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Goodwill, Intangible Assets and Long-Lived Assets

12 Months Ended

Dec. 31, 2011

Goodwill, Intangible Assets and Long-Lived Assets [Abstract]

Goodwill, Intangible Assets and Long-Lived Assets

(6) Goodwill, Intangible Assets and Long-Lived Assets

(a) Goodwill

We perform our annual goodwill impairment analysis for our reporting units during the fourth quarter of each year and on an interim basis when a specific triggering event occurs. A reporting unit is a business for which discrete financial information is produced and reviewed by operating segment management and provides services that are distinct from the other components of the operating segment. For our Rehabilitation Therapy Services and Medical Staffing Services segments, the reporting unit for our annual goodwill impairment analysis was determined to be at the segment level. For our Inpatient Services reportable segment, the reporting units for our annual goodwill impairment analysis were determined to be the divisional operating levels. The divisional operating levels of the Inpatient Services reportable segment include the northeast, southeast, central and west geographic divisions of SunBridge as well as the SolAmor hospice division and the Americare nutritional supplement division.

We determined potential impairment by comparing the net assets of each reporting unit to their respective fair values, which GAAP describes as Step 1 of goodwill impairment testing. We determined the estimated fair value of each reporting unit using a discounted cash flow analysis and other appropriate valuation methodologies. In the event a unit's net assets exceed its fair value, an implied fair value of goodwill must be determined by assigning the unit's fair value to each asset and liability of the unit, which is referred to in GAAP as Step 2 of the impairment analysis. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is measured by the difference between the goodwill carrying value and the implied fair value.

The goodwill impairment analysis is subject to impact from uncertainties arising from such events as changes in economic or competitive conditions, the current general economic environment, material changes in Medicare and Medicaid reimbursement that could positively or negatively impact anticipated future operating conditions and cash flows, and the impact of strategic decisions such as the Separation. We determined that the CMS Final Rule announcement constituted an interim triggering event in the third quarter of 2011 for evaluating whether the recoverability of goodwill, intangible assets and other long-lived assets in the divisional reporting units of our Inpatient Services reportable segment affected by the CMS Final Rule was impaired. The results of our 2011 interim impairment analysis showed that goodwill in each of SunBridge's divisional reporting units tested was impaired. Based on the analysis performed, we recognized a loss on impairment of $314.7 million for the twelve months ended December 31, 2011, which represents the full carrying value of goodwill for the SunBridge divisional operating segments of our Inpatient Services reportable segment.

Goodwill in our SolAmor hospice division, our Medical Staffing Services segment and our Rehabilitation Therapy Services segment was not impaired for the years ended December 31, 2011, 2010 or 2009.

The following table provides information regarding our goodwill, which is included in the accompanying consolidated balance sheets at December 31 (in thousands):

				Rehabilitation		Medical
	Inpatient			Therapy		Staffing
	Services			Services		Services		Consolidated

Balance as of January 1, 2010	$	333,688		$	75	$	4,533	$	338,296

Goodwill acquired		11,835			-		-		11,835
Purchase price adjustments for prior
year acquisition		68			-		-		68

Balance as of December 31, 2010	$	345,591		$	75	$	4,533	$	350,199

Goodwill acquired		443			-		-		443
Goodwill impairment		(314,729	)		-		-		(314,729	)
Purchase price adjustments for prior
year acquisition		(1,417	)		-		-		(1,417	)

Goodwill, gross		344,617			75		4,533		349,225
Accumulated impairment loss		(314,729	)		-		-		(314,729	)

Net balance as of December 31, 2011	$	29,888		$	75	$	4,533	$	34,496

(b) Intangible Assets

Indefinite-Lived Intangibles

Our indefinite-lived intangibles consist primarily of values assigned to CONs and regulatory licenses obtained through our acquisitions.

We evaluate the recoverability of our indefinite-lived intangibles by comparing the asset's respective carrying value to estimates of fair value. We determine the estimated fair value of these intangible assets through an estimate of incremental cash flows with the intangible assets versus cash flows without the intangible assets in place. We determined that the CMS Final Rule announcement constituted an impairment triggering event, but concluded there was no impairment of our indefinite-lived intangibles for the years ended December 31, 2011, 2010 or 2009.

Finite-Lived Intangibles

Our finite-lived intangibles include tradenames, favorable lease intangibles and customer contracts.

When evaluating the recoverability of favorable lease obligations, we considered projections of future profitability and undiscounted cash flows for the affected portions of the Inpatient Services divisional reporting units as compared to the carrying value of the favorable lease obligation intangible assets. We determined that projected undiscounted cash flows were not sufficient to recover the full carrying value of the assets and proceeded to determine a fair value of each asset.

We determined fair value based upon estimates of market rental values for the centers associated with the favorable lease intangibles using valuations techniques broadly accepted by the long-term care industry in which we operate. We applied an industry average discount factor to the difference of this estimated market rental values to our contractually obligated lease payments over the remaining term of the leases, resulting in an appropriate estimate of fair value for the favorable lease intangible. In conjunction with the third quarter interim 2011 goodwill impairment testing, we determined that certain favorable lease obligations had fair values less than their carrying values and recognized a $2.4 million loss on asset impairment. There was no impairment of our finite-lived intangibles for the years ended December 31, 2010 or 2009.

The following table provides information regarding our intangible assets, which are included in the accompanying consolidated balance sheets at December 31 (in thousands):

	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Total
Finite-lived Intangibles:
Favorable lease intangibles:
2011	$	5,642	$	2,416	$	3,226
2010		10,100		3,831		6,269
Management and customer contracts:
2011	$	3,334	$	2,977	$	357
2010		3,334		2,500		834
Tradenames:
2011	$	13,139	$	7,834	$	5,305
2010		13,109		6,175		6,934

Indefinite-lived Intangibles:
Certificates of need/licenses:
2011	$	26,406	$	-	$	26,406
2010		25,778		-		25,778

Total Intangible Assets:
2011	$	48,521	$	13,227	$	35,294
2010		52,321		12,506		39,815

Unfavorable Lease Obligations:
2011	$	27,863	$	20,753	$	7,110
2010		29,113		19,298		9,815

A net credit to rent expense was a result of the amortization of favorable and unfavorable lease intangibles, recognized as adjustments in rent expense in connection with fair market valuations performed on our center lease agreements associated with fresh-start accounting and our acquisitions.

The net amount recorded to amortization was as follows for the years ended December 31 (in thousands):

	2011			2010			2009

Amortization expense	$	6,811		$	7,558	)	$	7,359
Amortization of unfavorable
and favorable lease intangibles, net
included in rent expense		(2,024	)		(1,945	)		(1,824	)
	$	4,787		$	5,613		$	5,535

Total estimated amortization expense (credit) for our intangible assets for the next five years is as follows (in thousands):

	Expense		Credit			Net

2012	$	2,428	$	(2,437	)	$	(9	)
2013		2,056		(2,115	)		(59	)
2014		2,006		(904	)		1,102
2015		2,005		(898	)		1,107
2016		361		(758	)		(397	)

The weighted-average amortization period for lease intangibles is approximately 5 years at December 31, 2011.

GAAP requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets' carrying amounts. In estimating the undiscounted cash flows for our impairment assessment, we primarily use our internally prepared budgets and forecast information including adjustments for the following items: Medicare and Medicaid funding; overhead costs; capital expenditures; and patient care liability costs. We assess the need for an impairment write-down when such indicators of impairment are present. We determined that the CMS Final Rule announcement constituted an impairment triggering event, but concluded there was no impairment of long-lived assets for the years ended December 31, 2011, 2010 or 2009.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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