due under the Company’s Facility Agreement between the Company and Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P., dated as of March 17, 2014, as amended to date (the “Deerfield Facility Agreement”) and (ii) repay certain of its outstanding indebtedness under the Company’s Amended Credit Facility with MidCap (described in Note 6), in each case, including debt-related costs. Also on September 1, 2016, the Company entered into a five-year term credit, security and guaranty agreement with Globus (the “Globus Facility Agreement”), as further described in Note 6, pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. The following table summarizes the preliminary calculation of the gain on sale (in thousands):
Consideration received |  | $ | 80,000 |
Cash included in assets sold |  |  | (4,250 | )
Transaction costs |  |  | (5,960 | )
Net cash proceeds |  |  | 69,790 |
Less: |  |  |  |
Product supply obligation |  |  | (1,927 | )
Working capital adjustment |  |  | (2,295 | )
Carrying value of business and assets sold |  |  | (57,633 | )
Net gain on sale of business |  | $ | 7,935 |
The Company is evaluating certain income tax related items that are pending final resolution. The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the International Business. The allocations do not include amounts related to general corporate administrative expenses. Therefore, the results of operations from the International Business do not necessarily reflect what the results of operations would have been had the International Business operated as a stand-alone entity. In connection with the Globus Transaction, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company agreed to supply to Globus certain of its implants and instruments (the “Products”), previously offered for sale by the Company in international markets at agreed-upon prices for a minimum term of three years, with the option for Globus to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. In accordance with authoritative guidance, certain intercompany sales transactions have been reported under continuing operations as the Company will have continuing involvement due to future sales to Globus under the Supply Agreement. In connection with the Globus Transaction, Globus received a credit of up to $1.9 million to be applied against Product purchases pursuant to the Supply Agreement during a six-month period commencing one month after the closing of the Globus Transaction, which has been included as a reduction of the consideration received for the sale of the International Business and will be recognized as revenue upon fulfillment by the Company of product purchases by Globus. The agreements entered into concurrently with the sale of the International Business, including the Transition Services Agreement and Supply Agreement, contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under authoritative accounting guidance. Several non-contingent deliverables were identified within the agreements. The Company identified the International Business, contract supply services, transition services and the Globus Facility as separate non-contingent deliverables within the arrangement. The Company determined the estimated selling price (fair value) for each of the non-contingent deliverables on a standalone basis by utilizing relevant market data and entity-specific factors. Based on the respective standalone fair values of the deliverables, there was no discount to allocate among the deliverables and the consideration received for each deliverable approximated standalone fair value. As such, none of the purchase consideration was allocated to these elements. Included in the results of continuing operations for the three months ended March 31, 2016 are revenues of $5.0 million and cost of revenue of $4.0 million, respectively, that represent intercompany transactions that, prior to the Globus Transaction, were eliminated in the Company's condensed consolidated financial statements. During the three months ended March 31, 2017, the Company recorded $4.5 million in revenue and $3.8 million in cost of sales from the Supply Agreement that are included in the continuing operations. In connection with the Globus Transaction, the Company included the interest expense of $2.4 million for the three months ended March 31, 2016 incurred in connection with repayment from the proceeds from the Globus Transaction of all amounts outstanding and due under the Deerfield Facility Agreement and Amended Credit Facility in the loss from discontinued operations to the extent these debt facilities were repaid using the proceeds from the Globus Transaction. The following table summarizes the results of discontinued operations for the periods presented in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2017 and 2016 (in thousands):
|  | Three Months Ended |
|  | March 31, |
Discontinued operations |  | 2017 |  |  | 2016 |
Revenues |  | $ | — |  |  | $ | 10,555 |
Cost of revenues |  |  | — |  |  |  | 3,813 |
Amortization of acquired intangible assets |  |  | — |  |  |  | 360 |
Gross profit |  |  | — |  |  |  | 6,382 |
Operating expenses: |  |  |  |  |  |  |  |
Research and development |  |  | — |  |  |  | 26 |
Sales and marketing |  |  | — |  |  |  | 4,182 |
General and administrative |  |  | 73 |  |  |  | 1,643 |
Amortization of acquired intangible assets |  |  | — |  |  |  | 231 |
Restructuring expenses |  |  | — |  |  |  | 597 |
Total operating expenses |  |  | 73 |  |  |  | 6,679 |
Operating loss |  |  | (73 | ) |  |  | (297 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | — |  |  |  | (2,356 | )
Other income (expense), net |  |  | — |  |  |  | 847 |
Total other income (expense) |  |  | — |  |  |  | (1,509 | )
Loss from discontinued operations before taxes |  |  | (73 | ) |  |  | (1,806 | )
Income tax provision |  |  | 18 |  |  |  | 563 |
Loss from discontinued operations, net of applicable taxes |  | $ | (91 | ) |  | $ | (2,369 | )
The following table summarizes the assets and liabilities of discontinued operations as of March 31, 2017 and December 31, 2016 related to the International Business (in thousands):
|  | March 31, 2017 |  |  | December 31, 2016 |
Assets |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash |  | $ | 92 |  |  | $ | 159 |
Inventories, net |  |  | — |  |  |  | 48 |
Prepaid expenses and other current assets |  |  | 78 |  |  |  | 157 |
Total current assets of discontinued operations |  |  | 170 |  |  |  | 364 |
Other assets |  |  | 58 |  |  |  | 61 |
Total assets of discontinued operations |  | $ | 228 |  |  | $ | 425 |
Liabilities |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 72 |  |  | $ | 43 |
Accrued expenses |  |  | 206 |  |  |  | 689 |
Other current liabilities |  |  | 15 |  |  |  | — |
Total current liabilities of discontinued operations |  | $ | 293 |  |  | $ | 732 |
Included in the cash flows for the three months ended March 31, 2017 and 2016 are the following non-cash adjustments related to the discontinued operations (in thousands):
|  | Three Months Ended March 31, |
|  | 2017 |  |  | 2016 |
Depreciation and amortization |  | $ | — |  |  | $ | 1,396 |
Provision for excess and obsolete inventory |  | $ | — |  |  | $ | 77 |
Capital expenditures |  | $ | — |  |  | $ | 697 |
Interest expense related to amortization of debt discount and debt issuance costs |  | $ | — |  |  | $ | 646 |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=65878427&loc=SL51721533-107759 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721665-107760 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5C -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721675-107760 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3A -URI http://asc.fasb.org/extlink&oid=64862545&loc=SL51724579-110230 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721663-107760 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=64862545&loc=d3e2941-110230 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64827811&loc=d3e1361-107760 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5B -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721673-107760 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3A -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721659-107760 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5A -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721671-107760 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5D -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721677-107760 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=64827811&loc=d3e1474-107760 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=64827811&loc=SL51721683-107760 + Details
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