NOTE 1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States.  These statements include the accounts of AdCare Health Systems, Inc. and its controlled subsidiaries (collectively, “AdCare”, the “Company” or “we”).  Controlled subsidiaries include AdCare’s majority owned subsidiaries and variable interest entities in which AdCare has control as primary beneficiary.  The Company delivers skilled nursing, assisted living and home health services through wholly owned separate operating subsidiaries.  All inter-company accounts and transactions were eliminated in the consolidation.  The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and notes required for complete annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “Annual Report”).  In the opinion of the Company’s management, all adjustments considered for a fair presentation are included and are of a normal recurring nature.  Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  Certain prior year amounts have been reclassified to conform to the current year presentation.

 

As described in the Explanatory Note to this Form 10-Q/A and in Note 2, the interim consolidated financial statements for 2012 presented herein have been restated from those previously issued.

 

Earnings per Share

 

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted by the impact of the assumed issuance of common shares upon conversion of convertible securities and the weighted-average number of common shares outstanding includes potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive. Potentially dilutive securities from options, warrants and non-vested shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. Potentially dilutive securities from convertible debt are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance.

 

For the three months ended March 31, 2012 and 2011, due to the net loss for both periods, no potentially dilutive securities were included in the diluted earnings per share calculation because to do so would be anti-dilutive.

 

Intangible Assets and Goodwill

 

There have been no impairment adjustments to intangible assets and goodwill during the three months ended March 31, 2012 and 2011.

 

 

 

 

Intangible assets consist of the following:

 

Amounts in (000’s)		Lease Rights			Bed Licenses (included in property and equipment) Restated (Note 2)			Bed Licenses - Separable			Total
Balances, December 31, 2011, net		$	8,460		$	22,922		$	1,189		$	32,571
Deconsolidation of Oklahoma Owners		—			(3,458		)	—			(3,458		)
Acquisitions		—			—			1,188			1,188
Amortization expense		(267		)	(134		)	—			(401		)
Balances, March 31, 2012, net		$	8,193		$	19,330		$	2,377		$	29,900

 

The following table summarizes the changes in the carrying amount of goodwill at March 31, 2012 as compared with December 31, 2011:

 

Amounts in (000’s)		March 31, 2012 Restated (Note 2)
Balance, December 31, 2011		$	3,600
Deconsolidation of Oklahoma Owners		(1,123		)
Acquisitions		88
Impairment charge		—
Balance, March 31, 2012		$	2,565

 

Goodwill as previously reported in the 2011 consolidated financial statements was $0.9 million.   In 2012, a reclassification adjustment was made to the December 31, 2011 balance sheet to recognize $2.7 million of goodwill from 2011 acquisitions that was previously reported as bed licenses included in property and equipment.  The Company does not amortize goodwill or indefinite lived intangibles.

 

Amortization expense was approximately $134,000 for bed licenses included in property and equipment and $267,000 for lease rights for the three months ended March 31, 2012.  Estimated amortization expense for each of the following years ending December 31 is as follows:

 

(Amounts in 000’s)		Bed Licenses Restated (Note 2)			Lease Rights
2012 (remainder)		$	401		$	802
2013		534			1,069
2014		534			1,010
2015		534			885
2016		534			885
Thereafter		16,793			3,542
Total		$	19,330		$	8,193