Spin-Off of Subsidiaries |
9 Months Ended | ||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||
SPIN-OFF OF SUBSIDIARIES | SPIN-OFF OF SUBSIDIARIES On October 1, 2019, the Company completed the previously announced separation of its transitional and skilled nursing services, home health and hospice operations and substantially all of its senior living operations into two separate, publicly traded companies:
The Company completed the separation into two publicly traded companies through a tax-free distribution of all of the outstanding shares of common stock of Pennant to Ensign stockholders on a pro rata basis (the Spin-Off). Ensign stockholders received one share of Pennant common stock for every two shares of Ensign common stock held at the close of business on September 20, 2019, the record date for the Spin-Off. The number of shares of Ensign common stock each stockholder owns and the related proportionate interest in Ensign did not change as a result of the Spin-Off. Each Ensign stockholder received only whole shares of Pennant common stock in the distribution, as well as cash in lieu of any fractional shares. The Spin-Off was effective from and after October 1, 2019, with shares of Pennant common stock distributed on October 1, 2019. Pennant is listed on the NASDAQ Global Select Market (NASDAQ) and trades under the ticker symbol “PNTG.” The accompanying unaudited, interim Consolidated Financial Statements include the historical results of Ensign, as the Spin-off did not take place until October 1, 2019, after the September 30 reporting period in this Quarterly Report. Immediately after the Spin-Off, Ensign will no longer consolidate its home health and hospice operations and substantially all of its senior living operations into its financial results. Beginning in the fourth quarter of 2019, Pennant's historical financial results for periods prior to October 1, 2019 will be reflected in the Company's consolidated financial statements as discontinued operations. Prior to October 1, 2019, Ensign operated under three stand-alone reporting segments. In future filings, the Company will operate under one reporting segment. As a result of the Spin-Off, the accompanying unaudited, interim Consolidated Financial Statements are not indicative of the Company’s future financial position, results of operations or cash flows. In connection with the Spin-Off, Pennant's operations consist of 63 home health, hospice and home care agencies and 52 senior living communities as of October 1, 2019. Ensign affiliates retained ownership of all the real estate, which includes 29 of the 52 senior living operations that were contributed to Pennant. These assets are leased to Pennant on a triple-net basis. Pennant affiliates are responsible for all costs at the properties, including property taxes, insurance and maintenance and repair costs. Annual rental income generated from the leases with Pennant is approximately $12,000. Pennant's remaining 23 senior living operations are leasing the underlying real estate from unrelated third parties. In accordance with Accounting Standards Codification (ASC) 505-60, Equity-Spinoffs and Reverse Spinoffs, the accounting for the separation of the Company follows its legal form, with Ensign as the legal and accounting spinnor and Pennant as the legal and accounting spinnee, due to the relative significance of Ensign’s healthcare business, the relative fair values of the respective companies, the retention of all senior management, and other relevant indicators. Prior to the Spin-Off, the Company entered into a Separation and Distribution Agreement with Pennant, setting forth the mechanics of the Spin-Off, certain organizational matters and other ongoing obligations of the Company and Pennant. The Company and Pennant or their respective subsidiaries, as applicable, also entered into a number of other agreements to govern the relationship between the Company and Pennant after the Spin-Off. Effective October 1, 2019, the following agreements were entered into:
In connection with the Spin-Off, Pennant granted awards to employees and directors of Ensign immediately prior to the consummation of the spin-off in recognition of their performance in assisting with the spin-off transaction. In connection with the Spin-Off, the awards of equity of Pennant subsidiaries granted to certain individuals were exchanged for Pennant common stock prior to the distribution. As the Spin-off did not take place until October 1, 2019, after the most recent period reported in this Quarterly Report, all the share counts, options and restricted stock awards are not reflective of the conversion for the Spin-Off. Beginning in the fourth quarter of 2019, Ensign's shares outstanding, options and restricted stock awards will be reflective of the conversion, including the non-controlling interest of a subsidiary of the Company (Subsidiary Equity Plan) for common stock of Pennant and the impact of the options and restricted stock awards to Pennant employees in diluted shares outstanding. The Company incurred expenses in connection with the completed Spin-Off transaction of $3,261 and $7,908 for the three and nine months ended September 30, 2019, respectively. The Company will continue to incur additional Spin-Off transaction expenses in the fourth quarter of 2019. On October 1, 2019, in connection with the Spin-Off, the Company entered into the third amendment to the current amended credit facility with a revolving line of credit of up to $350,000 in aggregate principal. See Note 15, Debt. In addition, the Company amended the Master Leases with CareTrust and other third party lease agreements in connection with the Spin-Off. The net impact of the lease termination and modification of lease agreements is a reduction in ROU and lease liabilities of approximately $35,000. See Note 17, Leases. COMMON STOCK REPURCHASE PROGRAMAs approved by the Board of Directors on August 26, 2019, the Company entered into a stock repurchase program pursuant to which the Company may repurchase up to $20,000 of its common stock under the program for a period of approximately 12 months. Under this program, the Company is authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. The stock repurchase program will expire on August 31, 2020. During the third quarter of 2019, the Company repurchased 105 shares of its common stock for a total of $5,000. Subsequent to September 30, 2019, the Company repurchased 33 shares of its common stock for a total of $1,406. As approved by the Board of Directors on April 3, 2018, the Company entered into a stock repurchase program pursuant to which the Company was authorized to repurchase up to $30,000 of its common stock under the program for a period of approximately 11 months. Under this program, the Company was authorized to repurchase its issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws. The stock repurchase program expired on February 20, 2019. The Company did not purchase any shares pursuant to this stock repurchase program.
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