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 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.

Sheridan Acquisition

On July 16, 2014 (the “acquisition date”), the Company completed the acquisition of Sheridan, in a cash and stock transaction. At closing, the Company paid approximately $2.1 billion in cash and issued 5,713,909 shares of its common stock to the former owners of Sheridan in exchange for all of the outstanding equity interests of Sheridan. The shares issued to Sheridan were valued at approximately $272.0 million based on the closing price of the Company's common stock on July 16, 2014. The acquisition of Sheridan enhances the growth profile and diversity of the Company focusing on complementary specialties across the healthcare continuum.

To fund the transaction, the Company completed offerings of common stock and mandatory convertible preferred stock resulting in the issuance of 9,775,000 shares of common stock and 1,725,000 shares of mandatory convertible preferred stock. Proceeds from the common stock offering and mandatory preferred stock offering, net of transaction fees, were approximately $421.0 million and $166.4 million, respectively. In addition, on July 16, 2014, the Company entered into a new senior secured credit facility, which includes an $870.0 million term loan and a $300.0 million revolving credit facility, and completed a private offering of $1.1 billion aggregate principal amount of 5.625% senior unsecured notes due 2022.

Fees and expenses associated with the Sheridan transaction, which includes fees incurred related to the Company's equity issuances and debt financings, was approximately $135.7 million during the nine months ended September 30, 2014. Approximately $52.9 million was capitalized as deferred financing costs, $24.4 million was related to the equity offerings and recorded as a reduction to equity, $28.7 million was expensed as transaction costs, $12.8 million was amortized through interest expense and $16.9 million was recorded as debt extinguishment costs during the nine months ended September 30, 2014. The Company is still evaluating these fees and expenses to determine a final allocation between that which will be capitalized and amortized over the life of the financings, charged against the proceeds of the equity offerings or expensed immediately as a cost of the transaction.

The initial accounting for the acquisition of Sheridan is currently incomplete. The Company is in the process of obtaining information relative to the fair values of assets acquired, liabilities assumed and any noncontrolling interests in the transaction. The valuation of the acquired assets and assumed liabilities will include, but not be limited to, fixed assets, licenses, intangible assets and professional liabilities. The valuations will consist of appraisal reports, discounted cash flow analyses, actuarial analyses or other appropriate valuation techniques to determine the fair value of the assets acquired or liabilities assumed. A majority of the deferred income taxes recognized as a component of the Company's purchase price allocation is a result of the difference between the book and tax basis of the amortizable intangible assets recognized. The amount allocated to the deferred income tax liability is subject to change as a result of the final allocation of purchase price to amortizable intangibles. The Company expects to finalize the purchase price allocation for Sheridan as soon as practical.

ASC Acquisitions

As a significant part of its growth strategy, the Company primarily acquires controlling interests in centers. During each of the nine months ended September 30, 2014 and 2013, the Company, through a wholly-owned subsidiary, acquired a controlling interest in two and four centers, respectively. The aggregate amount paid for the centers acquired and for settlement of purchase price payable obligations during the nine months ended September 30, 2014 and 2013 was approximately $24.4 million and $59.5 million, 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.

During the nine months ended September 30, 2013, the Company paid $2.7 million as final settlement of a contingent earn out fee resulting from the purchase of 17 centers from National Surgical Care, Inc. during 201l.

Purchase Price Allocations:

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 in the nine months ended September 30, 2014 and 2013, including post acquisition date adjustments recorded to purchase price allocations, are as follows (in thousands):



	Nine Months Ended September 30,
	2014						2013
				Individual			Individual
	Sheridan ⁽¹⁾			Acquisitions			Acquisitions
Accounts receivable	$	129,234		$	1,023		$	3,082
Other current assets	110,335			892			1,801
Property and equipment	14,258			2,481			5,357
Goodwill	1,512,663			44,374			91,545
Intangible assets	1,200,028			—			—
Other long-term assets	50,533			—			—
Accounts payable	(5,776		)	(2,341		)	(1,482		)
Other accrued liabilities	(117,159		)	(527		)	(416		)
Deferred income taxes	(411,881		)	—			—
Other long-term liabilities	(72,623		)	—			—
Long-term debt	—			(214		)	(2,561		)
Total fair value	2,409,612			45,688			97,326
Less: Fair value attributable to noncontrolling interests	23,361			21,251			38,123
Acquisition date fair value of total consideration transferred	$	2,386,251		$	24,437		$	59,203


(1)	The allocation of fair value of acquired assets and liabilities associated with the Sheridan acquisition is preliminary at September 30, 2014.

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 primarily from acquisitions of 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 the three and nine months ended September 30, 2014, the Company incurred approximately $25.1 million and $28.7 million of transaction costs, respectively, primarily related to the acquisition of Sheridan. During the three and nine months ended September 30, 2013, the Company incurred approximately $0.1 million and $0.3 million of transaction costs, respectively.

Revenues and net earnings included in the nine months ended September 30, 2014 and 2013 associated with completed acquisitions are as follows (in thousands):



	Nine Months Ended September 30,
	2014				2013
			Individual		Individual
	Sheridan		Acquisitions		Acquisitions
Net revenues	$	226,545	$	9,925	$	6,422

Net earnings	19,684		2,293		1,922
Less: Net earnings attributable to noncontrolling interests	164		1,412		1,081
Net earnings attributable to AmSurg Corp. common shareholders	$	19,520	$	881	$	841

The unaudited consolidated pro forma results for the nine months ended September 30, 2014 and 2013, assuming all acquisitions completed prior to September 30, 2014 had been consummated on January 1, 2013, all 2013 acquisitions had been consummated on January 1, 2012 and exclude nonrecurring items, such as transaction costs and debt extinguishment costs, that are directly attributable to the acquisitions and that are not expected to have a continuing impact, are as follows (in thousands):



	Nine Months Ended September 30,
	2014		2013
Revenues	$	1,617,342	$	1,611,110
Net earnings	204,675		195,624
Amounts attributable to AmSurg Corp. shareholders:
Net earnings	62,914		51,613
Net earnings per common share:
Basic	$	1.20	$	0.96
Diluted	$	1.18	$	0.95