Acquisitions

During 2012, 2011 and 2010, the Company completed several acquisitions as further described below.

Odyssey HealthCare, Inc.

Effective August 17, 2010, the Company completed the acquisition of 100 percent of the equity interest of Odyssey, one of the largest providers of hospice care in the United States, operating approximately 100 Medicare-certified providers serving terminally ill patients and their families in 30 states. The Company completed the acquisition of Odyssey to expand the geographic coverage of its hospice services and to further diversify the Company’s business mix. Total consideration for the acquisition was $1.087 billion, including (i) $108.8 million to repay Odyssey’s existing long-term debt and accrued interest and (ii) $14.3 million relating to transaction costs incurred by Odyssey. In addition, The Company incurred transaction costs of approximately $26.0 million during 2010 which are reflected as selling, general and administrative expenses in the Company's consolidated statements of comprehensive income.

The financial results of Odyssey are included in the Company’s consolidated financial statements from the acquisition date. The purchase price for the acquisition was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition. Estimated fair values were based on various valuation methodologies, including market studies and a replacement cost method for fixed assets, an income approach using primarily discounted cash flow techniques for amortizable intangible assets, a cost approach considering both replacement cost and opportunity cost methods for indefinite-lived intangible assets and an estimated realizable value approach using historical trends and other relevant information for accounts receivable and certain accrued liabilities. For certain other assets and liabilities, including accounts payable and other accrued liabilities, the fair value was assumed to represent carrying value due to their short maturities. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired was recorded as goodwill.

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):



	August 17, 2010
Cash	$	148,269
Accounts receivable	123,281
Deferred tax assets	11,390
Fixed assets	18,119
Identifiable intangible assets	126,500
Goodwill	780,986
Other assets	18,354
Total assets acquired	1,226,899
Accounts payable and accrued liabilities	(112,228		)
Short-term and long-term debt	(108,822		)
Deferred tax liabilities	(25,246		)
Total liabilities assumed	(246,296		)
Noncontrolling interest	(2,410		)
Net assets acquired	$	978,193

The valuation of the intangible assets by component and their respective useful life are as follows (in thousands):



	Hospice		Useful Life
Intangible assets:
Tradenames	$	16,600	5-10 Years
Covenants not to compete	15,400		2-3 Years
Medicare licenses and certificates of need	94,500		Indefinite
Total	$	126,500

Goodwill has been assigned to the Company’s Hospice segment for reporting purposes. The Company expects approximately 5 percent of the aggregate amount of goodwill and identifiable intangible assets will be amortizable for tax purposes.

The following unaudited pro forma financial information presents the combined results of operations of the Company and Odyssey as if the acquisition had been effective at December 29, 2008, the beginning of the first quarter of 2009. The pro forma results for the year ended December 31, 2010 combine the results of the Company for such period and the historical results of Odyssey from January 1 through August 16, 2010 (in thousands, except per share amounts):



	For the Year Ended
	December 31, 2010
Net revenues	$	1,853,244
Net income attributable to Gentiva shareholders	$	62,767
Earnings per common share:
Basic	$	2.11
Diluted	$	2.06
Weighted average shares outstanding:
Basic	29,724
Diluted	30,468

The pro forma results above reflect adjustments for (i) interest on debt incurred calculated using the Company’s weighted average interest rate of 7.9 percent, (ii) income tax provision using an effective tax rate of 39.9 percent, (iii) amortization of incremental identifiable intangible assets, and (iv) acquisition and integration costs incurred. The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of the Company’s 2010 reporting period.

Other Acquisitions

Effective August 31, 2012, the Company completed its acquisition of the assets and business of Family Home Care Corporation, one of the leading providers of home health and hospice services in the Washington and Idaho markets. Total consideration of $12.3 million, excluding transaction costs and subject to post-closing adjustments, was paid at the time of closing from the Company's existing cash reserves.

Effective August 31, 2012, the Company completed its acquisition of the assets and business of North Mississippi Hospice, a provider of hospice services with offices in Oxford, Southhaven and Tupelo, Mississippi. Total consideration of $4.5 million, excluding transaction costs and a post-closing adjustment of $0.2 million, was paid from the Company's existing cash reserves.

Effective July 22, 2012, the Company completed its acquisition of the assets and business of Advocate Hospice, a provider of hospice services located in Danville, Indiana, for consideration of $5.5 million, excluding transaction costs and subject to post-closing adjustments, which consideration included entering into an option purchase agreement with a third party covering membership interests in Advocate Hospice. Additional consideration of up to $2.0 million is payable under the option agreement if certain earnout conditions are met, which the Company estimated fair value at acquisition date of $1.9 million, on a discounted cash flow basis. At December 31, 2012, the Company estimated the fair value of the contingent consideration at $1.1 million based upon certain average daily census growth targets and recorded an $0.8 million adjustment to the contingent consideration which is reflected in selling, general and administrative expenses in the Company's consolidated statement of comprehensive income for the period ended December 31, 2012 and as other accrued expenses on the Company's consolidated balance sheet at December 31, 2012. The consideration was paid at the time of closing from the Company's existing cash reserves.

Effective April 29, 2011, the Company purchased the outstanding member units representing the noncontrolling interest in Odyssey HealthCare of Augusta, LLC (“Augusta”) for approximately $0.3 million. As a result of the transaction, the Company owns 100 percent of the outstanding member units of Augusta.

Effective May 15, 2010, the Company completed its acquisition of the assets and business of United Health Care Group, Inc. with six branches throughout the state of Louisiana. Total consideration of $6.0 million, excluding transaction costs and subject to post-closing adjustments, was paid at the time of closing from the Company’s existing cash reserves.

Effective March 5, 2010, the Company completed its acquisition of the assets and business of Heart to Heart Hospice of Starkville, LLC, a provider of hospice services with two offices in Starkville and Tupelo, Mississippi. Total consideration of $2.5 million, excluding transaction costs and subject to post-closing adjustments, was paid at the time of closing from the Company’s existing cash reserves. The acquisition expanded the Company’s geographic coverage area to counties in north, central and southern Mississippi.

The allocation of the purchase prices relating to acquisitions consummated is as follows (in thousands):



	Fiscal Year
	2012			2010
Fixed assets, net	$	509		$	269
Identifiable intangible assets	9,205			3,830
Goodwill	14,695			4,546
Other assets	66			12
Total assets acquired	24,475			8,657
Accounts payable and accrued liabilities	(1,955		)	—
Other liabilities	—			(157		)
Total liabilities assumed	(1,955		)	(157		)
Net assets acquired	$	22,520		$	8,500

The valuation of the intangible assets by component and their respective useful lives are as follows (in thousands):



	Fiscal Year				Useful life
	2012		2010		Useful life
Covenants not to compete	$	203	$	150	5 years
Customer relationships	—		430		10 years
Certificates of need	9,002		3,250		indefinite
Total	$	9,205	$	3,830

For the Company’s other acquisitions, the Company expects substantially all goodwill and identifiable intangible assets will be amortized for tax purposes.

Dispositions

Phoenix Hospice Operations

Effective November 30, 2012, the Company completed the sale of its Phoenix area hospice operations to Banner Health, an Arizona non-profit corporation, pursuant to an asset purchase agreement for cash consideration of $3.5 million. The Company recorded a gain of approximately $2.6 million which is reflected in gain on sale of businesses in the Company's consolidated statement of comprehensive income for the year 2012.

Gentiva Consulting, Louisiana Home Health and Hospice Operations

Effective May 31, 2012, the Company completed the sale of its Gentiva consulting business to MP Healthcare Partners, LLC, pursuant to an asset purchase agreement, for cash consideration of approximately $0.3 million.

During the second quarter of 2012, the Company sold eight home health branches and four hospice branches in Louisiana, pursuant to an asset purchase agreement, for total consideration of approximately $6.4 million. The Company received proceeds of approximately $5.9 million during 2012 and established a receivable of approximately $0.5 million.

In connection with the sales, the Company recorded a gain on sale of businesses in the Company’s consolidated statements of comprehensive income of approximately $5.4 million for the year 2012.

Home Health and Hospice Branch Operations

In the fourth quarter of 2011, the Company entered into asset purchase agreements to sell the assets of certain home health branches in Utah, Michigan and Nevada, as well as a hospice branch in Texas. In addition, the Company entered into an option agreement to sell the assets of the Company’s home health branch in Brooklyn, New York pending approval by the Public Health Council and New York State Agencies. The Company has received all regulatory approvals and expects to complete the Brooklyn transaction in the first quarter of 2013.

The major classes of assets of the Home Health and Hospice branch operations that were sold were as follows (in thousands):



	2012						2011
	As of Date of Sale			December 31, 2011			As of Date of Sale
Assets:
Accounts receivable, net	$	561		$	526		$	—
Fixed assets, net	271			338			199
Intangible assets	1,356			1,356			703
Other assets	485			640			1
Total assets	2,673			2,860			903
Liabilities:
Medicare liabilities	(86		)	(18		)	—
Payroll liabilities	—			—			(22		)
Other accrued Expenses	(405		)	(41		)	—
Total liabilities	(491		)	(59		)	(22		)
Total	$	2,182		$	2,801		$	881

Other Asset Disposition

Effective January 30, 2010, the Company sold assets associated with a home health branch operation in Iowa for cash consideration of approximately $0.3 million and recognized a gain of approximately $0.1 million recorded in gain on sale of assets and businesses, net in the Company’s consolidated statement of comprehensive income for the year ended December 31, 2010.

Discontinued Operations

Homemaker Services Agency and Rehab Without Walls^® Operations

Effective October 14, 2011, the Company completed the sale of its homemaker services business ("IDOA") to Premier Home Health Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $2.4 million, consisting of (i) cash proceeds of approximately $2.0 million and (ii) an escrow fund of approximately $0.4 million, to be received by the Company subject to certain post closing conditions. During 2012, the Company reduced the escrow fund receivable to approximately $0.3 million as a result of certain post closing conditions and received such funds during 2012.

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business to Southern Home Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $9.8 million. The consideration consisted of (i) cash proceeds of approximately $9.2 million and (ii) an escrow fund of approximately $0.6 million which was received by the Company during 2012.

The major classes of assets of the Rehab Without Walls^® and the IDOA businesses that were sold were as follows (in thousands):



	As of Date of Sale
Non-current assets:
Fixed assets, net	$	183
Other assets	109
Total non-current assets	292
Total	$	292

HME and IV Operations

Effective February 1, 2010, the Company completed the sale of its HME and IV businesses to a subsidiary of Lincare Holdings, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $16.4 million, consisting of (i) cash proceeds of approximately $8.5 million, (ii) approximately $2.5 million associated with operating and capital lease buyout obligations, (iii) an escrow fund of $5.0 million, which was recorded at estimated fair value of $3.2 million, to be received by the Company based on achieving a cumulative cash collections target for claims for services provided for a period of one year from the date of closing and (iv) an escrow fund of approximately $0.4 million for reimbursement of certain post closing liabilities. During 2010, the Company recorded a $0.1 million pre-tax gain, net of transaction costs in discontinued operations, net of tax, in the Company’s consolidated statements of comprehensive income. Transaction costs of $0.7 million consisted primarily of professional fees and expenses. During 2010, the Company received $1.0 million in settlement of the escrow fund associated with cash collections and recorded a $2.2 million charge in discontinued operations, net of tax. During 2011, the Company received $0.1 million of the escrow fund for settlement of post closing liabilities and recorded a charge of $0.3 million, in discontinued operations, net in the Company’s consolidated statements of comprehensive income.

Net revenues and operating results for the year 2011 and 2010 for IDOA, Rehab Without Walls^® and HME and IV businesses were (in thousands):



	For the Year Ended
	December 31, 2011			December 31, 2010
Net revenues	$	22,819		$	36,526

Income before income taxes	$	2,430		$	(2,991	)
Gain on sale of business	11,475			(2,134		)
Income tax expense	(5,590		)	1,990
Discontinued operations, net of tax	$	8,315		$	(3,135	)