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 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 by focusing on complementary specialties across the healthcare continuum.

The accounting for the acquisition of Sheridan was complete as of September 30, 2015. During 2015, factors became known to the Company that resulted in changes to the purchase price allocation of assets and liabilities, existing at the date of acquisition, related to Sheridan and resulted in a net decrease to goodwill of $8.7 million, an increase to other accrued expenses and a decrease to deferred income taxes.

Ambulatory Services Acquisitions

During the nine months ended September 30, 2015, the Company, through a wholly-owned subsidiary, acquired a controlling interest in five surgery centers. The aggregate amount paid for the centers acquired and for settlement of purchase price payable obligations during the nine months ended September 30, 2015 was approximately $112.9 million and was paid in cash and funded by operating cash flow. During the nine months ended September 30, 2014, the Company, through a wholly-owned subsidiary, acquired a controlling interest in four surgery centers (including two centers acquired as a result of the Sheridan transaction). The aggregate amount paid for the centers acquired outside of the Sheridan transaction and for settlement of purchase price payable obligations during the nine months ended September 30, 2014 was approximately $24.4 million, and was paid with a combination of operating cash flow and borrowings under the Company’s revolving credit facility in 2014.

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.

Physician Services Acquisitions

The Company completed the acquisition of six physician practices in the nine months ended September 30, 2015. The total consideration consisted of cash of $120.6 million, which was funded at closing through available cash and current year operating cash flow. As a result of certain acquisitions completed during the year ended December 31, 2014, the Company has agreed to pay as additional consideration, amounts which are contingent on the acquired entities achieving future performance metrics. As of September 30, 2015 and December 31, 2014, the Company had accrued $33.7 million and $20.7 million, respectively, as a component of accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheets which represents management's estimate of the fair values of the contingent consideration. As of September 30, 2015, the Company estimates it may have to pay between $32.0 million and $35.0 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 acquisitions over each respective measurement period. During the three and nine months ended September 30, 2015, the Company recorded a net increase to the expected contingent consideration of approximately $1.9 million and $8.3 million, respectively, which is included in other operating expenses in the accompanying consolidated statements of operations, based on results of operations of the associated acquisitions. The acquisitions completed during the nine months ended September 30, 2015 did not contain provisions for contingent consideration.

The Company utilizes Level 3 inputs, which include unobservable data, to measure the fair value of the contingent consideration. 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. The timing of the payments of the additional consideration varies by agreement but is expected to occur within one to three years from the respective 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 in the nine months ended September 30, 2015, including post acquisition date adjustments recorded to purchase price allocations, are as follows (in thousands):



	Nine Months Ended September 30, 2015 ⁽¹⁾
Accounts receivable	$	17,560
Other current assets	9,387
Property and equipment	10,679
Goodwill	255,251
Intangible assets	45,600
Other long-term assets	40
Accounts payable	(2,718		)
Other accrued liabilities	(11,600		)
Deferred income taxes	(3,726		)
Other long-term liabilities	(4,957		)
Long-term debt	(3,928		)
Total fair value	311,588
Less: Fair value attributable to noncontrolling interests	72,598
Acquisition date fair value of total consideration transferred	$	238,990


(1)	Represents the preliminary allocation of fair value of acquired assets and liabilities associated with these acquisitions at September 30, 2015.

During 2015, no significant changes were made to the purchase price allocation of assets and liabilities, existing at the date of acquisition, related to individual acquisitions completed in 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 months ended September 30, 2015 and 2014, the Company incurred approximately $2.1 million and $25.1 million of transaction costs, respectively. During the nine months ended September 30, 2015 and 2014, the Company incurred approximately $5.6 million and $28.7 million of transaction costs, respectively. The decrease in transaction costs during 2015 is primarily due to the significant costs incurred during the three months ended September 30, 2014 to acquire Sheridan.

Net revenue and net earnings included in the nine months ended September 30, 2015 and 2014 associated with completed acquisitions are as follows (in thousands):



	Nine Months Ended September 30,
	2015		2014
	Individual Acquisitions		Sheridan		Individual Acquisitions
Net revenue	$	95,026	$	226,545	$	9,925

Net earnings	18,605		19,684		2,293
Less: Net earnings attributable to noncontrolling interests	4,561		164		1,412
Net earnings attributable to AmSurg Corp. common shareholders	$	14,044	$	19,520	$	881

The unaudited consolidated pro forma results for the nine months ended September 30, 2015 and 2014, assuming all 2015 acquisitions had been consummated on January 1, 2014, and all 2014 acquisitions had been consummated on January 1, 2013 are as follows (in thousands, except earnings per share):



	Nine Months Ended September 30,
	2015		2014
Net revenue	$	1,908,259	$	1,770,570
Net earnings	269,405		234,794
Amounts attributable to AmSurg Corp. common shareholders:
Net earnings	105,731		80,423
Net earnings per common share:
Basic	$	2.08	$	1.56
Diluted	$	2.06	$	1.55