Acquisitions and Disposals

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Acquisitions and Disposals

3. Acquisitions and Disposals

2015 Acquisitions

On October 1, 2015, the Company acquired 100% of the membership interests of Halcyon Healthcare, LLC ("Halcyon"). Halcyon has 16 hospice locations throughout Alabama, Mississippi, and South Carolina. On November 11, 2015, the Company acquired 100% of the assets of Nurses' Registry and Home Health Corporation, LLC ("Nurses Registry"). Nurses Registry has five locations, four home health agencies and one community-based services agency, located in Kentucky. The goodwill associated with Halcyon and Nurses Registry was $47.2 million.

In addition, the Company acquired the majority-ownership of five home health agencies, one hospice agency, and one community-based services agency during the twelve months ended December 31, 2015.

The total aggregate purchase prices for the Company's acquisitions were $71.4 million, of which $70.1 million was paid in cash. The purchase prices are determined based on the Company's analysis of comparable acquisitions and the target market's potential future cash flows. The Company paid $0.4 million in acquisition-related costs, which was recorded in general and administrative expenses.

The Company’s home health services segment, hospice services segment, and community-based services segment recognized aggregate goodwill of $7.1 million, $43.3 million, and $0.6 million, respectively. 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 acquisitions were accounted for under the acquisition method of accounting, and, accordingly, the accompanying financial information includes the results of operations of the acquired entities from the dates of acquisition.

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 their fair value at the acquisition dates and the noncontrolling interest acquired (amounts in thousands):

Consideration
Cash	$	70,123
Fair value of total consideration transferred	70,123
Recognized amounts of identifiable assets acquired and liabilities assumed
Trade name	6,530
Certificates of needs/licenses	11,609
Other identifiable intangible assets	953
Cash	700
Accounts receivable	4,202
Fixed assets	521
Accounts payable	(1,389		)
Other assets and (liabilities), net	(3,937		)
Total identifiable assets	19,189
Noncontrolling interest	152
Goodwill, including noncontrolling interest of $36	$	51,086

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. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of needs are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi period excess earnings method. The other identifiable assets include non-compete agreements that are amortized over the life of the agreements, ranging from one to three years. Noncontrolling interest is valued at fair value by applying a discount to the value of the acquired entity for lack of control.

The Company has conducted a preliminary assessment of deferred income tax accounting and the calculation of the final net working capital adjustment and has recognized provision amounts in it is initial accounting for the acquisition of Halcyon for all identified liabilities in accordance with the requirements of ASC Topic 805. However, the Company is continuing its review of these matters during the measurement period, and if new information obtained about facts and circumstances that existed at the acquisition date identified adjustments to the assets and liabilities initially recognized, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts initially recognized.

The following table contains unaudited pro forma consolidated income statement information assuming the 2015 acquisitions closed January 1, 2014 (amount in thousands, except earnings per share):

	2015		2014
Net service revenue	$	868,075	$	789,761
Operating income	67,520		45,671
Net income	33,044		21,949
Basic earnings per share	1.90		1.27
Diluted earnings per share	1.88		1.27

The pro forma information presented above includes adjustments for (i) depreciation expense, (ii) amortization of identifiable intangible

assets, (iii) income tax provision using the Company’s effective tax rate and (iv) estimate of additional costs to provide administrative costs for these locations. 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.

2014 Acquisitions

The total aggregate purchase price for the Company’s acquisitions, which closed in the twelve months ended December 31, 2014, was $75.5 million, of which $73.9 million was paid in cash. The purchase prices are determined based on an analysis of comparable acquisitions and the target market’s potential future cash flows. The company paid $1.0 million in acquisition-related costs, which was recorded in general and administrative expenses.

The Company’s home health services segment, hospice services segment, and community-based services segment recognized aggregate goodwill of $22.9 million, $5.3 million, and $17.1 million, respectively. 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.