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ACQUISITIONS
3 Months Ended
Mar. 31, 2014
Business Combinations [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 contingent consideration of $10.0 million. The sellers of the CarePoint Business will be eligible to receive the contingent consideration if the CarePoint Business achieves a specified level of product gross profit during the one-year period following the closing date. If the specified level of product gross profit is not achieved, no contingent consideration will be due to the sellers. 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 consideration was estimated at $9.8 million. The fair value of the contingent consideration was determined using Level 3 inputs based on the present value of various payout scenarios, weighted on the basis of probability. At March 31, 2014, the fair value of the contingent consideration was remeasured at fair value using the actual operating results during 2013 and 2014 and forecasted operating results for the remainder of 2014 of the CarePoint Business. As a result of this remeasurement, the fair value of the contingent consideration was reduced to $8.9 million and is included in accrued expenses and other current liabilities in the accompanying Unaudited Consolidated Balance Sheets. The Company believes there is a high probability that the required product gross profit will be attained because current forecasts exceed by a narrow margin the threshold required.  However there is risk in the realization of the contractual amounts recorded in accounts receivable and in the growth targets in some large markets so the probability of attaining the required threshold is not 100%.   Should the sellers of the CarePoint business earn the contingent consideration during the twelve month measurement period ending August 31, 2014, an additional expense of $1.1 million will be recorded over and above the accrual of $8.9 million estimated as of March 31, 2014.  The $0.9 million of income resulting from the reduction of the fair value of the contingent consideration is included in the change in fair value of contingent consideration in the accompanying Unaudited Consolidated Statements of Operations for the three months ended March 31, 2014.

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 current 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
(8,521
)
Non-current liabilities
(721
)
Total identifiable net assets
30,917

Goodwill
187,721

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 Unaudited Consolidated Statements of Operations for the three months ended March 31, 2014 include revenues and loss from continuing operations of the CarePoint Business of $40.0 million and $0.3 million, respectively .

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 agreement provided that the purchase price could be increased by contingent consideration of up to $20.0 million if HomeChoice were to attain 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 contingent consideration was established using aggressive growth targets meant to achieve operating results in excess of transaction valuation model assumptions. Given the aggressiveness of the earnout target threshold, the Company assigned less than 50% probability of payout among the various payout scenarios considered.

While the acquisition has generated revenues as expected in the transaction valuation model, revenues through March 31, 2014 have not exceeded the aggressive earnout performance pace required. Specifically, revenue generating opportunities through various potential business relationships have not come to fruition and thus the probability of attaining the high level of growth required to achieve the earnout has been diminishing over the past year resulting in a lower probability of a future payout of contingent consideration. At March 31, 2014, the fair value of the contingent consideration was again remeasured at fair value using actual operating results through March 31, 2014 and forecasted operating results for the remainder of 2014. As a result of this remeasurement, the fair value of the contingent consideration was reduced to $0.8 million, and is included in other non-current liabilities in the accompanying Unaudited Consolidated Balance Sheets. The $1.4 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 Unaudited Consolidated Statements of Operations for the three months ended March 31, 2014.

The accompanying Unaudited Consolidated Statements of Operations include revenues of $21.1 million and $10.8 million and income (loss) from continuing operations of $3.7 million, and $(0.8) million related to HomeChoice for the three months ended March 31, 2014 and for the period from the date of acquisition to March 31, 2013, 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 five infusion centers located in Eagan, Minnesota; Omaha, Nebraska; Chantilly, Virginia; Charleston, South Carolina; and Savannah, Georgia.

As of December 31, 2013, the total fair value of the potential contingent consideration, determined using Level 3 inputs based on the present value of various payout scenarios and weighted on the basis of probability, was estimated at $3.0 million. As of March 31, 2014, the Company has made contingent payments of $2.0 million based on the achievement of expected operating results. At March 31, 2014, the fair value of the remaining $1.0 million contingent liability was remeasured at fair value using actual operating results, forecasted operating results for the remainder of 2014 and payments made through March 31, 2014 to adjust the present value and probability of the various payout scenarios. As a result of this remeasurement, the fair value of the contingent payment was not adjusted and is included in accrued expenses and other current liabilities in the accompanying Unaudited Consolidated Balance Sheets.

Acquisition and Integration Costs

Acquisition and integration expenses in the accompanying Consolidated Statements of Operations for three months ended March 31, 2014 and 2013 include the following costs related to the CarePoint Business, HomeChoice Partners, and InfuScience acquisitions (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Legal, financial advisory and professional fees
$
975

 
$
1,010

Employee costs including redundant salaries and benefits and severance
1,150

 
1,135

Facilities consolidation and discontinuation
305

 
159

Bad debt expense related to acquired accounts receivable
3,302

 

Legal settlement
325

 
2,300

Other
442

 
19

Total
$
6,499

 
$
4,623



Bad debt expense associated with acquisition and integration cost pertains to accounts receivable balances acquired in connection with the CarePoint Business and HomeChoice acquisitions that are no longer deemed collectible. These acquired accounts receivable were reserved at historical collection rates as of December 31, 2013. Based on lower than expected collections in the first quarter of 2014, the Company no longer expects to achieve historical collection rates on the acquired accounts receivable.

Pro Forma Impact of Acquisitions

The following shows summarized unaudited pro forma consolidated results of operations for the three months ended March 31, 2014 and 2013 as if the CarePoint and HomeChoice acquisitions had occurred as of January 1, 2013 (in thousands except per share data):
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
$
239,643

 
$
225,560

Loss from continuing operations, net of income taxes
$
(25,422
)
 
$
(8,524
)
Basic loss per share from continuing operations
$
(0.37
)
 
$
(0.15
)
Diluted loss per share from continuing operations
$
(0.37
)
 
$
(0.15
)


The unaudited pro forma consolidated results of operations were prepared using the acquisition method of accounting and are based on the historical financial information of the Company, CarePoint and HomeChoice. Except to the extent realized in the three months ended March 31, 2014, 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 three months ended March 31, 2014, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with CarePoint or HomeChoice.

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 and HomeChoice acquisitions been completed on January 1, 2013. 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 adjustments to the historical results of the acquired entities prior to acquisition (in thousands):    
 
Three Months Ended March 31,
 
2014
 
2013
Interest expense
$

 
$
504

Amortization expense
$

 
$
(600
)
Income tax benefit (expense)
$

 
$
(1,285
)

Expenses incurred to integrate acquisitions are recorded in acquisition and integration expenses of the Unaudited Consolidated Statements of Operations.  These costs include legal and financial advisory fees associated with acquisitions and integration costs to convert to common policies, procedures, and information systems.