11. Acquisitions and other arrangements

On May 25, 2013, the Company acquired the assets of five radiation oncology practices and a urology group located in Lee/Collier Counties in Southwest Florida for approximately $28.5 million, comprised of $17.7 million in cash, seller financing note of approximately $2.1 million and assumed capital lease obligations of approximately $8.7 million. The acquisition of the five radiation therapy centers and the urology group further expands the Company's presence into the Southwest Florida market and builds on its ICC model. The allocation of the purchase price is to tangible assets of $10.4 million, intangible assets including non-compete agreements of $1.9 million amortized over five years, current liabilities of $0.2 million, and goodwill of $16.4 million, which is all deductible for tax purposes. During the quarter ended June 30, 2014, the Company finalized its valuation of assets acquired, primarily working capital. The final valuation resulted in an increase to goodwill of $0.1 million and an increase in current liabilities of $0.1 million. Pro forma results and other expanded disclosures prescribed by ASC 805, Business Combinations (“ASC 805”), have not been presented as this acquisition is not deemed material.

In June 2013, the Company sold its 45% interest in an unconsolidated joint venture which operated a radiation therapy center in Providence, Rhode Island in partnership with a hospital to provide stereotactic radio‑surgery through the use of a cyberknife for approximately $1.5 million.

In June 2013, the Company contributed its Casa Grande, Arizona radiation physician practice, ICC practice and approximately $5.2 million to purchase a 55.0% interest in a joint venture which included an additional radiation physician practice and an expansion of an ICC model that includes medical oncology, urology and dermatology. The allocation of the purchase price is to tangible assets of $2.2 million, intangible assets including a tradename of approximately $1.8 million, non-compete agreements of $0.4 million amortized over 7 years, goodwill of $5.1 million, current liabilities of $0.1 million and noncontrolling interest-redeemable of approximately $4.2 million. For purposes of valuing the noncontrolling interest-redeemable, the Company considered a number of factors such as the joint venture’s performance projections, cost of capital, and consideration ascribed to applicable discounts for lack of control and marketability. During the quarter ended June 30, 2014, the Company finalized its valuation of assets acquired, primarily working capital. The final valuation resulted in an increase to goodwill of $0.1 million and an increase in current liabilities of $0.1 million.

In July 2013, the Company purchased a legal entity, which operates a radiation therapy center in Tijuana Mexico for approximately $1.6 million. The acquisition of this operating radiation therapy center expands the Company’s presence in the international markets.

In July 2013, the Company purchased the remaining 38.0% interest in a joint venture radiation facility, located in Woonsocket, Rhode Island from a hospital partner for approximately $1.5 million.

In June 2013, the Company entered into a “stalking horse” investment agreement to acquire OnCure Holdings, Inc. (together with its subsidiaries, “OnCure”) upon effectiveness of its plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code for approximately $125.0 million, (excluding capital leases, working capital and other adjustments). The purchase price included $42.5 million in cash and up to $82.5 million in assumed debt ($7.5 million of assumed debt will be released assuming certain OnCure centers achieve a minimum level of EBITDA). The Company funded an initial deposit of approximately $5.0 million into an escrow account subject to the working capital adjustments. During the quarter ended June 30, 2014, the Company received approximately $3.3 million of the escrow account pursuant to a negotiated working capital settlement.

On October 25, 2013, the Company completed the acquisition of OnCure. The transaction was funded through a combination of cash on hand, borrowings from the Company’s senior secured credit facility and the issuance of $82.5 million in senior secured notes of OnCure, which accrue interest at a rate of 11.75% per annum and mature January 15, 2017, of which $7.5 million included in other long-term liabilities in the condensed consolidated balance sheets, is subject to escrow arrangements and will be released to holders upon satisfaction of certain conditions.

OnCure operates radiation oncology therapy centers for cancer patients. It contracts with radiation oncology physician groups and their radiation oncologists through long-term management services agreements to offer cancer patients a comprehensive range of radiation oncology treatment options, including most traditional and next generation services. OnCure provides services to a network of 11 physician groups that treat cancer patients at its 33 radiation therapy centers, making it one of the largest strategically located networks of radiation oncology service providers. OnCure has radiation therapy centers located in California, Florida and Indiana, where it provides the physician groups with the use of the facilities and with certain clinical services of treatment center staff, and administers the non-medical business functions of the treatment centers, such as technical staff recruiting, marketing, managed care contracting, receivables management and compliance, purchasing, information systems, accounting, human resource management and physician succession planning.

The allocation of the purchase price was as follows (in thousands):



Acquisition Consideration
Cash	$	42,250
11.75% senior secured notes due January 2017		75,000
Assumed capital lease obligations & other notes		2,090
Fair value of contingent earn-out, represented by 11.75% senior secured notes due January 2017 issued into escrow		7,550
Total acquisition consideration	$	126,890

The following table summarizes the allocation of the aggregate purchase price of OnCure, including assumed liabilities (in thousands):



Acquisition Consideration Allocation
Cash and cash equivalents	$	307
Accounts receivable		10,087
Inventories		200
Deferred income taxes—asset		4,875
Other currents assets		1,742
Accounts payable		(4,856)
Accrued expenses		(3,540)
Other current liabilities		—
Equity investments in joint ventures		1,625
Property and equipment		22,397
Intangible assets—management services agreements		57,739
Other noncurrent assets		265
Other long—term liabilities		(5,828)
Deferred income taxes—liability		(32,052)
Noncontrolling interest—nonredeemable		(1,299)
Goodwill		75,228
Acquisition consideration	$	126,890

Net identifiable assets include the following intangible assets (in thousands):



Management service agreements	$	57,739

The Company valued the management services agreements based on the income approach utilizing the excess earnings method. The Company considered a number of factors to value the management services agreements, including OnCure’s performance projections, discount rates, strength of competition, and income tax rates. The management services agreements will be amortized on a straight‑ line basis over the terms of the respective agreements.

The weighted‑average amortization period for the acquired amortizable intangible assets at the time of the acquisition was approximately 11.6 years. Total amortization expense recognized for these acquired amortizable intangible assets totaled approximately $0.9 million for the year ended December 31, 2013.

Estimated future amortization expense for OnCure’s acquired amortizable intangible assets as of December 31, 2013 is as follows (in thousands):



2014	$	5,563
2015	$	5,563
2016	$	5,464
2017	$	5,464
2018	$	5,195
Thereafter	$	29,564

The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill of $75.2 million, representing primarily the value of estimated cost savings and synergies expected from the transaction. The goodwill is not deductible for tax purposes and is included in the Company’s U.S. domestic segment. During the year ended June 30, 2015, the Company finalized its valuation of assets acquired. The final valuation, combined with the receipt of escrow funds resulted in a decrease in accounts receivable of approximately $2.4 million, increase in property and equipment of $0.3 million, decrease in goodwill of $0.4 million, and an increase in current liabilities of $0.3 million, and an increase in deferred tax liabilities of $0.4 million.

On October 30, 2013, the Company acquired the assets of a radiation oncology practice located in Roanoke Rapids, North Carolina for approximately $2.2 million. The acquisition of the radiation oncology practice further expands the Company’s presence in the Eastern North Carolina market. The allocation of the purchase price is to tangible assets of $0.3 million, a certificate of need of approximately $0.3 million, and goodwill of $1.6 million.

During 2013, the Company acquired the assets of several physician practices in Arizona, Florida, North Carolina, New Jersey, and Rhode Island for approximately $0.8 million. The physician practices provide synergistic clinical services and an ICC service to its patients in the respective markets in which the Company provides radiation therapy treatment services. The allocation of the purchase price is to tangible assets of $0.8 million.

On January 13, 2014, Carepoint purchased the membership interest in Quantum Care, LLC for approximately $1.9 million. Carepoint offers a comprehensive suite of cancer management solutions to insurers, providers, employers and other entities that are financially responsible for the health of defined populations. With proven capabilities to manage medical, radiation and surgical oncology care across the entire continuum of settings, Carepoint represents a unique offering in the health services marketplace. Advanced technology and third‑party administrator services, cost management solutions and a focused oncology‑specific clinical model enable Carepoint to improve quality and reduce total oncology cost of care for its clients. Carepoint tailors its solutions to the needs of each customer and provides assistance through full‑risk transfer, “a la carte” administrative services only packages or hybrid models. The allocation of the purchase price is to tangible assets of $1.4 million, intangible assets of approximately $0.1 million, goodwill of $0.6 million and current liabilities of $0.2 million.

On January 15, 2014, the Company purchased a 69% interest in a legal entity that operates a radiation oncology facility in Guatemala City, Guatemala for approximately $0.9 million plus the assumption of approximately $3.1 million in debt. This facility is strategically located in Guatemala City’s medical corridor. The allocation of the purchase price is to tangible assets of $2.8 million, intangible assets of approximately $0.6 million ($0.2 million in hospital contracts, $0.3 million in tradename and $0.1 million in non-compete), goodwill of $1.3 million, noncontrolling interest-non redeemable of approximately $0.5 million and deferred tax liabilities of approximately $0.2 million.

On February 10, 2014, the Company purchased a 65% equity interest in South Florida Radiation Oncology (“SFRO”) for approximately $65.5 million, subject to working capital and other customary adjustments. The transaction was primarily funded with the proceeds of a new $60 million term loan facility that accrues interest at the Eurodollar Rate plus a margin of 10.50% per annum and matures on January 15, 2017 and $7.9 million of term loans to refinance existing SFRO debt.

The Company accounted for the acquisition of SFRO under ASC 805. SFRO’s results of operations are included in the condensed consolidated financial statements for periods ending after February 10, 2014, the acquisition date.

The allocation of the purchase price was as follows (in thousands):



Acquisition Consideration
Cash	$	432
Term B Loan (net of original issue discount)		57,300
Seller financing note		2,000
Working capital settlement		(5,333)
Fair value of contingent earn-out		11,052
Total acquisition consideration	$	65,451

The following table summarizes the allocation of the aggregate purchase price of SFRO, including assumed liabilities (in thousands):



Acquisition Consideration Allocation
Accounts receivable	$	12,676
Other currents assets		1,364
Current liabilities		(21,287)
Property and equipment		20,750
Intangible assets—(non-compete and tradename)		11,500
Other noncurrent assets		910
Long-term debt		(42,021)
Other long—term liabilities		(1,969)
Noncontrolling interest—redeemable		(39,925)
Goodwill		123,453
Acquisition consideration	$	65,451

Net identifiable assets include the following intangible assets (in thousands):



Trade name (3 year life)	$	2,100
Non-compete agreement (5 year life)		9,400
	$	11,500

The Company preliminarily valued the noncontrolling interest-redeemable considering a number of factors such as SFRO’s performance projections, cost of capital, and consideration ascribed to applicable discounts for lack of control and marketability.

The Company valued the trade name using the relief from royalty method, a derivation of the income approach that estimates the benefit of owning the trade name rather than paying royalties for the right to use a comparable asset. The Company considered a number of factors to value the trade name, including SFRO’s performance projections, royalty rates, discount rates, strength of competition, and income tax rates.

The Company valued the non-compete agreement using the discounted cash flow method, a derivation of the income approach that evaluates the difference in the sum of SFRO’s present value of cash flows of two scenarios: (1) with the non-compete in place and (2) without the non-compete in place. The Company considered various factors in determining the non-compete value including SFRO’s performance projections, probability of competition, income tax rates, and discount rates.

The weighted‑average amortization period for the acquired amortizable intangible assets at the time of the acquisition was approximately 4.8 years. Total amortization expense recognized for these acquired amortizable intangible assets totaled approximately $2.4 million for the year ended December 31, 2014.

Estimated future amortization expense for SFRO’s acquired amortizable intangible assets as of the acquisition date is as follows (in thousands):



2014	$	2,365
2015	$	2,580
2016	$	2,580
2017	$	1,938
2018	$	1,880
Thereafter	$	157

The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill of $123.5 million, representing primarily the value of estimated cost savings and synergies expected from the transaction. The goodwill is not deductible for tax purposes and is included in the Company’s U.S. domestic segment.

During the three months and six months ended June 30, 2014, respectively, the Company recorded $41.3 million and $60.7 million of net patient service revenue and reported a net income of $0.9 million and $1.0 million in connection with the SFRO acquisition.

The following unaudited pro forma financial information is presented as if the purchase of SFRO had occurred at the beginning of the comparable prior annual reporting period presented below. The pro forma financial information is not necessarily indicative of what the Company’s results of operations actually would have been had the Company completed the acquisition at the dates indicated. In addition, the unaudited pro forma financial information does not purport to project the future operating results of the combined Company:



(in thousands):	Six Months Ended June 30, 2014
Pro forma total revenues	$	510,314

Pro forma net loss attributable to 21st Century Oncology Holdings, Inc. shareholder	$	(238,431)

On July 2, 2015, the Company purchased the remaining 35% of SFRO for $49.0 million, comprised of $15.0 million in cash, $15.0 million in a seller financing note, and $19.0 million in 21CI preferred stock. As of June 30, 2015, the Company adjusted the respective noncontrolling interest to fair value resulting in an increase to fair value adjustment of noncontrolling interest of approximately $13.0 million. The seller financing note accrues interest at 10% per annum, which will be accrued quarterly and added to the outstanding principal amount. The seller financing note matures on June 30, 2019 and provides for an earn-out payable to the sellers based on certain milestones being achieved, which could entitle the sellers to up to an additional $4.5 million in the aggregate. As of June 30, 2015 the Company adjusted the earn-out liability resulting in a decrease in fair value of the earn-out liability of approximately $9.2 million. The changes in fair value described above are included in the fair value adjustment of noncontrolling interest and earn-out liability caption of the condensed consolidated statements of operations and comprehensive loss.

On March 26, 2014, the Company purchased a 75% interest in a legal entity that operates a radiation oncology facility in Villa Maria, Argentina for approximately $0.5 million. The allocation of the purchase price is to tangible assets of $0.5 million, intangible assets of $0.2 million, goodwill of $0.5 million, noncontrolling interest-non redeemable of approximately $0.2 million and total liabilities of approximately $0.5 million.

On April 21, 2014, the Company acquired the assets of a radiation oncology practice located in Boca Raton, Florida for approximately $0.4 million plus the assumption of approximately $2.7 million in debt. The acquisition of the radiation oncology practice further expands the Company’s presence in the Broward County market. The allocation of the purchase price is to tangible assets of $3.0 million and non-compete of $0.1 million.

On May 5, 2014, the Company purchased the remaining 50% interest it did not already own in an unconsolidated joint venture which operates a freestanding radiation treatment center in Lauderdale Lakes, Florida for approximately $0.5 million. The allocation of the purchase price is to tangible assets of $0.3 million, accounts receivable of $0.4 million, goodwill of $0.2 million and previously held equity interest of approximately $0.4 million.

During October, 2014, the Company entered into a license agreement with the Public Health Trust of Miami-Dade County, Florida to license space and equipment and assume responsibility for the operation of a radiation therapy center located in Miami, Florida, as part of the Company’s value added services offering. The license agreement runs for an initial term of five years, with two separate five year renewal options. The Company recorded approximately $1.4 million of tangible assets relating to the use of medical equipment pursuant to the license agreement.

During 2014, the Company acquired the assets of several physician practices in Florida for approximately $0.4 million. The physician practices provide synergistic clinical services and an ICC service to its patients in the respective markets in which the Company provides radiation therapy treatment services. The allocation of the purchase price to tangible assets is $0.4 million.

On January 2, 2015, the Company purchased an 80% interest in a legal entity that that operates a radiation oncology facility in Kennewick, Washington for approximately $19.2 million comprised of approximately $17.7 million in cash, $0.3 million in assumed capital leases, and a contingent earn-out payment preliminarily valued at $1.3 million. The preliminary allocation of the purchase price is to tangible assets of $3.0 million, intangible assets of approximately $2.2 million ($1.2 million in non-compete, amortized over 5 years, and $1.0 million in tradename), noncontrolling interest-redeemable of $3.8 million, and goodwill of $17.8 million, which is deductible for tax purposes. The acquisition expands the Company’s presence into the state of Washington.

The earn-out is contingent upon achieving certain EBITDA targets measured over three years from the acquisition date and the potential payments range from $0 to approximately $3.4 million. The earn-out was valued using a multiple scenario probability weighted income approach that discounted future earn-out payments under the following scenarios: base case, a minimum earn-out case, no earn-out case, and maximum earn-out case. Each scenario forecasted the future EBITDA of the acquired entity and calculated the anticipated earn-out paid for each year. The earn-out payments were discounted to the present value and probability weightings were applied to each scenario to determine the estimated fair value. Given the date of the acquisition, the Company has not completed the valuation of assets acquired and liabilities assumed, which is in process.

On January 6, 2015, the Company purchased an additional 9.0% interest in a joint venture radiation facility, located in Providence, Rhode Island for approximately $1.2 million.

On January 6, 2015, the Company acquired the assets of a radiation oncology practice located in Warwick, Rhode Island for approximately $8.0 million in cash. The preliminary allocation of the purchase price is to tangible assets of $0.6 million, intangible assets of approximately $0.9 million ($0.2 million in non-compete, amortized over 5 years, and $0.7 million in certificate of need), and goodwill of $6.5 million, which is deductible for tax purposes. The acquisition further expands the Company’s presence in Rhode Island. Given the date of the acquisition, the Company has not completed the valuation of assets acquired and liabilities assumed, which is in process.

On January 6, 2015, the Company acquired the additional assets of a radiation oncology practice it already manages located in Hollywood, Florida for approximately $0.5 million. The preliminary allocation of the purchase price is to tangible assets of $0.1 million, current liabilities of $0.2 million and goodwill of $0.6 million. Given the date of the acquisition, the Company has not completed the valuation of assets acquired and liabilities assumed, which is in process.

On January 12, 2015, the Company entered into an arrangement to lease the space and equipment and assume responsibility for the operations of the radiation therapy center located in the Good Samaritan Medical Center in West Palm Beach, Florida. The initial term of the lease arrangement is approximately one year with a five year renewal option.

On February 1, 2015, the Company formed a joint venture comprising the operations of three radiation therapy centers located in New Jersey and sold a 30% interest of the joint venture to the Lourdes Health Systems for approximately $0.7 million.

On April 1, 2015, the Company entered into an amended outpatient radiation therapy management services agreement with a medical group to expand its management services to a radiation oncology treatment site located in Corbin, Kentucky.

The operations of the foregoing acquisitions have been included in the accompanying condensed consolidated statements of operations and comprehensive loss from the respective date of the acquisition.