Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill represents the fair value of the consideration provided in an acquisition over the fair value of net assets acquired and is not amortized. The Company has indefinite-lived intangible assets related to the certificates of need held in jurisdictions where certain of its surgical facilities are located, Medicare licenses and certain management rights agreements. The Company also has finite-lived intangible assets related to physician guarantee agreements, non-compete agreements, management rights agreements and customer relationships. Physician income guarantees are amortized into salaries and benefits costs in the consolidated statements of operations over the commitment period of the contract, generally three to four years. Non-compete agreements and management rights agreements are amortized into depreciation and amortization expense in the consolidated statements of operations over the service lives of the agreements, typically ranging from two to five years for non-compete agreements and 15 years for the management rights agreements. Customer relationships are amortized into depreciation and amortization expense in the consolidated statements of operations over the estimated lives of the relationships, ranging from three to ten years.

The Company tests its goodwill and indefinite-lived intangible assets for impairment at least annually, as of October 1, or more frequently if certain indicators arise. The Company tests for goodwill impairment at the reporting unit level, which is defined as one level below an operating segment. During 2020, the Company identified three reporting units, which include the following: 1) Surgical Facilities, 2) Ancillary Services, and 3) Alliance, which is a component of the Optical Services operating segment. A detailed evaluation of potential impairment indicators was performed, which specifically considered the volatility observed in the prices of the Company’s outstanding debt securities and common stock, as well as the decline in surgical case volumes following the emergence of the COVID-19 pandemic, all of which improved in the second half of 2020 as states began to re-open and allow for non-emergent procedures.

The Company compares the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit. To determine the fair value of the reporting units, the Company obtained valuations at the reporting unit level prepared by third-party valuation specialists which typically utilizes a combination of the income and market approaches. The discounted cash flow model is projected based on a year-by-year assessment that considers historical results, estimated market conditions, internal projections, and relevant publicly available statistics. Determining fair value requires the exercise of significant judgment, including assumptions about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The significant judgments are typically based upon Level 3 inputs, generally defined as unobservable inputs representing the Company's own assumptions. The cash flows employed in the discounted cash flow analysis are based on the Company's most recent budgets and business plans aligned with provided guidance and, when applicable, various growth rates are assumed for years beyond the current business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. The variables within the discount rate, many of which are outside of the Company's control, provide the best estimate of all assumptions applied within the discounted cash flow model. There can be no assurance that operations will achieve the future cash flows reflected in the projections. In determining the fair value under the market approaches, the analysis includes a control premium, which was based on observable market data and a review of selected

transactions of companies that operate in the Company's sector. While the Company believes that all assumptions utilized in the testing were appropriate, they may not reflect actual outcomes that could occur. Specific factors that could negatively impact the assumptions used include changes to the discount and growth rates and a change in the equity and enterprise premiums being realized in the market.

On the basis of available evidence as of August 31, 2020, the Company identified indicators of impairment related to its Ancillary Services and Alliance reporting units, including the impacts of the COVID-19 pandemic, the closure of its diagnostic laboratory (as discussed in Note 2. "Acquisitions and Disposals") and its strategic decision to sell its optical products purchasing organization. No indicators of impairment were identified for the Company's Surgical Facilities reporting unit. Based on the impairment indicators noted, the Company performed an impairment analysis for the Ancillary Services and Alliance reporting units as of August 31, 2020. As of the September 30, 2020 valuation, carrying value for both the Ancillary Services and Alliance reporting units exceeded the fair value, resulting in non-cash impairment charges of $28.6 million and $4.9 million, respectively. The fair values as of August 31, 2020 were determined using the adjusted book value for the Ancillary Services reporting unit and the discounted cash flow model for the Alliance reporting unit.

As of October 1, 2020, prior to its annual impairment testing, the Company's three reporting units with allocated goodwill were as follows: 1) Surgical Facilities - $3.3 billion, 2) Ancillary Services - no remaining goodwill after the August 31 impairment discussed above, and 3) Alliance - $4.2 million. As of the October 1, 2020 valuation, the fair value for the Surgical Facilities reporting unit was substantially in excess of its carrying value, and there were no additional indicators of impairment related to the other reporting units. The fair value of the Surgical Facilities reporting unit as of October 1, 2020 was determined using the income and market approach as discussed above.

Subsequent to the date of our annual impairment test, the Company considered its operating results for the fourth quarter of 2020, macroeconomic, industry and market conditions, and other market indicators including its market capitalization. Based on its evaluation of all such factors, the Company concluded that an event had not occurred or circumstances had not changed that would more likely than not reduce the fair value of its reporting units below their carrying values. On December 31, 2020, the Company disposed of the Alliance reporting unit with the sale of its optical products purchasing organization.

During the year ended December 31, 2019, as a result of its impairment testing, the Company recorded non-cash impairment charges of $2.5 million related to the Alliance reporting unit.

During the year ended December 31, 2018, as a result of its impairment testing, the Company recorded non-cash impairment charges of $60.7 million and $13.7 million related to the Ancillary Services and Alliance reporting units, respectively.

A summary of the changes in the carrying amount of goodwill follows (in millions):


	December 31,
	2020		2019

Balance at beginning of period	$	3,402.4	$	3,382.8
Acquisitions, including post acquisition adjustments	154.7		22.3
Disposals and deconsolidations	(55.6)		(0.2)
Impairments	(33.5)		(2.5)
Balance at end of period	$	3,468.0	$	3,402.4

A summary of the Company's acquisitions and disposals for the years ended December 31, 2020 and 2019 is included in Note 2. "Acquisitions and Disposals."

A summary of the components of intangible assets follows (in millions):


	December 31, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net

Finite-lived intangible assets:
Management rights agreements	$	31.1	$	(10.1)	$	21.0	$	31.1	$	(7.3)	$	23.8
Other	13.6		(6.5)		7.1		8.8		(4.5)		4.3
Total finite-lived intangible assets	44.7		(16.6)		28.1		39.9		(11.8)		28.1
Indefinite-lived intangible assets	18.8		—		18.8		19.2		—		19.2
Total intangible assets	$	63.5	$	(16.6)	$	46.9	$	59.1	$	(11.8)	$	47.3

During the year ended December 31, 2019, the Company acquired a clinic that was previously managed by the Company. As a result of the transaction, the Company determined the management rights agreement related to the acquired clinic no longer provided a future benefit. As such, the Company recorded non-cash impairment charges of $5.4 million, which was included as a component of impairment charges on the accompanying consolidated statement of operations.

Amortization expense for intangible assets was $4.3 million, $4.6 million and $4.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Total estimated amortization expense for the next five years and thereafter related to intangible assets follows (in millions):


2021	$	5.7
2022	3.8
2023	2.9
2024	2.5
2025	1.9
Thereafter	11.3
Total	$	28.1