6.	Acquisitions

On June 1, 2011, the Company acquired all of the equity interest of The ReDCo Group, Inc. (“ReDCo”). ReDCo is a Pennsylvania corporation that provides home and community based services. The purchase price of $605,000 was funded by the Company’s cash flow from operations. Additionally, the Company repaid ReDCo’s debt of approximately $8.0 million with cash from operations. Historically, the Company provided various management services to ReDCo for a fee under a management services agreement. This acquisition further expands the Company’s home and community based services in Pennsylvania.

This acquisition was accounted for under ASC Topic 805, Business Combinations (“ASC 805”). Accordingly, the cost of the acquisition was initially allocated to the assets and liabilities acquired based on a preliminary evaluation of their respective fair values. A final valuation of the assets and liabilities acquired for ReDCO was performed in 2012 resulting in the allocation of the cost of the acquisition as set forth in the table below. The fair value of the net assets acquired of approximately $11.3 million exceeded the purchase price of the business of approximately $8.6 million. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate. Accordingly, the acquisition was accounted for as a bargain purchase and, as a result, the Company recognized a gain of approximately $2.7 million associated with the acquisition, which the Company has recorded in “Gain on bargain purchase” within its consolidated statements of income for 2011.

The seller was willing to sell this business to the Company to ensure the continuation and expansion of ReDCo’s mission to provide oversight and administration of governmental services, including public transportation services, mental health and mental retardation services, geriatric services, youth services, and similar programs as the combination of the two entities could provide synergies and potential cost efficiencies otherwise unattainable. In addition, the Company’s access to credit and equity markets reasonably ensures that ReDCo’s working capital requirements will be met. This would benefit the population served by ReDCo and the expansion of ReDCo’s services to other persons of need.

The following represents the Company’s allocation of the purchase price:


Consideration:
Cash	$	8,573,326

	$	8,573,326

Allocated to:
Property and equipment	$	7,036,454
Working capital		4,743,657
Intangibles		826,201
Other assets		69,217
Net deferred taxes		(1,391,221	)

Total identifiable net assets		11,284,308
Less: gain on bargain purchase		(2,710,982	)

Total consideration	$	8,573,326

The fair value of trade accounts receivable acquired in this transaction was determined to be approximately $5.3 million. Additionally, the Company has recognized approximately $112,000 of acquisition related expenses, of which approximately $82,000 was recognized during the year ended December 31, 2011.

The amounts of ReDCo’s revenue and net income included in the Company’s consolidated statements of income for the year ended December 31, 2011, and the unaudited proforma revenue and net income of the combined entity had the acquisition date been January 1, 2010, were:


	Year ended December 31,
	2010		2011
ReDCo Actual:
Revenue	$	0	$	20,278,094
Net income	$	0	$	1,256,590

Consolidated Proforma:
Revenue	$	920,435,398	$	957,898,385
Net income	$	27,341,543	$	14,472,607

The pro forma information above includes adjustments for acquisition costs of approximately $82,000 and bargain purchase gain of approximately $2.7 million. Additionally, adjustments include the elimination of management fee revenue of approximately $1.9 million for 2010 and $761,000 for 2011, as well as expenses recorded by ReDCo for management services under the historical management services agreement of the same amounts. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been affected on January 1, 2010.

The following table summarizes the allocation of purchase price to intangible assets at December 31, 2011 and 2012 for intangible assets acquired in 2011 and 2012:


	Estimated Useful Life		Gross Carrying Amount December 31,
	Estimated Useful Life		2011		2012
Intangible assets acquired in 2011:
Customer relationships		15 Years	$	826,201	$	826,201

Intangible assets acquired in 2012:
Customer relationships		15 Years	$	0	$	64,986

No significant residual value is estimated for these intangible assets. Amortization expense is recognized on a straight-line basis over the estimated useful life.