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Business Acquisitions
 9 Months Ended
Sep. 30, 2012
Business Acquisitions
5. Business Acquisitions:

During the nine months ended September 30, 2012, the Company completed the acquisition of 10 physician group practices for total consideration of $205.7 million, consisting of $197.9 million in cash and $7.8 million of contingent consideration. In connection with these acquisitions, the Company recorded goodwill of approximately $189.8 million, other intangible assets consisting primarily of physician and hospital agreements of approximately $17.9 million, fixed assets of approximately $0.5 million and other liabilities of $2.5 million. These acquisitions expanded the Company’s national network of physician practices. The Company expects to improve the results of these physician practices through improved managed care contracting, improved collections, identification of growth initiatives, as well as, operating and cost savings based upon the significant infrastructure it has developed.

 

The contingent consideration of $7.8 million recorded during the nine months ended September 30, 2012 is related to agreements to pay additional cash amounts based on the achievement of certain performance measures for up to five years ending after the acquisition dates. The accrued contingent consideration for each acquisition was recorded as a liability at acquisition-date fair value using the income approach with assumed discount rates ranging from 3.0% to 5.0% over the applicable terms and an assumed payment probability of 100% for each of the applicable years. The range of the undiscounted amount the Company could pay under the contingent consideration agreement is between $0 and $8.5 million.

During the nine months ended September 30, 2012, the Company paid approximately $9.4 million for contingent consideration related to certain prior-period acquisitions, of which $6.2 million was accrued as of December 31, 2011. The Company expects that $51.6 million of the $193.0 million of goodwill recorded during the nine months ended September 30, 2012 will be deductible for tax purposes.

The results of operations of the practices acquired during the nine months ended September 30, 2012 and 2011 have been included in the Company’s Condensed Consolidated Financial Statements from their respective dates of acquisition. The following unaudited pro forma information combines the consolidated results of operations of the Company on a GAAP basis and the acquisitions completed during 2012 and 2011 as if the transactions had occurred on January 1, 2011 and January 1, 2010, respectively (in thousands, except for per share data):

 

     Nine Months  Ended
September 30,		  
     2012     2011  

Net patient service revenue

    $ 1,413,535      $ 1,368,210   

Net income (1)

    $ 184,384      $ 181,623   

Net income per share (2):

     

Basic

    $ 3.80      $ 3.82   

Diluted

    $ 3.72      $ 3.73   

Weighted average shares (2):

     

Basic

      48,569        47,564   

Diluted

      49,570        48,683   

Effective tax rate (1):

      38.8 %      39.0 % 

 

(1)

The comparison of net income is affected by the change in the effective tax rate. The effective tax rate was 38.8% for the nine months ended September 30, 2012 as compared to 39.0% for the nine months ended September 30, 2011.
(2)

The comparison of net income per share is affected by the changes in the number of weighted average shares outstanding in each period. The basic and diluted weighted average shares outstanding for the nine months ended September 30, 2012 were 48.6 million and 49.6 million, respectively, as compared to 47.6 million and 48.7 million, respectively, for the nine months ended September 30, 2011.

The pro forma results do not necessarily represent results which would have occurred if the acquisitions had taken place at the beginning of the periods, nor are they indicative of the results of future combined operations.