Acquisitions and Transactions | 3. Acquisitions and Transactions Thai Hot Transaction On September 16, 2015, Fujian Thai Hot Investment Co., Ltd. (“Thai Hot”) agreed to purchase approximately 5,537,945 shares of the Company’s common stock from funds managed by Oaktree Capital Management, L.P. (“Oaktree”) and MTS Health Investors, LLC (“MTS”), and Larry C. Buckelew (together, The Thai Hot Transaction closed on March 29, 2016. As a result of the Thai Hot Transaction, Thai Hot, through a wholly owned subsidiary, owned an aggregate of approximately 51.5% of the outstanding shares of common stock of the Company. The Company has not agreed to pay any management fees to Thai Hot for any financial advisory services provided to the Company. 2016 Acquisition American Health Centers, Inc. On April 22, 2016, t he Company, through its Radiology Division, acquired the mobile business practice of American Health Centers, Inc. (“AHC”), a provider of fixed and mobile radiology and nuclear medicine services in New Hampshire and Vermont. The Company acquired 8 mobile radiology sites, and 5 mobile nuclear medicine sites, effective May 19, 2016. The combined cash purchase price, net of related contingent consideration, totaled $4,209. The Company financed this acquisition using the revolving line of credit. . The following table summarizes recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date: Equipment, net $ 2,354 Goodwill 335 Identifiable intangible assets 1,940 Total consideration $ 4,629 As a result of this acquisition, the Company recorded goodwill of $335, which largely represents intangible assets that do not qualify for separate recognition, including existing patients and the solid record of patient care in the local community. In addition, the Company recorded intangible assets of $1,940, of which $1,600 was assigned to customer contracts, which is being amortized over 15 years, and $340 was assigned to a non-competition agreement, which is being amortized over 5 years. A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. The results for the three and nine months ended September 30, 2016 included $936 and $1,573, respectively, of net revenue and $382 and $651, respectively, of net income before income taxes generated by AHC. The values assigned to the various assets and liabilities acquired in this transaction are preliminary and may be subject to adjustment as the calculation of their respective fair values could be subject to change. The agreement includes contingent consideration arrangements, which are based on performance of the 18-month period following the transaction date. The fair value of these contingent consideration arrangements of $420 and $405 as of the acquisition date and September 30, 2016, respectively, was estimated using the Company’s established fair value approach. For additional information, see Note 5. 2015 Acquisitions Pacific Cancer Institute, Inc. On December 31, 2015, the Company, through its Oncology Division, acquired a 95% controlling interest in the Pacific Cancer Institute, Inc. (“PCI”), a state-of-the-art radiation therapy and stereotactic radiosurgery (“SRS”) center located in Maui, Hawaii. The purchase price consisted of $11,013 in cash, net of holdback liabilities. The Company financed this acquisition using the revolving line of credit. For additional information, see Note 8. As a result of this acquisition, the Company recorded goodwill of $6,505, which largely represents intangible assets that do not qualify for separate recognition, including existing patients and the solid record of patient care in the local community. In addition, the Company recorded intangible assets of $8,800, of which $1,800 was assigned to physician referral network, $5,400 was assigned to Certificates of Need (“CONs”), $650 was assigned to non-solicitation and non-competition agreements and $950 was assigned to trademarks, which are being amortized over 5 to 15 years. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes. The results for the three and nine months ended September 30, 2016 included $1,285 and $3,999 of net revenue, respectively, and $(21) and $198 of net (loss) income, respectively, generated by PCI. The agreement includes contingent consideration arrangements, which are based on performance of the 12-month period following the transaction date. As of September 30, 2016, the Company did not record a liability related to these contingent consideration arrangements since it believes that the achievement of the future performance goals is unlikely. The values assigned to the various assets and liabilities acquired in this transaction are preliminary and may be subject to adjustment as the calculation of their respective fair values could be subject to change. AHIP-Florida, LLC On October 14, 2015, the Company, through its Interventional Division, acquired a 60% controlling interest in PRC Associates, LLC (“PRC”), a premier provider of interventional pain management healthcare with 8 locations in Central Florida and the Palm Coast. The purchase price consisted of $15,014 in cash, net of $264 cash acquired. The Company financed this acquisition using the revolving line of credit. For additional information, see Note 8. As a result of this acquisition, the Company recorded goodwill of $8,234, which largely represents intangible assets that do not qualify for separate recognition, such as prominent leadership and the solid record of patient care programs that set national standards for quality coordinated care in pain management. In addition, the Company recorded intangible assets of $15,600, of which $12,100 was assigned to physician referral network, $1,800 was assigned to non-solicitation and non-competition agreements and $1,700 was assigned to trademarks, which are being amortized over 5 to 15 years. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes. The results for the three and nine months ended September 30, 2016 included $3,389 and $9,986 of net revenue, respectively, and $414 and $1,160 of net income, respectively, generated by PRC. The agreement includes contingent consideration arrangements, which are based on performance of the 12-month period following the transaction date. The fair value of these contingent consideration arrangements of $150 was estimated using management’s estimates as of September 30, 2016. The values assigned to the various assets and liabilities acquired in this transaction are preliminary and may be subject to adjustment as the calculation of their respective fair values could be subject to change. Alliance-HNI, LLC and Subsidiaries On August 1, 2015, the Company obtained through its Radiology Division an additional 15.5% interest in its previously non-consolidated investment, Alliance-HNI, LLC (“AHNI”) through a step acquisition. Prior to August 1, 2015, the Company held a noncontrolling interest in AHNI, pursuant to its acquisition of Medical Consultants Imaging, Co. (“MCIC”), which held a 50% interest in a joint venture that was subsequently renamed AHNI. Prior to the step acquisition on August 1, 2015, AHNI had three subsidiaries: Alliance-HNI Leasing Co. (“AHNIL”), Alliance-HNV PET/CT Services, LLC (“AHNVPS”), and Alliance-HNV PET/CT Leasing, LLC (“AHNVPL”). AHNI held a 98% interest in AHNIL, which AHNI consolidated, a 53.4% interest in AHNVPS, and effectively, a 53.3% interest in AHNVPL through its ownership in AHNVPS, both of which AHNI did not consolidate. In addition to the Company’s original 50% investment in AHNI, it also had a 46.6% direct interest in AHNVPS prior to the step acquisition and, accordingly, the Company has historically consolidated AHNVPS and AHNVPL. On August 1, 2015, the Company contributed its 46.6% interest in HNVPS and its rights to certain assets to AHNI in exchange for an additional 15.5% interest in AHNI. After the transaction the Company holds a 65.5% interest in AHNI which, in turn, holds all of the outstanding interest in AHNVPS. As a result of gaining a controlling interest in AHNI, the Company began consolidating AHNI effective August 1, 2015. Pursuant to ASC 805, “Business Combinations,” the transaction is considered a step acquisition and the Company was required to remeasure its previously held equity interest in AHNI at its acquisition-date fair value and recognize any resulting gain or loss. AHNVPS assets that the Company was in control of before and after the acquisition were maintained at their carrying amounts immediately before the acquisition date and no gain or loss or resulting goodwill was recognized on these assets. The fair value of the consideration transferred was based on the net book value of the assets transferred by the Company to AHNI at the acquisition date because the Company had control of those assets before and after the transaction. The Company recorded goodwill of $2,988, which largely represents intangible assets that do not qualify for separate recognition. In addition, the Company recorded intangible assets of $13,700. The intangible assets consist primarily of physician referral networks, trademarks, and certificates of need, a portion of which is being amortized over 15 years. The Pain Center of Arizona On February 17, 2015, the Company purchased approximately a 59% membership interest in The Pain Center of Arizona (“TPC”), a comprehensive full-time pain management medical practice with 12 locations within the state of Arizona. The purchase price consisted of $24,087 in cash, net of $234 cash acquired and net of extinguishment of $3,071 of related-party notes receivable. The Company financed this acquisition using the revolving line of credit. As a result of this acquisition, the Company recorded goodwill of $22,566, which largely represents intangible assets that do not qualify for separate recognition, such as prominent leadership and the solid record of patient care programs that set national standards for quality coordinated care in pain management. In addition, the Company recorded intangible assets of $24,600, of which $13,500 was assigned to physician referral network and $11,100 was assigned to trademarks, which are being amortized over 20 years. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes. The fair value of noncontrolling interest related to this transaction was estimated to be $20,598 as of the acquisition date using the implied fair value based on the Company’s ownership percentage. The results for the three and nine months ended September 30, 2016 included $7,830 and $23,623 of net revenue, respectively, and $714 and $1,770 of net loss, respectively, generated by TPC. The results for the three and nine months ended September 30, 2015 included $8,957 and $20,980 of net revenue, respectively, and $804 and $1,095 of net income, respectively, generated by TPC. The agreement includes contingent consideration arrangements, which are based on performance of the 12-month period following the transaction date. The Company paid $810 of the contingent consideration during the nine months ended September 30, 2016. Pro Forma Impact of Acquisitions The following table provides pro forma revenues and results of operations for the nine months ended September 30, 2016 and the three and nine months ended September 30, 2015, as if the acquisitions had occurred on January 1, 2015. The pro forma results were prepared from financial information obtained from the sellers of the businesses, as well as information obtained during the due diligence process associated with the acquisitions. The pro forma results reflect certain adjustments related to the acquisitions, such as increased depreciation and amortization expense resulting from the stepped-up basis to fair value of assets acquired and adjustments to reflect the Company’s borrowing and tax rates. The pro forma operating results do not include any anticipated synergies related to combining the businesses. Accordingly, such pro forma operating results were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of January 1, 2015 or of results that may occur in the future. Three Months Ended September 30, Nine Months Ended September 30, 2015 2016 2015 Revenues $ 127,078 $ 376,842 $ 373,844 Net income attributable to Alliance HealthCare Services, Inc. 8,168 2,914 9,629 Basic earnings per share 0.76 0.27 0.90 Diluted earnings per share 0.76 0.27 0.89 Restructuring Plan From time to time, the Company’s management implements immaterial restructuring plans, including the closure or consolidation of certain sites as a result of the loss of certain customers. The impact of the charges resulting from restructuring plans are summarized below: Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Cost of revenues, excluding depreciation and amortization $ 172 $ 176 $ 925 $ 572 Selling, general and administrative expenses 45 40 143 135 Other expense, net 67 — 567 — Total restructuring charges $ 284 $ 216 $ 1,635 $ 707 |