XML 20 R9.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Business Combinations | 6 Months Ended
--- | ---
Jun. 30, 2018
Business Combinations [Abstract] |
Business Combinations | Business Combinations Home Health and Hospice Camellia Acquisition On May 1, 2018, we completed the previously announced acquisition of privately owned Camellia Healthcare and affiliated entities (“Camellia”). The Camellia portfolio consists of hospice, home health and private duty locations in Mississippi, Alabama, Louisiana and Tennessee. The acquisition leverages our home health and hospice operating platform across key certificate of need states and strengthens our geographic presence in the Southeastern United States. We funded the cash purchase price of the acquisition with cash on hand and borrowings under our revolving credit facility. We accounted for this transaction under the acquisition method of accounting and reported the results of operations of Camellia from its date of acquisition. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. Estimated fair values were based on various valuation methodologies including: replacement cost and continued use methods for property and equipment; an income approach using primarily discounted cash flow techniques for the noncompete and certain license intangible assets; an income approach utilizing the relief-from-royalty method for the trade name intangible asset; and an income approach utilizing the excess earnings method for the certificate of need and certain license intangible assets. The aforementioned income methods utilize management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. For all other assets and liabilities, the fair value was assumed to represent carrying value due to their short maturities. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. All goodwill recorded as a result from this transaction is deductible for federal income tax purposes. The goodwill reflects our expectations of favorable growth opportunities in the home health and hospice markets based on positive demographic trends. The fair values recorded were based upon a preliminary valuation. Estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary valuation that are not yet finalized relate to the fair values of amounts for income taxes, adjustments to working capital, and the final amount of residual goodwill. We expect to continue to obtain information to assist us in determining the fair values of the net assets acquired at the acquisition date during the measurement period. The preliminary fair value of the assets acquired and liabilities assumed at the acquisition date were as follows (in millions):
Cash and cash equivalents | $ | 1.3 |
Prepaid expenses and other current assets | 0.3 |
Property and equipment, net | 0.6 |
Identifiable intangible assets: |  |
Noncompete agreements (useful lives of 5 years) | 0.5 |
Trade name (useful life of 1 year) | 1.4 |
Certificates of need (useful lives of 10 years) | 16.6 |
Licenses (useful lives of 10 years) | 21.6 |
Goodwill | 97.0 |
Total assets acquired | 139.3 |
Liabilities assumed: |
Accounts payable | 4.3 |
Accrued payroll | 4.0 |
Total liabilities assumed | 8.3 |
Net assets acquired | $ | 131.0 |
Information regarding the net cash paid for Camellia is as follows (in millions):
Fair value of assets acquired, net of $1.3 million of cash acquired | $ | 41.0 |
Goodwill | 97.0 |
Fair value of liabilities assumed | (8.3 | )
Net cash paid for acquisition | $ | 129.7 |
Other Home Health and Hospice Acquisitions During the six months ended June 30, 2018, we completed the following home health and hospice acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide post-acute healthcare services to patients in the applicable geographic areas. Each acquisition was funded using cash on hand.
• | In January 2018, we acquired the assets of one hospice location from Golden Age Hospice, Inc. in Oklahoma City, Oklahoma.
• | In June 2018, we acquired the assets of one hospice location from Medical Services of America in Las Vegas, Nevada.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired locations from their respective dates of acquisition. Assets acquired were recorded at their estimated fair values as of the respective acquisition dates. The fair values of identifiable intangible assets were based on valuations using an income approach. The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to utilize the acquired locations’ mobile workforce and established relationships within each community and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. All goodwill recorded as a result of these transactions is deductible for federal income tax purposes. The fair value of the assets acquired at the acquisition date were as follows (in millions):
Identifiable intangible assets: |  |
Noncompete agreements (useful lives of 5 years) | $ | 0.2 |
Licenses (useful lives of 10 years) | 0.8 |
Goodwill | 5.1 |
Total assets acquired | $ | 6.1 |
Information regarding the net cash paid for the other home health and hospice acquisitions during each period presented is as follows (in millions):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Fair value of assets acquired | $ | 0.9 |  |  | $ | 1.4 |  |  | $ | 1.0 |  |  | $ | 2.7 |
Goodwill | 4.6 |  |  | 3.2 |  |  | 5.1 |  |  | 7.4 |
Fair value of liabilities assumed | — |  |  | (0.1 | ) |  | — |  |  | (0.1 | )
Net cash paid for acquisitions | $ | 5.5 |  |  | $ | 4.5 |  |  | $ | 6.1 |  |  | $ | 10.0 |
Pro Forma Results of Operations The following table summarizes the results of operations of the above mentioned acquisitions from their respective dates of acquisition included in our consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisitions been January 1, 2017 (in millions):
| Net Operating Revenues |  | Net Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to June 30, 2018 |  |  |
Camellia | $ | 13.7 |  |  | $ | 0.1 |
All Other Home Health and Hospice | 0.7 |  |  | (0.1 | )
Combined entity: Supplemental pro forma from 04/01/2018-06/30/2018 | 1,075.0 |  |  | 93.7 |
Combined entity: Supplemental pro forma from 04/01/2017-06/30/2017 | 986.7 |  |  | 66.5 |
Combined entity: Supplemental pro forma from 01/01/2018-06/30/2018 | 2,141.9 |  |  | 179.8 |
Combined entity: Supplemental pro forma from 01/01/2017-06/30/2017 | 1,963.1 |  |  | 135.7 |
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2017 reporting period. See Note 2, Business Combinations, to the consolidated financial statements accompanying the 2017 Form 10-K for information regarding acquisitions completed in 2017.

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration