NOTE 3. DISCONTINUED OPERATIONS

American Medical Systems

On February 24, 2015, the Board of Directors approved a plan to sell the Company’s American Medical Systems Holdings, Inc. (AMS) business, which comprises the entirety of our Devices segment. Subsequently, the Company entered into a definitive agreement to sell the Men’s Health and Prostate Health components of the AMS business to Boston Scientific Corporation (Boston Scientific) for up to $1.65 billion, with $1.60 billion in upfront cash. The Company is also eligible to receive a potential milestone payment of $50.0 million in cash conditioned on Boston Scientific achieving certain product revenue milestones in the Men’s Health and Prostate Health components in 2016. In addition, Boston Scientific agreed to pay $60.0 million in exchange for 60,000 shares of Series B Non-Voting Preferred Stock issued by American Medical Systems Holdings, Inc. The preferred stock entitles the holder to dividends payable quarterly at an initial annual rate of 7.25%, which will increase by 0.25% each year on January 1, from 2018 until the rate equals 11.50%. While the preferred stock remains outstanding, American Medical Systems Holdings, Inc. will be subject to certain affirmative and negative covenants, including an obligation to maintain assets in excess of the liquidation preference of the preferred stock, and restrictions on the sale of assets and the incurrence of certain indebtedness. The preferred stock matures and becomes mandatorily redeemable in 2035.

The transaction with Boston Scientific closed on August 3, 2015. In addition, the Company is currently pursuing a sale of the Women’s Health component of the AMS business.

The majority of the assets and liabilities of the AMS business, previously known as the Devices segment, are classified as held for sale in the Condensed Consolidated Balance Sheets. Certain of AMS’s assets and liabilities, primarily with respect to its product liability accrual for all known pending and estimated future claims related to vaginal mesh cases, the related Qualified Settlement Funds and certain intangible and fixed assets, are not classified as held for sale based on management’s current expectation that these assets and liabilities will remain with the Company subsequent to sale. Depreciation and amortization expense are not recorded on assets held for sale. The operating results of this business are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented.

In connection with classifying AMS as held-for-sale, the Company was required to compare the estimated fair values of the underlying disposal groups, less the costs to sell, to the respective carrying amounts. As a result of this analysis, the Company recorded a combined asset impairment charge of $222.8 million during the three months ended March 31, 2015, which was classified as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations. We estimated the fair value of the Men’s Health and Prostate Health division based on the agreed upon purchase price with Boston Scientific. The fair value of the Women’s Health component was estimated based on expressions of interest from third parties. In addition, as a result of determining that the sale of the AMS disposal groups was probable, the Company re-assessed its permanent reinvestment assertion for certain components of the AMS business and recognized a corresponding tax expense of $0.5 million during the three months and a $159.2 million tax benefit during six months ended June 30, 2015, respectively, which was recorded as Income tax (benefit) expense (a component of (loss) income from continuing operations) in the Condensed Consolidated Statements of Operations. In connection with the closing of the sale to Boston Scientific, it is expected there will be further tax benefits which will be recorded during the three months ended September 30, 2015.

The following table provides the operating results of the Discontinued operations of AMS, net of tax for the three and six months ended June 30 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenue	$	119,940		$	125,836		$	238,605		$	249,603
Litigation related and other contingencies, net	$	268,552		$	32,000		$	273,752		$	658,151
Asset impairment charges	—			—			222,753			—
Loss from discontinued operations before income taxes	(257,642		)	(6,235		)	(487,500		)	(625,655		)
Income tax (benefit) expense	(98,010		)	10,786			(101,658		)	(217,338		)
Discontinued operations, net of tax	$	(159,632	)	$	(17,021	)	$	(385,842	)	$	(408,317	)

The following table provides the components of Assets and Liabilities held for sale of AMS as of June 30, 2015 and December 31, 2014 (in thousands):



	June 30, 2015		December 31, 2014
Current assets	$	160,551	$	165,075
Property, plant and equipment	41,954		41,122
Goodwill	636,583		862,960
Other intangibles, net	849,475		861,174
Other assets	7,496		7,533
Assets held for sale	$	1,696,059	$	1,937,864
Current liabilities	$	57,617	$	53,143
Deferred taxes	43,679		46,538
Other liabilities	3,698		3,657
Liabilities held for sale	$	104,994	$	103,338

The following table provides the Depreciation and amortization and Purchases of property, plant and equipment of AMS for the six months ended June 30 (in thousands):



	Six Months Ended June 30,
	2015			2014
Cash flows from discontinued operating activities:
Net loss	$	(385,842	)	$	(408,317	)
Depreciation and amortization	11,555			35,565
Cash flows from discontinued investing activities:
Purchases of property, plant and equipment	$	(2,182	)	$	(2,460	)

HealthTronics

On December 28, 2013, the EHSI Board approved a plan to sell the HealthTronics business and the Company entered into a definitive agreement to sell the business on January 9, 2014 to Altaris Capital Partners LLC for an upfront cash payment of $85.0 million, subject to cash and other working capital adjustments. During the three months ended March 31, 2015, we received additional cash payments of $4.7 million from the purchaser of HealthTronics. In addition, as of June 30, 2015, EHSI has rights to additional cash payments of up to $30.0 million based on the operating performance of HealthTronics through December 31, 2015, for total potential consideration of up to $119.7 million. Additional cash payments, if any, will be recorded when earned. The sale was completed on February 3, 2014.

In 2014, the Company recorded a net gain of $3.6 million, representing the carrying amount of the assets sold less the amount of the net proceeds, including the $4.7 million described above, which the Company became entitled to receive during the fourth quarter of 2014.

Until it was sold on February 3, 2014, the assets of this business, previously known as the HealthTronics segment, and related liabilities were classified as held for sale in the Condensed Consolidated Balance Sheets. Depreciation and amortization expense were not recorded on assets held for sale. The operating results of this business are reported as Discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014.

The following table provides the operating results of Discontinued operations of HealthTronics, net of tax for the three and six months ended June 30, 2014 (in thousands):



	Three Months Ended June 30,			Six Months Ended June 30,
	2014			2014
Revenue	$	—		$	14,442
Income from discontinued operations before income taxes	$	(2,677	)	$	1,721
Income tax expense (benefit)	491			(530		)
Discontinued operations, net of tax	$	(3,168	)	$	2,251

There were no Assets or Liabilities held for sale relating to HealthTronics included in the Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014.