Acquisitions

12 Months Ended

Dec. 31, 2011

Acquisitions

Acquisitions

2. Acquisitions

The Company accounts for its business combinations under the fundamental requirements of the acquisition method of accounting and under the premise that an acquirer be identified for each business combination. The acquirer is the entity that obtains control of one or more businesses in the business combination and the acquisition date is the date the acquirer achieves control. The assets acquired, liabilities assumed (including contingencies, if any) and any noncontrolling interests in the acquired business at the acquisition date are recognized at their fair values as of that date, and the direct costs incurred in connection with the business combination are recorded and expensed separately from the business combination.

As a significant part of its growth strategy, the Company primarily acquires controlling interests in centers. During 2011 and 2010, the Company, through a wholly owned subsidiary, acquired a controlling interest in 24centers and seven centers, respectively. In addition, the Company acquired a non-controlling interest in two centers during 2011. The Company acquired its interest in ninecenters in separate transactions during 2011, and acquired 17 centers, including the less than majority owned centers, from National Surgical Care, Inc. (“NSC”) in one transaction on September 1, 2011.

The aggregate amount paid for the acquisitions during 2011 and 2010 was approximately $239,223,000and $53,690,000, respectively, and was paid in cash and funded by a combination of operating cash flow and borrowings under the Company's revolving credit agreement. In addition, the Company had purchase price payables at December 31, 2011 and 2010 of approximately $5,236,000 and $3,895,000, respectively, which was reflected as other long-term liabilities in the balance sheet. The purchase price of the NSC centers was $135,000,000, plus cash for the amount of working capital as of the transaction date in excess of the targeted working capital, as defined in the purchase agreement, plus cash for NSC's interest in the acquired cash in the bank as of the transaction date. The Company withheld $1,700,000 of the purchase price at close due to the anticipated exercise by the non-controlling partners at one of the acquired centers of their right to purchase the remaining interest upon a change of control of the center, which was exercised on November 1, 2011. The Company has agreed to pay as additional consideration an amount up to $7,500,000 based on a multiple of the excess earnings over the targeted earnings of the acquired centers, if any, from the period of January 1, 2012 to December 31, 2012. In addition to the $1,700,000 of the purchase price withheld, $3,500,000 of the purchase price was placed in an escrow fund to allow for any working capital adjustments up to $500,000, with the remainder allocated to potential indemnity claims, if any, which must be asserted by the Company within one year of the transaction date. In conjunction with the transaction, the Company engaged a third party valuation firm to obtain assistance in establishing the fair value of certain assets and liabilities including certain tangible and intangible assets of the NSC centers and the contingent purchase price payable related to the additional consideration. As of December 31, 2011, the Company's assessment related to the fair value of these items and correlating purchase price allocation were finalized resulting in certain adjustments to the opening balance sheet. The majority of the post acquisition adjustments are a result of the completion of the Company's fair value assessment which include the following: the recording of an additional $4,900,000 of property and equipment, the establishment of a $3,100,000contingent purchase price payable in association with the potential additional consideration due to NSC and the establishment of a $1,930,000 unfavorable lease liability.

The total fair value of an acquisition includes an amount allocated to goodwill, which results from the centers' favorable reputations in their markets, their market positions and their ability to deliver quality care with high patient satisfaction consistent with the Company's business model.

The acquisition date fair value of the total consideration transferred and acquisition date fair value of each major class of consideration for the acquisitions completed during 2011 and 2010, including post acquisition date adjustments recorded to finalize purchase price allocations, are as follows (in thousands):

		Acquired
		NSC		Individual		Individual
		Centers		Acquisitions		Acquisitions
		2011				2010
Accounts receivable		$	16,032	$	7,837	$	2,471
Supplies inventory, prepaid and other current assets			5,744		1,888		1,072
Investment in unconsolidated subsidiaries			10,710		-		-
Property and equipment			18,208		8,350		4,291
Goodwill			167,865		169,777		86,852
Other intangible assets			268		1,750		-
Accounts payable			(2,612)		(2,665)		(946)
Other accrued liabilities			(5,233)		(415)		(198)
Long-term debt			(2,900)		(5,698)		(2,410)
Other long-term liabilities			(1,895)		-		-
	Total fair value		206,187		180,824		91,132
	Less: Fair value attributable to noncontrolling interests		70,502		72,050		33,547
	Acquisition date fair value of total consideration transferred	$	135,685	$	108,774	$	57,585

Fair value attributable to noncontrolling interests is based on significant inputs that are not observable in the market. Key inputs used to determine the fair value include financial multiples used in the purchase of noncontrolling interests in centers. Such multiples, based on earnings, are used as a benchmark for the discount to be applied for the lack of control or marketability. The fair value of noncontrolling interests for acquisitions where the purchase price allocation is not finalized may be subject to adjustment as the Company completes its initial accounting for acquired intangible assets. During 2011 and 2010, respectively, approximately $212,576,000 and $55,400,000 of goodwill recorded was deductible for tax purposes. Goodwill deductible for tax purposes associated with the acquisition of NSC centers was approximately $110,000,000 for the year ended December 31, 2011. Associated with the transactions discussed above, the Company incurred and expensed in other operating expenses approximately $3,783,000 and $248,000 in acquisition related costs during 2011 and 2010, respectively. The increase in transaction costs for the year ended December 31, 2011 are primarily due to the acquisition of the NSC centers.

Revenues and net earnings included in the years ended December 31, 2011 and 2010 associated with these acquisitions are as follows (in thousands):

		Acquired
		NSC		Individual		Individual
		Centers		Acquisitions		Acquisitions
		2011				2010
Revenues		$	35,130	$	23,534	$	17,397
Net earnings			4,982		7,251		5,358
Less: Net earnings attributable to noncontrolling interests			3,193		4,213		2,708
	Net earnings attributable to AmSurg Corp. common shareholders	$	1,789	$	3,038	$	2,650

The unaudited consolidated pro forma results for the years ended December 31, 2011 and 2010, assuming all 2011 and 2010 acquisitions had been consummated on January 1, 2010, are as follows (in thousands, except per share data):

			2011		2010
Revenues			$	902,209	$	932,502
Net earnings				212,612		219,435
Amounts attributable to AmSurg Corp. common shareholders:
	Net earnings from continuing operations			58,117		64,792
	Net earnings			57,010		63,473
	Net earnings from continuing operations per common share:
		Basic	$	1.91	$	2.14
		Diluted	$	1.86	$	2.11
	Net earnings:
		Basic	$	1.87	$	2.10
		Diluted	$	1.83	$	2.07
	Weighted average number of shares and share equivalents:
		Basic		30,452		30,255
		Diluted		31,211		30,689