Business Combinations

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations

Inpatient Rehabilitation

In February 2016, we acquired 50% of the inpatient rehabilitation hospital at CHI St. Vincent Hot Springs (“Hot Springs”), a 20-bed inpatient rehabilitation hospital in Hot Springs, Arkansas, through a joint venture with St. Vincent Community Health Services, Inc. The acquisition, which was funded through a contribution to the consolidated joint venture, was not material to our financial position, results of operations, or cash flows. The Hot Springs transaction was made to enhance our position and ability to provide inpatient rehabilitative services to patients in Hot Springs and its surrounding areas. As a result of this transaction, Goodwill increased by $1.8 million, none of which 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 this market.

We accounted for this transaction under the acquisition method of accounting and reported the results of operations of the acquired hospital from its respective date of acquisition. Assets acquired and liabilities assumed, if any, were recorded at their estimated fair values as of the respective acquisition date. The fair value of the identifiable intangible asset was based on valuations using the income approach. 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 at the acquisition date were as follows (in millions):

Property and equipment	$	5.1
Identifiable intangible asset:
Trade name (useful life of 20 years)	0.2
Goodwill	1.8
Total assets acquired	$	7.1

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016			2015
Fair value of assets acquired	$	—	$	62.8		$	5.3		$	62.8
Goodwill	—		0.7			1.8			0.7
Fair value of liabilities assumed	—		(2.7		)	—			(2.7		)
Fair value of noncontrolling interest owned by joint venture partner	—		(4.2		)	(7.1		)	(4.2		)
Net cash paid for acquisition	$	—	$	56.6		$	—		$	56.6

Home Health and Hospice

On May 1, 2016, we acquired Home Health Agency of Georgia, LLC (“Camellia”), a home health and hospice provider with two home health locations and two hospice locations in the Greater Atlanta area. The acquisition, which was funded using cash on hand, was not material to our financial position, results of operations, or cash flows. As a result of this transaction, Goodwill increased by $8.1 million, all of which is deductible for federal income tax purposes. The Camellia acquisition was made to enhance our position and ability to provide post-acute healthcare services to patients in the applicable geographic area. The goodwill reflects our expectations of our ability to utilize Camellia’s mobile workforce and established relationships within the community and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in this market.

We accounted for this transaction under the acquisition method of accounting and reported the results of operations of Camellia from the date 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 were as follows (in millions):

Identifiable intangible asset:
Noncompete agreements (useful lives of 5 years)	$	0.1
Certificate of need (useful life of 10 years)	1.0
Licenses (useful lives of 10 years)	0.3
Goodwill	8.1
Total assets acquired	9.5
Total liabilities assumed	(0.1		)
Net assets acquired	$	9.4

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Fair value of assets acquired	$	1.4		$	7.1		$	1.4		$	8.4
Goodwill	8.1			6.8			8.1			12.8
Fair value of liabilities assumed	(0.1		)	(0.1		)	(0.1		)	(0.1		)
Net cash paid for acquisitions	$	9.4		$	13.8		$	9.4		$	21.1

Pro Forma Results of Operations

The following table summarizes the results of operations of Hot Springs and Camellia from their respective dates 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 acquisitions been January 1, 2015 (in millions):

	Net Operating Revenues		Net Income Attributable to HealthSouth
Acquired entities only: Actual from acquisition date to June 30, 2016	$	3.0	$	(0.8	)
Combined entity: Supplemental pro forma from 04/01/2016-06/30/2016	921.2		62.6
Combined entity: Supplemental pro forma from 04/01/2015-06/30/2015	766.9		43.0
Combined entity: Supplemental pro forma from 01/01/2016-06/30/2016	1,833.0		120.7
Combined entity: Supplemental pro forma from 01/01/2015-06/30/2015	1,510.1		85.8

See Note 2, Business Combinations, to the consolidated financial statements accompanying the 2015 Form 10-K for information regarding acquisitions completed in 2015.