Note 3 - Acquisitions

6 Months Ended

Jun. 30, 2013

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

  (3)           Acquisitions

ExamWorks operates in a highly fragmented industry and has completed 40 acquisitions since July 14, 2008. A key component of ExamWorks’ acquisition strategy is growth through acquisitions that expand its geographic coverage, provide new or complementary lines of business, expand its portfolio of services and increase its market share.

The Company has accounted for all business combinations using the purchase method to record a new cost basis for the assets acquired and liabilities assumed. The Company recorded, based on a preliminary purchase price allocation, intangible assets representing client relationships, tradenames, covenants not to compete, and technology and the excess of purchase price over the estimated fair value of the tangible assets acquired and liabilities assumed and the separately recognized intangible assets has been recorded as goodwill in the accompanying consolidated financial statements. The goodwill is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence. The results of operations are reflected in the consolidated financial statements of the Company from the date of acquisition.

(a)             2012 Acquisitions

In 2012, the Company completed the following individually insignificant acquisitions with an aggregate purchase price of $109.2 million, comprised of $112.0 million cash consideration less cash acquired of $2.9 million, and 6,190 shares of the Company’s common stock with an estimated fair value of $85,000. In conjunction with these 2012 acquisitions, the Company incurred transaction costs of $1.3 million, of which $25,000 and $28,000 were incurred in the three and six months ended June 30, 2013, and of which $407,000 were incurred in the three and six months ended June 30, 2012. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Loss. These acquisitions expanded the geographic coverage and, to a lesser extent, enhanced the service offering of the Company.

Company name	Form of acquisition	Date of acquisition
Makos Health Associates Corp	Substantially all of the assets and assumed certain liabilities	July 12, 2012
MedHealth Holdings Pty Limited	100% of the outstanding common stock	August 31, 2012
PMG	100% of the outstanding common stock	December 19, 2012

The preliminary allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary						Preliminary
	purchase price						purchase price
	allocation			Adjustments/			allocation
	December 31, 2012			reclassifications			June 30, 2013
Equipment and leasehold improvements	$	850		$	—		$	850
Customer relationships		44,413			—			44,413
Tradename		11,901			—			11,901
Covenants not to compete		313			—			313
Technology		666			—			666
Goodwill		60,373			(486	)		59,887
Net deferred tax liability associated with step-up in book basis		(9,610	)		—			(9,610	)
Assets acquired and liabilities assumed, net		269			486			755
Totals	$	109,175		$	—		$	109,175

Goodwill of $52.9 million and other intangible assets of $50.2 million are expected to be deductible for U.S. federal income tax purposes, a portion of which give rise to annual foreign tax credit limitations subject to the provisions of IRC Section 901(m). The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the Company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above related to MedHealth and PMG are subject to change. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

(b)             Pro Forma Financial Information

The unaudited pro forma results of operations for the three and six months ended June 30, 2012 assumes that the 2012 acquisitions were completed on January 1, 2011. There we no acquisitions completed in the three and six months ended June 30, 2013 and thus there are no differences between the reported and pro forma results of operations.

For the three and six months ended June 30, 2012, pro forma revenues were $145.7 million and $286.0 million, respectively. For the three and six months ended June 30, 2012, pro forma net loss per share, on both a basic and diluted basis, was $0.14 and $0.33, respectively.

For the three and six months ended June 30, 2012, the pro forma results include adjustments to reflect additional interest expense of $1.7 million and $3.4 million associated with the funding of the acquisitions assuming that acquisition related debt was incurred on January 1, 2011. In addition, incremental depreciation and amortization expense was recorded as if the acquisitions had occurred on January 1, 2011 and amounted to $3.2 million and $6.4 million for the three months and six ended June 30, 2012. Finally, adjustments of $83,000 and $988,000 were made to SGA expenses for the three and six months ended June 30, 2012, principally related to certain salary and other personal expenses attributable to the previous owners of the acquired businesses. These adjustments represent contractual reductions and are considered to be non-recurring and are not expected to have a continuing impact on the operations of the Company.

The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisitions been effective as of January 1, 2011 or of future operations of the Company.