3. Acquisitions and Joint Ventures

2017 Acquisitions

On January 1, 2017, the Company formed a joint venture with LifePoint Health, Inc. ("LifePoint"). LifePoint contributed 28 home health agencies, 12 hospice agencies, and one inpatient hospice unit to the joint venture during the twelve months ended December 31, 2017. The Company acquired majority ownership of the membership interests of these agencies. These providers conduct home health operations in Arizona, Colorado, Louisiana, Michigan, North Carolina, Pennsylvania, Tennessee, Texas, and Virginia; and conduct hospice operations in Michigan, North Carolina, Pennsylvania, Tennessee, and Virginia, and conduct inpatient hospice operations in North Carolina.

On June 1, 2017, the Company formed a joint venture with Baptist Memorial Health Care ("Baptist"). Baptist contributed three home health agencies and six hospice agencies, and one inpatient hospice unit to the joint venture during the twelve months ended December 31, 2017. The Company acquired majority ownership of the membership interests of these agencies. These providers conduct home health and hospice operations in Mississippi and Tennessee, and conduct inpatient hospice operations in Tennessee.

On September 1, 2017, the Company formed a joint venture with CHRISTUS Continuing Care (“CHRISTUS”). CHRISTUS contributed seven home health agencies, five hospice agencies, one inpatient hospice unit, one community-based agency, and six LTACH agencies to the joint venture during the twelve months ended December 31, 2017. The Company acquired majority ownership of the membership interests of these agencies. These providers conduct home health and hospice operations in Louisiana and Texas, conduct inpatient hospice operations in Texas, conduct community-based operations in Texas; and conduct LTACH operations in Arkansas, Louisiana, and Texas.

In separate transactions, the Company acquired five home health agencies, two hospice agencies, and one pharmacy during the twelve months ended December 31, 2017.

The total aggregate purchase price for these transactions was $80.2 million, of which $10.4 million was paid in December 2016 and $64.6 million was paid in cash during the twelve months ended December 31, 2017. The difference between the total aggregate purchase price and cash payments relates to acquired liabilities for each business combination. The purchase prices were determined based on the Company’s analysis of comparable acquisitions and the target market’s potential future cash flows.

The fair values assigned to certain assets acquired and liabilities assumed in relation to the Company’s acquisition that occurred during the third and fourth quarters of 2017 have been prepared on a preliminary basis with information currently available and are subject to change. Specifically, the Company is further assessing the valuation of certain tangible and intangible assets acquired and obligations assumed pending the final appraisals. The Company expects to finalize its analysis during 2018.

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	$	75,028
Fair value of total consideration transferred	75,028
Recognized amounts of identifiable assets acquired and liabilities assumed
Patient account receivable	5,679
Trade name	14,238
Certificates of needs/licenses	20,207
Other identifiable intangible assets	6
Other assets and (liabilities), net	2,143
Total identifiable assets	42,273
Noncontrolling interest	53,657
Goodwill, including noncontrolling interest of $34,409	$	86,412

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 conducted preliminary assessments and recognized provisional amounts in its initial accounting for the acquisitions of majority ownership of two joint venture partnerships for all identified assets in accordance with the requirements of ASC 805. The Company is continuing its review of these matters during the measurement period. If new information about facts and circumstances that existed at the acquisition date is obtained and indicates adjustments are necessary, the acquisition accounting will be revised to adjust to the provisional amounts initially recognized.

The following table contains unaudited pro forma consolidated income statement information assuming the 2017 acquisitions closed January 1, 2016 (amount in thousands, except earnings per share):



	2017		2016
Net service revenue		1,126,909		1,043,166



Operating income	78,317	73,779
Net income	52,300	38,520
Basic earnings per share	2.95	2.19
Diluted earnings per share	2.91	2.18

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.

2016 Acquisitions

The total aggregate purchase price for the Company’s acquisitions, which closed in the twelve months ended December 31, 2016, was $24.1 million, of which $23.1 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 expects its portion of goodwill to be fully tax deductible.