Discontinued Operations

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

At December 31, 2015, Torchmark met the criteria to account for its Medicare Part D Prescription Drug Plan business as a discontinued operation. Historically, the business was a reportable segment. Effective July 1, 2016, Torchmark sold its Medicare Part D Prescription Drug Plan business to SilverScript Insurance Company, a subsidiary of CVS Health Corporation (collectively, the "Buyer"). Management believes this sale allows the Company to better focus on its core protection life and health insurance businesses, and provide additional capital.

The initial purchase price was based on the number of enrollees as of the end of the second quarter and will be adjusted based on the number of enrollees as of January 1, 2017 as determined by the Center for Medicare Services (CMS) in March 2017. Our current estimate of the ultimate net proceeds to be realized from the sale, net of the contingent consideration of $4.8 million and the write-off of the $16 million of deferred acquisition costs related to the Medicare Part D business, resulted in a gain of $613 thousand ($399 thousand, net of tax) being recognized in income from discontinued operations as of September 30, 2016.

Torchmark has retained certain assets and liabilities related to the Medicare Part D business including all corresponding profits or losses for the 2016 plan year. The Buyer has assumed the rights and obligations related to the business for all subsequent plan years. To ensure an orderly transition, Torchmark will administer the plans for the remainder of 2016, and the Buyer will be responsible for administration of the plans beginning in 2017. The remaining assets and liabilities reflected on the Torchmark balance sheet related to discontinued operations are receivables and payables associated with 2016 and 2015 plan years that are expected to be settled in the ordinary course of business during 2016 and 2017.

The net assets related to discontinued operations at September 30, 2016 and December 31, 2015 were as follows:

	September 30,   2016		December 31, 2015
Assets:
Due premiums	$	3,558	$	8,041
Other receivables(1)	237,656		287,765
Deferred acquisition costs	—		17,037
Total assets related to discontinued operations	241,214		312,843
Liabilities:
Unearned and advance premiums	2,750		806
Policy claims and other benefits payable	12,560		12,309
Risk sharing payable	23,837		23,837
Current and deferred income taxes payable	15,876		13,604
Other(2)	7,395		479
Total liabilities related to discontinued operations	62,418		51,035
Net assets	$	178,796	$	261,808

(1) At September 30, 2016, receivables included $228 million from Centers for Medicare and Medicaid Services (CMS) and $9 million from drug manufacturer rebates. At December 31, 2015, the comparable amounts were $193 million and $95 million, respectively.

(2) Balance includes $4.8 million contingent purchase price reserve for the quarter ended September 30, 2016.

Income from discontinued operations for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2016			2015			2016			2015
Revenue:
Health premium	$	53,632		$	51,605		$	165,105		$	222,780
Benefits and expenses:
Health policyholder benefits	33,331			26,184			146,683			204,283
Amortization of deferred acquisition costs	1,018			880			2,958			2,649
Commissions, premium taxes, and non-deferred acquisition expenses	3,352			5,209			12,253			16,258
Other operating expense	1,222			1,597			4,512			4,235
Total benefits and expenses	38,923			33,870			166,406			227,425
Income (loss) before income taxes for discontinued operations	14,709			17,735			(1,301		)	(4,645		)
Gain from sale of discontinued operations	613			—			613			—
Income tax benefit (expense)	(5,363		)	(6,207		)	241			1,626
Income (loss) from discontinued operations	$	9,959		$	11,528		$	(447	)	$	(3,019	)

Operating cash flows of the discontinued operations for the nine months ended September 30, 2016 and 2015 were as follows:

	Nine Months Ended   September 30,
	2016		2015
Net cash provided from (used for) discontinued operations	$	82,565	$	(119,589	)