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. 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, 2015, the fair value of the contingent consideration was remeasured in light of the fact that the Company’s calculations showed that the required product gross profit was not achieved during the measurement period and uncertainties about the potential for CarePoint to dispute the Company’s calculation and pursue arbitration. As a result, the fair value of the contingent consideration was estimated at $4.6 million at December 31, 2015. Should it be determined that the required product gross profit was achieved, an additional expense of $5.4 million will be recorded over and above the accrual of $4.6 million estimated at December 31, 2015. Should CarePoint choose not to dispute the calculation of gross profit, or should an arbitrator rule in favor of the Company, the liability for contingent consideration will be reversed and 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 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 10 - 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.

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, the performance milestones were not achieved during the measurement period. As a result, the fair value of the contingent consideration was reduced to $0 as of December 31, 2015. The $0 million, $2.1 million and $5.9 million of income resulting from the reduction in the fair value of the contingent liability is included in restructuring, integration, and other expenses, net in the accompanying Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, respectively.

The Company funded the acquisition with a combination of cash and its prior credit facility with Healthcare Finance Group.

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.

Integration Expense

Integration expenses in restructuring, integration, and other expenses, net in the accompanying Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 include the following costs related to the CarePoint Business acquisition and the HomeChoice acquisition (in thousands):



	Year Ended December 31,
	2015		2014		2013
Legal and professional fees	$	1,033	$	6,931	$	5,113
Financial advisory fees	—		—		2,413
Employee costs including redundant salaries and benefits and severance	—		2,016		3,554
Facilities consolidation and discontinuation	488		1,401		1,621
Bad debt expense and contractual adjustments related to acquired accounts receivable	—		5,430		—
Legal settlement	—		334		2,300
Other	219		1,812		1,129
Total	$	1,740	$	17,924	$	16,130