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Business Acquisitions:
 12 Months Ended
Dec. 31, 2012
Business Acquisitions:

6.    Business Acquisitions:

During 2012, the Company completed the acquisition of 16 physician group practices for total consideration of $451.1 million, consisting of $436.4 million in cash and $14.7 million of contingent consideration. In connection with these acquisitions, the Company recorded goodwill of approximately $414.3 million, other intangible assets consisting primarily of physician and hospital agreements of approximately $48.2 million, fixed assets of approximately $0.6 million, and other liabilities of approximately $12.0 million. These acquisitions expand 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 $14.7 million recorded during 2012 is related to agreements to pay additional 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 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 agreements that were recorded with a fair value of $14.7 million is between $0 and $15.9 million. In addition, the Company also entered into a $5.0 million contingent consideration agreement for which the probability of the achievement of certain performance measures was deemed to be remote, and therefore the fair value was determined to be zero, resulting in no contingent consideration being recorded.

 

During 2012, the Company paid approximately $14.8 million for contingent consideration related to certain prior-period acquisitions, of which $11.5 million was accrued as of December 31, 2011. In addition, as of December 31, 2012, the Company accrued approximately $1.3 million for contingent consideration related to a certain prior-period acquisition that was earned as of December 31, 2012.

During 2011, the Company completed the acquisition of 10 physician group practices for total consideration of $159.5 million, consisting of $146.5 million in cash and $13.0 million of contingent consideration. In connection with these acquisitions, the Company recorded goodwill of approximately $138.6 million, other intangible assets consisting primarily of physician and hospital agreements of approximately $22.5 million, fixed assets of approximately $0.4 million, and other liabilities of approximately $2.0 million.

Certain purchase agreements contain contingent consideration provisions based on volume and other performance measures over a three- to five-year period. Potential payments under these provisions are not contingent upon the future employment of the sellers. Under all contingent consideration provisions, payments of up to $42.9 million may be due through 2017, of which $39.0 million is accrued as of December 31, 2012.

The results of operations of the practices acquired in 2012 and 2011 have been included in the Company’s Consolidated Financial Statements from the 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, including adjustments for pro forma amortization and interest expense, as if the transactions had occurred on January 1, 2011 and January 1, 2010, respectively (in thousands, except per share data):

 

     Years Ended December 31,  
     2012     2011  

Net patient service revenue

    $ 2,015,167      $ 1,950,972   

Net income (1)

      260,485        255,183   

Net income per share (2):

     

Basic

    $ 5.35      $ 5.35   

Diluted

    $ 5.24      $ 5.23   

Weighted average shares (2):

     

Basic

      48,693        47,706   

Diluted

      49,691        48,796   

Effective tax rate (1):

      37.94 %      38.29 % 

 

(1) The comparison of net income is affected by the change in the effective tax rate. The effective tax rate was 37.94% for the year ended December 31, 2012 as compared to 38.29% for the year ended December 31, 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 year ended December 31, 2012 were 48.7 million and 49.7 million, respectively, as compared to 47.7 million and 48.8 million, respectively, for the year ended December 31, 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 indicated, nor are they indicative of the results of future combined operations.