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ACQUISITIONS
12 Months Ended
Dec. 31, 2013
ACQUISITIONS [Abstract]  
Acquisitions
ACQUISITIONS

CarePoint Partners Holdings LLC

On August 23, 2013, the Company closed on the acquisition of substantially all of the assets and assumption of certain liabilities that constituted the home infusion business (the “CarePoint Business”) of CarePoint Partners Holdings LLC, a Delaware limited liability company, and its subsidiaries (collectively "CarePoint"). CarePoint was a provider of home and alternate-site infusion therapy for patients with complex, acute and chronic illnesses. CarePoint serviced approximately 20,500 patients annually through 28 sites of service in nine states in the East Coast and Gulf Coast regions.

The total consideration to the sellers at closing was $211.1 million paid in cash plus a contingent payment of up to $10.0 million. The Sellers of the CarePoint Business will be eligible to receive the contingent payment if the CarePoint Business achieves a specified level of product gross profit during the one-year period following the closing date. Subsequent to the closing, the Company identified additional net working capital adjustments of approximately $2.2 million primarily related to the value of accounts receivable and prepaid expenses as of the date of acquisition and has requested payment from the sellers. The $2.2 million amount due from CarePoint is included in prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets and is reflected in the estimated fair values below.

At the date of acquisition, the fair value of the $10.0 million contingent payment was estimated at $9.8 million and recorded in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets. The fair value of the contingent payment was determined using Level 3 inputs based on the present value of various payout scenarios, weighted on the basis of probability. At December 31, 2013, the fair value of the contingent payment was re-evaluated using the actual operating results during 2013 and forecasted operating results for 2014 of the CarePoint Business and no adjustment was made.

The Company funded the cash payment at closing with a combination of cash on hand and $150.0 million in borrowings under the Senior Credit Facilities (see Note 9 - Debt).

The table below summarizes the Company's preliminary assessment of the estimated fair values of the assets acquired and liabilities assumed as of the date of Closing of the acquisition of the CarePoint Business. The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the date of the Closing may result in retrospective adjustments to the provisional amounts recognized. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.

 
Estimated Fair Value
(in thousands)
Cash
$
14

Accounts receivable
16,644

Inventories
3,263

Other current assets
272

Property and equipment
3,266

Identifiable intangible assets(1)
16,700

Current liabilities
(8,128
)
Non-current liabilities
(621
)
Total identifiable net assets
31,410

Goodwill
187,228

Total cash and fair value of contingent consideration
$
218,638



(1)
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
 
Weighted-
 Average
 Useful Lives
 
 
Amounts
Recognized as of the Closing Date
(in thousands)
Customer relationships
2 - 4 years
 
$
13,600

Trademarks
2 years
 
2,600

Non-compete agreements
5 years
 
500

Total identifiable intangible assets acquired
 
 
$
16,700



The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represents the value the Company expects to be created by combining the various operations of the CarePoint Business with the Company's operations, including the expansion into new infusion markets, the opportunity to consolidate and upgrade certain existing facilities, access to new patients and potential cost savings and synergies. The CarePoint transaction was structured such that the amount allocated to goodwill will be deductible for income tax purposes.

The accompanying Consolidated Statements of Operations for the year ended December 31, 2013 include revenues and income from continuing operations of the CarePoint Business of $55.8 million and $2.3 million.

HomeChoice Partners, Inc.

On February 1, 2013, the Company acquired 100% of the ownership interest in HomeChoice Partners, Inc., a Delaware corporation ("HomeChoice"). Prior to the Company's acquisition, HomeChoice was a provider of alternate-site infusion pharmacy services that serviced approximately 15,000 patients annually and had 14 infusion pharmacy locations in Pennsylvania, Washington, DC, Maryland, Virginia, North Carolina, South Carolina, Georgia, Missouri, and Alabama.

The cash purchase price of the HomeChoice acquisition was $72.9 million paid at the closing date. In addition, the purchase price may be increased by contingent consideration of up to $20.0 million if HomeChoice reaches certain performance milestones in the two years following the closing.

At the date of acquisition, the fair value of the potential contingent consideration, using Level 3 inputs, was estimated at $8.0 million. The $20.0 million maximum amount of the contingent consideration was based on high growth targets that were an incentive for the sellers to partner with the Company to drive performance in excess of the assumptions under the transaction valuation model. The opportunities to outperform the transaction valuation model were quantified and used in the Company's initial fair value assessment at the acquisition date. Because the performance thresholds required to earn the contingent consideration were high, the Company assigned lower than a 50% probability of payout to the various payout scenarios considered when we estimated the initial fair value of $8.0 million. At December 31, 2013, the fair value of the contingent payment was re-evaluated using the actual operating results during 2013 and forecasted operating results for 2014 to adjust the present value and probability of the various payout scenarios. Specifically, the 2013 operating results indicated that the sellers would not earn the $10.0 million maximum payout for the first year. Additionally, the remaining $10.0 million maximum payout related to the second year was less likely to be earned given the growth required above current projections necessary to achieve the payout target. While the acquisition has generated expected revenues forecasted in the transaction valuation model, it did not exceed the model sufficiently to earn additional contingent consideration. As a result of this reevaluation, the fair value of the contingent payment was reduced to $2.2 million and is included in other non-current liabilities in the accompanying Consolidated Balance Sheets. The $5.8 million of income resulting from the reduction in the fair value of the contingent liability is included in change in fair value of contingent consideration in the accompanying Consolidated Statements of Operations for the year ended December 31, 2013.

The Company funded the acquisition with a combination of cash and the Prior Credit Facility.

The table below summarizes the Company's assessment of the fair values of the assets acquired and liabilities assumed as of the acquisition date of HomeChoice.
 
Fair Value
(in thousands)
Accounts receivable
$
9,693

Inventories
1,984

Other current assets
154

Property and equipment
2,432

Identifiable intangible assets(1)
4,000

Other non-current assets
30

Current liabilities
(4,073
)
Total identifiable net assets
14,220

Goodwill
66,701

Total cash and fair value of contingent consideration
$
80,921


(1)
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
 
Weighted-
 Average
 Useful Lives
 
 
Amounts
Recognized as of
Acquisition Date
(in thousands)
Customer relationships
5 mo. - 3 years
 
$
2,000

Trademarks
23 months
 
1,000

Non-compete agreements
1 year
 
1,000

Total identifiable intangible assets acquired
 
 
$
4,000



The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represented the value the Company expected to be created by combining the various operations of HomeChoice with the Company's operations, including the expansion into new infusion markets, the opportunity to consolidate and upgrade certain existing facilities, access to new patients and potential cost savings and synergies. The HomeChoice transaction was structured such that the amount allocated to goodwill will be deductible for income tax purposes.

The accompanying Consolidated Statements of Operations for the year ended December 31, 2013 includes revenues and income from continuing operations related to HomeChoice for the period from the date of acquisition through December 31, 2013, of $67.7 million and $2.6 million, respectively.

InfuScience, Inc.

On July 31, 2012, the Company acquired 100% of InfuScience, Inc. (“InfuScience”) for a cash payment of $38.3 million. The purchase price could increase up to an additional $3.0 million based on the results of operations during the 24 month period through July 31, 2014. InfuScience historically acquired, developed and operated businesses providing alternate site infusion pharmacy services through 5 infusion centers located in Eagan, Minnesota; Omaha, Nebraska; Chantilly, Virginia; Charleston, South Carolina; and Savannah, Georgia.

At the date of acquisition, the fair value of the potential contingent payments of $3.0 million was estimated at $2.9 million. The fair value of the contingent liability was determined using Level 3 inputs based on the present value of various payout scenarios, weighted on the basis of probability. As of December 31, 2013, the Company has made contingent payments of $1.7 million based on the achievement of expected operating results. At December 31, 2013, the fair value of the remaining contingent liability was reevaluated using actual operating results during 2013, forecasted operating results for 2014 and payments made through December 31, 2013 to adjust the present value and probability of the various payout scenarios. As a result of this reevaluation, the fair value of the contingent payment was increased to $1.3 million and is included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets. The $0.1 million of expense resulting from the increase in the fair value of the contingent liability is included in change in fair value of contingent consideration in the accompanying Consolidated Statements of Operations for the year ended December 31, 2013.

The table below summarizes the Company's assessment of the fair values of the assets acquired and liabilities assumed as of the acquisition date of InfuScience.
 
Fair Value
(in thousands)
Cash
$
23

Accounts receivable
4,938

Inventories
586

Other current assets
371

Property and equipment
751

Identifiable intangible assets(1)
400

Other non-current assets
349

Current liabilities
(4,428
)
Total identifiable net assets
2,990

Goodwill
38,429

Total cash and fair value of contingent consideration
$
41,419


(1)
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
 
Weighted-
 Average
 Useful Lives
 (Months)
 
Amounts
Recognized as of
Acquisition Date
(in thousands)
Customer relationships
5 months
 
$
400

Total identifiable intangible assets acquired
 
 
$
400



The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represented the value the Company expected to be created by combining the various operations of InfuScience with the Company's operations, including the ability to cross-sell their respective services on a national basis with an expanded footprint in Infusion Services segment. Of the goodwill recorded in the InfuScience acquisition, $7.7 million is estimated to be deductible for income tax purposes.

The accompanying Consolidated Statements of Operations for the year ended December 31, 2013 includes revenues of $46.7 million and income from operations of $4.4 million related to the operations of InfuScience. Revenues and loss from continuing operations for the year ended December 31, 2012, include revenues of $16.5 million and a loss from operations of $1.7 million related to InfuScience from the date of acquisition through December 31, 2012.

Acquisition and Integration Costs

Acquisition and integration expenses in the accompanying Consolidated Statements of Operations for the years ended December 31, 2013 and 2012 include the following costs related to the CarePoint Business, HomeChoice Partners, and InfuScience acquisitions (in thousands):
 
Year Ended December 31,
 
2013
 
2012
Legal and professional fees
$
5,113

 
$
2,941

Financial advisory fees
4,713

 

Employee costs including redundant salaries and benefits and severance
3,554

 
806

Facilities consolidation and discontinuation
1,621

 
110

Other
1,129

 
189

Total
$
16,130

 
$
4,046


There were no acquisition and integration expenses in the year ended December 31, 2011.

Pro Forma Impact of Acquisitions

The following table shows summarized unaudited pro forma combined operating results of the Company as if the InfuScience acquisition had occurred on the same terms as of January 1, 2011 and the HomeChoice and CarePoint Business acquisitions had occurred on the same terms as of January 1, 2012. Pro forma adjustments have been made related to amortization of intangibles, interest expense, and income tax expense. The pro forma financial information does not reflect revenue opportunities and cost savings which the Company expected to realize as a result of the acquisitions or estimates of charges related to the integration activity. Amounts are in thousands, except for earnings per share:

 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Revenues
 
$
949,679

 
$
893,814

 
$
589,333

Net loss from continuing operations
 
$
(55,444
)
 
$
(23,352
)
 
$
(2,582
)
Basic loss per common share from continuing operations
 
$
(0.86
)
 
$
(0.42
)
 
$
(0.05
)
Diluted loss per common share from continuing operations
 
$
(0.86
)
 
$
(0.42
)
 
$
(0.05
)


The unaudited pro forma combined results of operations were prepared using the acquisition method of accounting and are based on the historical financial operating results of the Company, CarePoint Business, HomeChoice and InfuScience. Except to the extent realized in the years ended December 31, 2013 and 2012, the unaudited pro forma information does not reflect any cost savings, operating synergies and other benefits that the Company may achieve as a result of these acquisitions, or the expenses to be incurred to achieve these savings, operating synergies and other benefits. In addition, except to the extent recognized in the years ended December 31, 2013 and 2012, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with CarePoint Business, HomeChoice and InfuScience.

The unaudited pro forma information is not necessarily indicative of what the Company's consolidated results of operations actually would have been had the CarePoint Business and HomeChoice acquisitions been completed on January 1, 2012 and the InfuScience acquisition been completed on January 1, 2011. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company. The unaudited pro forma information primarily reflects the following net adjustments to the historical results of the acquired entities prior to acquisition (in thousands):    
 
Year Ended December 31,
 
2013
 
2012
 
2011
Interest expense
$
3,734

 
$
8,613

 
$
1,169

Amortization expense
$
576

 
$
4,094

 
$
400

Income tax expense (benefit)
$
2,785

 
$
4,357

 
$
(1,159
)