Almost Family Merger

On April 1, 2018, the Company completed its previously announced merger of equals business combination with Almost Family as contemplated by that certain Agreement and Plan of Merger, dated as of November 15, 2017 by merging Hammer Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), with and into Almost Family, with Almost Family continuing as the surviving entity in the Merger and as a wholly owned subsidiary of the Company. At the effective time of the Merger on April 1, 2018, each outstanding share of common stock of Almost Family, other than certain canceled shares, was converted into the right to receive 0.9150 shares of the Company’s common stock and cash in lieu of any fractional shares of any Company common stock that Almost Family shareholders would otherwise have been entitled to receive. As a result, the Company issued approximately 12.8 million shares of its common stock to former stockholders of Almost Family. The Company was determined to be the accounting acquirer in the Merger.

The following table summarizes the consideration transferred in connection with the Merger (amounts in thousands, except share data):



Outstanding shares of Almost Family common stock as of April 1, 2018	13,951,134
Exchange ratio	0.9150
Shares of the Company issued	12,765,288
Price per share as of April 1, 2018	$	61.56
Fair value of the Company common stock issued	$	785,831
Fair value of vested Almost Family equity awards exchanged for equity awards in the Company	$	9,581
Preliminary merger consideration	$	795,412

The Company's preliminary valuation analysis of identifiable assets and liabilities assumed for the Merger is in accordance with the requirements of ASC Topic 805, Business Combinations, the preliminary estimates of which are presented in the table below (amounts in thousands). The final determination of the fair value of assets acquired and liabilities assumed will be completed in accordance with the applicable accounting guidance. Due to the significance of the Merger, the Company may use all of the measurement period to adequately analyze and assess the fair values of assets acquired and liabilities assumed.



Preliminary merger consideration
Stock	$	795,412
Preliminary fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	16,547
Patient accounts receivable	95,185
Prepaid income taxes	2,705
Prepaid expenses and other current assets	9,466
Property and equipment	11,144
Trade name	76,090
Certificates of need/licenses	77,975
Customer relationships	13,970
Assets held for sale	2,850
Deferred income taxes	5,197
Accounts payable	(37,014		)
Accrued other liabilities	(62,397		)
Seller notes payable	(13,571		)
NCI- Redeemable	(8,034		)
Long term income taxes payable	(3,786		)
Line of credit	(106,800		)
NCI- Nonredeemable	(34,969		)
Other assets and (liabilities), net	98
Total identifiable assets and liabilities	44,656
Preliminary goodwill	$	750,756

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 customer relationships that are amortized over 20 years. Customer relationships was valued using the multi period excess earnings method. Noncontrolling interest is valued at fair value.

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company had the Merger occurred on January 1, 2017. Almost Family’s financial information has been compiled in a manner consistent with the accounting policies adopted by LHC Group. The unaudited pro forma financial information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the Merger occurred on January 1, 2017, nor are they indicative of any future results (amounts in thousands, except per share amount).



	Pro forma - unaudited
	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Net service revenue	$	507,043	$	460,284	$	1,504,087	$	1,357,111
Net income attributable to the Company	21,230		14,076		58,882		43,257
Diluted earnings per share	$	0.68	$	0.84	$	1.89	$	1.39

The pro forma financial information contained in this report, including the above, is based on the Company's preliminary assignment of consideration given and therefore subject to adjustment. These pro forma amounts were calculated after applying the Company’s accounting policies and adjusting Almost Family’s and LHC Group's results to reflect adjustments that are directly attributable to the Merger. These adjustments mainly exclude transaction costs incurred by Almost Family and LHC Group in the fiscal quarter preceding the consummation of the Merger, together with the consequential tax effects at the statutory rate.

The unaudited pro forma financial information contained in this report, including the above, has been prepared for informational purposes only and does not include any anticipated synergies or other potential benefits of the Merger. Pro forma information is not presented for any other acquisitions or joint venture transactions, as the aggregate operations of the acquired businesses were not significant to the overall operations of the Company. It also does not give effect to certain future charges that the Company expects to incur in connection with the Merger, including, but not limited to, additional professional fees, legal expenses, severance, retention and other employee-related costs, contract breakage costs, and costs related to consolidation of technology systems and corporate facilities.

Transaction costs associated with the Merger that were incurred by the Company during the nine months ended September 30, 2018 are being expensed as incurred and are presented in the condensed consolidated statements of income as general and administrative expenses. These expenses include investment banking, legal, accounting, and other third party transaction costs associated with the Merger, including preparation for regulatory filings and shareholder approvals. During the nine months ended September 30, 2018, the Company incurred $27.1 million of transaction, transition, and integration costs related to the Merger.