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Acquisition of Business

6 Months Ended

Jun. 30, 2012

Acquisition of Business and Acquisitions of Non-Controlling Interests [Abstract]

3. ACQUISITION OF BUSINESSES

The purchase price for the May 2012 Acquisition was $6,090,000 in cash and $250,000 in seller notes, that are payable in two principal installments totaling $125,000 each, plus accrued interest, in May 2013 and 2014. During the first three months of 2012, the Company acquired two clinics in separate transactions. On January 3, 2012, through a subsidiary, the Company acquired a 100% interest in a clinic for $1.0 million in cash and a note payable of $100,000, and effective March 31, 2012, the Company acquired a 65% interest in another clinic for $90,000.

The preliminary purchase prices were allocated as follows (in thousands):


Cash paid, net of cash acquired	$	7,180
Seller notes		350

Total consideration	$	7,530

Estimated fair value of net tangible assets acquired:
Total current assets	$	947
Total non-current assets		330
Total liabilities		(521	)

Net tangible assets acquired	$	756
Referral relationships		57
Non compete		25
Goodwill		9,409
Fair value of noncontrolling interest		(2,717	)

	$	7,530

The consideration for each transaction was agreed upon through arm’s length negotiations. Funding for the cash portion of the purchase price was derived from proceeds from the Company’s revolving credit facility.

The results of operations of these acquisitions have been included in the Company’s consolidated financial statements since acquired.

Because these acquisitions occurred during the six months ended June 30, 2012, the purchase price plus the fair value of the noncontrolling interest was allocated to the fair value of the assets acquired and liabilities assumed based on the preliminary estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill. The Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used at June 30, 2012 based on additional information obtained. Changes in the estimated valuation of the tangible and intangible assets acquired and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill.

On July 25, 2011, the Company acquired a 51% interest in a 20 clinic multi-partner physical therapy group for $8.2 million in cash and a seller note of $200,000 that is payable in two principal installments of $100,000 each plus any accrued interest, in July 2012 and July 2013 (“July 2011 Acquisition”). During the quarter ended June 30, 2012, the Company finalized the purchase price allocation related to the July 2011 Acquisition.

The purchase price was allocated as follows:


Cash paid, net of cash acquired	$	7,930
Seller notes		200

Total consideration	$	8,130

Estimated fair value of net tangible assets acquired:
Total current assets	$	1,341
Total non-current assets		823
Total liabilities		(581	)

Net tangible assets acquired	$	1,583
Tradename		1,900
Referral Relationships		1,100
Non compete		300
Goodwill		11,342
Fair value of noncontrolling interest		(8,095	)

	$	8,130

For the July 2011 Acquisition, the purchase price was allocated to the fair value of the assets acquired including tradename, non compete agreements and referral relationships, and to the liabilities assumed based on estimates of the fair values at the acquisition date, with the amount exceeding the fair value being recorded as goodwill. The values assigned to the referral relationships and non compete agreements are being amortized to expense equally over the respective estimated life of 13 years and six years, respectively. The values assigned to goodwill and tradenames are tested annually for impairment. Approximately, $5.8 million of the goodwill is tax deductible.

In April 2012, the Company sold 1% of its interest in the July 2011 Acquisition to the limited partners. The Company now owns a 50% interest in the July 2011 Acquisition, 1% as a general partner and 49% as a limited partner. See Footnote 4 – Acquisitions and Sales of Non-Controlling Interests- for further details.

Unaudited proforma consolidated financial information for acquisitions occurring in 2012 and the July 2011 Acquisition has not been included as the results were not material to current operations.