Assets and Liabilities in and Results of Discontinued Operations

3 Months Ended

Mar. 31, 2015

Discontinued Operations and Disposal Groups [Abstract]

Assets Held for Sale and Results of Discontinued Operations

Assets and Liabilities in and Results of Discontinued Operations

In connection with the 2007 sale of our surgery centers division (now known as Surgical Care Affiliates, or “SCA”) to ASC Acquisition LLC, an affiliate of TPG Partners V, L.P. (“TPG”), a private investment partnership, we received an option, subject to terms and conditions set forth below, to purchase up to a 5% equity interest in SCA. The price of the option was equal to the original issuance price of the units subscribed for by TPG and certain other co-investors in connection with the acquisition plus a 15% premium, compounded annually. The option had a term of ten years and was exercisable upon certain liquidity events, including a public offering of SCA’s shares of common stock that resulted in 30% or more of SCA’s common stock being listed or traded on a national securities exchange. On November 4, 2013, SCA announced the closing of its initial public offering, which did not reach the 30% threshold to trigger a qualifying liquidity event.

During the second quarter of 2014, we entered into an amendment to the option agreement that required us to settle the option net of our exercise price. The addition of this new feature resulted in the option becoming a derivative that must be recorded as an asset or liability on our consolidated balance sheet and marked to market each period. As of March 31, 2015 and December 31, 2014, the fair value of this option was $9.5 million and $9.9 million, respectively, and is included in Other current assets and Other long-term assets, respectively, in our condensed consolidated balance sheets. Income from discontinued operations, net of tax for the three months ended March 31, 2015 included a $0.4 million net loss resulting from the change in fair value of this option since December 31, 2014.

On April 1, 2015, TPG closed a secondary offering of SCA common stock, which resulted in greater than 30% of SCA’s common stock being listed or traded on a national securities exchange, and our option became exercisable. On April 9, 2015, we delivered notice of exercise of the option to SCA. On April 13, 2015, SCA settled the net exercise of the option by delivering to us 326,242 shares of SCA common stock. The closing price of the stock on that date was $35.43 per share. These shares are considered available-for-sale-securities.

The fair value of the option as of December 31, 2014 was determined using a lattice model. Inputs into the model included the historical price volatility of SCA’s common stock, the risk-free interest rate, and probability factors for the timing of when the option was expected to be exercisable, or Level 3 inputs. The fair value of the option as of March 31, 2015 was based on its intrinsic value.