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DISCONTINUED OPERATIONS
12 Months Ended
Dec. 31, 2014
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
DISCONTINUED OPERATIONS

Sale of Home Health Business

On March 31, 2014, the Company completed the sale of substantially all of the Company’s Home Health Services segment (the “Home Health Business”) pursuant to the Stock Purchase Agreement dated as of February 1, 2014 (the “Stock Purchase Agreement”), as amended, by and among LHC Group, Inc., a Delaware corporation, and certain of its subsidiaries (collectively, the “Buyer”) and the Company and Elk Valley Professional Affiliates, Inc. (“EVPA”), South Mississippi Home Health, Inc. (“SMHH”), and Deaconess Homecare, LLC (collectively the “Seller”). The Buyer agreed to acquire the Home Health Business, consisting of (1) all of the issued shares of capital stock of EVPA owned by the Seller, (2) all of the issued shares of capital stock of SMHH owned by the Seller, and (3) all of the issued membership interests in two limited liability companies (collectively, the “Holding Newcos” and, together with EVPA and SMHH, the “Subject Companies”) that were wholly-owned subsidiaries of the Seller. On the closing date, the Company also entered into an Amendment No. 1 (the “Amendment”) to the Stock Purchase Agreement in connection with the closing. The Amendment modified the Stock Purchase Agreement to (i) exclude from the home health business conducted by the Company at one of its locations, and (ii) reduce by $0.5 million the total consideration to be received by the Company, to approximately $59.5 million.

Pursuant to the terms of the Stock Purchase Agreement, as amended, the Company received total consideration of approximately $59.5 million paid in cash (the “Purchase Price”) at closing. The Company used a portion of the net proceeds from the sale to pay down a portion of the Company’s outstanding debt. Subsequently, the Purchase Price was adjusted for net working capital of the Subject Companies as of the closing date that resulted in an additional payment to the Company of approximately $1.1 million. As a result of this adjustment, the final Purchase Price received by the Company was approximately $60.6 million. The Company has classified the net proceeds received from this sale in cash provided by investing activities from discontinued operations in the accompanying consolidated statements of cash flows.

The sale of the Home Health Business is consistent with the Company’s continuing strategic evaluation of its non-core businesses and its decision to continue to focus growth initiatives and capital in the Infusion Services segment. As a result, the Company decided in the second quarter of 2014 to cease the material portion of its Home Health operations at the one location excluded from the Stock Purchase Agreement, as amended, and reclassified its operations to discontinued operations for all prior periods in the accompanying Consolidated Financial Statements.

As of the March 31, 2014 closing date of the sale of the Home Health Business, the carrying value of the net assets of the Subject Companies was as follows (in thousands):
 
 
Carrying Value
Net accounts receivable
 
$
12,597

Prepaid expenses and other current assets
 
242

Total current assets
 
12,839

Property and equipment, net
 
402

Goodwill
 
33,784

Intangible assets
 
15,400

Other non-current assets
 
28

Total assets
 
62,453

Accounts payable
 
673

Amounts due to plan sponsors
 
229

Accrued expenses and other current liabilities
 
3,008

Total liabilities
 
3,910

Net assets
 
$
58,543



The pre-tax gain on sale of the Home Health Business is approximately $2.1 million based on the March 31, 2014 net asset balances above and before financial advisory fees, legal expenses and other one-time transactions costs and including the net working capital adjustment. The net assets of the Subject Companies have been reclassified to discontinued operations for all prior periods in the accompanying Consolidated Financial Statements.

The operating results included in discontinued operations of the Home Health Business for the years ended December 31, 2014, 2013 and 2012 are summarized as follows (in thousands):

 
Year Ended December 31,
 
2014
 
2013
 
2012
Revenue
$
18,551

 
$
72,737

 
$
69,190

Gross profit
$
6,918

 
$
28,201

 
$
29,058

Selling, general and administrative expenses
8,219

 
23,464

 
21,612

Bad debt expense
902

 
1,338

 
834

Income (loss) from operations
(2,203
)
 
3,399

 
6,612

Gain on sale before income taxes
2,067

 

 

Financial advisor fee and legal expenses
(2,875
)
 

 

Impairment of assets
(452
)
 

 

Other costs and expenses
(47
)
 
1

 
1

Income (loss) before income taxes
(3,510
)
 
3,400

 
6,613

Income tax expense (benefit)
(4,257
)
 
15

 
2,678

Income from discontinued operations, net of income taxes
$
747

 
$
3,385

 
$
3,935



Pharmacy Services Asset Sale

On February 1, 2012, the Company and certain of its subsidiaries (collectively, the “Sellers”) entered into a purchase agreement (the “2012 Asset Purchase Agreement”) with Walgreen Co. and certain of its subsidiaries (collectively, the “Pharmacy Services Buyers”) with respect to the sale of certain assets, rights and properties (the “Pharmacy Services Asset Sale”) relating to the Sellers’ traditional and specialty pharmacy mail operations and community retail pharmacy stores. The transaction included the sale of 27 community pharmacy locations, and certain assets of three community pharmacy locations, and three traditional and specialty mail service operations, which constituted all of the Company’s operations in the community pharmacy and mail order lines of business.

Pursuant to the terms of the 2012 Asset Purchase Agreement, the Company received a total purchase price of approximately $173.8 million. As a result of the Pharmacy Services Asset Sale, the Company has recognized a total pretax gain of approximately $108.2 million, net of transaction costs and other one-time charges as a result of the transaction. The Company used a portion of the net proceeds from the sale to pay down the Company’s outstanding debt and a portion was used to invest in the Infusion Services segment.

The purchase price excluded all accounts receivable and working capital liabilities relating to the operations subject to the Pharmacy Services Asset Sale, which were retained by the Company. No amounts related to the net accounts receivable retained by the Company remained at December 31, 2013.

On May 4, 2012, the carrying value of the assets included in the Pharmacy Services Asset Sale was as follows (in thousands):
 
Carrying Value
Inventory
$
30,560

Prepaid expenses and other current assets
299

Total current assets
30,859

Property and equipment, net
1,592

Goodwill
11,754

Intangible assets, net
2,503

Total assets
$
46,708



In addition, the Company and its subsidiaries and certain subsidiaries of the Pharmacy Services Buyers entered into an agreement concurrently with the 2012 Asset Purchase Agreement which provided that the Company cease to be the sole fulfillment pharmacy for customers who utilized the drugstore.com website. The agreement provided for a cash payment of $3.0 million to the Company and the payment of $2.9 million to the Pharmacy Services Buyers related to contingent consideration from the Company’s 2010 acquisition of the prescription pharmacy business of DS Pharmacy, Inc. both of which occurred during the year ended December 31, 2012.

As a result of the divestiture process, the Company assessed its continuing operations in order to align its corporate structure with its remaining operations. As part of these efforts, the Company has incurred and expects to continue to incur additional expenses that may impact the Company’s future consolidated financial statements. These additional costs, including employee severance and other benefit-related costs, facility-related costs, and other one-time charges are included in income (loss) from discontinued operations, net of income taxes in the Consolidated Statements of Operations.

Effective January 8, 2014, the Company entered into a Stipulation and Order of Settlement and Dismissal (the “Federal Settlement Agreement”) with the U.S. Department of Justice (the “DOJ”) and a qui tam relator (the “Relator”). The Federal Settlement Agreement represented the federal and private component of an agreement in principle to settle all civil claims under the False Claims Act and related statutes and all common law claims that could have been brought by the DOJ and Relator that arose out of the distribution of the Novartis Pharmaceutical Corporation’s product Exjade® (the “Medication”) by the Company’s traditional and specialty pharmacy mail operations and community retail pharmacy stores prior to its divestiture in May 2012. Further, effective February 11, 2014, the Company entered into State Settlement Agreements with the offices of the Attorneys General of thirty-four states (the “Settling States”). The State Settlement Agreements represented the state component of the Company’s agreement in principle to settle the claims that could have been brought by the Settling States that arose out of the distribution of the Medication. During the year ended December 31, 2013, the Company accrued $15.0 million related to the Settlement Agreements and included the amount and related legal fees and expenses in income (loss) from discontinued operations, net of income taxes in the Consolidated Statements of Operations (see Note 10 - Commitments and Contingencies).

As of December 31, 2014, there were accruals of $13.0 million related to legal settlement and other costs, of which $7.0 million is included in accrued expenses and other current liabilities and $6.0 million is included in other non-current liabilities on the Consolidated Balance Sheets. The accrual activity consisted of the following (in thousands):
 
Legal Settlement
 
Employee Severance
and Other Benefits
 
Other Costs
 
Total
Balance at December 31, 2012
$

 
$
45

 
$
89

 
$
134

Expenses
15,000

 
186

 
7,410

 
22,596

Cash payments

 
(103
)
 
(6,261
)
 
(6,364
)
Non-cash charges

 
(36
)
 
(43
)
 
(79
)
Balance at December 31, 2013
15,000

 
92

 
1,195

 
16,287

Expenses
403

 

 
4,510

 
4,913

Cash payments
(3,014
)
 
(92
)
 
(5,015
)
 
(8,121
)
Non-cash charges

 

 
(81
)
 
(81
)
Balance at December 31, 2014
$
12,389

 
$

 
$
609

 
$
12,998



The operating results of the divested traditional and specialty pharmacy mail operations and community pharmacies for the years ended December 31, 2014, 2013 and 2012 are summarized below (in thousands):

 
Years ended December 31,
 
2014
 
2013
 
2012
Revenue
$

 
$
(75
)
 
$
466,747

Gross profit
(439
)
 
(519
)
 
29,844

Operating expenses
3,995

 
7,118

 
38,612

Legal settlement expense

 
15,000

 

Bad debt expense

 

 
12,931

Interest (income) expense
403

 
(41
)
 
761

Gain on sale
4

 
6,548

 
101,624

Income tax expense

 

 
6,117

Income (loss) from discontinued operations, net of income taxes
$
(4,833
)
 
$
(16,048
)
 
$
73,047