Discontinued Operations

12 Months Ended

Dec. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

Effective September 1, 2013, the Company entered into an agreement with Omega Healthcare Investors, Inc. ("Omega") to terminate its lease with respect to eleven nursing centers and 1,181 licensed beds located in the state of Arkansas, and concurrently entered into operation transfer agreements to transfer the operations of each of those eleven centers to an operator selected by Omega. Upon the completion of the transaction, the Company no longer operates any skilled nursing centers in the State of Arkansas. In connection with the closing of this transaction, the Company and Omega entered into the Thirteenth Amendment to Consolidated Amended and Restated Master Lease ("Master Lease") most recently amended on January 22, 2013. This amendment effectively modifies the terms of the Master Lease to terminate the terms surrounding the eleven nursing centers in Arkansas, and only as to those eleven centers, and effectively reduces the annual rent payable under the Master Lease by $5,000,000.

As a result of this transaction, the Company has reclassified the operations of these centers as discontinued operations for all periods presented in the accompanying consolidated financial statements. These centers contributed revenues of $40,151,000, $61,782,000, and $63,589,000 during the twelve months ended December 31, 2013, 2012, and 2011, respectively. Further, these centers contributed net loss of $2,865,000 during the twelve months ended December 31, 2013, and net income of $457,000 and $540,000 during the twelve months ended December 31, 2012 and 2011, respectively.  The net income or loss for the nursing centers included in discontinued operations does not reflect any allocation of corporate general and administrative expense or any allocation of corporate interest expense. The Company considered these additional costs along with the centers' future prospects based upon operating history when determining the contribution of the skilled nursing centers to its operations. In addition to the expenses associated with the discontinued operations, the Company also incurred $1,446,000 in restructuring expenses that represent corporate expenses and exit costs associated with the Arkansas lease termination, but not classified as discontinued operations.

Effective September 1, 2012, we sold an owned skilled nursing center in Arkansas to an unrelated party and have reclassified the operations of this facility as discontinued operations for all periods presented in the accompanying consolidated financial statements. The operating margins and the long-term business prospects of the nursing center did not meet our strategic goals. This skilled nursing center contributed revenues of $0, $3,463,000, and $5,249,000, and net income (loss) of $(85,000), $68,000, and $198,000 during the twelve months ended December 31, 2013, 2012, and 2011, respectively.  The net income (loss) for the nursing center included in discontinued operations does not reflect any allocation of regional or corporate general and administrative expense or any allocation of corporate interest expense. We considered these additional costs along with the future prospects of this nursing center when determining the contribution of the skilled nursing center to our operations. The gain on disposal, net of taxes, of $174,000 was primarily the amount of sales price in excess of the net carrying value of the fixed assets sold.

The Company owns land related to a North Carolina assisted living facility it closed in April 2006. The net assets of discontinued operations presented in property and equipment on the accompanying consolidated balance sheet of $1,053,000 represents the real estate related to this assisted living facility. The Company is continuing its efforts to sell this land. The fair value of the subject property was determined based on comparable properties in the area and considered a level 2 calculation under the fair value hierarchy as discussed in Note 2.

A summary of the discontinued operations for the periods presented is as follows (in thousands):

	December 31,
	2013			2012			2011
Net revenues	$	40,151,000		$	65,245,000		$	68,838,000
Operating expenses	(44,890,000		)	(64,373,000		)	(67,568,000		)
Gain from disposal of assets	—			281,000			—
Income (loss) from discontinued operations	(4,739,000		)	1,153,000			1,270,000
Benefit (provision) for income taxes	1,754,000			(398,000		)	(341,000		)
Income (loss) from discontinued operations, net of tax	$	(2,985,000	)	$	755,000		$	929,000