Acquisitions of Non Controlling Interests

6 Months Ended

Jun. 30, 2011

Acquisitions of Non Controlling Interests [Abstract]

ACQUISITIONS OF NON CONTROLLING INTERESTS

3. ACQUISITIONS OF NON-CONTROLLING INTERESTS

Effective February 28, 2011, in two separate transactions, the Company purchased a total of 16.3% of the 30% non-controlling interest in STAR Physical Therapy, LP, a subsidiary of the Company (“STAR”). The aggregate purchase price paid in April 2011 for the 16.3% interest was $12.3 million which included $0.6 million of undistributed earnings. The remaining purchase price of $11.7 million, less future tax benefits of $4.6 million, was recognized as an adjustment to additional paid-in capital. Effective May 31, 2011, the Company purchased an additional 1.3% non-controlling interest in STAR. The purchase price paid in July 2011 for the 1.3% interest was $1.0 million which included $49,000 of undistributed earnings. The remaining purchase price of approximately $1.0 million, less future tax benefits of $0.4 million, was recognized as an adjustment to additional paid-in capital. After these transactions, the Company owns 87.6% and the non-controlling interest limited partners in aggregate own the remaining 12.4% in the partnership. The payable of $1.0 million related to the May transaction appears in accrued expenses in the accompanying balance sheet for June 30, 2011. Of the 16.3% aggregate non-controlling interests purchased, 15% was held by Regg Swanson, the Managing Director and a founder of STAR and a member of the Company’s Board of Directors. The purchase price was determined based on the contractual terms in the Reorganization of Securities Purchase Agreement dated as of September 6, 2007 between the Company, STAR, the limited partners of STAR and Regg Swanson as Seller Representative and in his individual capacity, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2007. After the sale of his 15% interest, Mr. Swanson owns 3.3% of STAR.

Effective June 30, 2011, the Company purchased the 35% non-controlling interest in one of its Texas partnerships. The aggregate purchase price for the 35% interest was $3.9 million, of which $3.5 million was paid in cash and $367,272 was paid in the form of a note to the seller, which is payable in two equal annual installments of principal plus any accrued and unpaid interest. The purchase price included $0.2 million of undistributed earnings and $0.2 million in invested capital. The remaining purchase price of $3.5 million, less future tax benefits of $1.4 million, was recognized as an adjustment to additional paid-in capital. After this transaction, the Company owns 100% of the partnership.

In addition, during the six months ended June 30, 2011, the Company purchased the non-controlling interests of two other partners for $112,000, which included $47,000 of undistributed earnings. The remaining purchase price of approximately $60,000, less future tax benefits of $23,000, was recognized as an adjustment to additional paid-in capital.