Business Combinations

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Business Combinations

Business Combinations:

In April 2013, we closed the transaction to acquire Walton Rehabilitation Hospital, a 58-bed inpatient rehabilitation hospital in Augusta, Georgia. The acquisition was not material to our financial position, results of operations, or cash flows. As a result of this transaction, Goodwill increased by $13.7 million. The acquisition was funded using availability under our revolving credit facility.

In April 2012, we acquired 12 inpatient rehabilitation beds in Andalusia, Alabama from a subsidiary of LifePoint Hospitals in order to add beds at our existing hospital in Dothan, Alabama. In July 2012, we acquired the 34-bed inpatient rehabilitation unit of CHRISTUS Santa Rosa Hospital - Medical Center. The operations of this unit have been relocated to and consolidated with our existing hospital in San Antonio, Texas. These transactions, either individually or in the aggregate, were not material to our financial position, results of operations, or cash flows. Goodwill did not increase as a result of these transactions. Both acquisitions were funded with available cash.

In November 2011, we completed a transaction to purchase substantially all of the assets of Drake Center’s two rehabilitation-focused patient care units located in Cincinnati, Ohio and sublease space for the operation of a 40-bed inpatient rehabilitation hospital that is fully owned and operated by HealthSouth. HealthSouth Rehabilitation Hospital at Drake remained on Drake’s campus and began accepting patients in mid-December 2011. This transaction was not material to our financial position, results of operations, or cash flows. As a result of this transaction, Goodwill increased by $1.4 million. The acquisition was funded with available cash.

These acquisitions were made to enhance our position and ability to provide inpatient rehabilitative services to patients in the respective areas. All of the goodwill resulting from these transactions is deductible for federal income tax purposes. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired hospital’s historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets.

We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from their respective dates of acquisition. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were based on valuations using the cost and income approaches. The cost approach is based on amounts that would be required to replace the asset (i.e., replacement cost). The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill.

The fair value of the assets acquired and liabilities assumed at the acquisition date for the transaction completed in 2013 was as follows (in millions):

Property and equipment, net	$	11.3
Identifiable intangible assets:
Noncompete agreement (useful life of 5 years)	0.1
Tradename (useful life of 20 years)	0.9
Certificate of need (useful life of 20 years)	3.3
Goodwill	13.7
Total assets acquired	29.3
Total current liabilities assumed	(0.4		)
Net assets acquired	$	28.9

The Company’s reported Net operating revenues and Net income for the year ended December 31, 2013 include operating results for Walton Rehabilitation Hospital from April 1, 2013 through December 31, 2013. The following table summarizes the results of operations of the above mentioned transaction from the date of acquisition included in our consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been January 1, 2012 (in millions):

	Net Operating Revenues		Net Income Attributable to HealthSouth
Acquired entity only: Actual from acquisition date to December 31, 2013	$	11.8	$	0.1
Combined entity: Supplemental pro forma from 1/01/2013-12/31/2013 (unaudited)	2,278.1		323.2
Combined entity: Supplemental pro forma from 1/01/2012-12/31/2012 (unaudited)	2,183.6		184.8

Information regarding the net cash paid for all acquisitions during each period presented is as follows (in millions):

	For the Year Ended December 31,
	2013			2012		2011
Fair value of assets acquired	$	15.6		$	2.1	$	0.7
Goodwill	13.7			—		1.4
Fair value of liabilities assumed	(0.4		)	—		—
Noncompete agreements	—			1.0		2.8
Net cash paid for acquisitions	$	28.9		$	3.1	$	4.9

See also Note 7,Investments in and Advances to Nonconsolidated Affiliates.