Acquisitions

Physiotherapy Acquisition

On March 4, 2016, Select acquired 100% of the issued and outstanding equity securities of Physiotherapy Associates Holdings, Inc. (“Physiotherapy”) for $406.3 million, net of $12.3 million of cash acquired. For the year ended December 31, 2016, $3.2 million of Physiotherapy acquisition costs were recognized in general and administrative expense.

Physiotherapy is a national provider of outpatient physical rehabilitation care offering a wide range of services, including general orthopedics, spinal care and neurological rehabilitation, as well as orthotics and prosthetics services.

For the Physiotherapy acquisition, the Company allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair value in accordance with the provisions of ASC 805, Business Combinations. During the year ended December 31, 2016, the Company finalized the accounting for identifiable intangible assets and liabilities, fixed assets, non-controlling interests, and certain pre-acquisition contingencies. During the quarter ended March 31, 2017, the Company completed the accounting for certain deferred tax matters.

The following table reconciles the allocation of the consideration given for identifiable net assets and goodwill acquired to the net cash paid for the acquired business (in thousands):



Cash and cash equivalents	$	12,340
Identifiable tangible assets, excluding cash and cash equivalents	87,832
Identifiable intangible assets	32,484
Goodwill	343,187
Total assets	475,843
Total liabilities	54,685
Acquired non-controlling interests	2,514
Net assets acquired	418,644
Less: Cash and cash equivalents acquired	(12,340		)
Net cash paid	$	406,304

Goodwill of $343.2 million has been recognized in the business combination, representing the excess of the consideration given over the fair value of identifiable net assets acquired. The value of goodwill is derived from Physiotherapy’s future earnings potential and its assembled workforce. Goodwill has been assigned to the outpatient rehabilitation reporting unit and is not deductible for tax purposes. However, prior to its acquisition by the Company, Physiotherapy completed certain acquisitions that resulted in tax deductible goodwill with an estimated value of $8.8 million, which the Company will deduct through 2030.

Due to the integration of Physiotherapy into our outpatient rehabilitation operations, it is not practicable to separately identify net revenue and earnings of Physiotherapy on a stand-alone basis.

Concentra Acquisition

On June 1, 2015, MJ Acquisition Corporation, a joint venture that Select created with Welsh, Carson, Anderson & Stowe XII, L.P., consummated the acquisition of Concentra, the indirect operating subsidiary of Concentra Group Holdings, LLC (“Concentra Group Holdings”) and its subsidiaries. Pursuant to the terms of the stock purchase agreement, dated as of March 22, 2015, by and among MJ Acquisition Corporation, Concentra and Humana, Inc., MJ Acquisition Corporation acquired 100% of the issued and outstanding equity securities of Concentra from Humana, Inc. for $1,047.2 million, net of $3.8 million of cash acquired. For the year ended December 31, 2015, $4.7 million of Concentra acquisition costs were recognized in general and administrative expense.

During the year ended December 31, 2015, the Company finalized the accounting for identifiable intangible assets and liabilities, fixed assets, non-controlling interests, and certain pre-acquisition contingencies. During the quarter ended June 30, 2016, the Company completed the accounting for certain deferred tax matters.

The following table reconciles the allocation of the consideration given for identifiable net assets and goodwill acquired to the net cash paid for the acquired business (in thousands):



Cash and cash equivalents	$	3,772
Identifiable tangible assets, excluding cash and cash equivalents	406,926
Identifiable intangible assets	254,990
Goodwill	651,152
Total assets	1,316,840
Total liabilities	248,797
Acquired non-controlling interests	17,084
Net assets acquired	1,050,959
Less: Cash and cash equivalents acquired	(3,772		)
Net cash paid	$	1,047,187

Goodwill of $651.2 million was recognized in the business combination, representing the excess of the consideration given over the fair value of the identifiable net assets acquired. The value of goodwill is derived from Concentra’s future earnings potential and its assembled workforce. The goodwill is assigned to the Concentra reporting unit and is not deductible for tax purposes. However, prior to its acquisition by MJ Acquisition Corporation, Concentra completed certain acquisitions that resulted in tax deductible goodwill with an estimated value of $23.9 million, which the Company will deduct through 2025.

For the years ended December 31, 2015, 2016, and 2017, Concentra had net revenue of $585.2 million, $1.0 billion, and $1.0 billion, respectively, which is reflected in the Company’s consolidated statements of operations and comprehensive income.

For the year ended December 31, 2015, Concentra had a net loss of $10.0 million, which is reflected in the Company’s consolidated statements of operations and comprehensive income. For the years ended December 31, 2016, and 2017, Concentra had net income of $19.7 million and $68.7 million, respectively, which is reflected in the Company’s consolidated statements of operations and comprehensive income.

Pro Forma Results

The following pro forma unaudited results of operations have been prepared assuming the acquisitions of Concentra and Physiotherapy occurred January 1, 2014 and 2015, respectively. These results are not necessarily indicative of results of future operations nor of the results that would have actually occurred had the acquisitions been consummated on the aforementioned dates. The Company’s results of operations for year ended December 31, 2017 include Concentra and Physiotherapy for the entire period and there were no pro forma adjustments during these periods. Accordingly, no pro forma information is presented.



	For the Year Ended December 31,
	2015		2016
	(in thousands, except per share amounts)
Net revenue	$	4,477,088	$	4,339,551
Net income	119,763		113,590
Income per common share:
Basic	$	0.91	$	0.86
Diluted	$	0.91	$	0.86

The pro forma financial information is based on the allocation of the purchase price of both the Concentra and Physiotherapy acquisitions. The net income tax impact was calculated at a statutory rate, as if Concentra and Physiotherapy had been subsidiaries of the Company as of January 1, 2014 and 2015, respectively.

Pro forma results for the year ended December 31, 2015 were adjusted to include $3.2 million of Physiotherapy acquisition costs and exclude $4.7 million of Concentra acquisition costs. Pro forma results for the year ended December 31, 2016 were adjusted to exclude approximately $3.2 million of Physiotherapy acquisition costs.

Other Acquisitions

In addition to the acquisition of Concentra, the Company completed acquisitions consisting principally of inpatient rehabilitation businesses and other Concentra businesses during the year ended December 31, 2015. Consideration given for these acquisitions consisted of $14.4 million of cash, net of cash received, and the issuance of $14.7 million of non-controlling interests. The assets received in these acquisitions consisted principally of accounts receivable, property and equipment, and goodwill, of which $21.9 million and $4.2 million was recognized in our specialty hospitals and Concentra reporting units, respectively.

In addition to the acquisition of Physiotherapy, the Company completed acquisitions consisting of long term acute care, inpatient rehabilitation, outpatient rehabilitation, and Concentra businesses during the year ended December 31, 2016. Consideration given for these acquisitions consisted of $65.6 million of cash, net of cash received, the issuance of $38.3 million of non-controlling interests, and $17.7 million of business net assets. The Company’s acquisition of certain hospitals resulted in a non-operating gain totaling $9.5 million due, in part, to a bargain purchase because the fair values of the identifiable assets acquired exceeded the fair value of the consideration given in an exchange transaction. The assets received in these acquisitions consisted principally of cash, real property, and goodwill, of which $96.8 million, $2.3 million, and $4.6 million of goodwill was recognized in our specialty hospitals, outpatient rehabilitation, and Concentra reporting units, respectively.

The Company completed acquisitions consisting of long term acute care, inpatient rehabilitation, outpatient rehabilitation, and Concentra businesses during the year ended December 31, 2017. The Company provided total consideration of $36.1 million, consisting principally of $27.4 million of cash and the issuance of non-controlling interests. The assets received in these acquisitions consisted principally of accounts receivable, property and equipment, identifiable intangible assets, and goodwill, of which $12.9 million, $3.8 million, and $14.5 million of goodwill was recognized in our inpatient rehabilitation, outpatient rehabilitation, and Concentra reporting units, respectively. Prior to the change in the Company’s reporting units, goodwill of $0.8 million was recognized in our specialty hospitals reporting unit.