Acquisitions and Disposals

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.

Ambulatory Services Activity

During each of the six months ended June 30, 2016 and 2015, the Company, through a wholly-owned subsidiary, acquired a controlling interest in four surgery centers. The aggregate amount paid for the centers and for settlement of purchase price payable obligations during the six months ended June 30, 2016 and 2015 was approximately $25.7 million and $95.4 million, respectively, and was paid in cash and funded by a combination of operating cash flow and borrowings under the Company's revolving credit agreement.

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 six months ended June 30, 2016, the Company disposed of two surgery centers and recognized a net gain from the disposals of $3.3 million in the six months ended June 30, 2016. The Company did not dispose of any surgery centers during the six months ended June 30, 2015.

Physician Services Activity

The Company completed the acquisition of six physician practices in the six months ended June 30, 2016 and four physician practices in the six months ended June 30, 2015. The aggregate amount paid for the physician practices and for settlement of purchase price payable obligations during the six months ended June 30, 2016 and 2015 was approximately $255.4 million and $100.7 million, respectively, and was paid in cash and funded by a combination of operating cash flow and borrowings under the Company's revolving credit agreement. In addition to the cash paid, approximately $15.4 million of consideration for one physician practice was deferred and will be paid in the next two years, $9.7 million of which is reflected in other accrued liabilities and $5.7 million is reflected in other long-term liabilities in the accompanying consolidated balance sheets.

As a result of certain acquisitions completed during prior periods, the Company has agreed to pay as additional consideration amounts which are contingent on the acquired entities achieving future performance metrics. As of June 30, 2016 and December 31, 2015, the Company had accrued $1.0 million and $5.5 million, respectively, as a component of other accrued liabilities in the accompanying consolidated balance sheets, which represents management's estimate of the fair values of the contingent consideration. During the six months ended June 30, 2016, the Company made a cash payment of $1.9 million for one acquisition and recognized a decrease of $2.6 million associated with the change in fair value of its remaining accrued contingent consideration. As of June 30, 2016, the Company estimates it may have to pay approximately $1.0 million in future contingent payments for one acquisition made prior to December 31, 2015 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. The acquisitions completed during the six months ended June 30, 2016 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 potential remaining payments of contingent consideration is expected to occur within one year.

Purchase Price Allocations

The acquisition date fair value of the total consideration transferred and acquisition date fair value of each major financial class for both the ambulatory services and physician services acquisitions completed in the six months ended June 30, 2016, including post acquisition date adjustments recorded to purchase price allocations, are as follows (in thousands):



	Six Months Ended June 30, 2016 ⁽¹⁾
Accounts receivable	$	16,809
Other current assets	1,397
Property and equipment	4,258
Goodwill	209,194
Intangible assets	115,902
Other long-term assets	67
Accounts payable	(450		)
Other accrued liabilities	(20,331		)
Deferred income taxes	(20,706		)
Other long-term liabilities	(5,700		)
Long-term debt	(128		)
Total fair value	300,312
Less: Fair value attributable to noncontrolling interests	19,199
Acquisition date fair value of total consideration transferred	$	281,113

(1) Represents the preliminary allocation of fair value of acquired assets and liabilities associated with these acquisitions at June 30, 2016.

During 2016, 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 2015.

The total fair value of acquisitions completed by the Company include amounts allocated to goodwill, which result from the acquisitions' 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. 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. Additionally, the Company continues to obtain information relative to the fair values of assets acquired, liabilities assumed and any noncontrolling interests associated with acquisitions completed in the last 12 months. 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 its most recent acquisitions as soon as practical.

During the three and six months ended June 30, 2016, the Company incurred approximately $5.1 million and $6.5 million of transaction costs, respectively, and during the three and six months ended June 30, 2015, the Company incurred approximately $2.0 million and $3.5 million, respectively. The costs incurred during the three months ended June 30, 2016 were primarily associated with the definitive merger agreement with Envision Healthcare Holdings, Inc. signed on June 15, 2016. See Note 2 for additional information.

Net revenue and net earnings included in the six months ended June 30, 2016 and 2015 associated with completed acquisitions are as follows (in thousands):



	Six Months Ended June 30,
	2016		2015
Net revenue	$	12,714	$	48,042

Net earnings	$	2,198	$	9,101
Less: Net earnings attributable to noncontrolling interests	563		2,353
Net earnings attributable to AmSurg Corp. common shareholders	$	1,635	$	6,748

The unaudited consolidated pro forma results for the six months ended June 30, 2016 and 2015, assuming all 2016 acquisitions had been consummated on January 1, 2015, and all 2015 acquisitions had been consummated on January 1, 2014 are as follows (in thousands, except earnings per share):



	Six Months Ended June 30,
	2016		2015
Net revenue	$	1,558,347	$	1,488,632
Net earnings	198,383		221,765
Amounts attributable to AmSurg Corp. common shareholders:
Net earnings	82,806		68,374
Net earnings per common share:
Basic	$	1.53	$	1.44
Diluted	$	1.52	$	1.42