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Spin-Off of Subsidiaries
12 Months Ended
Dec. 31, 2020
Equity [Abstract]  
SPIN-OFF OF SUBSIDIARIES SPIN-OFF OF SUBSIDIARIES
On October 1, 2019, the Company completed the separation of its transitional and skilled nursing services, ancillary businesses, home health and hospice operations and substantially all of its senior living operations into two separate, publicly traded companies:

Ensign, which includes skilled nursing and senior living services, physical, occupational and speech therapies and other rehabilitative and healthcare services at 228 healthcare facilities and campuses, post-acute-related ancillary operations and real estate investments; and
The Pennant Group, Inc. (Pennant), which is a holding company of operating subsidiaries that provide home health, hospice and senior living services.
The Company completed the separation through a tax-free distribution of substantially all of the outstanding shares of common stock of Pennant to Ensign stockholders on a pro rata basis. 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 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”.
In connection with the Spin-Off, Pennant's operations consist of 63 home health, hospice and home care agencies and 52 senior living communities. Ensign affiliates retained ownership of all the real estate, which includes the real estate of 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. The initial terms range between 14 to 16 years. Pennant's remaining 23 senior living operations are leasing the underlying real estate from unrelated third parties.

The Company received $11,600 from Pennant as a dividend payment in connection with the distribution of assets to Pennant. The Company used the funds to repay certain outstanding third-party bank debt. The assets and liabilities were contributed to Pennant based on their historical carrying values, which were as follows:

Cash and cash equivalents$47 
Accounts receivable, net30,064 
Prepaid expenses and other current assets4,483 
Property and equipment, net13,728 
Right-of-use assets150,385 
Goodwill and intangibles, net74,747 
Accounts payable(4,725)
Accrued wages and related liabilities(14,544)
Other accrued liabilities - current(17,531)
Lease liabilities, net(152,221)
Net contribution$84,433 

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.

As a result of the Spin-Off, the Company recorded a $71,181 reduction in retained earnings which included net assets of $84,433 as of October 1, 2019. The Company transferred cash of $47 to Pennant, with the remainder considered a non-cash activity in the consolidated statements of cash flows. The Spin-Off also resulted in a reduction of noncontrolling interest of $13,252.

Ensign and Pennant entered into several agreements in connection with the Spin-Off, including a transition services agreement (TSA), separation and distribution agreement, tax matters agreement and an employee matters agreement. Pursuant to the TSA, Ensign, Pennant and their respective subsidiaries are providing various services to each other on an interim, transitional basis. Services being provided by Ensign include, among others, certain finance, information technology, human resources, employee benefits and other administrative services. The TSA will terminate on or before September 30, 2021. Billings by Ensign under the TSA were not material during the year ended December 31, 2020 and 2019.

Prior to the consummation of the Spin-Off, Pennant granted awards to certain employees and directors of Ensign under the Pennant Long-Term Incentive Plan (LTIP), in recognition of their performance in assisting with the Spin-Off. These awards were exchanged for Pennant common stock prior to the distribution.

Immediately after the Spin-Off, Ensign ceased to consolidate the results of Pennant operations into its financial results. Pennant's operating results and cash flows for the year ended December 31, 2019 presented have been classified as discontinued operations within the Consolidated Financial Statements.
The following table presents the financial results of Pennant for the indicated periods and does not include corporate overhead allocations:
Year Ended December 31,
 20192018
(In thousands)
Service revenue$249,039 $286,058 
Expense:
Cost of services187,560 209,423 
Rent—cost of services 17,295 20,836 
General and administrative expense16,672 9,744 
Depreciation and amortization2,402 2,480 
Total expenses223,929 242,483 
Income from discontinued operations 25,110 43,575 
Interest income26 47 
Provision for income taxes5,663 10,156 
Income from discontinued operations, net of tax19,473 33,466 
Net income attributable to discontinued noncontrolling interests629 595 
Net income attributable to The Ensign Group, Inc.$18,844 $32,871 
The Company incurred transaction costs of $9,119 related to the Spin-Off since commencing in 2018, of which $7,909 and $746 are reflected in the Company's consolidated statement of operations as discontinued operations for the years ended December 31, 2019 and 2018, respectively. Transaction costs primarily consist of third-party advisory, consulting, legal and professional services, as well as other items that are incremental and one-time in nature that are related to the separation. Transaction costs for 2019 incurred prior to October 1, 2019 are reflected in discontinued operations.

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of the discontinued operations of Pennant:
As of December 31, 2018
(In thousands)
Assets 
Current assets: 
Cash and cash equivalents$41 
Accounts receivable—less allowance for doubtful accounts of $616
24,184 
Prepaid expenses and other current assets4,554 
Total current assets as classified as discontinued operations on the consolidated balance sheet28,779 
Property and equipment, net10,458 
Restricted and other assets(1)2,286 
Intangible assets, net 78 
Goodwill30,892 
Other indefinite-lived intangibles25,136 
Long-term assets as discontinued operations on the consolidated balance sheet68,850 
Total assets as discontinued operations on the consolidated balance sheet$97,629 
Liabilities
Current liabilities:
Accounts payable4,390 
Accrued wages and related liabilities12,786 
Other accrued liabilities13,073 
Total current liabilities as discontinued operations on the consolidated balance sheet30,249 
Other long-term liabilities3,316 
Long-term liabilities as discontinued operations on the consolidated balance sheet3,316 
Total liabilities as discontinued operations on the consolidated balance sheet$33,565