Acquisitions and Dispositions

Acquisitions

During 2013, 2012 and 2011, the Company completed several acquisitions as further described below.

Harden Healthcare Holdings, Inc.

Effective October 18, 2013, the Company completed the acquisition of certain net assets relating to the home health, hospice and community care businesses of Harden Healthcare Holdings, Inc. ("Harden") pursuant to an Agreement and Plan of Merger dated as of September 18, 2013. The Company completed the acquisition as an entrance into the community care business, primarily throughout Texas, Oklahoma, Missouri and Kansas, and to expand its geographic coverage for its home health and hospice businesses. Total consideration for the acquisition was $426.8 million, exclusive of transaction costs, consisting of approximately $365.0 million in cash, $53.8 million in shares of Gentiva's common stock and additional contingent consideration of $9.5 million, recorded at estimated fair value of approximately $8.1 million. The contingent consideration includes (i) consulting agreements entered into with Capstar Partners, LLC and another former executive of Harden and (ii) a sub-lease termination agreement entered into with Capstar Investment Partners, L.P. See Note 16 for further information.

In connection with the acquisition, the Company entered into a new Senior Secured Credit Agreement providing for (i) a six-year $670 million Term Loan B facility, (ii) a five-year $155 million Term Loan C facility and (iii) a five-year $100 million revolving credit facility, which replaced the Company's existing credit agreement. The Company's existing credit agreement was terminated upon consummation of the Harden transaction. The Company utilized a combination of cash on hand and proceeds from the new senior secured term loan facility and a portion of the new revolving credit facility to fund the acquisition consideration, repay all amounts outstanding under Harden's then existing credit facility, which was then terminated, and repay all amounts outstanding under the Company's then existing credit facility, which was then terminated. See Note 12.

The financial results of Harden are included in the Company’s consolidated financial statements from the acquisition date. The purchase price for the acquisition was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition. Estimated fair values were based on various valuation methodologies, including market studies and a replacement cost method for fixed assets, an income approach using primarily discounted cash flow techniques for amortizable intangible assets, a cost approach considering both replacement cost and opportunity cost methods for indefinite-lived intangible assets and an estimated realizable value approach using historical trends and other relevant information for accounts receivable and certain accrued liabilities. For certain other assets and liabilities, including accounts payable and other accrued liabilities, the fair value was assumed to represent carrying value due to their short maturities. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired was recorded as goodwill.

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 for certain tax carryforwards inclusive of associated limitations and valuation allowances, amounts payable to the former Harden shareholders for utilization of tax carryforwards, and the final amount of residual goodwill. The Company expects to continue to obtain information to assist it in determining the fair values of the net assets acquired at the acquisition date during the measurement period.

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):



	October 18, 2013
Cash and cash equivalents	$	10,203
Accounts receivable, net	46,195
Deferred tax asset	13,589
Prepaids and other current assets	1,890
Fixed assets, net	9,476
Identifiable intangible assets, net	70,706
Goodwill	331,482
Other assets	2,889
Total assets acquired	486,430
Accounts payable and accrued liabilities	58,563
Other current liabilities	8,720
Deferred tax liabilities, noncurrent	396
Total liabilities, assumed	67,679
Net assets acquired	$	418,751

The intangible assets that are subject to amortization are amortized on a straight-lined basis over the estimated useful life of the intangible asset. The valuation of the intangible assets by component and their respective useful life are as follows (in thousands):



	Home Health		Hospice		Community Care		Total		Useful Life
Intangible assets:
Tradenames	$	1,052	$	798	$	11,922	$	13,772	5-10 Years
Covenants not to compete	490		499		1,029		2,018		2-3 Years
Medicare licenses and certificates of need	17,746		11,159		26,011		54,916		Indefinite
Total	$	19,288	$	12,456	$	38,962	$	70,706

Goodwill of $111.7 million, $103.1 million and $116.6 million, respectively, has been assigned to the Company’s Home Health, Hospice and Community Care segments for reporting purposes. The Company expects approximately 20 percent of the aggregate amount of goodwill and identifiable intangible assets will be amortizable for tax purposes.

The net revenues of Harden from the acquisition date through December 31, 2013 were approximately $92.6 million and contributed a net loss, net of tax benefit of approximately $7.9 million, including the impact of acquisition related costs. The following unaudited pro forma financial information presents the combined results of operations of the Company and Harden as if the acquisition had been effective at January 1, 2012. The pro forma results for the year ended December 31, 2013 combine the results of the Company for such period and the historical results of Harden from January 1 through October 17, 2013. The pro forma results presented below for the year ended December 31, 2012 combine the results of the Company and the historical results of Harden (in thousands, except per share amounts):



	For the Year Ended			For the Year Ended
	December 31, 2013			December 31, 2012
Net revenues	$	2,105,562		$	2,188,915
Net (loss) income attributable to Gentiva shareholders	$	(612,525	)	$	40,748
Earnings per common share:
Basic	$	(17.12	)	$	1.15
Diluted	$	(17.12	)	$	1.15
Weighted average shares outstanding:
Basic	35,786			35,321
Diluted	35,786			35,499

The unaudited pro forma results above reflect adjustments for (i) interest on debt incurred calculated using the Company’s weighted average interest rate of 7.7 percent, (ii) income tax provision using an enacted tax rate of 40.0 percent, (iii) amortization of incremental identifiable intangible assets and (iv) acquisition and integration costs incurred. The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of the Company’s 2012 reporting period.

Other Acquisitions

Appalachian Regional Health Systems

Effective September 30, 2013, the Company completed its acquisition of the assets and business of Appalachian Regional Health Systems, a provider of home health services with offices in Boone and Newland, North Carolina. Total consideration of $2.7 million, subject to post-closing adjustments, consisted of $2.1 million from the Company's existing cash reserves and $0.6 million held in escrow for certain post closing matters.

Wake Forest Baptist Health Care at Home, LLC

Effective August 23, 2013, the Company acquired 60 percent interest in the membership units of Wake Forest Baptist Health Care at Home, LLC for approximately $2.4 million, consisting of $2.2 million in cash and $0.2 million of other assets, and entered into an operating agreement with Wake Forest University Baptist Medical Center to provide home health services in the Winston-Salem, North Carolina geographical area.

Hope Hospice, Inc

Effective April 30, 2013, the Company completed its acquisition of the assets and business, pursuant to an asset purchase agreement, of Hope Hospice, Inc., a provider of hospice services located in Rochester, Indiana. Total non-cash consideration of $1.0 million consisted of the assumption of Hope Hospice's outstanding debt and existing liabilities as of the closing date.

Family Home Care Corporation

Effective August 31, 2012, the Company completed its acquisition of the assets and business of Family Home Care Corporation, one of the leading providers of home health and hospice services in the Washington and Idaho markets. Total consideration of $12.3 million, excluding transaction costs and subject to post-closing adjustments, was paid at the time of closing from the Company's existing cash reserves.

North Mississippi Hospice

Effective August 31, 2012, the Company completed its acquisition of the assets and business of North Mississippi Hospice, a provider of hospice services with offices in Oxford, Southhaven and Tupelo, Mississippi. Total consideration of $4.7 million, excluding transaction costs and a post-closing adjustment of $0.2 million, was paid from the Company's existing cash reserves.

Advocate Hospice

Effective July 22, 2012, the Company completed its acquisition of the assets and business of Advocate Hospice, a provider of hospice services located in Danville, Indiana, for consideration of $5.5 million, excluding transaction costs and subject to post-closing adjustments. The consideration included entering into an option purchase agreement with a third party covering membership interests in Advocate Hospice. The consideration was paid at the time of closing from the Company's existing cash reserves.

Additional consideration of up to $2.0 million is payable under the option agreement if certain earnout conditions are met, which the Company estimated fair value at acquisition date of $1.9 million, on a discounted cash flow basis. At December 31, 2012, the Company estimated the fair value of the contingent consideration at $1.1 million based upon certain average daily census growth targets and recorded an $0.8 million adjustment to the contingent consideration. During the second quarter of 2013, the average daily census growth target was met and the Company paid $1.5 million from the escrow to the sellers and retained $0.5 million in escrow for remaining indemnification provisions under the agreement. As such, the Company recorded a $0.9 million charge to adjust the contingent consideration to fair value, which is reflected in selling, general and administrative expense in the Company's consolidated statements of comprehensive income for the period ended December 31, 2013. During the third quarter of 2013, in accordance with the escrow agreement, an additional $0.2 million was paid to the sellers from the escrow fund.

Odyssey HealthCare of Augusta, LLC

Effective April 29, 2011, the Company purchased the outstanding member units representing the noncontrolling interest in Odyssey HealthCare of Augusta, LLC (“Augusta”) for approximately $0.3 million. As a result of the transaction, the Company owns 100 percent of the outstanding member units of Augusta.

The allocation of the purchase prices relating to the Company's other acquisitions consummated is as follows (in thousands):



	Fiscal Year
	2013		2012
Fixed assets, net	$	21	$	509
Identifiable intangible assets	3,062		9,205
Goodwill	2,871		14,695
Other assets	128		66
Total assets acquired	6,082		24,475
Accounts payable and accrued liabilities	1,444		1,955
Total liabilities assumed	1,444		1,955
Net assets acquired	$	4,638	$	22,520

The valuation of the intangible assets by component and their respective useful lives are as follows (in thousands):



	Fiscal Year				Useful life
	2013		2012		Useful life
Covenants not to compete	$	—	$	203	5 years
Certificates of need	3,062		9,002		indefinite
Total	$	3,062	$	9,205

For the Company’s other acquisitions, the Company expects substantially all goodwill and identifiable intangible assets will be amortized for tax purposes.

Dispositions

Phoenix Hospice Operations

Effective November 30, 2012, the Company completed the sale of its Phoenix area hospice operations to Banner Health, an Arizona non-profit corporation, pursuant to an asset purchase agreement for cash consideration of $3.5 million. The Company recorded a gain of approximately $2.6 million which is reflected in gain on sale of businesses in the Company's consolidated statement of comprehensive income for the year ended December 31, 2012.

Gentiva Consulting, Louisiana Home Health and Hospice Operations

Effective May 31, 2012, the Company completed the sale of its Gentiva consulting business to MP Healthcare Partners, LLC, pursuant to an asset purchase agreement, for cash consideration of approximately $0.3 million.

During the second quarter of 2012, the Company sold eight home health branches and four hospice branches in Louisiana, pursuant to an asset purchase agreement, for total consideration of approximately $6.4 million. The Company received proceeds of approximately $5.9 million during 2012 and received remaining escrow funds of approximately $0.5 million in 2013.

In connection with the sales, the Company recorded a gain on sale of businesses in the Company’s consolidated statements of comprehensive income of approximately $5.4 million for the year ended December 31, 2012.

Home Health and Hospice Branch Operations

In the fourth quarter of 2011, the Company entered into asset purchase agreements to sell the assets of certain home health branches in Utah, Michigan and Nevada, as well as a hospice branch in Texas. In addition, the Company entered into an option agreement to sell the assets of the Company’s home health branch in Brooklyn, New York pending approval by the Public Health Council and New York State Agencies. The Company received all regulatory approvals and completed the Brooklyn transaction in the first quarter of 2013.

The major classes of assets sold and liabilities assumed of the Home Health and Hospice branch operations that were sold were as follows (in thousands):



	2012
	As of Date of Sale			December 31, 2011
Assets:
Accounts receivable, net	$	561		$	526
Fixed assets, net	271			338
Intangible assets	1,356			1,356
Other assets	485			640
Total assets	2,673			2,860
Liabilities:
Medicare liabilities	(86		)	(18		)
Other accrued Expenses	(405		)	(41		)
Total liabilities	(491		)	(59		)
Total	$	2,182		$	2,801

Discontinued Operations

Homemaker Services Agency and Rehab Without Walls^® Operations

Effective October 14, 2011, the Company completed the sale of its homemaker services business ("IDOA") to Premier Home Health Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $2.4 million, consisting of (i) cash proceeds of approximately $2.0 million and (ii) an escrow fund of approximately $0.4 million, to be received by the Company subject to certain post closing conditions. During 2012, the Company reduced the escrow fund receivable to approximately $0.3 million as a result of certain post closing conditions and received such funds during 2012.

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business to Southern Home Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $9.8 million. The consideration consisted of (i) cash proceeds of approximately $9.2 million and (ii) an escrow fund of approximately $0.6 million which was received by the Company during 2012.

The assets of the Rehab Without Walls^®and the IDOA businesses that were sold were as follows (in thousands):



	December 31, 2011
Non-current assets:
Fixed assets, net	$	183
Other assets	109
Total non-current assets	292
Total	$	292

Net revenues and operating results for the year 2011 for Rehab Without Walls^® and the IDOA businesses were (in thousands):



	For the Year Ended
	December 31, 2011
Net revenues	$	22,819

Income before income taxes	$	2,430
Gain on sale of business	11,475
Income tax expense	(5,590		)
Discontinued operations, net of tax	$	8,315