Acquisitions and Divestitures

6 Months Ended

Jun. 30, 2011

Acquisitions and Divestitures [Abstract]

5. ACQUISITIONS AND DIVESTITURES

Acquisitions

The Company accounts for all transactions that represent business combinations after January 1, 2009 using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date) are recorded as of the date of acquisition. Any material impact to comparative information for periods after acquisition, but before the period in which adjustments are identified, is reflected in those prior periods as if the adjustments were considered as of the acquisition date. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired.

Effective May 1, 2011, one or more subsidiaries of the Company completed the acquisition of Mercy Health Partners based in Scranton, Pennsylvania, a healthcare system of two acute care hospitals, a long-term acute care facility and other healthcare providers. This healthcare system includes Regional Hospital of Scranton (198 licensed beds) located in Scranton, Pennsylvania, and Tyler Memorial Hospital (48 licensed beds) located in Tunkhannock, Pennsylvania. This healthcare system also includes a long-term acute care facility, Special Care Hospital (67 licensed beds) located in Nanticoke, Pennsylvania, as well as several outpatient clinics and other ancillary facilities. The total cash consideration paid for fixed assets was approximately $150.5 million, with additional consideration of $12.3 million assumed in liabilities as well as a credit applied at closing of $2.1 million for negative acquired working capital, for a total consideration of $160.7 million. Based upon the Company’s preliminary purchase price allocation relating to this acquisition as of June 30, 2011, approximately $42.1 million of goodwill has been recorded. The preliminary allocation of the purchase price has been determined by the Company based on available information and is subject to settling amounts related to purchased working capital and final appraisals of tangible and intangible assets. Adjustments to the purchase price allocation are not expected to be material.

Effective October 1, 2010, one or more subsidiaries of the Company completed the acquisition of Forum Health based in Youngstown, Ohio, a healthcare system of two acute care hospitals, a rehabilitation hospital and other healthcare providers. This healthcare system includes Northside Medical Center (355 licensed beds) located in Youngstown, Ohio, and Trumbull Memorial Hospital (311 licensed beds) located in Warren, Ohio. This healthcare system also includes Hillside Rehabilitation Hospital (69 licensed beds) located in Warren, Ohio, as well as several outpatient clinics and other ancillary facilities. The total cash consideration paid for fixed assets and working capital was approximately $93.4 million and $27.8 million, respectively, with additional consideration of $40.3 million assumed in liabilities, for a total consideration of $161.5 million. Based upon the Company’s final purchase price allocation relating to this acquisition as of June 30, 2011, approximately $8.1 million of goodwill has been recorded.

Effective October 1, 2010, one or more subsidiaries of the Company completed the acquisition of Bluefield Regional Medical Center (240 licensed beds) located in Bluefield, West Virginia. The total cash consideration paid for fixed assets was approximately $35.4 million, with additional consideration of $8.9 million assumed in liabilities as well as a credit applied at closing of $1.8 million for negative acquired working capital, for a total consideration of $42.5 million. Based upon the Company’s final purchase price allocation relating to this acquisition as of June 30, 2011, approximately $2.4 million of goodwill has been recorded.

Effective July 7, 2010, one or more subsidiaries of the Company completed the acquisition of Marion Regional Healthcare System located in Marion, South Carolina. This healthcare system includes Marion Regional Hospital (124 licensed beds), an acute care hospital, along with a related skilled nursing facility and other ancillary services. The total cash consideration paid for fixed assets and working capital was approximately $18.6 million and $5.8 million, respectively, with additional consideration of $3.9 million assumed in liabilities, for a total consideration of $28.3 million. Based upon the Company’s final purchase price allocation relating to this acquisition as of June 30, 2011, no goodwill has been recorded.

Additionally, during the six months ended June 30, 2011, the Company paid approximately $55.1 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by its hospitals. In connection with these acquisitions, the Company allocated approximately $14.7 million of the consideration paid to property and equipment, $3.4 million to net working capital, $1.5 million to other intangible assets, and the remainder, approximately $35.5 million consisting of intangible assets that do not qualify for separate recognition, was allocated to goodwill.

Approximately $5.3 million and $1.2 million of acquisition costs related to prospective and closed acquisitions were expensed during the three months ended June 30, 2011 and 2010, respectively, and $8.7 million and $1.8 million during the six months ended June 30, 2011 and 2010, respectively.

Discontinued Operations

Effective February 1, 2011, the Company sold Willamette Community Medical Group, which is a physician clinic operating as Oregon Medical Group (“OMG”), located in Springfield, Oregon, with a carrying amount of net assets, including an allocation of reporting unit goodwill, of $19.7 million to Oregon Healthcare Resources, LLC, for $14.6 million in cash.

In March 2011, the Company made the decision to sell one of its hospitals. In June 2011, the Company entered into a definitive agreement to sell two of its hospitals. Accordingly, these three hospitals are classified as held for sale at June 30, 2011.

The Company has classified the results of operations for OMG and the three hospitals held for sale as discontinued operations in the accompanying condensed consolidated statements of income for the three and six months ended June 30, 2011 and 2010.

Net operating revenues and loss from discontinued operations for the respective periods are as follows (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net operating revenues	$	68,479		$	90,378		$	140,563		$	182,448


Income (loss) from operations of entities sold and held for sale before income taxes		392			(3,232	)		(2,280	)		(1,994	)
Impairment of hospitals held for sale		(38,600	)		—			(51,695	)		—
Loss on sale		—			—			(5,061	)		—

Loss from discontinued operations, before taxes		(38,208	)		(3,232	)		(59,036	)		(1,994	)
Income tax expense (benefit)		1,119			(1,195	)		(6,429	)		(596	)

Loss from discontinued operations, net of taxes	$	(39,327	)	$	(2,037	)	$	(52,607	)	$	(1,398	)

Interest expense was allocated to discontinued operations based on sale proceeds available for debt repayment.

The long-lived assets and allocated goodwill as of December 31, 2010 of the physician clinic sold during the quarter ended March 31, 2011 and the three hospitals classified as held for sale at June 30, 2011 totaled approximately $182.7 million, and are included in the accompanying condensed consolidated balance sheet in other assets, net.

The long-lived assets and allocated goodwill as of June 30, 2011 of the three hospitals held for sale, net of impairment, totaled approximately $122.6 million and are included in the accompanying condensed consolidated balance sheet in other assets, net.