Acquisitions and Disposals

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Acquisitions and Disposals

3. Acquisitions and Disposals

2013 Acquisitions

Pursuant to its strategy for becoming the leading provider of post-acute health care services in the United States, the Company acquired the home-based service line of Addus HomeCare, which consisted of 19 home health agencies and one hospice agency, during the twelve months ended December 31, 2013. Additionally, in separate acquisitions, the Company acquired one hospice agency and four home health agencies. The Company maintains an ownership interest in the acquired entities as set forth below:

Acquired Entity	Ownership Percentage			State of Operations		Acquisition Date
LHCG XXXVII, LLC (d/b/a Addus HealthCare)		90	%		Illinois		03/01/2013
LHCG XXXVIII, LLC (d/b/a Addus HealthCare)		90	%		California		03/01/2013
LHCG XLII, LLC (d/b/a/ Arkansas HomeCare)		100	%		Arkansas		03/01/2013
LHCG XLI, LLC (d/b/a South Carolina HomeCare)		100	%		South Carolina		03/01/2013
LHCG XXXIX, LLC (d/b/a Addus HealthCare)		100	%		Nevada		03/01/2013
LHCG XXXIV, LLC (d/b/a Alabama Hospice Care of Mobile)		100	%		Alabama		04/01/2013
LHCG XL, LLC (d/b/a Georgia Home Health)		100	%		Georgia		07/01/2013
LHCG XXVII, LLC (d/b/a Pennsylvania Home Health)		100	%		Pennsylvania		07/01/2013
LHCG XLVIII, LLC (d/b/a Minnesota Home Health)		100	%		Minnesota		07/01/2013
LHCG XLVII, LLC (d/b/a Wisconsin Home Health)		100	%		Wisconsin		07/01/2013

Each of the acquisitions was accounted for under the acquisition method of accounting, and accordingly, the accompanying consolidated financial statements include the results of operations of each acquired entity from the date of acquisition.

The total aggregate purchase price for the Company’s acquisitions was $27.3 million, of which $26.9 million was paid in cash and $380,000 in assumed liabilities. Purchase prices are determined based on an analysis of comparable acquisitions and the target market’s potential future cash flows. The Company paid $590,000 in acquisition-related costs, which was recorded in general and administrative expenses.

The Company’s home-based segment recognized aggregate goodwill of $25.7 million, including $622,000 of noncontrolling goodwill. Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The following table summarizes the aggregate consideration paid for the acquisitions and the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as the fair value at the acquisition dates of the noncontrolling interest acquired (amounts in thousands):

Consideration
Cash	$	26,920
Fair value of total consideration transferred	$	26,920
Recognized amounts of identifiable assets acquired and liabilities assumed
Trade name	$	1,177
Certificates of need/licenses		598
Other identifiable intangible assets		331
Other assets and (liabilities), net		(321	)
Total identifiable assets	$	1,785
Noncontrolling interest	$	608
Goodwill, including noncontrolling interest of $622	$	25,743

Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. The other identifiable assets include non-compete agreements that are amortized over the life of the agreements, ranging from two to five years. Noncontrolling interest is valued at fair value by applying a discount to the value of the acquired entity for lack of control. The fair value of the acquired intangible assets is preliminary pending the final valuations of those assets.

The following table contains unaudited pro forma consolidated income statement information assuming the 2013 acquisitions closed January 1, 2012 (amount in thousands, except earnings per share):

	2013		2012
Net service revenue	$	670,014	$	686,010
Operating income		44,563		50,354
Net income		21,031		25,028
Basic and diluted earnings per share		1.23		1.40

The pro forma disclosure in the table above includes adjustments for depreciation expense, amortization of intangible assets, income tax expense and an estimate of additional costs to provide administrative services for these locations as if the acquisition had occurred on January 1, 2012. This pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred. In addition, future results may vary significantly from the results reflected in the pro forma information.

Purchase of Membership Interest in Company’s Subsidiary

During the twelve months ended December 31, 2013, the Company purchased additional membership interests in six of its equity joint ventures. The total purchase price for the additional ownership from these equity transactions was $1.9 million, resulting in the Company reducing noncontrolling interest-redeemable by $612,000 and additional paid in capital by $1.3 million.

2012 Acquisitions

The total aggregate purchase price for the Company’s acquisitions, which closed in the twelve months ended December 31, 2012, was $5.1 million, which was paid primarily in cash. Purchase prices are determined based on an analysis of comparable acquisitions and the target market’s potential future cash flows.

The Company’s home-based segment recognized aggregate goodwill of $4.4 million, including $902,000 of noncontrolling goodwill. Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. During the twelve months ended December 31, 2012, the Company sold membership interests in one of its wholly owned subsidiaries. The total sales price was $80,000 for the sale of 40% membership interests and was accounted for as an equity transaction, resulting in the Company increasing additional paid in capital by $80,000.

During the twelve months ended December 31, 2012, the Company purchased additional membership interests in three of its joint ventures. The total purchase price for the additional ownership from these equity transactions was $309,000, resulting in the Company reducing noncontrolling interest-redeemable by $120,000 and additional paid in capital by $189,000.

2011 Acquisitions

The total purchase price for the Company’s acquisitions, which closed in the twelve months ended December 31, 2011, was $12.3 million, which was paid primarily in cash. Purchase prices were determined based on an analysis of comparable acquisitions and the target market’s potential future cash flows. Consideration for one of the acquisitions was a transfer of a 26.32% ownership interest in one of the Company’s wholly owned home health agencies. The transfer of the noncontrolling interest in the Company’s existing home health agency was accounted for as an equity transaction, resulting in the Company recognizing additional paid in capital of $206,000.

The Company’s home-based segment recognized goodwill of $7.4 million, including $658,000 of noncontrolling goodwill. Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible.

During the twelve months ended December 31, 2011, the Company purchased additional ownership interests in three of its joint ventures. The total purchase price for the additional ownership was $891,000 and was accounted for as an equity transaction, resulting in the Company reducing additional paid in capital by $641,000.

During the twelve months ended December 31, 2011, the Company sold membership interests in three of its wholly owned subsidiaries. The total sales price was $308,000 for the sale of 26% membership interests and was accounted for as equity transactions, resulting in the Company increasing additional paid in capital by $212,000.

During the twelve months ended December 31, 2011, the Company settled the working capital amounts acquired on a 2011 acquisition paying $155,000 in cash related to the settlements.