Acquisitions and Disposals

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Acquisitions and Disposals

Acquisitions and Disposals

The Company acquired the majority-ownership of 11 home health agencies, nine hospice agencies and one community-based agency during the nine months ended September 30, 2016. The total aggregate purchase prices for the Company’s acquisitions were $20.8 million, of which $20.3 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's home health services segment, hospice services segment, and community-based services segment recognized goodwill of $6.2 million, $7.8 million, and $0.8 million, respectively. Goodwill generated from the acquisitions was recognized based on the expected contribution 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 interim financial information includes the results of operations of the acquired entities from the date 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	$	20,259
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade name	3,311
Certificates of need/licenses	3,372
Other identifiable intangible assets	258
Other assets and (liabilities), net	(538		)
Total identifiable assets	6,403
Noncontrolling interest	970
Goodwill, including noncontrolling interest of $710	$	14,826

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 need 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. Noncontrolling interest is valued at fair value by applying a discount to the value of the acquired entity for lack of control.

The Company conducted a preliminary assessment of deferred income tax accounting and the calculation of the final net working capital adjustment and has recognized provisional amounts in its initial accounting for prior year acquisitions for all identified liabilities in accordance with the requirements of ASC Topic 805. During the nine months ended September 30, 2016, a net working capital adjustment of $0.6 million and deferred tax liabilities of $0.8 million were recorded in goodwill. The Company is continuing its review of these matters during the measurement period.