BUSINESS COMBINATION

Acquisition of HHI

On January 8, 2016, we acquired all of the assets and liabilities of HHI, including its wholly-owned subsidiaries, Healthland, AHT and Rycan. Healthland is a provider of electronic health records ("EHR") and clinical information management in the acute care market. AHT is a provider of clinical and financial solutions in the post-acute care market. Rycan offers SaaS-based revenue cycle management workflow and automation software to hospitals.

We believe the acquisition of HHI:


•	strengthened our position in providing healthcare information systems to community healthcare organizations by combining hospital customers;


•	introduced CPSI to the post-acute care market; and


•	expanded the products offered by and capabilities of TruBridge with the addition of Rycan and its suite of revenue cycle management software products.

These factors, combined with the synergies and economies of scale expected from combining the operations of CPSI and HHI, were the basis for the acquisition.

Consideration for the acquisition included cash (net of cash of the acquired entities) of $162.6 million (inclusive of seller's transaction expenses), 1,973,880 shares of common stock of CPSI ("CPSI Common Stock"), and the assumption by CPSI of stock options that became exercisable for 174,972 shares of CPSI Common Stock. During 2015, we incurred approximately $3.0 million of pre-tax costs in connection with the acquisition of HHI. During the year ended December 31, 2016, we incurred approximately $8.2 million, of pre-tax acquisition costs in connection with the acquisition of HHI. We incurred no such costs during the year ended December 31, 2017. Acquisition costs are included in general and administrative expenses in our consolidated statements of operations.



(In thousands)	Purchase Price
Cash consideration, net of acquired cash received	$	162,611
Fair value of common stock and options issued as consideration	97,017
Total consideration	$	259,628

Our acquisition of HHI was treated as a purchase in accordance with Accounting Standards Codification (the "Codification") 805, Business Combinations, of the Financial Accounting Standards Board ("FASB"), which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price was based on management's judgment after evaluating several factors, including a valuation assessment.

The allocation of the purchase price paid for HHI was as follows:



(In thousands)	Purchase Price Allocation
Acquired cash	$	5,371
Accounts receivable	5,789
Financing receivables	2,184
Inventories	216
Prepaid expenses	3,228
Property and equipment	1,263
Intangible assets	117,300
Goodwill	168,449
Accounts payable and accrued liabilities	(17,490		)
Deferred taxes, net	(4,010		)
Contingent consideration	(1,620		)
Deferred revenue	(15,681		)
Net assets acquired	$	264,999

The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives. The amortization is included in amortization of acquisition-related intangibles in our consolidated statements of operations. Of the goodwill acquired, $23.3 million was expected to be tax deductible.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 16). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.

The gross contractual amount of accounts receivable of HHI at the date of acquisition was $9.4 million.

The following unaudited pro forma revenue, net income and earnings per share amounts for the years ended December 31, 2016 and 2015 give effect to the HHI acquisition as if it had been completed on January 1, 2015. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the HHI acquisition been completed during the periods presented. In addition, the unaudited pro forma financial information does not purport to project future operating results. The pro forma information does not fully reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the HHI acquisition.



	Years Ended December 31,
(In thousands, except per share data, unaudited)	2016		2015
Pro forma revenues	$	270,974	$	290,071
Pro forma net income	$	8,538	$	3,484
Pro forma diluted earnings per share	$	0.64	$	0.26

Pro forma net income was calculated by adjusting the results for the applicable period to reflect (i) the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2015 and (ii) adjustments to amortized revenue during fiscal 2016 and 2015 as a result of the acquisition date valuation of assumed deferred revenue. The pro forma results for each period also reflect the pro forma adjustment to interest expense as a result of the incurrence of new debt to finance the acquisition and elimination of Healthland debt in conjunction with the acquisition.

The Company incurred $5.5 million in 2016 acquisition-related costs, which are included in general and administrative expense in the Company’s statement of income for the year ended December 31, 2016, that is reflected in pro forma net income for the year ended December 31, 2015. Severance and integration costs of $2.7 million were not included in the acquisition costs for the purpose of calculating the pro forma results.