UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 333-187931

Truven Holding Corp.

(Exact name of registrant parent guarantor as specified in its charter)



Delaware	7374	45-5164353
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

Truven Health Analytics Inc.

(Exact name of registrant issuer as specified in its charter)



Delaware	7374	06-1467923
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

777 E. Eisenhower Parkway

Ann Arbor, Michigan 48108

(Address of registrants' principal executive offices)

(734) 913-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated Filer ¨ Non-accelerated filer þ smaller reporting company ¨

(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of November 6, 2015, there was one outstanding share of each of the registrants.

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements

	Unaudited Interim Condensed Consolidated Balance Sheets - As of September 30, 2015 and December 31, 2014	1

	Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss - For the three and nine months ended September 30, 2015 and September 30, 2014	2

	Unaudited Interim Condensed Consolidated Statements of Cash Flows - For the nine months ended September 30, 2015 and September 30, 2014	3

	Unaudited Interim Condensed Consolidated Statement of Equity (Deficit) - For the nine months ended September 30, 2015	4

	Notes to Unaudited Interim Condensed Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	49

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

Signatures		53

Definition of Terms

Unless otherwise indicated or the context otherwise requires, references in this report to:


•	the term “Holdings LLC” refers to VCPH Holdings, LLC, a Delaware limited liability company;


•	the terms “Company”, "we", "us", and "our" refer to Truven Holding Corp. and Truven Health Analytics Inc., together with their subsidiaries;


•	the terms “Truven Holding” and "Parent" refer to Truven Holding Corp., a Delaware corporation that is directly owned by Holdings LLC and that is the direct parent of Truven;


•	the term “TRHI” refers to Thomson Reuters (Healthcare) Inc., a Delaware corporation, which, upon consummation of the Merger, became a direct wholly-owned subsidiary of VCPH Holding Corp. (now known as Truven Holding) and subsequently changed its name to Truven Health Analytics Inc.;


•	the term “Thomson Reuters Healthcare” refers to TRHI, together with certain other assets and liabilities of the Thomson Reuters Healthcare business prior to and including the date of the closing of the Prior Acquisition on June 6, 2012;


•	the terms “Truven” and the “Issuer” refer to Truven Health Analytics Inc., a Delaware corporation and a direct wholly-owned subsidiary of Truven Holding, and its subsidiaries;

•

the term “Prior Acquisition” refers to the acquisition by Wolverine of 100% of the equity interests of TRHI and certain assets and liabilities of the Thomson Reuters Healthcare business, pursuant to the Stock and Asset Purchase Agreement, dated as of April 23, 2012, which VCPH Holding Corp. (now known as Truven Holding) entered into with Thomson Reuters U.S. Inc. and Thomson Reuters Global Resources and subsequently assigned to Wolverine on May 24, 2012, and which closed on June 6, 2012;

•

the term “Wolverine” refers to Wolverine Healthcare Analytics, Inc., a Delaware corporation and an affiliate of The Veritas Capital Fund IV, L.P., a private equity fund managed by Veritas Capital, which was formed on May 16, 2012 as a direct wholly-owned subsidiary of VCPH Holding Corp. (now known as Truven Holding) and, upon consummation of the Prior Acquisition, merged with and into TRHI, with TRHI surviving the Merger as a direct wholly-owned subsidiary of VCPH Holding Corp. (now known as Truven Holding) and subsequently changed its name to Truven Health Analytics Inc.;


•	the term “Merger” refers to the merger upon the closing of the Prior Acquisition, whereby Wolverine (which was formed solely for the purpose of completing the Prior Acquisition) merged with and into TRHI, with TRHI surviving the Merger as a direct wholly-owned subsidiary of VCPH Holding Corp. (now known as Truven Holding) and subsequently changing its name to Truven Health Analytics Inc.;


•	the terms “Sponsor” and “Veritas Capital” refers to Veritas Capital Fund Management, L.L.C.;


•	the term “Thomson Reuters” refers to Thomson Reuters Corporation;


•	the term “Stock and Asset Purchase Agreement” refers to the Stock and Asset Purchase Agreement among VCPH Holding Corp., Thomson Reuters U.S. Inc. and Thomson Reuters Global Resources, dated as of April 23, 2012, which VCPH Holding Corp. assigned to Wolverine on May 24, 2012;


•	the term "Notes" refers to the 10.625% Senior Notes;

•

the term Senior Credit Agreement, dated as of June 6, 2012, among Truven Holding, Truven Health Analytics Inc., the several lenders from time to time parties thereto, Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndication agent, and JPMorgan Chase Bank, N.A., as administrative agent, as amended from time to time;


•	the term "Senior Credit Facility" refers to the Term Loan Facility and Revolving Credit Facility under the senior credit agreement;


•	the term "Old Notes" refers to the 10.625% Senior Notes, Series A, issued in a private offering under an indenture, dated June 6, 2012, and which were exchanged for the Exchange Notes (as defined below);


•	the term "Exchange Notes" refers to the 10.625% Senior Notes, Series B, registered under the U.S. Securities Act of 1933, as amended;


•	the term "Additional Notes" refers to the 10.625% Senior Notes, Series A, that were issued on November 12, 2014;


•	the term "Simpler" refers to Simpler Consulting, LLC and certain of its affiliated entities and persons, which was acquired by certain wholly-owned subsidiaries of the Company on April 11, 2014;


•	the term "JWA" refers to Joan Wellman and Associates, Inc. which was acquired by the Company on October 31, 2014 and


•	the term "HBE" refers to HBE Solutions, LLC which was acquired by certain wholly-owned subsidiaries of the Company on November 12, 2014.

iii

Part I - FINANCIAL INFORMATION

Item 1. Financial Information

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Balance Sheets

September 30, 2015 and December 31, 2014

(with the exception of common stock, in thousands of dollars, unless otherwise indicated)



	September 30, 2015			December 31, 2014
Assets
Current assets
Cash and cash equivalents	$	20,500		$	12,604
Trade and other receivables (less allowances of $1,313 and $1,244, respectively)	103,618			120,214
Prepaid expenses and other current assets	30,867			30,251
Deferred tax assets	301			621
Total current assets	155,286			163,690
Computer hardware and other property, net	35,526			37,435
Developed technology and content, net	120,747			134,078
Goodwill	498,820			498,820
Other identifiable intangible assets, net	344,815			382,879
Other noncurrent assets	18,678			16,187
Total assets	$	1,173,872		$	1,233,089
Liabilities and Equity
Current liabilities
Accounts payable and accrued expenses	$	87,190		$	67,228
Deferred revenue	118,053			129,129
Current portion of long-term debt	6,360			6,360
Capital lease obligation	691			664
Current taxes payable	34			173
Total current liabilities	212,328			203,554
Deferred revenue	4,941			5,456
Capital lease obligation	853			1,374
Long-term debt	969,016			971,362
Deferred tax liabilities	301			621
Other noncurrent liabilities	4,138			3,599
Total liabilities	1,191,577			1,185,966
Equity (deficit)
Common stock—$ 0.01 par value; 1,000 shares authorized, 1 share issued and outstanding at September 30, 2015 and December 31, 2014	—			—
Additional paid-in capital	484,561			483,550
Accumulated deficit	(501,855		)	(436,123		)
Foreign currency translation adjustment	(411		)	(304		)
Total equity (deficit)	(17,705		)	47,123
Total liabilities and equity (deficit)	$	1,173,872		$	1,233,089

See the notes to these unaudited condensed consolidated financial statements.

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

(in thousands of dollars, unless otherwise indicated)



	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014

Revenue, net	$	152,963		$	140,187		$	449,317		$	394,874
Operating costs and expenses Cost of revenue, excluding depreciation and amortization	(82,171		)	(75,089		)	(249,411		)	(221,098		)
Selling and marketing, excluding depreciation and amortization	(16,896		)	(13,087		)	(50,545		)	(42,623		)
General and administrative, excluding depreciation and amortization	(16,725		)	(14,398		)	(50,007		)	(39,095		)
Depreciation	(5,591		)	(4,931		)	(16,088		)	(17,448		)
Amortization of developed technology and content	(11,012		)	(9,820		)	(32,993		)	(28,689		)
Amortization of other identifiable intangible assets	(12,474		)	(11,960		)	(38,064		)	(32,843		)
Other operating expenses	(3,454		)	(5,826		)	(20,272		)	(17,201		)
Total operating costs and expenses	(148,323		)	(135,111		)	(457,380		)	(398,997		)
Operating income (loss)	4,640			5,076			(8,063		)	(4,123		)
Net interest expense	(18,606		)	(17,663		)	(55,588		)	(51,352		)
Other finance costs	(428		)	(81		)	(1,456		)	(417		)
Loss before income taxes	(14,394		)	(12,668		)	(65,107		)	(55,892		)
Benefit from (provision for) income taxes	(204		)	6,048			(625		)	21,215
Net loss	$	(14,598	)	$	(6,620	)	$	(65,732	)	$	(34,677	)

Other comprehensive loss:
Foreign currency translation adjustments	$	(164	)	$	(26	)	$	(107	)	$	(111	)
Total comprehensive loss	$	(14,762	)	$	(6,646	)	$	(65,839	)	$	(34,788	)

See the notes to these unaudited condensed consolidated financial statements.

Truven Holding Corp.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands of dollars, unless otherwise indicated)



	Nine months ended September 30,
	2015			2014
Operating activities
Net loss	$	(65,732	)	$	(34,677	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	16,088			17,448
Amortization of developed technology and content	32,993			28,689
Amortization of other identifiable intangible assets	38,064			32,843
Amortization of debt issue costs	2,217			1,878
Amortization of debt discount	2,424			2,421
Asset write-off	6,000			4,706
Deferred income tax benefit	—			(21,490		)
Share-based compensation expense	1,011			955
Changes in operating assets and liabilities:
Trade and other receivables	16,693			15,320
Prepaid expenses and other current assets	(6,655		)	(10,739		)
Accounts payable and accrued expenses	19,752			14,438
Deferred revenue	(11,681		)	(14,469		)
Income taxes	(129		)	101
Other	(3,605		)	638
Net cash provided by operating activities	47,440			38,062
Investing activities
Acquisitions, net of cash acquired	(405		)	(77,400		)
Capital expenditures	(33,204		)	(24,412		)
Net cash used in investing activities	(33,609		)	(101,812		)
Financing activities
Proceeds from revolving credit facility	—			15,000
Principal repayment of senior term loan	(4,770		)	(4,517		)
Repayment of revolving credit facility	—			(30,000		)
Proceeds from senior term loan related to refinancing	—			100,000
Payment of debt issuance costs	(563		)	(2,895		)
Payment of capital lease obligation	(495		)	(1,498		)
Net cash provided by (used in) financing activities	(5,828		)	76,090
Effect of exchange rate changes in cash and cash equivalents	(107		)	(111		)
Net increase in cash and cash equivalents	7,896			12,229
Cash and cash equivalents
Beginning of period	12,604			10,255
End of period	$	20,500		$	22,484



Supplemental cash flow disclosures
Interest paid	$	41,134	$	38,182
Income taxes paid	752		215

See the notes to these unaudited condensed consolidated financial statements.

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Statement of Equity (Deficit)

Nine months ended September 30, 2015

(in thousands of dollars, unless otherwise indicated)



	Common stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Total equity (deficit)
Balance at December 31, 2014	$	—	$	483,550	$	(436,123	)	$	(304	)	$	47,123
Share-based compensation expense	—		1,011		—			—			1,011
Foreign currency translation adjustment	—		—		—			(107		)	(107		)
Net loss	—		—		(65,732		)	—			(65,732		)
Balance at September 30, 2015	$	—	$	484,561	$	(501,855	)	$	(411	)	$	(17,705	)

See the notes to these unaudited condensed consolidated financial statements.

Truven Holding Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands of dollars, unless otherwise indicated)


1.	Description of Business and Basis of Presentation

Description of the Business

Truven Holding was formed on April 20, 2012 by Veritas Capital for the purpose of consummating the Prior Acquisition and has had no operations from inception other than its investment in Truven and its subsidiaries.

Truven provides analytics solutions and service offerings across the full spectrum of healthcare constituents, including large companies, hospitals and health systems, health plans, federal agencies and state governments in the U.S. and increasingly globally. Truven operates and manages its business under two reportable segments: Commercial and Government.

Basis of Presentation

These unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim reporting and are consistent with the accounting policies and methods used in preparation of the Company's consolidated financial statements as of December 31, 2014. The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions that the Company may undertake in the future, actual results could differ from those estimates. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair statement for the periods presented have been recorded. The results of operations for the three and nine months ended September 30, 2015, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2015. These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the Company’s financial statements and the notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form10-K/A as filed with the Securities and Exchange Commission ("SEC") on June 23, 2015.

2. Recent Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and in August 2015 issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Under ASU 2015-03, debt issuance costs reported on the consolidated balance sheet would be reflected as a direct deduction from the related debt liability rather than as an asset. While ASU 2015-03 addresses costs related to term debt, ASU No. 2015-15 provides clarification regarding costs to secure revolving lines of credit, which are, at the outset, not associated with an outstanding borrowing. ASU No.2015-15 provides commentary that the SEC staff would not object to an entity deferring and presenting costs associated with line-of-credit arrangements as an asset and subsequently amortizing them ratably over the term of the revolving debt arrangement. ASU No. 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. As this standard impacts only the classification of certain amounts within the consolidated balance sheet, Truven does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.

In May 2014, as part of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards, the FASB issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard, as currently issued will be effective beginning January 1, 2017. On July 9, 2015, the FASB delayed the effective date of the new revenue standard by one year, but permits entities to adopt the standard as of the original effective date. The FASB decided, based on its outreach to various stakeholders and the forthcoming amendments to the new revenue standard, that a deferral is necessary to provide adequate time to effectively implement the new revenue standard. The new standard allows for two methods of adoption: (a) full retrospective adoption, meaning the standard is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance. The Company will adopt the new revenue guidance beginning in its 2018 interim and annual financial statements and is still in the process of determining the adoption method as well as the effects the adoption will have on its consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are identified, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for reporting periods beginning after December 15, 2015 and is applied prospectively. Early adoption is permitted. ASU 2015-16 may affect our financial statements to the extent we have business combinations in the future.

3. Acquisitions

Simpler acquisition

On April 11, 2014, we acquired Simpler (the "Simpler Transaction"). Simpler provides "Lean" organizational transformation consulting services, which is a business process intended to maximize customer value with fewer resources and waste. This strategic acquisition combines the Company’s market-leading cost and quality analytics in the commercial segment with Simpler’s performance management consulting capabilities to deliver performance improvement solutions to healthcare and commercial customers. Pursuant to the Simpler purchase agreement, the Company acquired all of the outstanding equity of Simpler for a purchase price of $81.1 million, including a working capital adjustment of $1.1 million, and the issuance of equity interests by Holdings LLC, the direct parent of Truven Holding, of $3.7 million to Simpler. The related acquisition costs amounted to $3.6 million. The Company financed the acquisition and related costs and expenses through an increase in the Tranche B Term Loans (the "Supplemental Tranche B Term Loans") (see Note 6). The Company and its affiliates did not assume any indebtedness in connection with the Simpler Transaction.

The following is a summary of the allocation of the purchase price of the Simpler Transaction to the estimated fair values of assets acquired and liabilities assumed in the Simpler Transaction. The final allocation of the purchase price is based on management's judgment after evaluating several factors, including a valuation assessment prepared by a third party valuation firm:



	Final values recognized at acquisition date
Trade and other receivables	$	7,560
Prepaid assets and other current assets	425
Computer hardware and other property	181
Other identifiable intangible assets	47,500
Current liabilities	(2,575		)
Deferred revenue	(600		)
Net assets acquired	52,491
Goodwill on acquisition	28,571
Net consideration	$	81,062

Accounts receivable, accounts payable, and liabilities were stated at historical carrying values, given their short-term nature.

The Company engaged a third party valuation firm to assist in determining the fair values of other identifiable assets and liabilities acquired, including trademarks and trade names, customer relationships, backlogs, non-compete agreements, and deferred revenue.

Computer hardware and other property have been valued at historical carrying values as management estimated that its replacement costs would not significantly differ from its carrying values.

Trademarks and trade names have been valued using the relief from royalty method under the income approach to estimate the cost savings that accrue to the Company which would otherwise have gone to pay royalties or license fees on revenues earned through the use of the asset. Using this approach, trademarks and trade names were valued at $8.0 million, with estimated useful lives of 13 years.

Customer relationships were determined using an income approach, taking into account the expected revenue growth and attrition rates of the customers and the estimated capital charges for the use of other net tangible and identifiable net intangible assets. Using this approach, customer relationships were assigned a value of $21.4 million, with estimated useful lives of 3 to 9 years.

Backlog was determined using an income approach based on projected backlog as of the acquisition date. Using this approach, backlog was assigned a value of $13.7 million, with an estimated useful life of 1 to 2 years.

Non-compete agreements were determined using an income approach based on projected lost revenue. Using this approach, non-compete agreements were assigned a value of $4.4 million, with estimated useful lives of 2 to 3 years.

Deferred revenue has been valued using a cost build-up approach and is calculated as the cost to fulfill the legal performance obligation plus a reasonable profit margin.

The goodwill recognized upon closing of the Simpler Transaction is attributable mainly to the skill of the acquired work force and Simpler’s position as a provider of services to key constituents of the U.S. market. The total goodwill relating to the Simpler Transaction is tax deductible.

Simpler's revenue and net income for the three months ended September 30, 2015, amounted to $16.4 million and $0.1 million, respectively, and revenue and net loss for the nine months ended September 30, 2015 were $45.6 million and $2.4 million, respectively.

The following unaudited pro forma financial data summarizes the impact of Simpler’s results of operations for the three and nine months ended September 30, 2014 had the acquisition of Simpler occurred as of January 1, 2013:



	Three months ended September 30, 2014			Nine months ended September 30, 2014
	(Unaudited)
Revenue, net	$	13,207		$	38,730
Net loss	(253		)	(2,502		)

JWA acquisition

On October 31, 2014, we acquired JWA (the "JWA Transaction"), a company that provides "Lean" consulting services. The Company acquired all of the outstanding equity of JWA for a cash purchase price of $15.3 million, including a $1.2 million working capital adjustment and $0.1 million holdback payment. Truven also agreed to pay $1.9 million in three annual payments as compensation to a former major shareholder of JWA who became Truven's employee, as long as the former major shareholder remained with Truven for the next three years. The related acquisition costs amounted to $0.6 million. The Company and its affiliates did not assume any indebtedness in connection with the JWA Transaction. We financed the acquisition and related costs and expenses through the issuance of the Additional Notes.

The following is a summary of the allocation of the purchase price of the JWA Transaction to the estimated fair values of assets acquired and liabilities assumed in the JWA Transaction. The final allocation of the purchase price is based on management's judgment after evaluating several factors, including a valuation assessment prepared by a third party valuation firm:



	Final values recognized at acquisition date
Trade and other receivables	$	1,462
Prepaid assets and other current assets	41
Computer hardware and other property	17
Other identifiable intangible assets	7,489
Current liabilities	(607		)
Deferred revenue	(126		)
Net assets acquired	8,276
Goodwill on acquisition	7,020
Net consideration	$	15,296

Accounts receivable, accounts payable, liabilities and deferred revenue were stated at historical carrying values, given their short-term nature.

Computer hardware and other property have been valued at historical carrying values as management estimated that its replacement costs would not significantly differ from its carrying values.

Trademarks and trade names have been valued using the relief from royalty method under the income approach to estimate the cost savings that accrue to the Company, which would otherwise have gone to pay royalties or license fees on revenue earned through the use of the asset. Using this approach, trademarks and trade names were valued at $0.3 million, with estimated useful lives of 3 to 5 years.

net intangible assets. Using this approach, customer relationships were assigned a value of $6.1 million, with estimated useful lives of 10 to 11 years.

Backlog was determined using an income approach based on projected backlog as of the acquisition date. Using this approach, backlog was assigned a value of $1.0 million, with an estimated useful life of 1 year.

The goodwill recognized upon closing of the acquisition is attributable mainly to the skill of the acquired work force and JWA’s position as a provider of services to key constituents of the U.S. market. The total goodwill relating to the JWA Transaction is tax deductible.

JWA's revenue and net income for the three months and nine months ended September 30, 2015, amounted to $3.4 million and $0.4 million respectively, and $9.5 million and $0.6 million, respectively.

The following unaudited pro forma financial data summarizes the impact of JWA's results of operations for the three and nine months ended September 30, 2014 had the acquisition of JWA occurred as of January 1, 2013:



	Three months ended September 30, 2014		Nine months ended September 30, 2014
	(Unaudited)
Revenue, net	$	3,127	$	9,179
Net Income	327		823

HBE acquisition

On November 12, 2014, Truven consummated the acquisition of HBE, a leading provider of stakeholder information that is essential for life sciences companies to gain drug approval, reimbursement, and adoption, for a cash purchase price of $17.2 million, including negative working capital adjustment of $2.8 million (the "HBE Transaction"). The related acquisition costs amounted to $1.2 million.

The Company financed the acquisition and related costs and expenses through the issuance of the Additional Notes (see Note 6). The Company and its affiliates did not assume any of HBE's indebtedness in connection with the HBE Transaction.

The following is a summary of the allocation of the purchase price of the HBE Transaction to the estimated fair values of assets acquired and liabilities assumed in the HBE Transaction. The final allocation of the purchase price is based on management's judgment after evaluating several factors, including a valuation assessment prepared by a third party valuation firm:



	Final values recognized at acquisition date
Trade and other receivables	$	7,670
Prepaid assets and other current assets	768
Computer hardware and other property	140
Developed technology and content	4,621
Other identifiable intangible assets	11,278
Other noncurrent assets	67
Current liabilities	(8,604		)
Deferred revenue	(4,249		)
Net assets acquired	11,691
Goodwill on acquisition	5,552
Net consideration	$	17,243

An adjustment recorded during the first quarter of 2015 reduced current assets by $0.3 million and increased total liabilities by $0.1 million, as a result of the final working capital adjustment.

Accounts receivable, accounts payable, and liabilities were stated at historical carrying values, given their short-term nature.

Computer hardware and other property have been valued at historical carrying values as management estimated that its replacement costs would not significantly differ from its carrying values.

Trademarks and trade names have been valued using the relief from royalty method under the income approach to estimate the cost savings that accrue to the Company which would otherwise have gone to pay royalties or license fees on revenue earned through the use of the asset. Using this approach, trademarks and trade names were valued at $2.5 million, with estimated useful lives of 12 to 14 years.

Customer relationships were determined using an income approach, taking into account the expected revenue growth and attrition rates of the customers and the estimated capital charges for the use of other net tangible and identifiable net intangible assets. Using this approach, customer relationships were assigned a value of $8.8 million, with estimated useful lives of 9 to 11 years.

Deferred revenue has been valued using a cost build-up approach and is calculated as the cost to fulfill the legal performance obligation plus a reasonable profit margin.

The goodwill recognized upon closing of the acquisition is attributable mainly to the skill of the acquired work force and HBE’s position as a provider of services to key constituents of the global life sciences market. The total goodwill relating to the HBE Transaction is tax deductible.

HBE's revenue and net loss for the three months ended and nine months ended September 30, 2015, amounted to $3.4 million and $1.5 million respectively, and $10.5 million and $3.2 million, respectively.

The following unaudited pro forma financial data summarizes the impact of HBE’s results of operations for the three and nine months ended September 30, 2014 had the acquisition of HBE occurred as of January 1, 2013:



	Three months ended September 30, 2014		Nine months ended September 30, 2014
	(Unaudited)
Revenues, net	$	5,494	$	18,413
Net income	1,199		4,312


4.	Goodwill

The changes in the carrying amount of goodwill by reportable segment during the three and nine months ended September 30, 2015, were as follows:



	Commercial			Government			Total
Balance as of September 30, 2015 and December 31, 2014	$	774,184		$	91,298		$	865,482
Accumulated impairment:
Balance as of September 30, 2015 and December 31, 2014	(321,064		)	(45,598		)	(366,662		)
Net book value as of September 30, 2015 and December 31, 2014	$	453,120		$	45,700		$	498,820


5.	Other Identifiable Intangible Assets

Other identifiable intangible assets, net, consisted of the following:



	As of September 30, 2015
	Average life (years)	Cost		Accumulated amortization			Net
Customer relationships	11.0	$	366,085	$	(100,348	)	$	265,737
Trademarks and trade names	15.0	97,024		(20,203		)	76,821
Backlog	1.0	14,732		(14,327		)	405
Non-Compete	3.0	4,426		(2,574		)	1,852
		$	482,267	$	(137,452	)	$	344,815

	As of December 31, 2014
	Average life (years)	Cost		Accumulated amortization			Net
Customer relationships	11.0	$	366,085	$	(75,756	)	$	290,329
Trademarks and trade names	15.0	97,024		(15,224		)	81,800
Backlog	1.0	14,732		(7,160		)	7,572
Non-Compete	3.0	4,426		(1,248		)	3,178
		$	482,267	$	(99,388	)	$	382,879

Amortization expense for each of the next five twelve-month periods beginning October 1, 2015, is expected to be approximately $41.6 million for 2016, $39.5 million for 2017, $39.2 million for 2018, $38.9 million for 2019, and $38.9 million for 2020.


6.	Long-Term Debt

The Company's long-term debt consists of the following:



	September 30, 2015		December 31, 2014
Senior Credit Facility
Term Loan Facility (net of $11,648 and $14,035 discount, respectively)	$	608,462	$	610,845
10.625% Senior Notes ("the Notes") (net of $1,254 and $1,455 discount, respectively)	325,896		325,695
10.625% Additional Senior Notes ("the Additional Notes") (including $1,018 and $1,182 premium, respectively)	41,018		41,182
	975,376		977,722
Less: current portion of long-term debt	6,360		6,360
Long-term debt	$	969,016	$	971,362

In connection with the Prior Acquisition, on June 6, 2012, Truven entered into the Senior Credit Facility and issued the Old Notes. On November 12, 2014, in connection with the JWA Transaction and the HBE Transaction, Truven issued $40 million aggregate principal amount of Additional Notes. Truven financed the Simpler Transaction and related costs and expenses through a $100.0 million increase in the Tranche B Term Loans under the Senior Credit Facility. Except as otherwise indicated by the context, the Old Notes, the Exchange Notes and the Additional Notes are collectively and individually defined as the "Notes".

Senior Credit Facility

The Senior Credit Facility, as amended on April 11, 2014, is with a syndicate of banks and other financial institutions and provides financing of up to $679.7 million, consisting of the $629.7 million Term Loan Facility with a maturity date of June 6, 2019 and the $50.0 million Revolving Credit Facility with a maturity date of June 6, 2017. As of September 30, 2015, the Company has no outstanding revolving loan and has outstanding letters of credit amounting to $7.5 million, which, while not drawn, reduce the available line of credit under the Revolving Credit Facility to $42.5 million.

Borrowings under the Senior Credit Facility, other than swing line loans, bear interest at a rate per annum equal to an applicable margin plus, at Truven’s option, either (a) a base rate determined by reference to the highest of (1) the prime rate of JPMorgan Chase Bank, N.A., (2) the federal funds effective rate plus 0.50% and (3) the one month Eurodollar rate plus 1.00%; provided, that the base rate for the Term Loan Facility at any time shall not be less than 2.25%, or (b) a Eurodollar rate adjusted for statutory reserve requirements for a one, two, three or six month period (or a nine or twelve month interest period if agreed to by all applicable lenders); provided that the Eurodollar base rate used to calculate the Eurodollar rate for the Term Loan Facility at any time shall not be less than 1.25%. Swing line loans will bear interest at the interest rate applicable to base rate loans, plus an applicable margin. In addition to paying interest on outstanding principal under the Senior Credit Facility, we are required to pay a commitment fee to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder at a rate equal to 0.50% (subject to reduction upon attainment of certain leverage ratios). We will also pay customary letter of credit fees and certain other agency fees. Truven may voluntarily repay outstanding loans under the Senior Credit Facility at any time without premium or penalty, other than customary “breakage” costs with respect to adjusted LIBOR loans. Following the Third Amendment (the "Third Amendment") to the Senior Credit Agreement to increase the Tranche B Term Loans by $100 million as discussed below, we are required to repay $1.6 million of the Term Loan Facility quarterly, through March 31, 2019, with any remaining balance due June 6, 2019.

All obligations under the Senior Credit Facility are guaranteed by Truven Holding and each of Truven's existing and future wholly-owned domestic subsidiaries. During 2014, all domestic subsidiaries acquired by the Company became guarantors under the Senior Credit Facility (see Note 14). All obligations under the Senior Credit Facility and the guarantees of those obligations are collateralized by first priority security interests in substantially all of Truven's assets as well as those of each guarantor (subject to certain limited exceptions).

The Senior Credit Facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, Truven’s ability and the ability of each of any restricted subsidiaries to sell assets; incur additional indebtedness; prepay other indebtedness (including the Notes); pay dividends and distributions or repurchase its capital stock; create liens on assets; make investments; make certain acquisitions; engage in mergers or consolidations; engage in certain transactions with affiliates; amend certain charter documents and material agreements governing subordinated indebtedness, change the business conducted by it and its subsidiaries; and enter into agreements that restrict dividends from subsidiaries.

In addition, the Senior Credit Facility requires Truven to comply with a quarterly maximum consolidated senior secured leverage ratio in accordance with the debt covenants as long as the commitments under the Revolving Credit Facility remain outstanding (subject to certain limited exceptions). The Senior Credit Facility also contains certain customary representations and warranties, affirmative covenants and events of default. As of September 30, 2015, the Company is in compliance with all of these credit facility covenants.

On April 11, 2014, certain wholly-owned subsidiaries of the Company entered into the Purchase Agreement with Simpler (see Note 3). In connection with the Purchase Agreement, Truven entered into the Third Amendment to our Senior Credit Agreement. The Third Amendment provided for a $100.0 million increase in the Tranche B Term Loans, and increased the total amount available under the Senior Credit Facility to $679.7 million, consisting of a $629.7 million Term Loan Facility and a $50.0 million Revolving Credit Facility (which remained unchanged).

On April 11, 2014, the Company borrowed the entire $100.0 million principal amount of the Supplemental Tranche B Term Loans to finance the acquisition of Simpler, repay outstanding loans under its Revolving Credit Facility and pay

fees and expenses relating to the acquisition of Simpler. Under the terms of the Third Amendment, the Company must repay the principal amount of the Tranche B Term Loans in twenty consecutive quarterly installments beginning on June 30, 2014 and continuing through March 31, 2019 in the amount of $1.6 million each, and a final installment on June 6, 2019 in the amount of $597.8 million. The terms and conditions that apply to the new Supplemental Tranche B Term Loans are substantially the same as the terms and conditions that apply to the existing Tranche B Term Loans under the Senior Credit Agreement. In addition, the Consolidated Senior Secured Leverage Ratio applicable to the Company was increased for certain periods from 2014 to 2016. During 2014, all domestic subsidiaries acquired by the Company became guarantors under the Senior Credit Facility (see Note 14).

On August 21, 2015, the Company entered into a Fourth Amendment to the Senior Credit Agreement that increased the applicable maximum Consolidated Senior Secured Leverage Ratio starting from the third quarter of 2015 through the maturity of the Senior Credit Agreement. All the other terms under the Senior Credit Agreement remained unchanged.

10.625% Senior Notes due 2020

Old Notes and Exchange Notes

The Notes, which were issued under an indenture, dated June 6, 2012 ( the “Indenture”, as supplemented by the First Supplemental Indenture whereby Truven became a party to the Indenture as successor in interest to Wolverine and the Second Supplemental Indenture referred to below, the “Second Supplemental Indenture”), with The Bank of New York Mellon Trust Company, N.A. as trustee, bear interest at a rate of 10.625% per annum, are payable on June 1 and December 1 of each year (commencing on December 1, 2012), and have a maturity date of June 1, 2020.

On June 5, 2013, we entered into the Second Supplemental Indenture, to amend that certain guarantee release provision in the Indenture, to allow subsidiary guarantors and not Truven Holding to be released from their obligations under the Indenture upon the release or discharge of such guarantor’s guarantee of the Senior Credit Facility or the guarantee which resulted in the creation of the guarantee under the Indenture (subject to certain limitations).

The Notes are general unsecured senior obligations of Truven, fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Truven Holding Corp. and each of Truven’s existing and future wholly-owned domestic restricted subsidiaries that is a borrower under or that guarantees the obligations under the Senior Credit Facility or any other indebtedness of Truven or any other guarantor.

Truven may redeem some or all of the Notes at any time prior to June 1, 2016 at 100% of the principal amount thereof plus the applicable premium pursuant to the Indenture as of the applicable redemption date, plus accrued and unpaid interest and any additional interest to, but excluding, the applicable redemption date. Truven may redeem some or all of the Notes at any time on or after June 1, 2016 at 105.313% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after June 1, 2018, plus, in each case, accrued and unpaid interest and any additional interest to, but excluding, the applicable redemption date. If Truven experiences a change of control (as defined in the Indenture), it will be required to make an offer to repurchase the Notes at a price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, and any additional interest, to, but excluding, the date of purchase.

The Indenture contains covenants limiting Truven and its wholly-owned restricted subsidiaries with respect to other indebtedness, investments, liens, dividends, purchases or redemptions of stock, transactions with affiliates and mergers and sales of assets. The Indenture also contains covenants limiting the ability of wholly-owned restricted subsidiaries to guarantee payment of any indebtedness of Truven or any subsidiary guarantor and limiting the Company's business and operations. Following our series of acquisitions in 2014, all the domestic subsidiaries we acquired became guarantors of the Notes as a result of the guarantees of the Senior Credit Facility provided by such subsidiaries. The guarantees were entered into pursuant to the Third, Fourth and Sixth Supplemental Indentures. We were in compliance with all of these covenants as of September 30, 2015.

Pursuant to a registration rights agreement dated June 6, 2012 (the "Registration Rights Agreement"), we exchanged the Old Notes (and related guarantees) for the Exchange Notes.

Additional Notes

The Additional Notes were issued pursuant to the Indenture dated June 6, 2012 governing the Old Notes (together with the Additional Notes, the "Notes"), as supplemented by the Fifth Supplemental Indenture, dated as of November 12, 2014 (the "Fifth Supplemental Indenture") by and among the Company, the Guarantors and the Trustee. The Additional Notes form a single series with the Old Notes and have the same terms as the Old Notes and rank equal in right of payment.

Pursuant to the Registration Rights Agreement relating to the Additional Notes, we exchanged the Old Notes (and related guarantees) for the Exchange Notes.

As of September 30, 2015, principal maturities of long-term debt for the next five years and thereafter consist of:



For the period ending September 30,
2016	$	6,360
2017	6,360
2018	6,360
2019	589,146
2020	367,150
	$	975,376


7.	Other Operating Expenses

The components of other operating expenses include the following:



	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014

Severance and retention bonuses	$	—	$	1,323	$	1,305	$	2,304
Acquisition-related costs and other transaction related costs	2,620		3,878		10,110		8,324
Asset Write-off (see Note 12)	—		—		6,000		4,706
Sponsor fee (see Note 10)	834		625		2,857		1,867
Total other operating expenses	$	3,454	$	5,826	$	20,272	$	17,201

Severance expense in 2015 and 2014 primarily relates to compensation for certain positions that were eliminated as part of the change in the Company's operating segment structure and continuous streamlining of other positions within the organization to improve our business decision-making process. Retention bonuses relate to incentive compensation agreements to retain key employees of the businesses acquired in 2014.

Acquisition-related costs and other transaction related costs in 2015 mainly represent professional fees as a result of integrating the acquired businesses to the Company and $0.9 million of accrual in second quarter of 2015 related to a settlement of a legal case in the normal course of business. Acquisition-related costs and other transaction related costs

in 2014 included legal costs related to the acquisition of Simpler in April 2014 (see Note 3) and other professional fees incurred related to business improvement processes.

8. Segment Information

The determination of reportable segments was based on the discrete financial information provided to the Chief Operating Decision Maker (the "CODM"). The Chief Executive Officer has the authority for resource allocation and assessment of the Company’s performance and is, therefore, the CODM. The Company’s segment structure enables us to more effectively focus on business and market facing opportunities and to simplify our business decision-making process. The Company's reportable segments are as follows:

Commercial

The Commercial segment provides analytics solutions and services to improve the cost, quality, and effectiveness of healthcare for commercial organizations across the healthcare industry including, for example, providers, integrated delivery networks, insurers, professional services organizations, healthcare exchanges, corporations and life sciences companies.

Government

The Government segment provides integrated analytics solutions and services to improve the cost, quality, and effectiveness of healthcare for federal and state agencies including, for example, the Centers for Medicare & Medicaid Services and state Medicaid agencies and federally owned and operated healthcare facilities. Our sales and client services are tailored to meet the specific procurement, sales and support requirements of the government market.

The CODM evaluates the performance of our segments based on segment operating income (loss), which is calculated internally as net sales, less cost of operations (including allocation of technology costs), selling and marketing, and general and administrative expenses, excluding depreciation and amortization.

Center/shared services consist of items that are not directly attributable to reportable segments, such as corporate administrative costs and elimination of intercompany transactions.

Corporate expenses may include other non-recurring or non-operational activity that the CODM excludes in assessing operating segment performance. These expenses, along with depreciation and amortization, other operating income/expense and other non-operating activity such as interest expense/income, are not considered in the measure of the segments’ operating performance, but are shown herein as reconciling items to the Company’s consolidated loss before income taxes.

The accounting policies for the reportable segments are the same as those for the consolidated Company. The Company’s operations and customers are based primarily in the United States.

Segment information for the three months ended September 30, 2015 and 2014 is as follows:



	Three months ended September 30,
	2015						2014
	Revenue			Segment operating income			Revenue		Segment operating income
Commercial	$	123,635		$	40,815		$	115,095	$	41,967
Government	29,775			3,560			25,092		1,984
Segment totals	153,410			44,375			140,187		43,951
Center/Shared services	(447		)	(7,204		)	—		(6,338		)
Segment operating income	$	152,963		$	37,171		$	140,187	$	37,613
Segment operating margin percentage				24		%			27		%

The following table reconciles unaudited condensed segment operating income per the reportable segment information to loss before income taxes per the unaudited interim condensed consolidated statements of comprehensive loss.



	Three months ended September 30,
	2015			2014

Segment operating income	$	37,171		$	37,613
Depreciation	(5,591		)	(4,931)
Amortization of developed technology and content	(11,012		)	(9,820)
Amortization of other identifiable intangible assets	(12,474		)	(11,960)
Other operating expenses	(3,454		)	(5,826		)
Operating income	4,640			5,076
Net interest expense	(18,606		)	(17,663		)
Other finance costs	(428		)	(81		)
Loss before income taxes	$	(14,394	)	$	(12,668	)

Segment information for the nine months ended September 30, 2015 and September 30, 2014 is as follows:



	Nine months ended September 30,
	2015						2014
	Revenue			Segment operating income			Revenue		Segment operating income
Commercial	$	367,597		$	118,303		$	324,946	$	110,137
Government	82,849			3,588			69,928		1,334
Segment totals	450,446			121,891			394,874		111,471
Center/Shared services	(1,129		)	(22,537		)	—		(19,413		)
Segment operating income	$	449,317		$	99,354		$	394,874	$	92,058
Segment operating margin percentage				22		%			23		%



	Nine months ended September 30,
	2015			2014

Segment operating income	$	99,354		$	92,058
Depreciation	(16,088		)	(17,448)
Amortization of developed technology and content	(32,993		)	(28,689)
Amortization of other identifiable intangible assets	(38,064		)	(32,843)
Other operating expenses	(20,272		)	(17,201		)
Operating loss	(8,063		)	(4,123		)
Net interest expense	(55,588		)	(51,352		)
Other finance costs	(1,456		)	(417		)
Loss before income taxes	$	(65,107	)	$	(55,892	)

Reportable segment asset information is not disclosed because it is not reviewed by the CODM for purposes of evaluating performance and allocating resources.

9. Share-based Compensation

In October 2012, Truven Holding's immediate parent, Holdings LLC, established a compensation award in accordance with the Operating Agreement to provide Class B Membership Interests in Holdings LLC to certain employees, executive officers of the Company, and non-employee directors of Holdings LLC, not to exceed 6.25% in the aggregate. On April 11, 2014, Holdings LLC amended the Operating Agreement to provide Class B-1 Membership Interests in Holdings LLC to Simpler executives. Class B and B-1 membership interests ("Membership Interests") will both vest 20% on each of the first five anniversaries, subject to certain conditions. In addition, 100% of Membership Interests may vest in certain circumstances in connection with a change in control as defined in the Operating Agreement. Each Membership Interest has the right to receive a percentage of the distribution made by Holdings LLC when the distribution is actually made if such distributions exceed specified internal rates of return thresholds.

There are transfer restrictions on the Membership Interests and the unvested interest would be forfeited upon termination of employment or board membership. A summary of the Membership Interests is as follows:



	Class B			Class B-1
	Ownership interest (%)	Fair value at grant date		Ownership interest (%)		Fair value at grant date
Total outstanding balance at December 31, 2014	4.4	$	6,100	0.9		$	1,067
Granted	—	—		0.85		869
Forfeited	—	—		(0.3	)	(379		)
Balance at September 30, 2015	4.4	$	6,100	1.45		$	1,557
Total outstanding and vested as of September 30, 2015	2.5	$	3,503	0.2		$	213

The fair value at the date of grant was based upon the value of the Membership Interests of Holdings LLC less a marketability discount since there is no active market to trade Membership Interests. The marketability discount was determined using a geometric average rate put option model and a Black-Scholes put option model using the expected term, risk-free rate, and volatility for liquidity terms. The value was determined as of the grant date based upon a number of factors, including the amount of investment made in exchange for Membership Interests of Holdings LLC by Veritas Capital and certain members of management of the Company.

The Company recognized compensation expense, net of estimated forfeiture rate of 10% against additional paid in capital of $356 and $316, for the three months ended September 30, 2015 and 2014, respectively, and $1,011 and $955 for the nine months ended September 30, 2015 and 2014 respectively, which is recorded in general and administrative expense in the Company’s unaudited interim condensed consolidated statements of comprehensive loss.

The total unrecognized compensation cost related to nonvested Membership Interests expected to be recognized over the next 4.8 years is $3.1 million.

As of September 30, 2015, 2.7% of Class B and B-1 Membership Interests have vested with an estimated fair value of $2.9 million.


10.	Related Party Transactions

The Company entered into an advisory agreement with the Sponsor, under which the Sponsor provided certain advisory services to the Company. As compensation for the services, the Company paid a transaction fee at the closing of the Prior Acquisition and will continue to pay the Sponsor an annual advisory fee in an aggregate amount equal to the greater of (i) $2.5 million or (ii) 2.0% of consolidated EBITDA (as defined in the Senior Credit Agreement), as well as transaction fees on future acquisitions, divestitures, financings and liquidity events, which will be determined based upon aggregate equity investments at the time of such future events or on the value of the transaction. For the three and nine months ended September 30, 2015 the Company recorded an expense for the Sponsor fee of $0.8 million and $2.9 million, respectively. For the three and nine months ended September 30, 2014, the company recorded an expense for the Sponsor fee of $0.6 million and $1.9 million, respectively. The Sponsor advisory fee is presented within other operating expenses in the Company's unaudited interim condensed consolidated statements of comprehensive loss. As of September 30, 2015, the Company had prepaid Sponsor fee of $1.1 million included in the prepaid expenses and other current assets account in the balance sheet.

The Company had a sublease arrangement with Thomson Reuters U.S. Inc. as part of the reverse transitional services agreement entered into in connection with the Prior Acquisition which ended on March 31, 2015. There was no sublease income for the three months ended September 30, 2015. The sublease income recognized for the nine months ended September 30, 2015 totaled $0.1 million. The sublease income recognized for the three and nine months ended September 30, 2014 totaled $0.1 million and $0.3 million, respectively. These were recorded as a reduction to general and administrative expense in the Company's unaudited interim condensed consolidated statements of comprehensive loss.

As part of the Simpler Transaction (see Note 3), the issuance by Holdings LLC of $3.7 million of equity interests to Simpler has been accounted for as additional capital contribution.

On October 11, 2013, the Company received a note receivable of $0.3 million from Holdings LLC, the direct parent company of the Truven Holding. The note receivable bears interest at a rate per annum of 1.9%. Interest is payable in arrears on each October 15, commencing on October 15, 2014. In lieu of paying in cash for the interest payments, any accrued but unpaid interest shall be capitalized and added as of such interest payment date to the principal amount of the note receivable. At any time, Holdings LLC may redeem all or any part of the note receivable at a redemption price equal to 100% of the principal amount redeemed plus all interest accrued and unpaid through the redemption date. The note receivable is included in trade and other receivables account in the balance sheet as of September 30, 2015.


11.	Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The Company’s intention is to permanently reinvest its foreign earnings outside of the United States. As a result, the effective tax rates in the periods presented are largely based upon the projected annual pre-tax earnings by jurisdiction and the allocation of certain expenses in various taxing jurisdictions where the Company conducts its business. These taxing jurisdictions apply a broad range of statutory income tax rates.

Income tax provision for the three and nine months ended September 30, 2015 had an effective tax rate of (1.4)% and (1.0)%, respectively, and income tax benefit for the three and nine months ended September 30, 2014 had an effective tax rate of 47.7% and 38.0%, respectively. Income tax benefit in 2015 is different from the amount derived by applying the federal statutory tax rate of 35%, mainly due to the valuation allowance of $5.5 million and $22.4 million for the three and nine months ended September 30, 2015, respectively, recorded against the Company's net deferred tax asset as it is not more likely than not that the net deferred tax asset will be realized. Income tax benefit for the three and nine months period ended September 30, 2014 is different from the amount derived by applying the federal statutory tax rate of 35%, mainly due to the impact of certain state income taxes partially offset by the impact of nondeductible expenses. The Company and its subsidiaries are subject to U.S. federal income tax as well as income taxes of multiple states and foreign jurisdictions.

12. Commitment and Contingencies

Security and Guarantee Agreements

The Company has entered into guarantee and security arrangements in respect of its indebtedness as described in Note 6.

Contractual Commitments

Revenue Sharing Agreement

Effective January 1, 2013, the Company modified its agreement with a supplier under which it markets and licenses to its customers a private label version of the supplier's platform solution in conjunction with the Company's health information applications. The agreement contains a revenue share arrangement based on net revenue targets. The supplier's revenue share percentage is guaranteed by the Company in the minimum amounts of $2.0 million, $4.0 million and $6.0 million, for the calendar years 2013, 2014 and 2015, respectively. The guaranteed revenue share is paid in advance by the Company on March 1^st of each calendar year and is applied against the revenue share of the supplier earned through March 1^st of the following calendar year. The agreement provides a grace period for the Company of up to August 31^st of the following calendar year in the event that the supplier's revenue share earned does not reach the prepayment amount. After the grace period, if the revenue share earned does not meet the minimum target then the entire prepayment amount is deemed earned by the supplier. During the first quarters of 2015 and 2014, the Company wrote off $6.0 million and $4.7 million of the prepaid balance, respectively, as it was determined that the estimated revenue share of the supplier will not be met within the grace period. As of September 30, 2015, there are no prepaid revenue share balances on the Company's balance sheet.

Litigation and Legal Proceedings

Truven has been named as a defendant in 225 separate pharmaceutical tort lawsuits relating to the use of Reglan or its generic version, the first of which was filed by June 2010 and the rest of which were filed in March 2012. All of these actions are pending in the Court of Common Pleas in Philadelphia County, Pennsylvania. In these matters, the plaintiffs allege that they sustained various injuries (including neurological disorders) as a result of their ingestion of Reglan. While a host of drug manufacturers and pharmacies are named as defendants in each of the suits, claims have also been asserted against so-called “Patient Education Monograph” (“PEM”) defendants, including us. It is generally alleged in all of the actions that certain PEM defendants provided Reglan patient drug information to pharmacies which, in turn, provided that drug information to the pharmacies' customers, the plaintiffs in these actions. Plaintiffs further allege that the PEM defendants' patient drug information did not provide adequate warning information about the use of Reglan. Other PEM defendants have also been named in these and other similar actions. In general, the lawsuits have been procedurally consolidated in Philadelphia as mass tort actions. To date, we believe that none of the actions against Truven specifically identifies Truven as the author of a PEM that was supplied to a plaintiff. Along with other PEM defendants, Truven made one dispositive motion to dismiss all the actions. While that motion to dismiss has been denied, it was without prejudice, permitting Truven to renew at a later stage in the litigation. Appeals by the co-defendant generic drug company defendants have been exhausted as of May 18, 2015, and there has been no active discovery involving Truven. At this time, we believe that we have meritorious defenses to the claims in each of these actions.

Pacific Alliance Medical Center (“PAMC”) claimed in 2007 that we failed to properly submit some of PAMC’s data, resulting in denial of Medicare reimbursement to PAMC in the approximate amount of $600,000. PAMC was denied relief by administrative agencies and appealed to the U.S. District Court in the Central District of California for judicial review, which was denied. PAMC later appealed to the United States Court of Appeals for the Ninth Circuit which affirmed the District Court's decision. The parties have entered into a tolling agreement pending the outcome of PAMC’s appeals. If a claim is filed against us, we expect to defend it.

Truven filed U.S. trademark applications for the trademarks Truven Health Analytics and Truven Health Unify. In May 2013 and March 2014, respectively, Truveris, Inc. (“Truveris”) filed notices of opposition against these applications in the Trademark Trial and Appeal Board of the United States Patent and Trademark Office alleging that the Truven Health Analytics and Truven Health Unify applications create a likelihood of confusion with Truveris’s alleged common law

trademark Truveris as well as its registered trademarks Trubid, Truguard, Trubuy, Trureport and Trurxpay. Truveris has also alleged that Truven’s use of the Truven alleged mark is likely to cause confusion with Truveris’s alleged trademark. While the parties have engaged in settlement discussions, there can be no assurance that they will conclude successfully, in which event the Company plans to vigorously defend these claims.

The Company is involved in other litigation proceedings arising from the normal course of its operations. Related reserves are recorded when it is probable that liabilities exist and where reasonable estimates of such liabilities can be made.

While it is not possible to predict the outcome of any of these proceedings, the Company's management, in conjunction with its legal advisors, based on its assessment of the facts and circumstances now known, does not believe that any of these proceedings, individually or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations and cash flows.

13. Fair Value Measurement

Fair value is defined under the Fair Value Measurements and Disclosures Topic of the Codification, FASB ASC 820, as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

• Level 1—Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2—Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3—Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

Under the Financial Instruments Topic of the Codification, ASC 825, entities are permitted to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value measurement option under ASC 825 for any of its financial assets or liabilities.

The Company has determined that the fair value of accounts receivable and accounts payable approximates carrying value at September 30, 2015 and December 31, 2014 due to short term maturity dates.

At September 30, 2015, the carrying amounts and fair values of the Senior Credit Facility and 10.625% Senior Notes were as follows:



			Fair values
	Carrying amounts		Level 1		Level 2		Level 3
Senior Term Loan	$	608,462	$	—	$	611,552	$	—
10.625% Senior Notes	366,914		—		383,672		—

At December 31, 2014, the carrying amounts and fair values of the Senior Credit facility and 10.625% Senior Notes were as follows:



			Fair values
	Carrying amounts		Level 1		Level 2		Level 3
Senior Term Loan	$	610,845	$	—	$	603,009	$	—
10.625% Senior Notes	366,877		—		357,971		—

Our level 2 inputs are determined based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves.

14. Supplemental Guarantor Financial Information

Truven has issued the Notes as further described in Note 6. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Truven Holding Corp. and each of Truven’s existing and future 100% owned domestic restricted subsidiaries that is a borrower under or that guarantees the obligations under the Senior Credit Facility or any other indebtedness of Truven or any other guarantor. All obligations under the Senior Credit Facility are also guaranteed by Truven Holding Corp. and each of Truven’s 100% owned domestic subsidiaries. All obligations under the Senior Credit Facility and the guarantees of those obligations are secured by first priority security interests in substantially all of Truven’s assets, as well as those of each guarantor (subject to certain limited exceptions).

Prior to the series of acquisitions in 2014, the separate financial statements and the condensed consolidating and combining financial information about the comprehensive loss, financial position and cash flows of the Parent, the Issuer, the Guarantors, the non-Guarantors, and eliminations were not presented due to the following:


•	Truven (the Issuer) is 100% owned by Truven Holding Corp. (the parent company guarantor).


•	The guarantee by Truven Holding Corp. is full and unconditional and there were no subsidiary guarantors.


•	Truven Holding Corp. has no independent assets or operations.


•	The transaction costs related to the Prior Acquisition of $26,734 were incurred and paid for by Wolverine, which was merged with and into TRHI, with TRHI surviving the Merger upon closing of the Prior Acquisition as a 100% owned direct subsidiary of Truven Holding Corp. and subsequently changing its name to Truven Health Analytics Inc.

•

The subsidiaries of Truven Holding Corp. other than Truven were minor (as defined in Section 3-10(h)(6) of Regulation S-X of the U.S. Securities Act of 1933, as amended (the “Securities Act”), having total assets, stockholders’ equity, revenue, operating income (before income taxes) and cash flows from operating activities of less than 3% of the Company’s corresponding consolidated amounts.

After the series of acquisitions, all acquired 100% owned domestic subsidiaries became guarantors of the obligations of Truven under the Senior Credit Facility and the Notes starting in second quarter of 2014. In accordance with Section 3-10 of Regulation S-X of the Securities Act, the following condensed consolidating financial statements are provided prospectively to present the statement of comprehensive income (loss), financial position and cash flows of:

(1) Truven Holding Corp., the Parent;

(2) Truven Health Analytics, Inc., the Subsidiary Issuer;

(3) Simpler North America LLC, Simpler Consulting LLC, JWA, and HBE, the Guarantor subsidiaries;

(4) All foreign non-Guarantor subsidiaries; and

(5) eliminations to arrive at the information for Truven Holding Corp. on a consolidated basis.

Separate financial statements and other disclosures concerning the Guarantors are not presented because management does not believe such information is material.

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Balance Sheets As of September 30, 2015



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	15,284		$	3,634		$	1,582		$	—		$	20,500
Trade and other receivables, net of allowances	—			91,472			10,444			1,702			—			103,618
Prepaid expenses and other current assets	—			29,533			842			492			—			30,867
Deferred tax asset	—			301			—			—			—			301
Intercompany receivable	—			28,850			35,150			57,031			(121,031		)	—
Total current assets	—			165,440			50,070			60,807			(121,031		)	155,286
Investment in subsidiaries	—			105,495			—			—			(105,495		)	—
Computer hardware and other property, net	—			34,890			108			528			—			35,526
Developed technology and content, net	—			113,132			7,615			—			—			120,747
Goodwill	—			457,677			41,143			—			—			498,820
Other identifiable intangible assets, net	—			301,709			43,106			—			—			344,815
Other noncurrent assets	—			18,147			76			455			—			18,678
Total assets	$	—		$	1,196,490		$	142,118		$	61,790		$	(226,526	)	$	1,173,872
Liabilities and Net Equity (Deficit)
Accounts payable and accrued expenses	$	—		$	76,192		$	8,460		$	2,538		$	—		$	87,190
Deferred revenue	—			113,178			4,850			25			—			118,053
Current portion of long-term debt	—			6,360			—			—			—			6,360
Capital lease obligation	—			691			—			—			—			691
Deferred tax liability	—			—			—			—			—			—
Current taxes payable	—			—			14			20			—			34
Intercompany payable	—			38,650			25,231			57,150			(121,031		)	—
Total current liabilities	—			235,071			38,555			59,733			(121,031		)	212,328
Deferred revenue	—			4,830			111			—			—			4,941
Capital lease obligation - noncurrent	—			853			—			—			—			853
Long-term debt	—			969,016			—			—			—			969,016
Accumulated losses of unconsolidated companies in excess of investment	17,705			—			186			—			(17,891		)	—
Deferred tax liabilities	—			301			—			—			—			301
Other noncurrent liabilities	—			4,124			14			—			—			4,138
Total liabilities	17,705			1,214,195			38,866			59,733			(138,922		)	1,191,577
Equity (deficit)
Common stock	—			—			—			—			—			—
Additional paid-in capital	484,561			484,561			114,090			(69		)	(598,582		)	484,561
Accumulated equity (deficit)	(501,855		)	(501,855		)	(10,789		)	2,691			509,953			(501,855		)
Foreign currency translation adjustment	(411		)	(411		)	(49		)	(565		)	1,025			(411		)
Total equity (deficit)	(17,705		)	(17,705		)	103,252			2,057			(87,604		)	(17,705		)
Total liabilities and net equity (deficit)	$	—		$	1,196,490		$	142,118		$	61,790		$	(226,526	)	$	1,173,872

Truven Holding Corp.

Consolidated Balance Sheets

As of December 31, 2014



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	8,243		$	3,264		$	1,097		$	—		$	12,604
Trade and other receivables, net of allowances	—			106,181			12,765			1,268			—			120,214
Prepaid expenses and other current assets	—			28,574			817			860			—			30,251
Deferred tax asset	—			621			—			—			—			621
Intercompany receivable	—			23,297			39,194			46,799			(109,290		)	—
Total current assets	—			166,916			56,040			50,024			(109,290		)	163,690
Investment in subsidiaries	47,123			109,851			(192		)	—			(156,782		)	—
Computer hardware and other property, net	—			36,459			207			769			—			37,435
Developed technology and content, net	—			128,917			5,161			—			—			134,078
Goodwill	—			457,677			41,143			—			—			498,820
Other identifiable intangible assets, net	—			327,554			55,325			—			—			382,879
Other noncurrent assets	—			15,951			—			236			—			16,187
Total assets	$	47,123		$	1,243,325		$	157,684		$	51,029		$	(266,072	)	$	1,233,089
Liabilities and Net Equity
Accounts payable and accrued expenses	$	—		$	58,777		$	5,931		$	2,520		$	—		$	67,228
Deferred revenue	—			121,903			6,802			424			—			129,129
Current portion of long-term debt	—			6,360			—			—			—			6,360
Capital lease obligation	—			664			—			—			—			664
Deferred tax liability	—			—			—			—			—			—
Current taxes payable	—			—			—			173			—			173
Intercompany payable	—			26,086			35,784			47,420			(109,290		)	—
Total current liabilities	—			213,790			48,517			50,537			(109,290		)	203,554
Deferred revenue	—			5,456			—			—			—			5,456
Capital lease obligation - noncurrent	—			1,374			—			—			—			1,374
Long-term debt	—			971,362			—			—			—			971,362
Deferred tax liabilities	—			621			—			—			—			621
Other noncurrent liabilities	—			3,599			—			—			—			3,599
Total liabilities	—			1,196,202			48,517			50,537			(109,290		)	1,185,966
Equity
Common stock	—			—			—			—			—			—
Additional paid-in capital	483,550			483,550			114,483			(125		)	(597,908		)	483,550
Accumulated equity (deficit)	(436,123		)	(436,123		)	(5,275		)	1,130			440,268			(436,123		)
Foreign currency translation adjustment	(304		)	(304		)	(41		)	(513		)	858			(304		)
Total	47,123			47,123			109,167			492			(156,782		)	47,123
Total liabilities and net equity	$	47,123		$	1,243,325		$	157,684		$	51,029		$	(266,072	)	$	1,233,089

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

For the Three Months Ended September 30, 2015



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Revenue, net	$	—		$	130,121		$	20,500		$	5,406		$	(3,064	)	$	152,963
Operating costs and expenses Cost of revenue, excluding depreciation and amortization	—			(72,581		)	(10,762		)	(1,447		)	2,619			(82,171		)
Selling and marketing, excluding depreciation and amortization	—			(13,194		)	(1,787		)	(1,915		)	—			(16,896		)
General and administrative, excluding depreciation and amortization	—			(10,990		)	(4,362		)	(1,373		)	—			(16,725		)
Depreciation	—			(5,464		)	(17		)	(110		)	—			(5,591		)
Amortization of developed technology and content	—			(10,674		)	(338		)	—			—			(11,012		)
Amortization of other identifiable intangible assets	—			(8,615		)	(3,859		)	—			—			(12,474		)
Other operating expenses	—			(3,703		)	(196		)	—			445			(3,454		)
Total operating costs and expenses	—			(125,221		)	(21,321		)	(4,845		)	3,064			(148,323		)
Operating income (loss)	—			4,900			(821		)	561			—			4,640
Net interest expense	—			(18,607		)	—			1			—			(18,606		)
Other finance costs	—			(316		)	(122		)	10			—			(428		)
Equity in net income (loss) of subsidiaries	(14,598		)	(575		)	(68		)	—			15,241			—
Income (loss) before income taxes	(14,598		)	(14,598		)	(1,011		)	572			15,241			(14,394		)
Provision for income taxes	—			—			(24		)	(180		)	—			(204		)
Net income (loss)	$	(14,598	)	$	(14,598	)	$	(1,035	)	$	392		$	15,241		$	(14,598	)

Other comprehensive income (loss):
Foreign currency translation adjustments	(164		)	(164		)	(11		)	(183		)	358			(164		)
Total comprehensive income (loss)	$	(14,762	)	$	(14,762	)	$	(1,046	)	$	209		$	15,599		$	(14,762	)

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

For the Three Months Ended September 30, 2014



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Revenue, net	$	—		$	127,017		$	11,228		$	2,295		$	(353	)	$	140,187
Operating costs and expenses Cost of revenue, excluding depreciation and amortization	—			(68,555		)	(5,084		)	(1,803		)	353			(75,089		)
Selling and marketing, excluding depreciation and amortization	—			(11,855		)	(326		)	(906		)	—			(13,087		)
General and administrative, excluding depreciation and amortization	—			(10,770		)	(2,945		)	(683		)	—			(14,398		)
Depreciation	—			(4,733		)	(16		)	(182		)	—			(4,931		)
Amortization of developed technology and content	—			(9,820		)	—			—			—			(9,820		)
Amortization of other identifiable intangible assets	—			(8,615		)	(3,345		)	—			—			(11,960		)
Other operating expenses	—			(5,778		)	(48		)	—			—			(5,826		)
Total operating costs and expenses	—			(120,126		)	(11,764		)	(3,574		)	353			(135,111		)
Operating loss (income)	—			6,891			(536		)	(1,279		)	—			5,076
Net interest expense	—			(17,662		)	—			(1		)	—			(17,663		)
Other finance costs	—			(116		)	—			35			—			(81		)
Equity in net income (loss) of subsidiaries	(6,620		)	(1,641		)	18			—			8,243			—
Income (loss) before income taxes	(6,620		)	(12,528		)	(518		)	(1,245		)	8,243			(12,668		)
Benefit from (provision for) income taxes	—			5,908			90			50			—			6,048
Net income (loss)	$	(6,620	)	$	(6,620	)	$	(428	)	$	(1,195	)	$	8,243		$	(6,620	)

Other comprehensive income (loss):
Foreign currency translation adjustments	(26		)	(26		)	(7		)	(20		)	53			(26		)
Total comprehensive income (loss)	$	(6,646	)	$	(6,646	)	$	(435	)	$	(1,215	)	$	8,296		$	(6,646	)

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

For the Nine Months Ended September 30, 2015



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Revenue, net	$	—		$	384,069		$	57,041		$	16,745		$	(8,538	)	$	449,317
Operating costs and expenses Cost of revenue, excluding depreciation and amortization	—			(221,160		)	(31,339		)	(4,320		)	7,408			(249,411		)
Selling and marketing, excluding depreciation and amortization	—			(40,131		)	(5,020		)	(5,394		)	—			(50,545		)
General and administrative, excluding depreciation and amortization	—			(33,545		)	(11,885		)	(4,577		)	—			(50,007		)
Depreciation	—			(15,709		)	(71		)	(308		)	—			(16,088		)
Amortization of developed technology and content	—			(32,113		)	(880		)	—			—			(32,993		)
Amortization of other identifiable intangible assets	—			(25,845		)	(12,219		)	—			—			(38,064		)
Other operating expenses	—			(20,782		)	(620		)	—			1,130			(20,272		)
Total operating costs and expenses	—			(389,285		)	(62,034		)	(14,599		)	8,538			(457,380		)
Operating income (loss)	—			(5,216		)	(4,993		)	2,146			—			(8,063		)
Net interest expense	—			(55,587		)	1			(2		)	—			(55,588		)
Other finance costs	—			(1,071		)	(304		)	(81		)	—			(1,456		)
Equity in net income (loss) of subsidiaries	(65,732		)	(3,858		)	(97		)	—			69,687			—
Income (loss) before income taxes	(65,732		)	(65,732		)	(5,393		)	2,063			69,687			(65,107		)
Provision for income taxes	—			—			(121		)	(504		)	—			(625		)
Net income (loss)	$	(65,732	)	$	(65,732	)	$	(5,514	)	$	1,559		$	69,687		$	(65,732	)

Other comprehensive income (loss):
Foreign currency translation adjustments	(107		)	(107		)	(8		)	(52		)	167			(107		)
Total comprehensive income (loss)	$	(65,839	)	$	(65,839	)	$	(5,522	)	$	1,507		$	69,854		$	(65,839	)

Truven Holding Corp.

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

For the Nine Months Ended September 30, 2014



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Revenue, net	$	—		$	370,022		$	20,627		$	10,649		$	(6,424	)	$	394,874
Operating costs and expenses Cost of revenue, excluding depreciation and amortization	—			(212,325		)	(9,234		)	(5,963		)	6,424			(221,098		)
Selling and marketing, excluding depreciation and amortization	—			(39,143		)	(739		)	(2,741		)	—			(42,623		)
General and administrative, excluding depreciation and amortization	—			(32,220		)	(5,468		)	(1,407		)	—			(39,095		)
Depreciation	—			(17,052		)	(28		)	(368		)	—			(17,448		)
Amortization of developed technology and content	—			(28,689		)	—			—			—			(28,689		)
Amortization of other identifiable intangible assets	—			(25,845		)	(6,998		)	—			—			(32,843		)
Other operating expenses	—			(17,123		)	(78		)	—			—			(17,201		)
Total operating costs and expenses	—			(372,397		)	(22,545		)	(10,479		)	6,424			(398,997		)
Operating loss (income)	—			(2,375		)	(1,918		)	170			—			(4,123		)
Net interest expense	—			(51,355		)	—			3			—			(51,352		)
Other finance costs	—			(348		)	—			(69		)	—			(417		)
Equity in net income (loss) of subsidiaries	(34,677		)	(1,210		)	30			—			35,857			—
Income (loss) before income taxes	(34,677		)	(55,288		)	(1,888		)	104			35,857			(55,892		)
Benefit from (provision for) income taxes	—			20,611			631			(27		)	—			21,215
Net income (loss)	$	(34,677	)	$	(34,677	)	$	(1,257	)	$	77		$	35,857		$	(34,677	)

Other comprehensive income (loss):
Foreign currency translation adjustments	(111		)	(111		)	—			(111		)	222			(111		)
Total comprehensive income (loss)	$	(34,788	)	$	(34,788	)	$	(1,257	)	$	(34	)	$	36,079		$	(34,788	)

Truven Holding Corp.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2015



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	(65,732	)	$	(65,732	)	$	(5,514	)	$	1,559		$	69,687		$	(65,732	)
Non-cash adjustments	65,732			89,177			13,267			308			(69,687		)	98,797
Changes in operating assets and liabilities	—			13,277			1,915			(817		)	—			14,375
Net cash provided by operating activities	—			36,722			9,668			1,050			—			47,440
Investing activities
Acquisitions, net of cash acquired	—			(405		)	—			—			—			(405		)
Capital expenditures	—			(30,459		)	(2,679		)	(66		)	—			(33,204		)
Net cash used in investing activities	—			(30,864		)	(2,679		)	(66		)	—			(33,609		)
Financing activities
Principal repayment of senior term loan	—			(4,770		)	—			—			—			(4,770		)
Intercompany transaction	—			7,010			(6,508		)	(502		)	—			—
Payment of capital lease obligation	—			(495		)	—			—			—			(495		)
Payment of debt finance costs	—			(563		)	—			—			—			(563		)
Additional paid in capital	—			—			(57		)	57			—			—
Net cash provided by (used in) financing activities	—			1,182			(6,565		)	(445		)	—			(5,828		)
Effect of exchange rate changes in cash and cash equivalents	—			1			(54		)	(54		)	—			(107		)
Increase in cash and cash equivalents	—			7,041			370			485			—			7,896
Cash and cash equivalents
Beginning of period	—			8,243			3,264			1,097			—			12,604
End of period	$	—		$	15,284		$	3,634		$	1,582		$	—		$	20,500

Truven Holding Corp.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine months Ended September 30, 2014



	Parent			Issuer			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	(34,677	)	$	(34,677	)	$	(1,257	)	$	77		$	35,857		$	(34,677	)
Non-cash adjustments	34,677			61,859			6,313			458			(35,857		)	67,450
Changes in operating assets and liabilities	—			2,371			2,824			94			—			5,289
Net cash provided by operating activities	—			29,553			7,880			629			—			38,062
Investing activities
Acquisitions, net of cash acquired	—			(77,400		)	—			—			—			(77,400		)
Capital expenditures	—			(24,222		)	—			(190		)	—			(24,412		)
Net cash used in investing activities	—			(101,622		)	—			(190		)	—			(101,812		)
Financing activities
Proceeds from revolving credit facility	—			15,000			—			—			—			15,000
Principal repayment of senior term loan	—			(4,517		)	—			—			—			(4,517		)
Repayment of revolving credit facility	—			(30,000		)	—			—			—			(30,000		)
Proceeds from Senior term loan related to refinancing	—			100,000			—			—			—			100,000
Intercompany transaction	—			2,513			(2,723		)	210			—			—
Payment of debt issuance costs	—			(2,895		)	—			—			—			(2,895		)
Payment of capital lease obligation	—			(1,498		)	—			—			—			(1,498		)
Net cash provided by (used in) financing activities	—			78,603			(2,723		)	210			—			76,090
Effect of exchange rate changes in cash and cash equivalents	—			—			—			(111		)	—			(111		)
Increase (decrease) in cash and cash equivalents	—			6,534			5,157			538			—			12,229
Cash and cash equivalents
Beginning of period	—			9,573			—			682			—			10,255
End of period	$	—		$	16,107		$	5,157		$	1,220		$	—		$	22,484

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations covers the three and nine months ended September 30, 2015 and September 30, 2014. You should read the following discussion and analysis in conjunction with our unaudited interim condensed consolidated financial statements as of September 30, 2015, and the related notes thereto included elsewhere in this quarterly report. The unaudited interim condensed consolidated financial statements for the period ended September 30, 2015 represent the consolidated financial statements of Truven Holding and its subsidiaries.

Note to Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” (as defined in Section 27A of the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that reflect our expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Words such as “anticipates,” “believes,” “plans,” “expects,” “intends,” “estimates,” “projects,” “targets,” “can,” “could,” “may,” “should,” “will,” “would,” and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying these statements. For purposes of this Quarterly Report on Form 10-Q, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements reflect our current beliefs and expectations and are based on information currently available to us. As such, no assurance can be given that our future growth, results of operations, performance and business prospects and opportunities covered by such forward-looking statements will be achieved. We have no intention or obligation to update or revise these forward-looking statements to reflect new events, information or circumstances.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2014, and those described from time to time in our future reports filed with the SEC.

Overview

We are a leading healthcare analytics solutions and services business focused on quality improvement and cost reduction. We provide analytics solutions and service offerings across the full spectrum of healthcare constituents including state and federal government agencies, hospitals, health systems, employers, health plans, life sciences companies and consumers. We enable such clients to formulate strategy, improve operational, clinical and financial performance, enhance patient outcomes, manage risk and increase transparency.

Our Segments

Commercial

Government

Center/shared services consist of items that are not directly attributable to reportable segments, such as corporate administrative costs and elimination of intercompany transactions.

The accounting policies for the reportable segments are the same as those for the consolidated Company. The Company’s operations and customers are based primarily in the United States.

2014 Acquisitions

Simpler acquisition

On April 11, 2014, we acquired Simpler, which provides "Lean" organizational transformation consulting services. This strategic acquisition combines the Company's market-leading cost and quality analytics in the Commercial segment with Simpler's performance management consulting capabilities to deliver performance improvement solutions to healthcare and commercial customers. We acquired all of the outstanding equity of Simpler for a purchase price of $81.1 million, including a working capital adjustment of $1.1 million, and the issuance of equity interests by Holdings LLC, the direct parent of the Company, of $3.7 million to Simpler. The related acquisition costs amounted to $3.6 million. We financed the acquisition and related costs and expenses through an increase in the Tranche B Term Loans under the Senior Credit Facility. We did not assume any indebtedness in connection with the Simpler Transaction.

JWA acquisition

On October 31, 2014, we acquired JWA, a company that provides "Lean" organizational transformation consulting services to healthcare businesses. We acquired all of the outstanding equity of JWA for a cash purchase price of $15.3 million, including a $1.2 million working capital adjustment and $0.1 million holdback payment. Truven also agreed to pay $1.9 million in three annual payments to a former major shareholder of JWA who became Truven's employee, as long as the former major shareholder remained with Truven for the next three years. The related acquisition costs amounted to $0.6 million. We did not assume any indebtedness in connection with the JWA Transaction. We financed the acquisition and related costs and expenses through the issuance of the Additional Notes.

HBE acquisition

On November 12, 2014, we acquired HBE, a leading provider of global key leader and market access stakeholder information that is essential for life sciences companies to gain drug approval, reimbursement, and adoption, for a cash purchase price of $17.2 million, including negative working capital adjustment of $2.8 million. The related acquisition costs amounted to $1.2 million. We financed the acquisition and related costs and expenses through the issuance of the Additional Notes. We did not assume any of HBE's indebtedness in connection with the HBE Transaction.

In accordance with the acquisition method of accounting, following the date of each of the foregoing acquisitions, we, with the assistance of a third-party valuation firm, have estimated the fair values of acquired assets and assumed liabilities based on the actual tangible and identifiable intangible assets and liabilities that existed at the date of the acquisitions. These fair values are preliminary and were reflected on our balance sheet on the date of the acquisitions. In this process, we applied certain assumptions as inputs to the valuation calculations. These assumptions represent our best estimates based on historic performance of the respective reporting segments, trends within the market place and our consideration of the potential impact of political, economic and social factors that are considered beyond our control. Significant assumptions included within our discounted cash flow valuation include revenue growth rates, operating profit margins, implied rate of return used and terminal growth rates. Our results of operations, financial position and cash flows are impacted by the effects of the acquisitions, which were financed primarily through borrowings, including transaction-related costs, debt commitment fees and recurring interest costs.

Deferred Revenue: Fair Value Adjustments

Our revenue is derived from the sale of subscription data, and analytics solutions and services. Our revenue from the sale of subscription data and analytics solutions are typically billed annually in advance and recognized on a straight-line basis over the contract term, which is typically one to three years. As a result, cash collections from customers for subscription data and analytics solutions can be greater than the revenue recognized (which only correspond to those revenue associated with services already rendered). In cases of billings in advance or advanced receipt of payments from customers, we record deferred revenue, a liability that is reduced as revenue is recognized. Our revenue from services are invoiced according to the terms of the contract, typically in arrears (after the corresponding services have been rendered), and recognized over the term of the contract. Contracts for services vary in length from a few months to several years. During the acquisition of the healthcare business of Thomson Reuters on June 6, 2012 (referred to as the "Prior Acquisition"), the carrying value of our deferred revenue totaled $138.7 million. With the assistance of a third-party valuation firm, we determined that the fair value of our deferred revenue should be adjusted to $80.2 million. As a result, deferred revenue on certain contracts of $58.5 million was written off. Following the acquisitions of Simpler, HBE and JWA during 2014, the carrying values of deferred revenue from acquired companies totaled $11.7 million, and with the assistance of a third-party valuation firm, it was determined that the fair value of the deferred revenue should be adjusted to $4.8 million. As a result, deferred revenue on certain contracts of $6.9 million was written off. These write-offs on deferred revenue negatively impacted our revenue subsequent to the acquisitions.

During the three and nine months ended September 30, 2015, our revenue was negatively impacted by $0.9 million and $4.8 million, respectively. For the three and nine months ended September 30, 2014, our revenue was negatively impacted by $0.7 million and $2.1 million, respectively. The write-offs will have a future aggregate negative impact to revenue of $2.4 million in future periods.

Results of Operations

The following section provides a comparative discussion of our results of operations for the three and nine months ended September 30, 2015 and 2014, and should be read in conjunction with our unaudited condensed consolidated financial statements for these periods and the related notes thereto, included elsewhere in this quarterly report. Factors that relate primarily to a specific business segment are discussed in more detail within that business segment. For a

discussion of critical accounting policies affecting our financial condition and results of operation, see the “Critical Accounting Policies” section herein.

The following table summarizes our unaudited interim condensed consolidated results of operations for the three months ended September 30, 2015 and 2014:



(Dollars in thousands)	Three months ended September 30, 2015			% of revenue		Three months ended September 30, 2014			% of revenue		Change			% change

Revenue, net(a)	$	152,963		100	%	$	140,187		100	%	$	12,776		9	%
Operating costs and expenses
Cost of revenue, excluding depreciation and amortization(b)	(82,171		)	(54	)%	(75,089		)	(54	)%	(7,082		)	9	%
Selling and marketing, excluding depreciation and amortization(c)	(16,896		)	(11	)%	(13,087		)	(9	)%	(3,809		)	29	%
General and administrative, excluding depreciation and amortization(d)	(16,725		)	(11	)%	(14,398		)	(10	)%	(2,327		)	16	%
Depreciation(e)	(5,591		)	(4	)%	(4,931		)	(4	)%	(660		)	13	%
Amortization of developed technology and content(f)	(11,012		)	(7	)%	(9,820		)	(7	)%	(1,192		)	12	%
Amortization of other identifiable intangible assets(g)	(12,474		)	(8	)%	(11,960		)	(9	)%	(514		)	4	%
Other operating expenses(h)	(3,454		)	(2	)%	(5,826		)	(4	)%	2,372			(41	)%
Total operating costs and expenses	(148,323		)	(97	)%	(135,111		)	(96	)%	(13,212		)	10	%
Operating income	4,640			3	%	5,076			4	%	(436		)	(9	)%
Net interest expense (i)	(18,606		)	(12	)%	(17,663		)	(13	)%	(943		)	5	%
Other finance costs	(428		)	—	%	(81		)	—	%	(347		)	428	%
Loss before income taxes	(14,394		)	(9	)%	(12,668		)	(9	)%	(1,726		)	14	%
Benefit from (provision for) income taxes	(204		)	—	%	6,048			4	%	(6,252		)	(103	)%
Net loss	$	(14,598	)	(10	)%	$	(6,620	)	(5	)%	$	(7,978	)	121	%

(a) Includes (i) subscription revenue from sales of products and services that are delivered under a contract over a period of time, which are recognized on a straight line basis over the term of the subscription, (ii) revenues from implementation and hosting arrangement that included: (1) the design, production, testing and installation of the customer's database (implementation phase); and (2) the provision of ongoing data management and support services in conjunction with the licensed data and subscription of software data or application (on-going service phase, hosting or subscription).


(b)	Includes all personnel and other costs attributable to a revenue stream, including but not limited to, client support, client operations, product management, royalties, allocation of technology support costs relating to market data and professional service costs.


(c)	Includes all personnel and other costs related to sales and marketing, including but not limited to, sales and marketing staff, commissions and marketing events.


(d)	Includes all personnel and other costs related to general administration as well as costs shared across the organization, including but not limited to technology, finance and strategy.

(e) Includes depreciation of computer hardware, furniture, fixture and equipments, and leasehold improvements.

(f) Includes amortization of developed technology and contents used internally and capitalized once a project has progressed beyond a conceptual, preliminary stage to that of application development stage. Costs that qualify for capitalization include both internal and external costs, but are limited to those that are directly related to a specific project.


(g)	Includes amortization of definite-lived trademarks and trade names, backlogs, non-compete agreements and acquired customer relationship assets.

(h)

In 2015, other operating expenses included accrual and true-up of severance liabilities related to certain positions that were eliminated as part of the continuous streamlining of other positions within the organization to improve our business decision-making process, acquisition-related costs and other transaction related costs as a result of integrating the acquired businesses to the Company, and a Sponsor fee for Veritas Capital. In 2014, other operating expenses included severance expense for certain positions that were eliminated as part of the change in the Company's operating segment structure and continuous streamlining of other positions within the organization to improve our business decision-making process, acquisition-related costs and non-recurring charges as a result of integrating Simpler to the Company, and other professional fees incurred related to business improvement processes. See Note 7 to the condensed consolidated financial statements included elsewhere in this quarterly report.


(i)	Interest earned or paid, net of interest income related to third party transactions.

Discussion of three months ended September 30, 2015 and 2014

Revenue, net

Our net revenue was $153.0 million for the three months ended September 30, 2015 as compared to $140.2 million for the three months ended September 30, 2014, an increase of $12.8 million or 9%. The increase was primarily due to the $8.5 million increase in revenue from our Commercial segment and a $4.7 million increase in revenue from our Government segment. The increase in revenue from our Commercial segment was primarily due to the $6.8 million of revenue from operations of the HBE and JWA businesses, the two businesses we acquired in the fourth quarter of 2014 and an increase of $3.5 million from our Lean organizational transformation consulting services business due to demand from new customers, and a $1.3 million increase in revenue from our analytics solution services for life science customers due to higher demand in outcome research and strategic consulting. These increases were offset by a $2.1 million decline in demand our planning solutions for hospitals. The increase in revenue from our Government segment was primarily due to new contract revenues from our federal and state channels.

The total impact on revenue related to the deferred revenue adjustment in connection with the Prior Acquisition and acquisitions during 2014 amounted to $0.8 million in 2015 compared to $0.7 million in 2014.

Cost of revenues, excluding depreciation and amortization

Our cost of revenues, excluding depreciation and amortization, was $82.2 million for the three months ended September 30, 2015 as compared to $75.1 million for the three months ended September 30, 2014, an increase of $7.1 million, or 9%. The increase was mainly due to $4.9 million cost of revenues from the operations of our businesses acquired during the fourth quarter of 2014. The remaining increase was a function of higher overall costs of revenue corresponding to the higher revenues mainly due to our Government segment.

Selling and marketing expense, excluding depreciation and amortization

Our selling and marketing expense, excluding depreciation and amortization, was $16.9 million for the three months ended September 30, 2015 as compared to $13.1 million for the three months ended September 30, 2014, an increase of $3.8 million or 29%, which is mainly due to $2.3 million selling and marketing expenses attributable to the operations of our businesses acquired during the fourth quarter of 2014.

General and administrative expense, excluding depreciation and amortization

Our general and administrative expense, excluding depreciation and amortization, was $16.7 million for the three months ended September 30, 2015 as compared to $14.4 million for the three months ended September 30, 2014, an increase of $2.3 million, or 16%, which was due to incremental general and administrative expenses from the operations of our businesses acquired in 2014.

Depreciation and amortization

Our depreciation and amortization expense was $29.1 million for the three months ended September 30, 2015 as compared to $26.7 million for the three months ended September 30, 2014, an increase of $2.4 million or 9%. This increase was primarily due to the overall increase in developed technology and content as we continue to enhance our products. In addition, developed technology and content also increased as a result of the acquisition of HBE in the fourth quarter of 2014.

Other operating expenses

Our other operating expense was $3.5 million for the three months ended September 30, 2015 as compared to $5.8 million for the three months ended September 30, 2014, a decrease of $2.4 million or 41%. The decrease was mainly due to $1.3 million of higher acquisition and integration costs related to businesses acquired in 2014, and $1.3 million of higher severance costs in 2014, offset in part by a $0.2 million increase in the Sponsor fee paid to Veritas Capital during the 2015 period.

Operating income

Our operating income was $4.6 million for the three months ended September 30, 2015 as compared to an operating income of $5.1 million for the three months ended September 30, 2014, a decrease in operating income of $0.5 million, or 10%. The decrease in operating income was primarily due to a $12.8 million increase in revenue while total operating expenses increased by $13.2 million, each as discussed above.

Net interest expense

Our net interest expense was $18.6 million for the three months ended September 30, 2015, as compared to $17.7 million for the three months ended September 30, 2014, an increase of $0.9 million, or 5%. The increase was primarily due to the issuance of $40 million of Additional Notes in November 2014, which was used to finance the acquisitions of HBE and JWA.

Other finance costs

Other finance costs mainly represents foreign exchange gains/losses from our international operations. Also included in other finance costs are bank charges and fees.

Benefit from (provision for) income taxes

Our income tax provision was $0.2 million for the three months ended September 30, 2015, as compared to an income tax benefit of $6.0 million for the three months ended September 30, 2014, an increase of $6.2 million or 103%. Income tax provision for the three months ended September 30, 2015, at an effective tax rate of (1.4)%, is different from the amount derived by applying the federal statutory tax rate of 35%, mainly due to the impact of a valuation allowance of $5.5 million recorded against the Company's net deferred tax asset as it is not more likely than not that the net deferred tax asset will be realized. Income tax benefit for the three months ended September 30, 2014, at an effective tax rate of 47.7%, is different from the amount derived by applying the federal statutory tax rate of 35%, mainly due to the impact of certain state income taxes, partially offset by non-deductible expenses.

Segment discussion

The following table summarizes our unaudited interim condensed consolidated segment information and discussion of the results of our operations for the three months ended September 30, 2015 and September 30, 2014:



(Dollars in thousands)	Three months ended September 30, 2015		% of revenue		Three months ended September 30, 2014		% of revenue		Change			% change

Commercial
Revenue	$	123,635	100	%	$	115,095	100	%	$	8,540		7	%
Segment operating income	40,815		33	%	41,967		36	%	(1,152		)	(3	)%
Government
Revenue	29,775		100	%	25,092		100	%	4,683			19	%
Segment operating income	3,560		12	%	1,984		8	%	1,576			79	%

Commercial segment

Revenue

Our Commercial revenue was $123.6 million for the three months ended September 30, 2015 as compared to $115.1 million for the three months ended September 30, 2014, an increase of $8.5 million or 7%. The increase was primarily due to the $6.8 million of revenue from operations of the HBE and JWA businesses, the two businesses we acquired in the fourth quarter of 2014. Additionally, revenue increased by $3.5 million primarily from our Lean organizational transformation consulting services due to demand from new customers and a $1.3 million increase in revenue from our analytics solution services for life science customers due to higher demand in outcomes research and strategic consulting. These increases were offset by a $2.1 million decline in demand in our planning solutions for hospitals.

Operating income

Our Commercial operating income was $40.8 million for the three months ended September 30, 2015 as compared to $42.0 million for the three months ended September 30, 2014, a decrease of $1.2 million or 3%, primarily due to the increase in operating expenses discussed above.

Government segment

Revenue

Our Government revenue was $29.8 million for the three months ended September 30, 2015 as compared to $25.1 million for the three months ended September 30, 2014, an increase of $4.7 million or 19%. This increase was primarily due to new contract revenues from our federal and state channels of $1.8 million and $2.8 million, respectively. The remaining increase was due to the lower impact from the deferred revenue adjustment from purchase accounting in connection with the Prior Acquisition.

Operating income (loss)

Our Government operating income was $3.6 million for the three months ended September 30, 2015 as compared to $2.0 million for the three months ended September 30, 2014, an increase of $1.6 million or 79% . This was primarily due to the $4.7 million increase in revenue as discussed above, offset in part by a corresponding increase in project costs on new contracts.

The following table summarizes our unaudited interim condensed consolidated results of operations for the nine months ended September 30, 2015 and 2014:

(Dollars in thousands)

Nine months ended September 30, 2015

% of revenue

Nine months ended September 30, 2014

% of revenue

Change

% change

Revenue, net(a)

449,317

Truven Holding Corp. 10-Q