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.

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 $421.3 million and $166.6 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 $139.1 million during the year ended December 31, 2014. Approximately $53.0 million was capitalized as deferred financing costs, $24.5 million was related to the equity offerings and recorded as a reduction to equity, $31.9 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 year ended December 31, 2014.

The accounting for the acquisition of Sheridan is currently preliminary. The Company continues to obtain information relative to the fair values of assets acquired, liabilities assumed and any noncontrolling interests in the transaction. Acquired assets and assumed liabilities include, but are not limited to, fixed assets, licenses, intangible assets and professional liabilities. The valuations are based on 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.

Ambulatory Services Acquisitions

As a significant part of its growth strategy, the Company seeks to acquire interests in surgery centers. During 2014 and 2013, the Company, through a wholly-owned subsidiary, acquired a controlling interest in eight and five surgery centers, respectively. Of the centers acquired during 2014, three were acquired as part of the Sheridan transaction and five were individually acquired in separate transactions. The aggregate amount paid for the individually acquired centers and for settlement of purchase price payable obligations during December 31, 2014 and 2013 was approximately $50.9 million and $73.6 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 year ended December 31, 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 2011.

Physician Services Acquisitions

The Company completed the acquisition of two physician group practices in 2014 following the acquisition of Sheridan. The total consideration consisted of cash of $19.0 million, which was funded at closing through operating cash flow, plus contingent consideration payable in the future based on meeting certain performance targets which include new contract, volume and other performance metrics.

As a result of recent acquisitions, the Company has agreed to pay as additional consideration, certain amounts which are dependent on the acquired entity achieving future performance metrics. As of December 31, 2014, the Company has accrued $20.7 million as a component of accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheet which represents management's estimate of the fair values of the contingent consideration. As of December 31, 2014, the Company estimates it may have to pay between $18 to $23 million in future contingent payments for acquisitions made prior to December 31, 2014 based upon the current projected financial performance or anticipated achievement of other targets of the acquired operations. The current estimate of future contingent payments could increase or decrease depending upon the actual performance of the acquisition over each respective measurement period. At December 31, 2013, the Company had no liability recorded related to contingent consideration.

The Company utilizes Level 3 inputs, which includes unobservable data, to measure the fair value of the contingent consideration related to the physician practices acquired during the year ended December 31, 2014. The fair value was determined utilizing future forecasts of both earnings and other performance metrics which are expected to be achieved during the performance period, in accordance with each respective purchase agreement. In estimating the fair value, management developed various scenarios and weighted the probable outcome of each scenario using a range of expected probability specific to each agreement. Management utilized a market rate to discount the results of such analysis in order to record the present value of the expected future payout. During the year ended December 31, 2014, there was no change in the fair value of the Company's contingent liabilities primarily due to the fact that the acquisitions occurred in the latter half of the year. The timing of the payments of the additional consideration varies by agreement but are expected to occur within one to three years from the date of acquisition.

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 during 2014 and 2013, including post acquisition date adjustments recorded to purchase price allocations, are as follows (in thousands):



	2014						2013
				Individual			Individual
	Sheridan ⁽¹⁾			Acquisitions ⁽¹⁾			Acquisitions
Accounts receivable	$	130,260		$	1,816		$	4,011
Other current assets	105,757			1,075			2,014
Property and equipment	20,185			3,294			6,894
Goodwill	1,534,656			101,865			116,243
Intangible assets	1,200,028			14,207			—
Other long-term assets	50,304			—			—
Accounts payable	(5,862		)	(2,519		)	(2,214		)
Other accrued liabilities	(118,548		)	(626		)	(532		)
Deferred income taxes	(432,792		)	—			—
Other long-term liabilities	(69,456		)	(8,588		)	(254		)
Long-term debt	(4,594		)	(717		)	(3,028		)
Total fair value	2,409,938			109,807			123,134
Less: Fair value attributable to noncontrolling interests	24,365			39,371			49,792
Acquisition date fair value of total consideration transferred	$	2,385,573		$	70,436		$	73,342


(1)	Represents the preliminary allocation of fair value of acquired assets and liabilities associated with these acquisitions at December 31, 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 2014, the Company expensed transaction costs of approximately $33.9 million primarily associated with the acquisition of Sheridan. Such costs excluded those amounts that were either capitalized or expensed as part of the financing transactions associated with the acquisition. During 2013, the Company expensed transaction costs of approximately $0.3 million associated with its acquisition of surgery centers.

Revenues and net earnings included in the years ended December 31, 2014 and 2013 associated with completed acquisitions are as follows (in thousands):



	2014				2013
			Individual		Individual
	Sheridan		Acquisitions		Acquisitions
Net revenues	$	517,213	$	20,844	$	15,616

Net earnings	26,776		5,155		4,596
Less: Net earnings attributable to noncontrolling interests	459		2,859		2,603
Net earnings attributable to AmSurg Corp. common shareholders	$	26,317	$	2,296	$	1,993

The unaudited consolidated pro forma results for the years ended December 31, 2014 and 2013, assuming all 2014 acquisitions had been consummated on January 1, 2013, all 2013 acquisitions had been consummated on January 1, 2012 are as follows (in thousands):



	2014		2013
Revenues	$	2,217,682	$	2,171,999
Net earnings	295,156		243,675
Amounts attributable to AmSurg Corp. common shareholders:
Net earnings	97,538		39,980
Net earnings per common share:
Basic	$	1.88	$	0.66
Diluted	$	1.86	$	0.65