ENSG 3.31.15 10Q
Table of Contents


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2015
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     .
Commission file number: 001-33757
__________________________
THE ENSIGN GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)
Delaware
33-0861263
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
27101 Puerta Real, Suite 450
Mission Viejo, CA 92691
(Address of Principal Executive Offices and Zip Code)
(949) 487-9500
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
_____________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of May 4, 2015, 22,450,488 shares of the registrant’s common stock were outstanding.
 
 
 
 
 



THE ENSIGN GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2015
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 Exhibit 101


2


Part I. Financial Information

Item 1.        Financial Statements
THE ENSIGN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(Unaudited)

 
March 31,
2015
 
December 31, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
62,609

 
$
50,408

Restricted cash—current
3,388

 
5,082

Accounts receivable—less allowance for doubtful accounts of $23,005 and $20,438 at March 31, 2015 and December 31, 2014, respectively
162,267

 
130,051

Investments—current
4,992

 
6,060

Prepaid income taxes

 
2,992

Prepaid expenses and other current assets
11,998

 
8,434

Deferred tax asset—current
10,602

 
10,615

Total current assets
255,856

 
213,642

Property and equipment, net
192,370

 
149,708

Insurance subsidiary deposits and investments
19,145

 
17,873

Escrow deposits
2,485

 
16,153

Deferred tax asset
11,500

 
11,509

Restricted and other assets
7,125

 
6,833

Intangible assets, net
37,481

 
35,568

Goodwill
32,781

 
30,269

Other indefinite-lived intangibles
14,551

 
12,361

Total assets
$
573,294

 
$
493,916

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
38,819

 
$
33,186

Accrued wages and related liabilities
54,608

 
56,712

Accrued self-insurance liabilities—current
16,694

 
15,794

Income tax payable
5,914

 

Other accrued liabilities
34,245

 
24,630

Current maturities of long-term debt
112

 
111

Total current liabilities
150,392

 
130,433

Long-term debt—less current maturities
3,251

 
68,279

Accrued self-insurance liabilities—less current portion
34,695

 
34,166

Deferred rent and other long-term liabilities
3,260

 
3,235

Total liabilities
191,598

 
236,113

 
 
 
 
Commitments and contingencies (Notes 17, 19, and 20)

 

Equity:
 
 
 
Ensign Group, Inc. stockholders' equity:
 
 
 
Common stock; $0.001 par value; 75,000 shares authorized; 25,762 and 25,432 shares issued and outstanding at March 31, 2015, respectively, and 22,924 and 22,591 shares issued and outstanding at December 31, 2014, respectively (Note 3)
26

 
22

Additional paid-in capital (Note 3)
225,009

 
114,293

Retained earnings
159,095

 
145,846

Common stock in treasury, at cost, 149 and 150 shares at March 31, 2015 and December 31, 2014, respectively
(1,304
)
 
(1,310
)
Total Ensign Group, Inc. stockholders' equity
382,826

 
258,851

Non-controlling interest
(1,130
)
 
(1,048
)
Total equity
381,696

 
257,803

Total liabilities and equity
$
573,294

 
$
493,916

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

THE ENSIGN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
 
 
Revenue
$
306,529

 
$
239,653

Expense:
 
 
 
Cost of services (exclusive of rent, general and administrative and depreciation and amortization expenses shown separately below)
241,456

 
189,738

Rent—cost of services (Note 2 and 19)
18,966

 
3,549

General and administrative expense
14,416

 
13,157

Depreciation and amortization
6,517

 
8,862

Total expenses
281,355

 
215,306

Income from operations
25,174

 
24,347

Other income (expense):
 
 
 
Interest expense
(667
)
 
(3,363
)
Interest income
166

 
159

Other expense, net
(501
)
 
(3,204
)
Income before provision for income taxes
24,673

 
21,143

Provision for income taxes
9,585

 
8,102

Net income
15,088

 
13,041

Less: net loss attributable to noncontrolling interests
(82
)

(485
)
Net income attributable to The Ensign Group, Inc.
$
15,170

 
$
13,526

Net income per share attributable to The Ensign Group, Inc.:
 
 
 
Basic
$
0.63

 
$
0.61

Diluted
$
0.61

 
$
0.60

Weighted average common shares outstanding:
 
 
 
Basic
23,908

 
22,168

Diluted
24,826

 
22,582

 
 
 
 
Dividends per share
$
0.075

 
$
0.070


See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

THE ENSIGN GROUP, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2015
 
2014
Net income
$
15,088

 
$
13,041

Other comprehensive income, net of tax:
 
 
 
Unrealized gain on interest rate swap, net of income tax of $78 for the three months ended March 31, 2014.

 
119

Comprehensive income
15,088

 
13,160

Less: net loss attributable to noncontrolling interests
(82
)
 
(485
)
Comprehensive income attributable to The Ensign Group, Inc.
$
15,170

 
$
13,645


See accompanying notes to condensed consolidated financial statements.


5

Table of Contents

THE ENSIGN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
15,088

 
$
13,041

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
6,517

 
8,862

Amortization of deferred financing fees and debt discount
148

 
205

Deferred income taxes
22

 
17

Provision for doubtful accounts
4,743

 
3,405

Share-based compensation
1,493

 
1,179

Excess tax benefit from share-based compensation
(641
)
 
(688
)
Change in operating assets and liabilities
 
 
 
Accounts receivable
(36,900
)
 
(12,604
)
Prepaid income taxes
2,992

 
7,250

Prepaid expenses and other assets
(3,538
)
 
215

Insurance subsidiary deposits and investments
(205
)
 
150

Accounts payable
4,393

 
2,829

Accrued wages and related liabilities
(2,104
)
 
651

Other accrued liabilities
6,557

 
(1,432
)
Income tax payable
5,914

 

Accrued self-insurance liabilities
1,355

 
(1,633
)
Deferred rent liability
26

 
(14
)
Net cash provided by operating activities
5,860

 
21,433

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(12,719
)
 
(16,424
)
Cash payment for business acquisitions
(38,709
)
 
(9,148
)
Escrow deposits
(2,485
)
 
(3,252
)
Escrow deposits used to fund business acquisitions
16,153

 
1,000

Use of restricted cash
1,694

 

Restricted and other assets
(389
)
 
(262
)
Net cash used in investing activities
(36,455
)
 
(28,086
)
Cash flows from financing activities:
 
 
 
Proceeds from from revolving credit facility (Note 17)
29,000

 

Payments on revolving credit facility and other debt
(94,027
)
 
(1,849
)
Proceeds from common stock offering (Note 3)
112,078

 

Issuance costs in connection with common stock offering (Note 3)
(5,604
)
 

Issuance of treasury stock upon exercise of options
6

 
94

Issuance of common stock upon exercise of options
2,410

 
998

Dividends paid
(1,708
)
 
(1,564
)
Excess tax benefit from share-based compensation
641

 
688

Net cash provided (used) in financing activities
42,796

 
(1,633
)
Net increase (decrease) in cash and cash equivalents
12,201

 
(8,286
)
Cash and cash equivalents beginning of period
50,408

 
65,755

Cash and cash equivalents end of period
$
62,609

 
$
57,469

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

THE ENSIGN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)



 
Three Months Ended March 31,
 
2015
 
2014
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
745

 
$
3,369

Income taxes
$
15

 
$
158

Non-cash financing and investing activity:
 
 
 

Accrued capital expenditures
$
4,048

 
$
1,793

Issuance costs of common stock included in accounts payable
$
300

 
$

Refundable deposits assumed as part of business acquisition
$
3,488

 
$


See accompanying notes to condensed consolidated financial statements.


7

Table of Contents

THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands, except per share data)
(Unaudited)
1. DESCRIPTION OF BUSINESS

The Company - The Ensign Group, Inc. (collectively, Ensign or the Company), is a holding company with no direct operating assets, employees or revenue. The Company, through its operating subsidiaries, is a provider of skilled nursing, rehabilitative care services, home health, home care, hospice care, assisted living and urgent care services. As of March 31, 2015, the Company operated 143 facilities, thirteen home health and twelve hospice operations, two home care businesses, one transitional care management company, sixteen urgent care centers and a mobile x-ray and diagnostic company, located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Oregon, Texas, Utah, Washington and Wisconsin. The Company's operating subsidiaries, each of which strives to be the operation of choice in the community it serves, provide a broad spectrum of skilled nursing, assisted living, home health, home care and hospice, mobile x-ray and diagnostic, and urgent care services. The Company's affiliated facilities have a collective capacity of approximately 15,500 operational skilled nursing, assisted living and independent living beds. As of March 31, 2015, the Company owned 18 of its 143 affiliated facilities and leased an additional 125 facilities through long-term lease arrangements, and had options to purchase three of those 125 facilities. As of December 31, 2014, the Company owned 11 of its 136 affiliated facilities and leased an additional 125 facilities through long-term lease arrangements, and had options to purchase three of those 125 facilities.
Certain of the Company’s wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide certain accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other operating subsidiaries through contractual relationships with such subsidiaries. The Company also has a wholly-owned captive insurance subsidiary (the Captive) that provides some claims-made coverage to the Company’s operating subsidiaries for general and professional liability, as well as coverage for certain workers’ compensation insurance liabilities.
Each of the Company's affiliated operations are operated by separate, wholly-owned, independent subsidiaries that have their own management, employees and assets. References herein to the consolidated “Company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “our” and similar terms in this quarterly report is not meant to imply, nor should it be construed as meaning, that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries, are operated by The Ensign Group.
Other Information — The accompanying condensed consolidated financial statements as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 (collectively, the Interim Financial Statements) are unaudited. Certain information and note disclosures normally included in annual consolidated financial statements have been condensed or omitted, as permitted under applicable rules and regulations. Readers of the Interim Financial Statements should refer to the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2014 which are included in the Company’s annual report on Form 10-K, File No. 001-33757 (the Annual Report) filed with the Securities and Exchange Commission (SEC). Management believes that the Interim Financial Statements reflect all adjustments which are of a normal and recurring nature necessary to present fairly the Company’s financial position and results of operations in all material respects. The results of operations presented in the Interim Financial Statements are not necessarily representative of operations for the entire year.

2. SPIN-OFF OF REAL ESTATE ASSETS THROUGH A REAL ESTATE INVESTMENT TRUST
On June 1, 2014, the Company completed its plan to separate its real estate business into two separate publicly traded companies by creating a newly formed, publicly traded real estate investment trust (REIT), known as CareTrust REIT, Inc. (CareTrust), through a tax free spin-off (the Spin-Off). The Company effected the Spin-Off by distributing to its stockholders one share of CareTrust common stock for each share of Ensign common stock held at the close of business on May 22, 2014, the record date for the Spin-Off. The Company received a private letter ruling from the Internal Revenue Service (IRS) substantially to the effect that the Spin-Off will qualify as a tax-free transaction for U.S. federal income tax purposes. The private letter ruling relies on certain facts, representations, assumptions and undertakings.
In connection with the Spin-Off, the Company contributed to CareTrust the assets and liabilities associated with 94 real property and three independent living facilities that CareTrust now operates and that were previously owned by the Company. The Company also retired all outstanding borrowings as of the date of the Spin-Off with a portion of the proceeds received from the Spin-Off.


8

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


As a result of the Spin-Off, CareTrust owns all of the 94 real property and leases back those assets to the Company under eight “triple-net” master lease agreements (collectively, the Master Leases), which has a term ranging from 12 to 19 years that, at the Company’s option, may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. The Company continues to operate the affiliated skilled nursing, assisted living and independent living facilities that are leased from CareTrust pursuant to the Master Leases.
Commencing in the third year, the rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5%. Annual rent expense under the Master Lease will be approximately $56,000 during each of the first two years of the Master Leases. In addition to rent, the Company is required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. See further discussion at Note 19, Leases.
The Company incurred transaction costs of $1,590 for the three months ended March 31, 2014 associated with the Spin-Off, which are included in general and administrative expenses within the condensed consolidated statements of income. The Company did not record transaction costs related to the Spin-Off for the three months ended March 31, 2015 as the Spin-Off was completed in June 2014.
3. COMMON STOCK OFFERING
On July 15, 2014, the Company filed a Registration Statement on Form S-3 with the SEC for future public offerings of any combination of common stock, preferred stock and warrants. The Form S-3 was declared effective by the SEC on July 15, 2014.
On February 9, 2015, the Company entered into an underwriting agreement with Wells Fargo Securities, LLC as representative of the underwriters named therein (collectively, the Underwriters), pursuant to which the Company agreed to issue and sell to the Underwriters 2,500 shares of its common stock and also agreed to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of up to 375 additional shares of common stock (the Common Stock Offering).
Subsequently, the Company issued 2,734 shares for approximately $41.00 per share. After deducting $5,604 in underwriter discounts and commissions, the Company received net proceeds of $106,474, before other issuance costs of $300. The Company used $94,000 of the net proceeds to pay off the outstanding amounts under its revolving credit facility with a lending consortium arranged by SunTrust (the Credit Facility).
During the three months ended March 31, 2015, the Company included $5,904 of issuance costs in stockholders' equity which offset the proceeds from the Common Stock Offering.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — The accompanying Interim Financial Statements have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States of America (U.S.). The Company is the sole member or shareholder of various consolidated limited liability companies and corporations established to operate various acquired skilled nursing and assisted living operations, home health and hospice operations, urgent care centers and related ancillary services. All intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to The Ensign Group, Inc. and the noncontrolling interest in its consolidated statements of income.
The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest and the accounts of any variable interest entities (VIEs) where the Company is subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of power and economics that considers which entity has the power to direct the activities that "most significantly impact" the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to, the VIE. The Company's relationship with variable interest entities was not material at March 31, 2015.
Estimates and Assumptions — The preparation of Interim Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting

9

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


periods. The most significant estimates in the Company’s Interim Financial Statements relate to revenue, allowance for doubtful accounts, intangible assets and goodwill, impairment of long-lived assets, general and professional liability, worker’s compensation, and healthcare claims included in accrued self-insurance liabilities, and income taxes. Actual results could differ from those estimates.

Fair Value of Financial Instruments —The Company’s financial instruments consist principally of cash and cash equivalents, debt security investments, accounts receivable, insurance subsidiary deposits, accounts payable and borrowings. The Company believes all of the financial instruments’ recorded values approximate fair values because of their nature or respective short durations.
Revenue Recognition — The Company recognizes revenue when the following four conditions have been met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or service has been rendered; (iii) the price is fixed or determinable; and (iv) collection is reasonably assured. The Company's revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to the individual. For reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts on a per patient, daily basis.
Revenue from the Medicare and Medicaid programs accounted for 69.1% and 71.1% of the Company's revenue for the three months ended March 31, 2015 and 2014, respectively. The Company records revenue from these governmental and managed care programs as services are performed at their expected net realizable amounts under these programs. The Company’s revenue from governmental and managed care programs is subject to audit and retroactive adjustment by governmental and third-party agencies. Consistent with healthcare industry accounting practices, any changes to these governmental revenue estimates are recorded in the period the change or adjustment becomes known based on final settlement. Except for additional payment from the State of California for quality improvements under the Quality and Accountability Supplemental Payment Program, the Company recorded upon settlement adjustments to revenue which were not material to the Company's consolidated revenue for the three months ended March 31, 2015 and 2014.
The Company’s service specific revenue recognition policies are as follows:
Skilled Nursing, Assisted and Independent Living Revenue
The Company’s revenue is derived primarily from providing long-term healthcare services to residents and is recognized on the date services are provided at amounts billable to individual residents. For residents under reimbursement arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rate on a per patient, daily basis or as services are performed.
Home Health Revenue
Medicare Revenue
Net service revenue is recorded under the Medicare prospective payment system based on a 60-day episode payment rate that is subject to adjustment based on certain variables including, but not limited to: (a) an outlier payment if patient care was unusually costly; (b) a low utilization payment adjustment if the number of visits was fewer than five; (c) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the episode; (d) a payment adjustment based upon the level of therapy services required; (e) the number of episodes of care provided to a patient, regardless of whether the same home health provider provided care for the entire series of episodes; (f) changes in the base episode payments established by the Medicare program; (g) adjustments to the base episode payments for case mix and geographic wages; and (h) recoveries of overpayments.
The Company makes adjustments to Medicare revenue on completed episodes to reflect differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Therefore, the Company believes that its reported net service revenue and patient accounts receivable will be the net amounts to be realized from Medicare for services rendered.
In addition to revenue recognized on completed episodes, the Company also recognizes a portion of revenue associated with episodes in progress. Episodes in progress are 60-day episodes of care that begin during the reporting period, but were not completed as of the end of the period. As such, the Company estimates revenue and recognizes it on a daily basis. The primary factors underlying this estimate are the number of episodes in progress at the end of the reporting period, expected Medicare revenue per episode and its estimate of the average percentage complete based on visits performed.
Non-Medicare Revenue

10

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Episodic Based Revenue - The Company recognizes revenue in a similar manner as it recognizes Medicare revenue for episodic-based rates that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the negotiated terms.
Non-episodic Based Revenue - Revenue is recorded on an accrual basis based upon the date of service at amounts equal to its established or estimated per-visit rates, as applicable.
Hospice Revenue
Revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated payment rates. The estimated payment rates are daily rates for each of the levels of care the Company delivers. The Company makes adjustments to revenue for an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Additionally, as Medicare hospice revenue is subject to an inpatient cap limit and an overall payment cap, the Company monitors its provider numbers and estimates amounts due back to Medicare if a cap has been exceeded. The Company records these adjustments as a reduction to revenue and increases other accrued liabilities.
Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable consist primarily of amounts due from Medicare and Medicaid programs, other government programs, managed care health plans and private payor sources. Estimated provisions for doubtful accounts are recorded to the extent it is probable that a portion or all of a particular account will not be collected.
In evaluating the collectability of accounts receivable, the Company considers a number of factors, including the age of the accounts, changes in collection patterns, the composition of patient accounts by payor type and the status of ongoing disputes with third-party payors. On an annual basis, the historical collection percentages are reviewed by payor and by state and are updated to reflect the recent collection experience of the Company. In order to determine the appropriate reserve rate percentages which ultimately establish the allowance, the Company analyzes historical cash collection patterns by payor and by state. The percentages applied to the aged receivable balances are based on the Company’s historical experience and time limits, if any, for managed care, Medicare, Medicaid and other payors. The Company periodically refines its estimates of the allowance for doubtful accounts based on experience with the estimation process and changes in circumstances.
Property and Equipment — Property and equipment are initially recorded at their historical cost. Repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from three to 59 years). Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term.
Impairment of Long-Lived Assets — The Company reviews the carrying value of long-lived assets that are held and used in the Company’s operating subsidiaries for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operating subsidiaries to which the assets relate, utilizing management’s best estimate, appropriate assumptions, and projections at the time. If the carrying value is determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset. The Company estimates the fair value of assets based on the estimated future discounted cash flows of the asset. Management has evaluated its long-lived assets and has not identified any asset impairment during the three months ended March 31, 2015 or 2014.
Intangible Assets and Goodwill — Definite-lived intangible assets consist primarily of favorable leases, lease acquisition costs, patient base, facility trade names and customer relationships. Favorable leases and lease acquisition costs are amortized over the life of the lease of the facility, typically ranging from five to 52 years. Patient base is amortized over a period of four to eight months, depending on the classification of the patients and the level of occupancy in a new acquisition on the acquisition date. Trade names at affiliated facilities are amortized over 30 years and customer relationships are amortized over a period up to 20 years.
The Company's indefinite-lived intangible assets consist of trade names and home health and hospice Medicare licenses. The Company tests indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is subject to annual testing for impairment. In addition, goodwill is tested for impairment if events occur or circumstances change that would reduce the fair value of a reporting unit (operating segment or one level below an operating

11

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


segment) below its carrying amount. The Company performs its annual test for impairment during the fourth quarter of each year. See further discussion at Note 13, Goodwill and Other Indefinite-Lived Intangible Assets.
Self-Insurance — The Company is partially self-insured for general and professional liability up to a base amount per claim (the self-insured retention) with an aggregate, one-time deductible above this limit. Losses beyond these amounts are insured through third-party policies with coverage limits per claim, per location and on an aggregate basis for the Company. For claims made after January 1, 2013, the combined self-insured retention was $500 per claim, subject to an additional one-time deductible of $1,000 for California affiliated facilities and a separate, one-time, deductible of $750 for non-California facilities. For all affiliated facilities, except those located in Colorado, the third-party coverage above these limits was $1,000 per claim, $3,000 per facility, with a $5,000 blanket aggregate and an additional state-specific aggregate where required by state law. In Colorado, the third-party coverage above these limits was $1,000 per claim and $3,000 per facility for skilled nursing facilities, which is independent of the aforementioned blanket aggregate applicable to its other 133 affiliated facilities.
The self-insured retention and deductible limits for general and professional liability and workers' compensation for all states (except Texas and Washington for workers' compensation) are self-insured through the Captive, the related assets and liabilities of which are included in the accompanying condensed consolidated balance sheets. The Captive is subject to certain statutory requirements as an insurance provider. These requirements include, but are not limited to, maintaining statutory capital. The Company’s policy is to accrue amounts equal to the actuarially estimated costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not reported. The Company develops information about the size of the ultimate claims based on historical experience, current industry information and actuarial analysis, and evaluates the estimates for claim loss exposure on a quarterly basis. Accrued general liability and professional malpractice liabilities on an undiscounted basis, net of anticipated insurance recoveries, were $28,498 and $29,313 as of March 31, 2015 and December 31, 2014, respectively.
 The Company’s operating subsidiaries are self-insured for workers’ compensation in California. To protect itself against loss exposure in California with this policy, the Company has purchased individual specific excess insurance coverage that insures individual claims that exceed $500 per occurrence. In Texas, the operating subsidiaries have elected non-subscriber status for workers’ compensation claims and, effective February 1, 2011, the Company has purchased individual stop-loss coverage that insures individual claims that exceed $750 per occurrence. As of July 1, 2014, the Company’s operating subsidiaries in all other states, with the exception of Washington, are under a loss sensitive plan that insures individual claims that exceed $350 per occurrence. In Washington, the operating subsidiaries' coverage is financed through premiums paid by the employers and employees. The claims and pay benefits are managed through a state insurance pool. Outside of California, Texas, and Washington, the Company has purchased insurance coverage that insures individual claims that exceed $350 per accident. In all states except Washington, the Company accrues amounts equal to the estimated costs to settle open claims, as well as an estimate of the cost of claims that have been incurred but not reported. The Company uses actuarial valuations to estimate the liability based on historical experience and industry information. Accrued workers’ compensation liabilities are recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets and were $16,074 and $14,590 as of March 31, 2015 and December 31, 2014, respectively.
In addition, the Company has recorded an asset and equal liability of $2,330 and $2,256 at March 31, 2015 and December 31, 2014, respectively, in order to present the ultimate costs of malpractice and workers' compensation claims and the anticipated insurance recoveries on a gross basis. See Note 14, Restricted and Other Assets.
The Company self-funds medical (including prescription drugs) and dental healthcare benefits to the majority of its employees. The Company is fully liable for all financial and legal aspects of these benefit plans. To protect itself against loss exposure with this policy, the Company has purchased individual stop-loss insurance coverage that insures individual claims that exceed $300 for each covered person with an additional one-time aggregate individual stop loss deductible of $75. The Company’s accrued liability under these plans recorded on an undiscounted basis in the accompanying condensed consolidated balance sheets was $4,487 and $3,801 as of March 31, 2015 and December 31, 2014, respectively.
The Company believes that adequate provision has been made in the Interim Financial Statements for liabilities that may arise out of patient care, workers’ compensation, healthcare benefits and related services provided to date. The amount of the Company’s reserves was determined based on an estimation process that uses information obtained from both company-specific and industry data. This estimation process requires the Company to continuously monitor and evaluate the life cycle of the claims. Using data obtained from this monitoring and the Company’s assumptions about emerging trends, the Company, with the assistance of an independent actuary, develops information about the size of ultimate claims based on the Company’s historical experience and other available industry information. The most significant assumptions used in the estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs to settle or pay damage awards with respect to unpaid claims. The self-insured liabilities are based upon estimates, and while management believes that the estimates of loss are reasonable, the ultimate liability may be in excess of or less than the recorded amounts. Due to the inherent volatility

12

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


of actuarially determined loss estimates, it is reasonably possible that the Company could experience changes in estimated losses that could be material to net income. If the Company’s actual liability exceeds its estimates of loss, its future earnings, cash flows and financial condition would be adversely affected.

Income Taxes —Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates in effect when such temporary differences are expected to reverse. The Company generally expects to fully utilize its deferred tax assets; however, when necessary, the Company records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized.

For interim reporting purposes, the provision for income taxes is determined based on the estimated annual effective income tax rate applied to pre-tax income, adjusted for certain discrete items occurring during the period. In determining the effective income tax rate for interim financial statements, the Company must consider expected annual income, permanent differences between financial reporting and tax recognition of income or expense and other factors. When the Company takes uncertain income tax positions that do not meet the recognition criteria, it records a liability for underpayment of income taxes and related interest and penalties, if any. In considering the need for and magnitude of a liability for such positions, the Company must consider the potential outcomes from a review of the positions by the taxing authorities.
In determining the need for a valuation allowance or the need for and magnitude of liabilities for uncertain tax positions, the Company makes certain estimates and assumptions. These estimates and assumptions are based on, among other things, knowledge of operations, markets, historical trends and likely future changes and, when appropriate, the opinions of advisors with knowledge and expertise in certain fields. Due to certain risks associated with the Company’s estimates and assumptions, actual results could differ.

Noncontrolling Interest — The noncontrolling interest in a subsidiary is initially recognized at estimated fair value on the acquisition date and is presented within total equity in the Company's condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to The Ensign Group, Inc. in its condensed consolidated statements of income and net income per share is calculated based on net income attributable to The Ensign Group, Inc.'s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

Stock-Based Compensation — The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors including employee stock options based on estimated fair values, ratably over the requisite service period of the award. Net income has been reduced as a result of the recognition of the fair value of all stock options and restricted stock awards issued, the amount of which is contingent upon the number of future grants and other variables.

Leases and Leasehold Improvements - At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating or capital lease. The Company records rent expense for operating leases that contain scheduled rent increases on a straight-line basis over the term of the lease. The lease term used for straight-line rent expense is calculated from the date the Company is given control of the leased premises through the end of the lease term. The lease term used for this evaluation also provides the basis for establishing depreciable lives for buildings subject to lease and leasehold improvements, as well as the period over which the Company records straight-line rent expense.

Recent Accounting Pronouncements — Except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws and a limited number of grandfathered standards, the Financial Accounting Standards Board (FASB) ASC is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. For any new pronouncements announced, the Company considers whether the new pronouncements could alter previous generally accepted accounting principles and determines whether any new or modified principles will have a material impact on the Company's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company's financial management and certain standards are under consideration.

In February 2015, the FASB issued amendments to the consolidation analysis, which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. This guidance applies to all entities and is effective for annual periods beginning after December 15, 2015, which will be the Company's fiscal year 2016, with early adoption permitted. The Company is currently assessing whether the adoption of the guidance will have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB and International Accounting Standards Board issued their final standard on revenue from contracts with customers that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts

13

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


with customers. The new standard supersedes most current revenue recognition guidance, including industry-specific guidance. In April 2015, the FASB tentatively decided to defer for one year the effective date of the new revenue standard and tentatively decided to permit entities to early adopt the standard. Tentatively, this guidance will be effective for fiscal years beginning after December 15, 2017, which will be the Company's fiscal year 2018. The Company is currently assessing whether the adoption of the guidance will have a material impact on the Company's consolidated financial statements.

In April 2015, the FASB issued its final standard on presentation of debt issuance costs, which changes the presentation of debt issuance costs in the financial statement to represent such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. This guidance applies to all entities and is effective for annual periods beginning after December 15, 2015, which will be the Company's fiscal year 2016, with early adoption permitted. The Company is currently assessing whether the adoption of the guidance will have a material impact on the Company's consolidated financial statements.

5. COMPUTATION OF NET INCOME PER COMMON SHARE

Basic net income per share is computed by dividing income from continuing operations attributable to The Ensign Group, Inc. stockholders by the weighted average number of outstanding common shares for the period. The computation of diluted net income per share is similar to the computation of basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

A reconciliation of the numerator and denominator used in the calculation of basic net income per common share follows:
 
Three Months Ended
March 31,
 
2015
 
2014
Numerator:
 
 
 
Net Income
$
15,088

 
$
13,041

Less: net loss attributable to noncontrolling interests
(82
)
 
(485
)
Net income attributable to The Ensign Group, Inc.
$
15,170

 
$
13,526

 
 
 
 
Denominator:
 
 
 
Weighted average shares outstanding for basic net income per share
23,908

 
22,168

Basic net income per common share attributable to The Ensign Group, Inc.
$
0.63

 
$
0.61


A reconciliation of the numerator and denominator used in the calculation of diluted net income per common share follows:
 
Three Months Ended
March 31,
 
2015
 
2014
Numerator:
 
 
 
Net Income
$
15,088

 
$
13,041

Less: net loss attributable to noncontrolling interests
(82
)
 
(485
)
Net income attributable to The Ensign Group, Inc.
$
15,170

 
$
13,526

Denominator:
 
 
 
Weighted average common shares outstanding
23,908

 
22,168

Plus: incremental shares from assumed conversion (1)
918

 
414

Adjusted weighted average common shares outstanding
24,826

 
22,582

Diluted net income per common share attributable to The Ensign Group, Inc.
$
0.61

 
$
0.60

(1)    Options outstanding which are anti-dilutive and therefore not factored into the weighted average common shares amount above were 124 and 310 for the three months ended March 31, 2015 and 2014, respectively.


14

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6. FAIR VALUE MEASUREMENTS
Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014:
 
 
March 31, 2015
 
December 31, 2014
 
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
 
$
62,609

 
$

 
$

 
$
50,408

 
$

 
$

Restricted cash
 
$
3,388

 
$

 
$

 
$
5,082

 
$

 
$


Our non-financial assets, which include long-lived assets, including goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment. When impairment has occurred, such long-lived assets are written down to fair value. See Note 4, Summary of Significant Accounting Policies for further discussion of the Company's significant accounting policies.

Debt Security Investments - Held to Maturity

At March 31, 2015 and December 31, 2014, the Company had approximately $24,137 and $23,933, respectively, in debt security investments which were classified as held to maturity and carried at amortized cost. The carrying value of the debt securities approximates fair value. The Company has the intent and ability to hold these debt securities to maturity. Further, at March 31, 2015, the debt security investments are held in AA, A and BBB rated debt securities.


7. REVENUE AND ACCOUNTS RECEIVABLE

Revenue for the three months ended March 31, 2015 and 2014 is summarized in the following tables:
 
Three Months Ended March 31,
 
2015
 
2014
 
Revenue
 
% of
Revenue
 
Revenue
 
% of
Revenue
Medicaid
$
101,628

 
33.2
%
 
$
83,342

 
34.8
%
Medicare
94,356

 
30.8

 
76,470

 
31.9

Medicaid — skilled
15,537

 
5.1

 
10,608

 
4.4

Total Medicaid and Medicare
211,521

 
69.1

 
170,420

 
71.1

Managed care
46,330

 
15.1

 
32,978

 
13.8

Private and other payors(1)
48,678

 
15.8

 
36,255

 
15.1

Revenue
$
306,529

 
100.0
%
 
$
239,653

 
100.0
%
(1) Private and other payors includes revenue from urgent care centers and other ancillary services.


15

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Accounts receivable as of March 31, 2015 and December 31, 2014 is summarized in the following table:
 
March 31,
2015
 
December 31,
2014
Medicaid
$
61,247

 
$
45,943

Managed care
47,239

 
39,782

Medicare
39,823

 
32,861

Private and other payors
36,963

 
31,903

 
185,272

 
150,489

Less: allowance for doubtful accounts
(23,005
)
 
(20,438
)
Accounts receivable
$
162,267

 
$
130,051


8. BUSINESS SEGMENTS

The Company has two reportable operating segments: (1) transitional, skilled and assisted living services (TSA services), which includes the operation of skilled nursing facilities and assisted and independent living facilities and is the largest portion of the Company's business and (2) home health and hospice services, which includes the Company's home health, home care and hospice businesses. The Company's Chief Executive Officer, who is the chief operating decision maker, or CODM, reviews financial information at the operating segment level.

The Company also reports an “all other” category that includes revenue from its urgent care centers and a mobile x-ray and diagnostic company. The urgent care centers and mobile x-ray and diagnostic business are neither significant individually nor in aggregate and therefore do not constitute a reportable segment. The reporting segments are business units that offer different services and that are managed separately to provide greater visibility into those operations. The "all other" category also includes operating expenses that the Company does not allocate to operating segments as these expenses are not included in the segment operating performance measures evaluated by the CODM. Previously, the Company had a single reportable segment, healthcare services, which included providing skilled nursing, assisted living, home health and hospice, urgent care and related ancillary services. The Company has presented 2014 financial information on a comparative basis to conform with the current period segment presentation.

At March 31, 2015, TSA services included 143 wholly-owned skilled nursing affiliated facilities that offer post-acute, rehabilitative custodial and specialty skilled nursing care, as well as wholly-owned assisted and independent living affiliated facilities that provide room and board and social services. Home health and hospice services were provided to patients by the Company's 25 wholly-owned home health and hospice operating subsidiaries. The Company's urgent care services, which is included in "all other" category, were provided to patients by the Company's wholly owned urgent care operating subsidiaries. As of March 31, 2015, the Company held 80% of the membership interest of a mobile x-ray and diagnostic company, which revenue is included in the "all other" category.

The Company evaluates performance and allocates capital resources to each segment based on an operating model that is designed to maximize the quality of care provided and profitability. General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss, and are included in the "all other" category in the selected segment financial data that follows. The accounting policies of the reporting segments are the same as those described in Note 4, Summary of Significant Accounting Policies. The Company's CODM does not review assets by segment in his resource allocation and therefore assets by segment are not disclosed below.


16

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Segment revenues by major payer source were as follows:

 
 
Three Months Ended March 31, 2015
 
 
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Total Revenue
 
Revenue %
 
Medicaid
 
$
99,706

 
$
1,922

 
$

 
$
101,628

 
33.2
%
 
Medicare
 
81,690

 
12,666

 

 
94,356

 
30.8

 
Medicaid-skilled
 
15,537

 

 

 
15,537

 
5.1

 
Subtotal
 
196,933

 
14,588

 

 
211,521

 
69.1

 
Managed care
 
44,107

 
2,223

 

 
46,330

 
15.1

 
Private and other
 
37,734

 
1,504

 
9,440

 
48,678

 
15.8

 
Total revenue
 
$
278,774

 
$
18,315

 
$
9,440

 
$
306,529

 
100.0
%
 
 
 
Three Months Ended March 31, 2014
 
 
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Total Revenue
 
Revenue %
 
Medicaid
 
$
82,387

 
$
955

 
$

 
$
83,342

 
34.8
%
 
Medicare
 
68,508

 
7,962

 

 
76,470

 
31.9

 
Medicaid-skilled
 
10,608

 

 

 
10,608

 
4.4

 
Subtotal
 
161,503

 
8,917

 

 
170,420

 
71.1

 
Managed care
 
31,296

 
1,682

 

 
32,978

 
13.8

 
Private and other
 
31,323

 
547

 
4,385

 
36,255

 
15.1

 
Total revenue
 
$
224,122

 
$
11,146

 
$
4,385

 
$
239,653

 
100.0
%
 

The following table sets forth selected financial data consolidated by business segment:

 
 
Three Months Ended March 31, 2015
 
 
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Elimination
 
Total
 
Revenue from external customers
 
$
278,774

 
$
18,315

 
$
9,440

 

 
$
306,529

 
Intersegment revenue (1)
 
474

 

 
203

 
(677
)
 

 
Total revenue
 
$
279,248

 
$
18,315

 
$
9,643

 
$
(677
)
 
$
306,529

 
Income from operations
 
$
37,298

 
$
2,675

 
$
(14,799
)
 
$

 
$
25,174

 
Interest expense, net of interest income
 
 
 
 
 
 
 
 
 
$
501

 
Income before provision for income taxes
 
 
 
 
 
 
 
 
 
$
24,673

 
Depreciation and amortization
 
$
4,949

 
$
221

 
$
1,347

 
$

 
$
6,517

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Intersegment revenue represents services provided at the Company's skilled nursing facilities and urgent care centers to the Company's other operating subsidiaries.
 

17

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


 
 
Three Months Ended March 31, 2014
 
 
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Elimination
 
Total
 
Revenue from external customers
 
$
224,122

 
$
11,146

 
$
4,385

 

 
$
239,653

 
Intersegment revenue (1)
 
446

 

 
182

 
(628
)
 

 
 
 
$
224,568

 
$
11,146

 
$
4,567

 
$
(628
)
 
$
239,653

 
Income from operations
 
$
36,932

 
$
1,872

 
$
(14,457
)
 
$

 
$
24,347

 
Interest expense, net of interest income
 
 
 
 
 
 
 
 
 
$
3,204

 
Income before provision for income taxes
 
 
 
 
 
 
 
 
 
$
21,143

 
Depreciation and amortization
 
$
7,861

 
$
121

 
$
880

 
$

 
$
8,862

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Intersegment revenue represents services provided at the Company's skilled nursing facilities and urgent care centers to the Company's other operating subsidiaries.
 

9. ACQUISITIONS
The Company’s acquisition strategy is to purchase or lease operating subsidiaries that are complementary to the Company’s current affiliated facilities, accretive to the Company's business or otherwise advance the Company's strategy. The results of all the Company’s operating subsidiaries are included in the accompanying Interim Financial Statements subsequent to the date of acquisition. Acquisitions are typically paid for in cash and are accounted for using the acquisition method of accounting. The Company also enters into long-term leases that include options to purchase the affiliated facilities. As a result, from time to time, the Company will acquire affiliated facilities that the Company has been operating under third-party leases.
During the three months ended March 31, 2015, the Company continued to expand its operations with the addition of five stand-alone skilled nursing operations, two assisted living operations, one home health agency and two urgent care centers to its operations. The aggregate purchase price of the 10 business acquisitions was approximately $42,197, which was paid with cash of $38,709 and the assumed liabilities of $3,488. The details of the operating subsidiaries acquired during the three months ended March 31, 2015 are as follows:
On January 1, 2015, the Company acquired three skilled nursing operations, one assisted living operation, one home health agency and two urgent care centers for an aggregate purchase price of approximately $19,045. The acquisitions added 244 and 17 operational skilled nursing beds and operational assisted living units, respectively, operated by the Company's operating subsidiaries.
On February 1, 2015, the Company acquired two skilled nursing operations and one assisted living operation in two states for approximately $23,152, which $19,664 was paid in cash and the assumed liabilities of $3,488. The acquisitions added 163 and 328 operational skilled nursing beds and operational assisted living units, respectively, operated by the Company's operating subsidiaries.

18

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The table below presents the allocation of the purchase price for the operations acquired in business combinations during the three months ended March 31, 2015 and 2014:
 
March 31,
 
2015
 
2014
Land
$
3,608

 
$
760

Building and improvements
29,390

 
7,901

Equipment, furniture, and fixtures
1,429

 
376

Assembled occupancy
639

 
80

Definite-lived intangible assets
360

 

Goodwill
2,512

 
31

Favorable leases
2,069

 

Other indefinite-lived intangible assets
2,190

 

 
$
42,197

 
$
9,148


Subsequent to the three months ended March 31, 2015, the Company acquired three assisted living operations, three skilled nursing operations and one home care business for an aggregate purchase price of $21,839, which was paid in cash. The acquisitions added 262 and 263 operational skilled nursing beds and operational assisted living units, respectively, operated by the Company's operating subsidiaries, respectively. The Company also entered into a long-term lease agreement of one skilled nursing operation. The Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The long-term lease added 60 operational skilled nursing beds operated by the Company's operating subsidiaries. In a separate transaction, the Company acquired the underlying assets of one skilled nursing operation, which the Company previously operated under a long-term lease agreement. The purchase price of the asset acquisition was $7,315, which was paid with cash of $1,067 and a promissory note of $6,248. As of the date of this filing, the preliminary allocation of the purchase price was not completed as necessary valuation information was not yet available.

10. ACQUISITIONS - PRO FORMA FINANCIAL INFORMATION

The Company has established an acquisition strategy that is focused on identifying acquisitions within its target markets that offer the greatest opportunity for investment return at attractive prices. The facilities acquired by the Company are frequently underperforming financially and can have regulatory and clinical challenges to overcome. Financial information, especially with underperforming facilities, is often inadequate, inaccurate or unavailable. As a result, the Company has developed an acquisition assessment program that is based on existing and potential resident mix, the local available market, referral sources and operating expectations based on the Company's experience with its existing facilities. Following an acquisition, the Company implements a well-developed integration program to provide a plan for transition and generation of profits from facilities that have a history of significant operating losses. Consequently, the Company believes that prior operating results are not meaningful as the information is not generally representative of the Company's current operating results or indicative of the integration potential of its newly acquired facilities.

The following table represents pro forma results of consolidated operations as if the acquisitions through the issuance date of the financial statements had occurred at the beginning of 2014, after giving effect to certain adjustments.
 
March 31,
 
2015
 
2014
Revenue
$
313,085

 
$
258,366

Net income attributable to The Ensign Group, Inc.
$
14,466

 
$
13,065

Diluted net income per common share
$
0.58

 
$
0.58

Our pro forma assumptions are as follows:

Revenues and operating costs were based on actual results from the prior operator or from regulatory filings where available. If actual results were not available, revenues and operating costs were estimated based on available partial operating results of the prior operator of the facility, or if no information was available, estimates were derived from the

19

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Company’s post-acquisition operating results for that particular facility. Prior year results for the 2015 acquisitions were obtained from available financial statements provided by prior operators or available cost reports filed by the prior operators.
 
Interest expense is based upon the purchase price and average cost of debt borrowed during each respective year when applicable and depreciation is calculated using the purchase price allocated to the related assets through acquisition accounting.

The foregoing pro forma information is not indicative of what the results of operations would have been if the acquisitions had actually occurred at the beginning of the periods presented, and is not intended as a projection of future results or trends. Included in the table above are pro forma revenue generated during the three months ended March 31, 2015 and 2014, by individually immaterial business acquisitions completed through March 31, 2015, of $6,556 and $18,713, respectively. Included in the table above are pro forma losses incurred during the three months ended March 31, 2015 and 2014, by individually immaterial business acquisitions completed through March 31, 2015, of $704 and $461, respectively.

11. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
 
March 31, 2015
 
December 31, 2014
Land
$
22,602

 
$
18,994

Buildings and improvements
87,609

 
57,947

Equipment
88,422

 
80,112

Furniture and fixtures
5,786

 
5,732

Leasehold improvements
57,193

 
50,671

Construction in progress
154

 
423

 
261,766

 
213,879

Less: accumulated depreciation
(69,396
)
 
(64,171
)
Property and equipment, net
$
192,370

 
$
149,708


See Note 9, Acquisitions for information on acquisitions during the three months ended March 31, 2015.

12. INTANGIBLE ASSETS — Net
 
 
Weighted Average Life (Years)
 
March 31, 2015
 
December 31, 2014
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
Intangible Assets
 
 
 
 
Net
 
 
 
Net
Lease acquisition costs
 
18.5
 
$
684

 
$
(644
)
 
$
40

 
$
684

 
$
(634
)
 
$
50

Favorable lease
 
31.5
 
32,959

 
(1,241
)
 
31,718

 
30,890

 
(783
)
 
30,107

Assembled occupancy
 
0.6
 
4,523

 
(4,004
)
 
519

 
3,884

 
(3,461
)
 
423

Facility trade name
 
30.0
 
733

 
(226
)
 
507

 
733

 
(220
)
 
513

Customer relationships
 
17.5
 
5,300

 
(603
)
 
4,697

 
4,940

 
(465
)
 
4,475

Total
 
 
 
$
44,199

 
$
(6,718
)
 
$
37,481

 
$
41,131

 
$
(5,563
)
 
$
35,568

Amortization expense was $1,153 and $148 for the three months ended March 31, 2015 and 2014, respectively. Of the $1,153 in amortization expense incurred during the three months ended March 31, 2015, approximately $500 related to the amortization of patient base intangible assets at recently acquired facilities, which is typically amortized over a period of four to eight months, depending on the classification of the patients and the level of occupancy in a new acquisition on the acquisition date.


Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Estimated amortization expense for each of the years ending December 31 is as follows:
Year
Amount
2015 (remainder)
$
2,248

2016
2,698

2017
2,170

2018
2,080

2019
2,080

2020
1,371

Thereafter
24,834

 
$
37,481


13. GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

The Company performs its annual goodwill impairment analysis during the fourth quarter of each year for each reporting unit that constitutes a business for which discrete financial information is produced and reviewed by operating segment management and provides services that are distinct from the other components of the operating segment. The Company tests for impairment by comparing the net assets of each reporting unit to their respective fair values. The Company determines the estimated fair value of each reporting unit using a discounted cash flow analysis. In the event a unit's net assets exceed its fair value, an implied fair value of goodwill must be determined by assigning the unit's fair value to each asset and liability of the unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is measured by the difference between the goodwill carrying value and the implied fair value.

The following table represents activity in goodwill by segment as of and for the three months ended March 31, 2015:
 
Goodwill
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Total
January 1, 2014
$
15,977

 
$
10,929

 
$
3,363

 
$
30,269

Impairments

 

 

 

Additions

 

 
2,512

 
2,512

March 31, 2015
$
15,977

 
$
10,929

 
$
5,875

 
$
32,781


As of March 31, 2015, the Company anticipates that total goodwill recognized will be fully deductible for tax purposes. See further discussion of goodwill acquired at Note 9, Acquisitions.

Other indefinite-lived intangible assets consists of the following:
 
March 31,
2015
 
December 31,
2014
Trade name
$
1,855

 
$
1,055

Home health and hospice Medicare license
12,696

 
11,306

 
$
14,551

 
$
12,361



21

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


14. RESTRICTED AND OTHER ASSETS
Restricted and other assets consist of the following:
 
March 31,
2015
 
December 31,
2014
Debt issuance costs, net
$
2,464

 
$
2,612

Long-term insurance losses recoverable asset
2,330

 
2,256

Deposits with landlords
1,703

 
1,143

Capital improvement reserves with landlords and lenders
604

 
774

Other long-term assets
24

 
48

Restricted and other assets
$
7,125

 
$
6,833

Included in restricted and other assets as of March 31, 2015, are anticipated insurance recoveries related to the Company's general and professional liability claims that are recorded on a gross rather than net basis in accordance with an Accounting Standards Update issued by the FASB and capitalized debt issuance costs.

15. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:
 
March 31, 2015
 
December 31, 2014
Quality assurance fee
$
3,677

 
$
2,855

Refunds payable
10,112

 
7,014

Deferred revenue
3,991

 
3,471

Cash held in trust for patients
1,922

 
1,824

Resident deposits
5,760

 
1,593

Dividends payable
1,935

 
1,708

Property taxes
3,165

 
3,043

Other
3,683

 
3,122

Other accrued liabilities
$
34,245

 
$
24,630

Quality assurance fee represents amounts payable to Arizona, California, Colorado, Idaho, Iowa, Nebraska, Utah, Washington and Wisconsin in respect of a mandated fee based on resident days. Refunds payable includes payables related to overpayments and duplicate payments. Deferred revenue occurs when the Company receives payments in advance of services provided. Cash held in trust for patients reflects monies received from, or on behalf of, patients. Maintaining a trust account for patients is a regulatory requirement and, while the trust assets offset the liabilities, the Company assumes a fiduciary responsibility for these funds. The cash balance related to this liability is included in other current assets in the accompanying condensed consolidated balance sheets.

16. INCOME TAXES
During the third quarter of 2014, the Internal Revenue Service initiated an examination of the Company's income tax return for the 2012 income tax year. The Company is not currently under examination by any other major income tax jurisdiction. During 2015, the statutes of limitations will lapse on the Company's 2011 Federal tax year and certain 2010 and 2011 state tax years. The Company does not believe the Internal Revenue Service examination or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months. The net balance of unrecognized tax benefits was not material to the Interim Financial Statements for the three months ended March 31, 2015 or 2014.


22

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


17. DEBT
Long-term debt consists of the following:
 
March 31,
2015
 
December 31, 2014
Credit Facility with SunTrust, interest payable monthly and quarterly, balance due at May 1, 2019, secured by substantially all of the Company’s personal property.
$

 
$
65,000

Mortgage note, principal and interest payable monthly and continuing through October 2037, interest at fixed rate, collateralized by deed of trust on real property, assignment of rents and security agreement.
3,363

 
3,390

 
3,363

 
68,390

Less current maturities
(112
)
 
(111
)
 
$
3,251

 
$
68,279


Mortgage Loan with Vannovi Properties, LLC

On April 1, 2015, the Company acquired the assets of a skilled nursing facility in California. The asset acquisition was purchased with a combination of cash and a promissory note with Vannovi Properties, LLC of approximately $6,248. The unpaid balance of principal and accrued interest from these notes is due on April 30, 2027. The notes bear interest at a rate of 5.25% per annum.

Based on Level 2, the carrying value of the Company's long-term debt is considered to approximate the fair value of such debt for all periods presented based upon the interest rates that the Company believes it can currently obtain for similar debt.

Off-Balance Sheet Arrangements

As of March 31, 2015, the Company had approximately $2,726 on the Credit Facility of borrowing capacity pledged as collateral to secure outstanding letters of credit. The letters of credit are outstanding as of March 31, 2015.

18. OPTIONS AND AWARDS
Stock-based compensation expense consists of share-based payment awards made to employees and directors, including employee stock options and restricted stock awards, based on estimated fair values. As stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2015 and 2014 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant and, if necessary, revises the estimate in subsequent periods if actual forfeitures differ.
The Company has three option plans, the 2001 Stock Option, Deferred Stock and Restricted Stock Plan (2001 Plan), the 2005 Stock Incentive Plan (2005 Plan) and the 2007 Omnibus Incentive Plan (2007 Plan), all of which have been approved by the Company's stockholders. The total number of shares available under all of the Company’s stock incentive plans was 1,590 as of March 31, 2015.

The Company uses the Black-Scholes option-pricing model to recognize the value of stock-based compensation expense for all share-based payment awards. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. The Company develops estimates based on historical data and market information, which can change significantly over time. The Company granted 72 options and 65 restricted stock awards from the 2007 Plan during the three months ended March 31, 2015.


23

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The Company used the following assumptions for stock options granted during the three months ended March 31, 2015 and 2014:
Grant Year
 
Options Granted
 
Weighted Average Risk-Free Rate
 
Expected Life
 
Weighted Average Volatility
 
Weighted Average Dividend Yield
2015
 
72

 
1.45%
 
6.5 years
 
44%
 
0.65%
2014
 
268

 
1.84%
 
6.5 years
 
55%
 
0.64%

For the three months ended March 31, 2015 and 2014, the following represents the exercise price and fair value displayed at grant date for stock option grants:
Grant Year
 
Granted
 
Weighted Average Exercise Price
 
Weighted Average Fair Value of Options
2015
 
72

 
$
43.58

 
$
18.39

2014
 
268

 
$
21.09

 
$
10.83


The weighted average exercise price equaled the weighted average fair value of common stock on the grant date for all options granted during the periods ended March 31, 2015 and 2014 and therefore, the intrinsic value was $0 at date of grant.

As as result of the Spin-Off discussed in Note 2, Spin-Off of Real Estate Assets through a Real Estate Investment Trust, the weighted average exercise prices shown in the table above for the three months ended March 31, 2014 were reduced. The corresponding of options outstanding shown in the table above for the three months ended March 31, 2014 were also increased as a result of the Spin-Off.

The following table represents the employee stock option activity during the three months ended March 31, 2015:
 
Number of
Options
Outstanding
 
Weighted
Average
Exercise Price
 
Number of
Options Vested
 
Weighted
Average
Exercise Price
of Options
Vested
January 1, 2015
2,766

 
$
17.02

 
1,109

 
$
9.39

Granted
72

 
43.58

 
 
 
 
Forfeited
(38
)
 
22.90

 
 
 
 
Exercised
(46
)
 
11.39

 
 
 
 
March 31, 2015
2,754

 
$
17.73

 
1,184

 
$
10.09



24

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The following summary information reflects stock options outstanding, vested and related details as of March 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Stock Options Vested
 
 
Stock Options Outstanding
 
 
 
 
 
Number Outstanding
 
Black-Scholes Fair Value
 
Remaining Contractual Life (Years)
 
Vested and Exercisable
Year of Grant
 
Exercise Price
 
 
 
 
2005
 
2.72
-
3.14
 
26

 
*

 
1
 
26

2006
 
3.85
-
4.09
 
67

 
348

 
2
 
67

2008
 
5.12
-
8.11
 
277

 
827

 
3
 
277

2009
 
8.12
-
9.11
 
397

 
1,706

 
4
 
397

2010
 
9.53
-
9.91
 
95

 
459

 
5
 
87

2011
 
11.79
-
15.98
 
115

 
781

 
6
 
65

2012
 
13.12
-
15.91
 
331

 
2,441

 
7
 
123

2013
 
15.96
-
22.98
 
381

 
3,722

 
8
 
94

2014
 
21.09
-
37.88
 
993

 
11,221

 
9
 
48

2015
 
 
 
43.58
 
72

 
1,319

 
10
 

Total
 
 
 
 
 
2,754

 
$
22,824

 
 

1,184

* The Company did not recognize the Black-Scholes fair value for awards granted prior to January 1, 2006 unless such awards are modified.
The Company granted 65 and 2 restricted stock awards during the three months ended March 31, 2015 and 2014, respectively. All awards were granted at an exercise price of $0 and generally vest over five years. The fair value per share of restricted awards granted during the three months ended March 31, 2015 and 2014 were $43.58 and $44.71, respectively.
A summary of the status of the Company's nonvested restricted stock awards as of March 31, 2015 and changes during the three-month period ended March 31, 2015 is presented below:
 
Nonvested Restricted Awards
 
Weighted Average Grant Date Fair Value
Nonvested at January 1, 2015
183

 
$
30.30

Granted
65

 
43.52

Vested
(62
)
 
39.63

Forfeited
(6
)
 
30.06

Nonvested at March 31, 2015
180

 
$
31.91


During the three months ended March 31, 2015, the Company granted 3 automatic quarterly stock awards to non-employee directors for their service on the Company's board of directors. The fair value per share of these stock awards was $42.59 based on the market price on the grant date.

Total share-based compensation expense recognized for the three months ended March 31, 2015 and 2014 was as follows:
 
Three Months Ended March 31,
 
2015
 
2014
Share-based compensation expense related to stock options
$
956

 
$
643

Share-based compensation expense related to restricted stock awards
416

 
430

Share-based compensation expense related to stock awards
121

 
106

Total
$
1,493

 
$
1,179

In future periods, the Company expects to recognize approximately $15,105 and $4,988 in share-based compensation expense for unvested options and unvested restricted stock awards, respectively, that were outstanding as of March 31, 2015. Future share-

25

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


based compensation expense will be recognized over 4.0 and 3.1 weighted average years for unvested options and restricted stock awards, respectively. There were 1,570 unvested and outstanding options at March 31, 2015, of which 1,428 are expected to vest. The weighted average contractual life for options outstanding, vested and expected to vest at March 31, 2015 was 6.8 years.

The aggregate intrinsic value of options outstanding, vested, expected to vest and exercised as of March 31, 2015 and December 31, 2014 is as follows:
Options
 
March 31, 2015
 
December 31, 2014
Outstanding
 
$
80,227

 
$
75,689

Vested
 
43,518

 
38,811

Expected to vest
 
31,124

 
31,160

Exercised
 
1,484

 
10,496

The intrinsic value is calculated as the difference between the market value of the underlying common stock and the exercise price of the options.

19. LEASES
As a result of the Spin-Off, the Company leases from CareTrust real property associated with 94 affiliated skilled nursing, assisted living and independent living facilities used in the Company’s operations under the Master Leases, which ranges from 12 to 19 years. At the Company’s option, the Master Leases may be extended for two or three five-year renewal terms beyond the initial term, on the same terms and conditions. The extension of the term of any of the Master Leases is subject to the following conditions: (1) no event of default under any of the Master Leases having occurred and being continuing; and (2) the tenants providing timely notice of their intent to renew. The term of the Master Leases is subject to termination prior to the expiration of the then current term upon default by the tenants in their obligations, if not cured within any applicable cure periods set forth in the Master Leases.
The Company does not have the ability to terminate the obligations under a Master Lease prior to its expiration without CareTrust’s consent. If a Master Lease is terminated prior to its expiration other than with CareTrust’s consent, the Company may be liable for damages and incur charges such as continued payment of rent through the end of the lease term and maintenance and repair costs for the leased property.
Commencing the third year, the rent structure under the Master Leases includes a fixed component, subject to annual escalation equal to the lesser of (1) the percentage change in the Consumer Price Index (but not less than zero) or (2) 2.5%. In addition to rent, the Company is required to pay the following: (1) all impositions and taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (2) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties; (3) all insurance required in connection with the leased properties and the business conducted on the leased properties; (4) all facility maintenance and repair costs; and (5) all fees in connection with any licenses or authorizations necessary or appropriate for the leased properties and the business conducted on the leased properties. Annual rent expense under the Master Leases will be approximately $56,000 during each of the first two years of the Master Leases.
Among other things, under the Master Leases, the Company must maintain compliance with specified financial covenants measured on a quarterly basis, including a portfolio coverage ratio and a minimum rent coverage ratio. The Master Leases also include certain reporting, legal and authorization requirements. The Company is not aware of any defaults as of March 31, 2015.
The Company and CareTrust also entered into an Opportunities Agreement, which grants CareTrust the right to match any offer from a third party to finance the acquisition or development of any healthcare or senior-living facility by the Company or any of its affiliates for a period of one year following the Spin-Off. In addition, this agreement requires CareTrust to provide the Company, subject to certain exceptions, a right to either purchase and operate, or lease and operate, the affiliated facilities included in any portfolio of five or fewer healthcare or senior living facilities presented to the Company during the first year following the Spin-Off; provided that the portfolio is not subject to an existing lease with an operator or manager that has a remaining term of more than one year, and is not presented to the Company by or on behalf of another operator seeking lease or other financing. If the Company elects to lease and operate such a property or portfolio, the lease would be on substantially the same terms as the Master Leases.

26

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The Company also leases certain affiliated operations and its administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years. The Company has entered into multiple lease agreements with Mainstreet Property Group LLC to operate newly constructed state-of-the-art, full-service healthcare resorts upon completion of construction (Healthcare Resorts Leases). The term of each lease is 15 years with two five year renewal options and is subject to annual escalation equal to the percentage change in the Consumer Price Index with a stated cap percentage. In addition, the Company leases certain of its equipment under non-cancelable operating leases with initial terms ranging from three to five years. Most of these leases contain renewal options, certain of which involve rent increases. Total rent expense, inclusive of straight-line rent adjustments and rent associated with the Master Leases noted above, was $19,081 and $3,605 for the three months ended March 31, 2015 and 2014, respectively.
Future minimum lease payments for all leases as of March 31, 2015 are as follows:
Year
 
Amount
Remainder
 
$
74,436

2016
 
89,539

2017
 
90,553

2018
 
90,589

2019
 
89,535

Thereafter
 
929,567

 
 
$
1,364,219

Six of the Company’s affiliated facilities, excluding the facilities that are operated under the Master Leases with CareTrust, are operated under two separate three-facility master lease arrangements. Under these master leases, a breach at a single facility could subject one or more of the other facilities covered by the same master lease to the same default risk. Failure to comply with Medicare and Medicaid provider requirements is a default under several of the Company’s leases, master lease agreements and debt financing instruments. In addition, other potential defaults related to an individual facility may cause a default of an entire master lease portfolio and could trigger cross-default provisions in the Company’s outstanding debt arrangements and other leases. With an indivisible lease, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord.
In addition, a number of the Company's individual facility leases are held by the same or related landlords, and some of these leases include cross-default provisions that could cause a default at one facility to trigger a technical default with respect to others, potentially subjecting certain leases and facilities to the various remedies available to the landlords under separate but cross-defaulted leases. The Company is not aware of any defaults as of March 31, 2015.

20. COMMITMENTS AND CONTINGENCIES
Regulatory Matters — Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. The Company believes that it is in compliance in all material respects with all applicable laws and regulations.
Cost-Containment Measures — Both government and private pay sources have instituted cost-containment measures designed to limit payments made to providers of healthcare services, and there can be no assurance that future measures designed to limit payments made to providers will not adversely affect the Company.
Income Tax Examinations — During the third quarter of 2014, the Company received a notification from the IRS that the Company's 2012 tax return will be examined. During the first quarter of 2012, the State of California initiated an examination of the Company's income tax returns for the 2008 and 2009 income tax years. The examination was primarily focused on the Captive and the treatment of related insurance matters. The examination was closed with no adjustments. See Note 16, Income Taxes.
Indemnities — From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer environmental or other liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities the Company acquires against certain liabilities arising from the transfer

27

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


of the operation and/or the operation thereof after the transfer, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, and (iv) certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationships. The terms of such obligations vary by contract and, in most instances, a specific or maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no claims have been asserted, no liabilities have been recorded for these obligations on the Company’s balance sheets for any of the periods presented.
Litigation — The skilled nursing business involves a significant risk of liability given the age and health of the patients and residents served by the Company's operating subsidiaries. The Company, its operating subsidiaries, and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, alleging that services provided have resulted in personal injury, elder abuse, wrongful death or other related claims. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.
In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payor. A violation may provide the basis for exclusion from federally-funded healthcare programs. Such exclusions could have a correlative negative impact on the Company’s financial performance. Some states, including California, Arizona and Texas, have enacted similar whistleblower and false claims laws and regulations. In addition, the Deficit Reduction Act of 2005 created incentives for states to enact anti-fraud legislation modeled on the Federal False Claims Act. As such, the Company could face increased scrutiny, potential liability and legal expenses and costs based on claims under state false claims acts in markets in which it does business.
In May 2009, Congress passed the Fraud Enforcement and Recovery Act (FERA) of 2009 which made significant changes to the Federal False Claims Act (FCA), expanding the types of activities subject to prosecution and whistleblower liability. Following changes by FERA, health care providers face significant penalties for the knowing retention of government overpayments, even if no false claim was involved. Health care providers can now be liable for knowingly and improperly avoiding or decreasing an obligation to pay money or property to the government. This includes the retention of any government overpayment. The government can argue, therefore, that a FCA violation can occur without any affirmative fraudulent action or statement, as long as it is knowingly improper. In addition, FERA extended protections against retaliation for whistleblowers, including protections not only for employees, but also contractors and agents. Thus, there is generally no need for an employment relationship in order to qualify for protection against retaliation for whistleblowing.
Healthcare litigation (including class action litigation) is common and is filed based upon a wide variety of claims and theories, and we are routinely subjected to varying types of claims. One particular type of suit arises from alleged violations of state-established minimum staffing requirements for skilled nursing facilities. Failure to meet these requirements can, among other things, jeopardize a facility's compliance with conditions of participation under certain state and federal healthcare programs; it may also subject the facility to a notice of deficiency, a citation, civil monetary penalty, or litigation. These class-action “staffing” suits have the potential to result in large jury verdicts and settlements, and have become more prevalent in the wake of a previous substantial jury award against one of the Company's competitors. The Company expects the plaintiff's bar to continue to be aggressive in their pursuit of these staffing and similar claims.
A class action staffing suit was previously filed against the Company and certain of its California subsidiaries in the State of California, alleging, among other things, violations of certain Health and Safety Code provisions and a violation of the Consumer Legal Remedies Act. In 2007, the Company settled this class action suit, and the settlement was approved by the affected class and the Court. A second such class action staffing suit was filed in Los Angeles in 2010 and was resolved in a settlement and Court approval in 2012. Neither of the referenced lawsuits or settlement had a material ongoing adverse effect on the Company's business, financial condition or results of operations.
Other claims and suits, including class actions, continue to be filed against us and other companies in our industry. If there were a significant increase in the number of these claims or an increase in amounts owing should plaintiffs be successful in their prosecution of these claims, this could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.
The Company and its operating subsidiaries have been, and continue to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment as well as employment related claims. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company’s business, cash flows, financial condition or results of operations. A significant increase in the number of these claims

28

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


or an increase in amounts owing should plaintiffs be successful in their prosecution of these claims, could materially adversely affect the Company’s business, financial condition, results of operations and cash flows.

The Company cannot predict or provide any assurance as to the possible outcome of any litigation. If any litigation were to proceed, and the Company and its operating subsidiaries are subjected to, alleged to be liable for, or agrees to a settlement of, claims or obligations under Federal Medicare statutes, the Federal False Claims Act, or similar State and Federal statutes and related regulations, the Company's business, financial condition and results of operations and cash flows could be materially and adversely affected and its stock price could be adversely impacted. Among other things, any settlement or litigation could involve the payment of substantial sums to settle any alleged civil violations, and may also include the assumption of specific procedural and financial obligations by the Company or its subsidiaries going forward under a corporate integrity agreement and/or other arrangement with the government.
Medicare Revenue Recoupments — The Company is subject to reviews relating to Medicare services, billings and potential overpayments. The Company had one operating subsidiary subject to probe review during the three months ended March 31, 2015. The Company anticipates that these probe reviews will increase in frequency in the future. Further, the Company currently has no affiliated facilities on prepayment review; however, others may be placed on prepayment review in the future. If a facility fails prepayment review, the facility could then be subject to undergo targeted review, which is a review that targets perceived claims deficiencies.

U.S. Government Inquiry — In October 2013, the Company completed and executed a settlement agreement (the Settlement Agreement) with the DOJ and received the final approval of the Office of Inspector General-HHS and the United States District Court for the Central District of California. Pursuant to the Settlement Agreement, the Company made a single lump-sum remittance to the government in the amount of $48,000 in October 2013. The Company has denied engaging in any illegal conduct, and has agreed to the settlement amount without any admission of wrongdoing in order to resolve the allegations and to avoid the uncertainty and expense of protracted litigation.

In connection with the settlement and effective as of October 1, 2013, the Company entered into a five-year corporate integrity agreement (the CIA) with the Office of Inspector General-HHS. The CIA acknowledges the existence of the Company’s current compliance program, which is in accord with the Office of the Inspector General (OIG)’s guidance related to an effective compliance program, and requires that the Company continue during the term of the CIA to maintain a compliance program designed to promote compliance with the statutes, regulations, and written directives of Medicare, Medicaid, and all other Federal health care programs. The Company is also required to notify the Office of Inspector General-HHS in writing, of, among other things: (i) any ongoing government investigation or legal proceeding involving an allegation that the Company has committed a crime or has engaged in fraudulent activities; (ii) any other matter that a reasonable person would consider a probable violation of applicable criminal, civil, or administrative laws related to compliance with federal healthcare programs; and (iii) any change in location, sale, closing, purchase, or establishment of a new business unit or location related to items or services that may be reimbursed by federal health care programs. The Company is also required to retain an Independent Review Organization (IRO) to review certain clinical documentation annually for the term of the CIA. 

The Company has met the requirements of its first year under the Settlement Agreement and passed its IRO audits. Participation in federal healthcare programs by the Company is not affected by the Settlement Agreement or the CIA. In the event of an uncured material breach of the CIA, the Company could be excluded from participation in federal healthcare programs and/or subject to prosecution.

Concentrations
Credit Risk — The Company has significant accounts receivable balances, the collectability of which is dependent on the availability of funds from certain governmental programs, primarily Medicare and Medicaid. These receivables represent the only significant concentration of credit risk for the Company. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an appropriate allowance has been recorded for the possibility of these receivables proving uncollectible, and continually monitors and adjusts these allowances as necessary. The Company’s receivables from Medicare and Medicaid payor programs accounted for approximately 54.6% and 52.4% of its total accounts receivable as of March 31, 2015 and December 31, 2014, respectively. Revenue from reimbursement under the Medicare and Medicaid programs accounted for 69.1% and 71.1% of the Company’s revenue for the three months ended March 31, 2015 and 2014, respectively.
Cash in Excess of FDIC Limits — The Company currently has bank deposits with financial institutions in the U.S. that exceed FDIC insurance limits. FDIC insurance provides protection for bank deposits up to $250. In addition, the Company has

29

Table of Contents
THE ENSIGN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


uninsured bank deposits with a financial institution outside the U.S. As of May 4, 2015, the Company had approximately $1,545 in uninsured cash deposits. All uninsured bank deposits are held at high quality credit institutions.


30

Table of Contents

Item 2.        Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K (Annual Report), which discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Forms 10-Q and 8-K, for additional information. The section entitled “Risk Factors” contained in Part II, Item 1A of this Report, and similar discussions in our other SEC filings, also describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.
This Report contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to the Company’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section “Risk Factors” contained in Part II, Item 1A of this Report. These forward-looking statements speak only as of the date of this Report, and are based on our current expectations, estimates and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law. As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the words, “we,” “our” and “us” refer to The Ensign Group, Inc. and its consolidated subsidiaries. All of our affiliated operations, the Service Center and the Captive are operated by separate, wholly-owned, independent subsidiaries that have their own management, employees and assets. The use of “we,” “us,” “our” and similar verbiage in this quarterly report is not meant to imply that any of our affiliated operations, the Service Center or the Captive are operated by the same entity. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes included in the Annual Report.
Overview
We are a provider of skilled nursing and rehabilitative care services through the operation of 143 facilities, thirteen home health and twelve hospice operations, two home care business, one transitional care management company, sixteen urgent care centers and a mobile x-ray and diagnostic company as of March 31, 2015, located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Oregon, Texas, Utah, Washington and Wisconsin. Our operating subsidiaries, each of which strives to be the service of choice in the community it serves, provide a broad spectrum of skilled nursing, assisted living, home health and hospice, mobile ancillary, and urgent care services. As of March 31, 2015, we owned 18 of our 143 affiliated facilities and operated an additional 125 facilities under long-term lease arrangements, and had options to purchase three of those 125 facilities.

The following table summarizes our affiliated facilities and operational skilled nursing, assisted living and independent living beds by ownership status as of March 31, 2015:
 
Owned
 
Leased (with a Purchase Option)
 
Leased (without a Purchase Option)
 
Total
Number of facilities
18

 
3

 
122

 
143

Percentage of total
12.6
%
 
2.1
%
 
85.3
%
 
100.0
%
Operational skilled nursing, assisted living and independent living beds
1,982

 
508

 
12,993

 
15,483

Percentage of total
12.8
%
 
3.3
%
 
83.9
%
 
100.0
%

The Ensign Group, Inc. (collectively, Ensign or the Company) is a holding company with no direct operating assets, employees or revenues. Our operating subsidiaries are operated by separate, independent entities, each of which has its own management, employees and assets. In addition, certain of our wholly-owned subsidiaries, referred to collectively as the Service Center, provide centralized accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other operating subsidiaries through contractual relationships with such subsidiaries. We also have a wholly-owned captive insurance subsidiary (the Captive) that provides some claims-made coverage to our operating subsidiaries for general and

31

Table of Contents

professional liability, as well as coverage for certain workers’ compensation insurance liabilities.  References herein to the consolidated “Company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “our” and similar terms in this quarterly report, are not meant to imply, nor should they be construed as meaning, that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group.

Real Estate Investment Trust (REIT) Spin-Off. On June 1, 2014, we completed the separation of our healthcare business and our real estate business into two publicly traded companies through a tax-free distribution of all of the outstanding shares of common stock of CareTrust REIT, Inc. (CareTrust) to our stockholders on a pro rata basis (the Spin-Off). Our stockholders received one share of CareTrust common stock for each share of our common stock held at the close of business on May 22, 2014, the record date for the Spin-Off. As a result of the Spin-Off, we lease back real property associated with 94 affiliated skilled nursing, assisted living and independent living facilities from CareTrust on a triple-net basis (the Master Leases), under which we are responsible for all costs at the properties, including property taxes, insurance and maintenance and repair costs. See further discussion at Note 2, Spin-Off of Real Estate Assets Through a Real Estate Investment Trust in the Notes to Condensed Consolidated Financial Statements.
Acquisition History

The following table sets forth the location of our affiliated facilities and the number of operational beds located at our facilities as of March 31, 2015:

 
CA
 
AZ
 
TX
 
UT
 
CO
 
WA
 
ID
 
NV
 
NE
 
IA
 
WI
 
Total
Cumulative number of skilled nursing and assisted living operations
46

 
16

 
28

 
12

 
10

 
8

 
6

 
3

 
7

 
5

 
2

 
143

Cumulative number of operational skilled nursing, assisted living and independent living beds/units
4,808

 
2,446

 
3,444

 
1,360

 
745

 
739

 
481

 
304

 
662

 
356

 
138

 
15,483

During the first quarter of 2015, we acquired five skilled nursing operations, two assisted living operations, one home health agency and two urgent care centers in four states for an aggregate purchase price of $42.2 million. The acquisitions of skilled nursing and assisted living facilities added 407 and 345 operational skilled nursing beds and assisted living units, respectively, to our operating subsidiaries. The acquisitions of the home health agency and urgent care centers did not have an impact on the number of beds operated by our operating subsidiaries. As of March 31, 2015, we provided home health and hospice services through our 25 operating subsidiaries in Arizona, California, Colorado, Idaho, Iowa, Oregon, Texas, Utah and Washington.
Subsequent to the first quarter of 2015, we acquired three assisted living operations, three skilled nursing operations and one home care business for an aggregate purchase price of $21.8 million. The acquisitions added 263 operational assisted living units and 262 operational skilled nursing beds, respectively, to our operating subsidiaries. We also entered into a long-term lease agreement and assumed the operation of one skilled nursing operation. We did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The long-term lease added 60 operational skilled nursing beds to our operating subsidiaries. In a separate transaction, we acquired the underlying assets of one skilled nursing operation, which we previously operated under a long-term lease agreement. The purchase price of the asset acquisition was approximately $7.3 million.
See further discussion of facility acquisitions in Note 9, Acquisitions in Notes to Condensed Consolidated Financial Statements.
Key Performance Indicators
We manage our fiscal aspects of our business by monitoring key performance indicators that affect our financial performance. These indicators and their definitions include the following:
Transitional, Skilled and Assisted Living Services
Routine revenue. Routine revenue is generated by the contracted daily rate charged for all contractually inclusive skilled nursing services. The inclusion of therapy and other ancillary treatments varies by payor source and by contract. Services

32

Table of Contents

provided outside of the routine contractual agreement are recorded separately as ancillary revenue, including Medicare Part B therapy services, and are not included in the routine revenue definition.
Skilled revenue. The amount of routine revenue generated from patients in the skilled nursing facilities who are receiving higher levels of care under Medicare, managed care, Medicaid, or other skilled reimbursement programs. The other skilled patients that are included in this population represent very high acuity patients who are receiving high levels of nursing and ancillary services which are reimbursed by payors other than Medicare or managed care. Skilled revenue excludes any revenue generated from our assisted living services.
Skilled mix. The amount of our skilled revenue as a percentage of our total routine revenue. Skilled mix (in days) represents the number of days our Medicare, managed care, or other skilled patients are receiving services at the skilled nursing facilities divided by the total number of days patients (less days from assisted living services) from all payor sources are receiving services at the skilled nursing facilities for any given period (less days from assisted living services).
Quality mix. The amount of routine non-Medicaid revenue as a percentage of our total routine revenue. Quality mix (in days) represents the number of days our non-Medicaid patients are receiving services at the skilled nursing facilities divided by the total number of days patients from all payor sources are receiving services at the skilled nursing facilities for any given period (less days from assisted living services).
Average daily rates. The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period.
Occupancy percentage (operational beds). The total number of patients occupying a bed in a skilled nursing, assisted living or independent living facility as a percentage of the beds in a facility which are available for occupancy during the measurement period.
Number of facilities and operational beds. The total number of skilled nursing, assisted living and independent living facilities that we own or operate and the total number of operational beds associated with these facilities.
Skilled and Quality Mix. Like most skilled nursing providers, we measure both patient days and revenue by payor. Medicare, managed care and other skilled patients, whom we refer to as high acuity patients, typically require a higher level of skilled nursing and rehabilitative care. Accordingly, Medicare and managed care reimbursement rates are typically higher than from other payors. In most states, Medicaid reimbursement rates are generally the lowest of all payor types. Changes in the payor mix can significantly affect our revenue and profitability.

The following table summarizes our overall skilled mix and quality mix from our skilled nursing services for the periods indicated as a percentage of our total routine revenue (less revenue from assisted living services) and as a percentage of total patient days (less days from assisted living services):
 
Three Months Ended March 31,
 
2015
 
2014
Skilled Mix:
 
 
 
Days
30.3
%
 
27.8
%
Revenue
52.9
%
 
51.1
%
Quality Mix:
 
 
 
Days
42.8
%
 
41.0
%
Revenue
61.4
%
 
60.3
%
Occupancy. We define occupancy derived from our transitional, skilled and assisted services as the ratio of actual patient days (one patient day equals one resident occupying one bed for one day) during any measurement period to the number of beds in facilities which are available for occupancy during the measurement period. The number of licensed and independent living beds in a skilled nursing, assisted living or independent living facility that are actually operational and available for occupancy may be less than the total official licensed bed capacity. This sometimes occurs due to the permanent dedication of bed space to alternative purposes, such as enhanced therapy treatment space or other desirable uses calculated to improve service offerings and/or operational efficiencies in a facility. In some cases, three- and four-bed wards have been reduced to two-bed rooms for resident comfort, and larger wards have been reduced to conform to changes in Medicare requirements. These beds are seldom expected to be placed back into service. We believe that reporting occupancy based on operational beds is consistent with industry practices and provides a more useful measure of actual occupancy performance from period to period.

33

Table of Contents

The following table summarizes our overall occupancy statistics for the periods indicated:
 
Three Months Ended March 31,
 
2015
 
2014
Occupancy:
 
 
 
Operational beds at end of period
15,483

 
13,396

Available patient days
1,367,829

 
1,194,076

Actual patient days
1,077,238

 
932,867

Occupancy percentage (based on operational beds)
78.8
%
 
78.1
%

Home Health and Hospice
Medicare episodic admissions. The total number of episodic admissions derived from patients who are receiving care under Medicare reimbursement programs.
Average Medicare revenue per completed episode. The average amount of revenue for each completed 60-day episode generated from patients who are receiving care under Medicare reimbursement programs.
Average daily census. The average number of patients who are receiving hospice care as a percentage of total number of patient days.
Segments
Beginning in the fourth quarter of 2014, we realigned our operating segments to more closely correlate with our service offerings, which coincide with the way that we measure performance and allocate resources. Previously, we had a single reportable segment, healthcare services, which included providing skilled nursing, assisted living, home health and hospice, urgent care and related ancillary services. We have presented 2014 financial information on a comparative basis to conform with the current period segment presentation.
We have two reportable segments: (1) transitional, skilled and assisted living services, which includes the operation of skilled nursing facilities and assisted and independent living facilities and is the largest portion of our business; and (2) home health and hospice services, which includes our home health, home care and hospice businesses. Our Chief Executive Officer, who is our chief operating decision maker, or CODM, reviews financial information at the operating segment level.

We also report an “all other” category that includes revenue from our urgent care centers and a mobile x-ray and diagnostic company. Our urgent care centers and mobile x-ray and diagnostic businesses are neither significant individually nor in aggregate and therefore do not constitute a reportable segment. Our reporting segments are business units that offer different services and that are managed separately to provide greater visibility into those operations.

Revenue Sources
The following table sets forth our total revenue by payor source generated by each of our reportable segments and our "All Other" category and as a percentage of total revenue for the periods indicated (dollars in thousands):
 
 
Three Months Ended March 31, 2015
 
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Total Revenue
 
Revenue %
 
Medicaid
 
$
99,706

 
$
1,922

 
$

 
$
101,628

 
33.2
%
 
Medicare
 
81,690

 
12,666

 

 
94,356

 
30.8

 
Medicaid-skilled
 
15,537

 

 

 
15,537

 
5.1

 
Subtotal
 
196,933

 
14,588

 

 
211,521

 
69.1

 
Managed care
 
44,107

 
2,223

 

 
46,330

 
15.1

 
Private and other
 
37,734

 
1,504

 
9,440

(1)
48,678

 
15.8

 
Total revenue
 
$
278,774

 
$
18,315

 
$
9,440

 
$
306,529

 
100.0
%
 
(1) Private and other payors in our "All Other" category includes revenue from urgent care centers and other ancillary businesses.

34

Table of Contents

 
 
Three Months Ended March 31, 2014
 
 
TSA Services
 
Home Health and Hospice Services
 
All Other
 
Total Revenue
 
Revenue %
 
Medicaid
 
$
82,387

 
$
955

 
$

 
$
83,342

 
34.8
%
 
Medicare
 
68,508

 
7,962

 

 
76,470

 
31.9

 
Medicaid-skilled
 
10,608

 

 

 
10,608

 
4.4

 
Subtotal
 
161,503

 
8,917

 

 
170,420