Goodwill And Intangible Assets

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

The Company’s intangible assets include goodwill and other intangibles, which include the fair value of both the customer relationships with hospitals and trade names acquired in our physician services segment. The Company's indefinite lived intangibles include goodwill and trade names. Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company evaluates indefinite-lived intangible assets, including goodwill, for impairment at least on an annual basis and more frequently if certain indicators are encountered. Indefinite lived intangibles are to be tested at the reporting unit level, defined as an operating segment or one level below an operating segment (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount. If the fair value of a reporting unit exceeds its carrying amount, the indefinite lived intangibles associated with the reporting unit is not considered to be impaired. The Company completed its annual impairment test as of October 1, 2014, and determined that its indefinite lived intangibles were not impaired. The Company's finite lived intangibles includes its customer relationship with hospitals. The Company tests its finite lived intangibles for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. The Company's policy is to recognize an impairment charge when the carrying amount is not recoverable and such amount exceeds fair value. During the year ended December 31, 2014, there were no events or circumstances that indicated a potential impairment in the Company's finite lived intangibles.

In the fourth quarter of 2014, the Company prospectively changed its annual goodwill impairment testing date from the last day of its fiscal year to the first day of October. The voluntary change was to better align its goodwill impairment testing procedures with the completion of its annual financial and strategic planning process and to provide the Company with adequate time to evaluate goodwill for impairment. As a result, during 2014, the Company tested the goodwill of all of its reporting units for impairment as of October 1, 2014 and concluded that there was no impairment of the carrying value of goodwill. The change in accounting principle related to changing the annual goodwill impairment testing date did not accelerate, delay, avoid, or cause an impairment charge. This change was not applied retrospectively, as it is impracticable to objectively determine the assumptions that would have been used as of each October 1 for periods prior to October 1, 2014 without the use of hindsight. Accordingly, the change will be applied prospectively.

The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows (in thousands):



	2014			2013
Balance, beginning of year	$	1,758,970		$	1,652,002
Goodwill acquired, including post acquisition adjustments	1,636,521			112,951
Goodwill disposed, including impact of deconsolidation transactions	(14,342		)	(5,983		)
Balance, end of year	$	3,381,149		$	1,758,970

Although the determination of goodwill generated as a result of the Sheridan transaction is still preliminary as of December 31, 2014, the ambulatory services segment and the physician services segment had approximately $1.9 billion and $1.5 billion, respectively, of goodwill. During the year ended December 31, 2014, goodwill increased $131.2 million for the ambulatory services segment due to acquisitions of centers, including those purchased as part of Sheridan, net of dispositions and deconsolidations. During the year ended December 31, 2014, the majority of goodwill included in the physician services segment was generated as a result of the Sheridan acquisition with the remainder attributable to two acquisitions completed during the fourth quarter of 2014. For the years ended December 31, 2014 and 2013 approximately $51.7 million and $70.2 million, respectively, of goodwill recorded was deductible for tax purposes that relates to the ambulatory services segment. As of December 31, 2014, approximately $12.8 million of goodwill recorded was deductible for tax purposes related to the physician services segment. The acquisition of Sheridan did not result in additional tax deductible goodwill.

Intangible assets consist primarily of customer relationships with hospitals, deferred financing costs, capitalized software and certain amortizable and non-amortizable non-compete and customer agreements. Customer relationships with hospitals are initially recorded at their estimated fair value and typically amortized on a straight-line basis over 20 years. Deferred financing costs and amortizable non-compete agreements and customer agreements are amortized over the term of the related debt as interest expense and the contractual term or estimated life (five to ten years) of the agreements as amortization expense. Capitalized software is amortized over estimated useful lives of three to eight years.

Intangible assets at December 31, 2014 and 2013 consisted of the following (in thousands):



	2014							2013
	Gross							Gross
	Carrying		Accumulated					Carrying		Accumulated
	Amount		Amortization			Net		Amount		Amortization			Net
Amortizable intangible assets:
Customer relationships with hospitals	$	971,645	$	(22,145	)	$	949,500	$	—	$	—		$	—
Deferred financing costs	59,574		(5,151		)	54,423		15,814		(4,953		)	10,861
Capitalized software	50,387		(19,197		)	31,190		21,036		(14,831		)	6,205
Agreements, contracts and other	3,523		(2,752		)	771		3,448		(2,472		)	976
Total amortizable intangible assets	1,085,129		(49,245		)	1,035,884		40,298		(22,256		)	18,042
Non-amortizable intangible assets:
Trade name	228,000		—			228,000		—		—			—
Restrictive covenant arrangements	9,995		—			9,995		9,825		—			9,825
Total non-amortizable intangible assets	237,995		—			237,995		9,825		—			9,825
Total intangible assets	$	1,323,124	$	(49,245	)	$	1,273,879	$	50,123	$	(22,256	)	$	27,867

As a result of the financing for the Sheridan acquisition, the Company recorded an additional $53.0 million and a write-off of $4.5 million of deferred financing costs during the year ended December 31, 2014. The Company amortizes the deferred loan costs to interest expense over the life of the respective debt instrument. Approximately $1.2 billion of intangible assets, primarily customer relationships and trade names, were recorded during the year ended December 31, 2014, of which approximately $1.0 billion are estimated to be amortized over a weighted average period of 20 years with no expected residual values. These acquired intangibles represent the Company’s preliminary estimate of the fair value of the intangible assets related to the customer relationships with hospitals, capitalized software and Sheridan's trade name obtained in the Sheridan acquisition. As previously discussed, this estimated amount is subject to change pending the completion of the valuation and appraisal analysis currently in process.

Amortization of intangible assets for the years ended December 31, 2014, 2013 and 2012 was $32.5 million, $2.2 million and $1.4 million, respectively, and reflects amounts expensed to depreciation and amortization as well as the portion of amortized deferred financing cost charged to interest expense. Included in the 2014 amount above is also $12.8 million that was charged to interest expenses related to a write-off of a commitment fee for bridge financing, which the Company had secured in order to complete the acquisition of Sheridan but did not require upon obtaining permanent financing.

Estimated amortization of intangible assets for the five years and thereafter subsequent to December 31, 2014 is $64.7 million, $63.8 million, $62.5 million, $61.6 million, $59.1 million and $724.2 million, respectively. The Company expects to recognize amortization of all intangible assets over a weighted average period of 18.3 years with no expected residual values.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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