Acquisitions and Investments in Unconsolidated Affiliates

12 Months Ended

Dec. 31, 2013

Acquisitions and Investments in Unconsolidated Affiliates

Acquisitions and Investments in Unconsolidated Affiliates

2. Acquisitions and Investments in Unconsolidated Affiliates

As a significant part of its growth strategy, the Company primarily acquires controlling interests in centers. 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 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. Acquisitions in which the Company is able to exert significant influence but does not have control are accounted for using the equity method. Equity method investments are initially recorded at cost, unless such investments are a result of the Company entering into a transaction whereby the Company loses control of a previously controlled entity but retains a noncontrolling interest. Such transactions, which result in the deconsolidation of a previously consolidated entity, are measured at fair value.

During 2013 and 2012, the Company, through a wholly owned subsidiary, acquired a controlling interest in five centers and 17 centers, respectively. One of the centers acquired during 2012 was immediately merged into an existing center.

The aggregate amount paid for the centers acquired and for settlement of purchase price payable obligations during December 31, 2013 and 2012 was approximately $73,594,000 and $277,388,000, respectively, and was paid in cash and funded by a combination of operating cash flow and borrowings under the Company's revolving credit facility. 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.

In conjunction with the Company's acquisition of 17 centers from National Surgical Care, Inc. (“NSC”) on September 1, 2011, the Company 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. At December 31, 2012, the Company had a contingent purchase price obligation of $2,744,000, which was paid during 2013 as final settlement of the additional consideration due in accordance with the purchase agreement.

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 2013 and 2012, including post acquisition date adjustments recorded to finalize purchase price allocations, are as follows (in thousands):

		2013		2012
Accounts receivable		$	4,011	$	11,572
Supplies inventory, prepaid and other current assets			2,014		4,750
Property and equipment			6,894		23,546
Goodwill			116,243		429,504
Other intangible assets			-		800
Accounts payable			(2,214)		(3,199)
Other accrued liabilities			(532)		(2,387)
Long-term debt			(3,028)		(6,954)
Other long-term liabilities			(254)		-
	Total fair value		123,134		457,632
	Less: Fair value attributable to noncontrolling interests		49,792		182,073
	Acquisition date fair value of total consideration transferred	$	73,342	$	275,559

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 2013 and 2012, approximately $70,147,000 and $260,547,000, respectively, of goodwill recorded was deductible for tax purposes. Associated with the transactions discussed above, the Company incurred and expensed in other operating expenses in the accompanying consolidated statements of earnings approximately $300,000 and $700,000 in acquisition related costs during 2013 and 2012, respectively.

Revenues and net earnings included in the years ended December 31, 2013 and 2012 associated with these acquisitions are as follows (in thousands):

		2013		2012
Revenues		$	15,616	$	11,247
Net earnings			4,596		3,441
Less: Net earnings attributable to noncontrolling interests			2,603		1,977
	Net earnings attributable to AmSurg Corp. common shareholders	$	1,993	$	1,464

The unaudited consolidated pro forma results for the years ended December 31, 2013 and2012, assuming all 2013 acquisitions had been consummated on January 1, 2012 and all 2012 acquisitions had been consummated on January 1, 2011, are as follows (in thousands, except per share data):

			2013		2012
Revenues			$	1,108,686	$	1,116,214
Net earnings				269,903		261,251
Amounts attributable to AmSurg Corp. common shareholders:
	Net earnings from continuing operations			75,411		76,893
	Net earnings			75,461		77,221
	Net earnings from continuing operations per common share:
		Basic	$	2.41	$	2.50
		Diluted	$	2.36	$	2.43
	Net earnings:
		Basic	$	2.41	$	2.51
		Diluted	$	2.36	$	2.44
	Weighted average number of shares and share equivalents:
		Basic		31,338		30,773
		Diluted		31,954		31,608

During 2013, the Company entered into a transaction whereby it contributed cash plus a controlling interest in one center in exchange for a noncontrolling interest in an entity that, after the completion of the transaction, controls the contributed center and one additional center. Management of the Company believes this structure provides both economies of scale and potential future growth opportunities in the market. As a result of the transaction, the Company recorded in the accompanying consolidated balance sheets the fair value of the noncontrolling interest in the entity which now controls the contributed centers of approximately $5,201,000 as a component of investments in unconsolidated affiliates and long term notes receivable. The Company also recognized a gain on deconsolidation in the accompanying consolidated statements of earnings and comprehensive income of approximately $2,237,000. Such gain was determined based on the difference between the fair value of the Company's noncontrolling interest in the new entity and the carrying value of both the tangible and intangible assets of the contributed center immediately prior to the transaction. The fair value of the Company's noncontrolling interest was based on various estimates of the expected future earnings under likely scenarios which were weighted by the probability of each outcome using a range of expected probability of 5% to 30%. Subsequent to the completion of this transaction, the center contributed by the Company was merged into the acquired center.