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 cash purchase price paid at closing was $211.1 million. The purchase agreement contemplated a targeted level of net working capital. Subsequent to the closing, the Company and the sellers agreed that additional net working capital adjustments of approximately $1.8 million were due to the Company. These working capital adjustments were primarily related to the value of accounts receivable and prepaid expenses as of the date of acquisition. The Company received payment for these amounts during the year ended December 31, 2014.

In addition, the purchase agreement provided that the purchase price could be increased by contingent consideration of $10.0 million if the CarePoint Business achieved a specified level of product gross profit during the one-year period following the closing date. If the specified level of product gross profit was not achieved, no contingent consideration would be due to the sellers. The Company reported actual product gross profit for the measurement period from September 1, 2013 to August 31, 2014 to the sellers on October 15, 2014. The report indicated that the requisite level of product gross profit was not achieved during the measurement period. Should the sellers disagree with the Company’s report, the purchase agreement provides for the dispute to be settled through arbitration.

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. The most important factor in determining the probability of payout at various balance sheet dates has been the business forecasts and actual results for the CarePoint Business standalone and merged market sites.

As of December 31, 2014, the fair value of the contingent consideration was remeasured considering the required product gross profit was not achieved during the measurement period and the uncertainties around any potential arbitration process. As a result, the fair value of the contingent consideration was maintained at $4.6 million as of December 31, 2014. Should an arbitrator rule against the Company, an additional expense of $5.4 million will be recorded over and above the accrual of $4.6 million estimated at December 31, 2014. Should an arbitrator rule in favor of the Company, the liability for contingent consideration will be reversed and, as a result, additional income of $4.6 million will be recorded. The liability for the contingent consideration is included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets.

The $5.2 million of income resulting from the reduction of the fair value of the contingent consideration for the year ended December 31, 2014 is included in the change in fair value of contingent consideration in the accompanying Consolidated Statements of Operations.

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 assessment of the fair values of the assets acquired and liabilities assumed as of the date of closing of the acquisition of the CarePoint Business (in thousands):



	Fair Value
Cash	$	14
Accounts receivable	15,917
Inventories	3,184
Other current assets	215
Property and equipment	3,266
Identifiable intangible assets⁽¹⁾	16,700
Current liabilities	(8,697		)
Non-current liabilities	(721		)
Total identifiable net assets	29,878
Goodwill	189,214
Total cash and fair value of contingent consideration	$	219,092


(1)	The following table summarizes the amounts and useful lives assigned to identifiable intangible assets (in thousands):



	Weighted- Average Useful Lives	Amounts Recognized as of the Closing Date
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 in accordance with applicable tax rules.

The accompanying Consolidated Statements of Operations for the year ended December 31, 2014 include revenues and income from continuing operations of the CarePoint Business of $157.9 million and $1.8 million. The accompanying Consolidated Statements of Operations include revenues and income from continuing operations of $55.8 million and $2.3 million related to the CarePoint Business for the period from the date of acquisition to December 31, 2013.

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, the District of Columbia, 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 provides that the purchase price could be increased by contingent consideration of up to $10.0 million if HomeChoice were to attain certain performance milestones in the first year following the closing and an additional $10.0 million if HomeChoice were to attain certain performance milestones in the second year following the closing, for total possible contingent consideration of up to $20.0 million.

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 December 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. As of December 31, 2014, the fair value of the contingent consideration was again remeasured at fair value using actual operating results through December 31, 2014 and forecasted operating results for the remainder of the measurement period. As a result of this remeasurement, the probability of the payment of any contingent consideration appeared negligible and the fair value of the contingent consideration was reduced to $0 as of December 31, 2014. The $2.1 million and $5.9 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 years ended December 31, 2014 and 2013, respectively.

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 (in thousands):



	Fair Value
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 amounts and useful lives assigned to identifiable intangible assets (in thousands):



	Weighted- Average Useful Lives	Amounts Recognized at the Closing Date
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 in accordance with applicable tax rules.

The accompanying Consolidated Statements of Operations includes revenues and income from operations of $87.9 million and $8.1 million related to HomeChoice for the year ended December 31, 2014. The accompanying Consolidated Statements of Operations 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. 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.

In addition, the purchase agreement provided that the purchase price could increase by contingent consideration of $3.0 million based on the results of operations during the 24 month period through July 31, 2014. 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. 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 Company has made contingent payments of $1.3 million and $1.7 million during the years ended December 31, 2014 and 2013, respectively, based on the achievement of expected operating results. As of December 31, 2014, the contingent consideration has been fully paid.

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 (in thousands):



	Fair Value
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 amounts and useful lives assigned to identifiable intangible assets (in thousands):



	Weighted- Average Useful Lives	Amounts Recognized at the Closing Date
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 years ended December 31, 2014 and 2013 includes revenues of $52.2 million and $46.7 million and income from operations of $5.0 million and $4.4 million related to the operations of InfuScience, respectively. The accompanying Consolidated Statements of Operations for the year ended December 31, 2012, includes revenues of $16.5 million and loss from operations of $1.7 million related to InfuScience for the period 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, 2014, 2013 and 2012 include the following costs related to the CarePoint Business, HomeChoice Partners, and InfuScience acquisitions (in thousands):



	Year Ended December 31,
	2014		2013		2012
Legal and professional fees	$	6,931	$	5,113	$	2,941
Financial advisory fees	—		2,413		—
Employee costs including redundant salaries and benefits and severance	2,016		3,554		806
Facilities consolidation and discontinuation	1,401		1,621		110
Bad debt expense and contractual adjustments related to acquired accounts receivable	5,430		—		—
Legal settlement	334		2,300		—
Other	1,812		1,129		189
Total	$	17,924	$	16,130	$	4,046

Pro Forma Impact of Acquisitions

The following table shows summarized unaudited pro forma combined operating results of the Company for the years ended December 31, 2013 and 2012 as if the InfuScience, 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 for the years ended December 31, 2013 and 2012. No proforma adjustments are required for the year ended December 31, 2014. 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
Revenues	$	876,942		$	824,624
Net loss from continuing operations	$	(58,829	)	$	(27,287	)
Basic loss per common share from continuing operations	$	(0.91	)	$	(0.49	)
Diluted loss per common share from continuing operations	$	(0.91	)	$	(0.49	)

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 and InfuScience acquisitions been completed on January 1, 2012. 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
Interest expense	$	(3,734	)	$	(8,613	)
Amortization expense	$	(576	)	$	(4,094	)
Income tax expense (benefit)	$	(2,785	)	$	(4,357	)