2. Business Combinations and Divestitures

Merger with Eclipsys Corporation

On August 24, 2010, the transactions contemplated by the Merger Agreement were completed and Eclipsys became a wholly-owned subsidiary of Allscripts, the accounting acquirer. Pursuant to the terms of the Merger Agreement, each outstanding share of Eclipsys common stock, other than shares held by Eclipsys in its treasury, by any wholly owned subsidiary of Eclipsys, by Allscripts or by any wholly owned subsidiary of Allscripts, was converted into the right to receive 1.2 shares (the "Exchange Ratio") of Allscripts common stock (plus cash in lieu of fractional shares). Additionally, each outstanding Eclipsys stock option, restricted stock award, restricted stock unit, deferred stock unit and performance stock unit award was converted into an Allscripts option, restricted stock award, restricted stock unit, deferred stock unit or performance stock unit award, as the case may be, with appropriate adjustments to the number of shares subject to the award and, if applicable, the per share exercise price to reflect the Exchange Ratio.

Under the acquisition method of accounting, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair value of the assets acquired and liabilities assumed represent management's estimate of fair value.

The results of Eclipsys are included in the accompanying consolidated statements of operations for periods subsequent to the completion of the merger, August 24, 2010.

The total purchase price for the acquisition is comprised of the following:


(Dollar amounts in thousands, except per share amounts)
Fair value of Eclipsys (69 million Allscripts common shares at $17.47, the closing stock price of Allscripts on August 24, 2010)			$1,209,366
Share-based compensation value			21,914

Total purchase price			$1,231,280

Acquisition and integration-related costs included in selling, general and administrative expenses for the year ended December 31, 2011, the seven months ended December 31, 2010 and the year ended May 31, 2010 totaled $36 million, $57 million and $4 million, respectively.

The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on management's estimates of their current fair values as follows:


(In thousands)
Acquired cash and cash equivalents, and restricted cash	$174,543
Accounts receivable, net	136,198
Prepaid expenses and other current assets	31,520
Fixed assets and other long-term assets	83,680
Goodwill	623,614
Intangible assets	377,000
Deferred tax liabilities, net	(13,128	)
Accounts payable and accrued liabilities	(59,166	)
Deferred revenue	(106,344	)
Other liabilities	(16,637	)

Net assets acquired	$1,231,280

Goodwill was determined based on the residual difference between the purchase price and the value assigned to tangible and intangible assets and liabilities, and is not deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill were Eclipsys' history of profitability and high operating margins, strong sales force and overall employee base, and its position in the healthcare information technology market. During the year ended December 31, 2011, we recorded goodwill purchase accounting adjustments primarily related to fair value adjustments of certain tax liabilities totaling approximately $2 million. These adjustments are not reflected in the table above.

As of the acquisition date of August 24, 2010, goodwill and intangible assets have been attributed to the hospital solutions segment. The acquired intangible assets are being amortized on a straight-line basis over their useful lives and consist of the following:


(Dollar amounts in thousands)	Useful Life in Years		Fair Value
Description	Useful Life in Years		Fair Value
Maintenance and outsourcing agreements		20		$59,000
Hosting agreements		15		26,000
Services agreements		12		37,000
Developed technology		7		69,000
Core technology		12		95,000
Trade name		3		13,000
Maintenance and outsourcing contract backlog		5		48,000
Hosting contract backlog		6		16,000
Services backlog		2		14,000

				$377,000

The following unaudited pro forma information assumes the Eclipsys Merger occurred as of the beginning of the earliest periods presented. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the Eclipsys Merger including our amortization charges from acquired intangible assets, the elimination of certain intangible asset amortization incurred by Eclipsys, stock-based compensation charges for equity awards assumed, adjustments to interest expense for certain borrowings, adjustments for transaction-related expenses and the related tax effects as though the aforementioned companies were combined at the beginning of the earliest period presented. The unaudited pro forma supplemental results have been prepared based on estimates and assumptions, which we believe are reasonable and are not necessarily indicative of the consolidated financial position or results of operations had the merger occurred at the beginning of the earliest period presented, nor of future results of operations. For pro forma purposes, quarterly financial results of legacy Eclipsys have been combined in order to align with the historical financial reporting periods of Allscripts. Accordingly, the financial results of legacy Eclipsys for the twelve months ended June 30, 2010 and 2009 have been combined with the results of Allscripts for the years ended May 31, 2010 and 2009, respectively. The unaudited pro forma results are as follows:


				Supplemental Pro Forma Data
(In thousands, except per share amounts)	August 24, 2010 through December 31, 2010			Seven Months Ended December 31, 2010		Year Ended May 31,
(In thousands, except per share amounts)	August 24, 2010 through December 31, 2010			Seven Months Ended December 31, 2010		2010		2009
Total Revenue	$	174,677		$	720,176	$	1,224,279	$	1,021,688
Net (loss) income	$	(9,707	)	$	55,894	$	66,134	$	1,922
Earnings per share—basic and diluted				$	0.29	$	0.35	$	0.01

The unaudited pro forma information for the seven months ended December 31, 2010 and the years ended May 31, 2010 and 2009 include the following adjustments:

•

Net increase in revenues and net increase in net income representing legacy Eclipsys pre-merger revenues and net income as follows: revenues of $80 million and net income of $3 million for the seven months ended December 31, 2010; revenues of $522 million and net income of $15 million for the twelve months ended June 30, 2010; and revenues of $519 million and net income of $86 million for the twelve months ended June 30, 2009.

•

Increase in revenues for the seven months ended December 31, 2010 of $27 million and a decrease in revenues for the years ended May 31, 2010 and 2009 of approximately $2 million and $46 million, respectively, relating to deferred revenue acquisition accounting adjustments.

•

Increase to amortization expense for the seven months ended December 31, 2010 and the years ended May 31, 2010 and 2009 of approximately $1 million, $21 million and $21 million, respectively, related to management's estimate of the fair value of intangible assets acquired as a result of the Eclipsys Merger. These increases reflect the elimination of all legacy Eclipsys historical intangible asset and capitalized software amortization for all applicable periods.

•

Increase to interest expense for the seven months ended December 31, 2010 and the years ended May 31, 2010 and 2009 of approximately $3 million, $22 million and $23 million, respectively, related to the debt used to finance a portion of the stock transactions and contingent share repurchase contemplated by the Framework Agreement ("Coniston Transactions"). These increases reflect the elimination of previously recognized interest expense of legacy Allscripts and legacy Eclipsys.

•

Decrease to stock-based compensation expense for the seven months ended December 31, 2010 of approximately $0 and an increase for the years ended May 31, 2010 and 2009 of $7 million and $9 million, respectively, related to equity awards of legacy Eclipsys assumed as part of the Eclipsys Merger.

•

Operating expenses reflect decreases of $72 million in the seven months ended December 31, 2010, which includes $15 million of transaction expenses included in the pre-merger results of legacy Eclipsys, and $14 million for the year ended May 31, 2010 and an increase of $86 million in the year ended May 31, 2009 to reflect transaction-related expenses of legacy Allscripts and legacy Eclipsys as if the merger occurred as of the beginning of the earliest period presented.

Excluding the net pre-merger impacts of legacy Eclipsys described above, all pro forma adjustments are reflected in pro forma earnings (loss) assuming an effective income tax rate of 39%.

Merger with Misys Healthcare Systems

On October 10, 2008, legacy Allscripts and MHS completed the 2008 Transactions and, as a result, MHS became a wholly-owned subsidiary of legacy Allscripts in a reverse merger.

The Allscripts and MHS merger has been accounted for as a business combination. As MHS is the accounting acquiror, the historical financial statements are those of MHS. The assets acquired and liabilities assumed of Allscripts have been recorded at the date of acquisition at their respective fair values.

The results of operations of legacy Allscripts are included in the accompanying consolidated statements of operations for periods subsequent to the date of the completion of the 2008 Transactions, October 10, 2008. The total purchase price for the acquisition is comprised of the following:


(In thousands, except per share amounts)
Fair value of Allscripts Healthcare Solutions, Inc. (63 million Allscripts common shares at $8.77, the closing stock price of Allscripts on October 10, 2008)			$552,494
Share-based compensation value			10,567
Acquisition-related transaction costs			6,137

Total purchase price			$569,198

The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on management's estimates of their current fair values. Acquisition-related transaction costs include investment banking fees, loan commitment fees, legal and accounting fees and other external costs directly related to the 2008 Transactions.

The purchase price has been allocated as follows:


(In thousands)
Acquired cash and marketable securities	$410,374
Accounts receivable, net	88,306
Prepaid expenses and other current assets	20,555
Fixed assets and other long-term assets	24,144
Goodwill	330,984
Intangible assets	236,600
Deferred tax liability, net	(27,182	)
Accounts payable and accrued liabilities	(385,916	)
Deferred revenue	(44,389	)
Long-term debt	(80,602	)
Other liabilities	(3,676	)

Net assets acquired	$569,198

Allocated goodwill consists of $259 million and $72 million attributed to the clinical solutions and health solutions segments, respectively. Allocated intangible assets consists of $181 million, $53 million and $3 million attributed to the clinical solutions, health solutions and prepackaged medications segments as of the date of the acquisition, respectively. The fair value assigned to registered trade names has an indefinite life and therefore is not subject to amortization. The intangible assets subject to amortization are being amortized on a straight-line basis over their average useful lives. The total fair value of acquired intangible assets was assigned as follows:


(Dollar amounts in thousands)	Useful Life in Years		Fair Value
Description	Useful Life in Years		Fair Value
Registered trade names		Indefinite		$52,000
Service and maintenance contracts		20		49,000
Developed technology rights		7		44,000
Core technology		12		38,000
Customer relationships		20		21,000
Software-as-a-Service ("SaaS") contracts		13		15,000
Service and maintenance contract backlog		2		7,000
Provider relationships		15		5,000
Developed technology rights		4		3,000
Service backlog		3		2,000
Non-compete agreement		1		300
Favorable leasehold interests		6		300

				$236,600

The following unaudited pro forma information assumes the Allscripts and MHS merger occurred at the beginning of the period being presented. The unaudited pro forma supplemental results have been prepared based on estimates and assumptions, which we believe are reasonable and are not necessarily indicative of the consolidated financial position or results of operations had the 2008 Transactions occurred at the beginning of the period being presented, nor of future results of operations. The unaudited pro forma results are as follows:


(In thousands, except per share amounts)	Year Ended May 31, 2009
Total revenue		$639,515
Net income		$20,222
Earnings per share:
Basic and diluted		$0.13

Weighted average shares outstanding—basic		152,112

Weighted average shares outstanding—diluted		157,149

Sale of Prepackaged Medications Business

On March 16, 2009, Allscripts completed the sale of its Medications Services business pursuant to the Asset Purchase Agreement (the "Meds Agreement") with A-S Medication Solutions LLC ("A-S") for a total of $8 million in cash consideration. The sale of the prepackaged medication business resulted in a loss of approximately $2 million, which has been recorded in selling, general and administrative expenses for the year ended May 31, 2009.