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Business Acquisitions
 9 Months Ended
Sep. 30, 2016
Business Combinations [Abstract]  
Business Acquisitions
5. Business Acquisitions:

During the nine months ended September 30, 2016, the Company completed the acquisition of 12 physician group practices, including seven anesthesiology practices, two other pediatric subspecialty practices, one neonatology practice, one maternal-fetal medicine practice and one pediatric cardiology practice. In addition, the Company acquired a third-party receivables company and a patient engagement software company. The total consideration for the 14 acquisitions was $722.2 million, net of $15.0 million of cash acquired. Approximately $718.7 million was paid in cash, and $3.5 million was recorded as a contingent consideration liability.

The 12 physician practice 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 on the significant infrastructure it has developed. The acquisitions of the third-party receivables company and patient engagement software company were additions to the Company’s existing revenue cycle management services company and are expected to further enhance the Company’s service offerings for its hospital and health system partners.

 

The Company’s preliminary allocation of purchase price for the 14 acquisitions is as follows (in thousands):

 

     Third-Party
Receivables
Acquisition		      Other
Acquisitions		      Total  

Current assets

    $ 18,689       $ 200       $ 18,889   

Property and equipment

      5,807         83         5,890   

Other noncurrent assets

      115         643         758   

Goodwill

      201,796         271,837         473,633   

Other intangible assets

      221,870         68,724         290,594   

Current liabilities

      (5,863 )       (333 )       (6,196 ) 

Deferred income tax liabilities – long-term

      (41,934 )       (18,602 )       (60,536 ) 

Other long-term liabilities

      (829 )       —           (829 ) 
  

 

 

     

 

 

     

 

 

  
   $ 399,651       $ 322,552       $ 722,203   
  

 

 

     

 

 

     

 

 

  

Other intangible assets consist primarily of customer relationships, technology, physician and hospital agreements and trade names. The Company recorded provisional estimates for certain intangible assets acquired during the three months ended September 30, 2016, and one of the acquisitions completed during the three months ended September 30, 2016 is subject to a working capital adjustment. The final valuation and working capital adjustment will be completed within the measurement period, and management does not believe the additional adjustments will be material. The Company expects that $151.1 million of the goodwill recorded during the nine months ended September 30, 2016 will be deductible for tax purposes.

The contingent consideration of $3.5 million recorded during the nine months ended September 30, 2016 is related to an agreement to pay an additional cash amount based on the achievement of certain performance measures for up to five years after the acquisition date. The accrued contingent consideration was recorded as a liability at acquisition-date fair value using the income approach with assumed discount rates ranging from 4.5% to 5.3% over the applicable terms and an assumed payment probability of 100% over the applicable years. The range of the undiscounted amount the Company could pay under the contingent consideration agreement is between $0 and $4.1 million. In addition, during the nine months ended September 30, 2016, the Company paid $9.0 million for contingent consideration related to certain prior-period acquisitions, of which all but the accretion recorded during 2016 was accrued as of December 31, 2015.

In connection with certain prior-period acquisitions, the Company also made additional cash payments of $6.2 million, recorded an increase in deferred tax assets of $19.9 million, a decrease in current assets of $0.2 million, an increase in deferred tax liabilities of $2.5 million and a net decrease of $11.0 million in goodwill for measurement-period adjustments resulting from the finalization of certain income tax acquisition accounting.

The results of operations of the acquisitions completed during the nine months ended September 30, 2016 and 2015 have been included in the Company’s Condensed 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 2016 and 2015, including adjustments for pro forma amortization and interest expense, as if the transactions had occurred on January 1, 2015 and January 1, 2014, respectively (in thousands, except per share data):

 

     Nine Months Ended
September 30,		  
     2016      2015  

Pro forma net revenue

    $ 2,492,022       $ 2,442,735   

Pro forma net income (1)

    $ 251,873       $ 257,331   

Pro forma net income per common share (2):

      

Basic

    $ 2.73       $ 2.76   

Diluted

    $ 2.71       $ 2.73   

Weighted average common shares (2):

      

Basic

      92,336         93,195   

Diluted

      93,045         94,123   

 

(1)  The effective tax rate used to calculate pro forma net income for the nine months ended September 30, 2016 of 38.8% excludes the income tax benefit related to the settlement of a tax matter.
(2)  The comparison of net income per common share is affected by the changes in the number of weighted average shares outstanding in each period.

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.