<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1997
Commission File Number 000-22217
AMSURG CORP.
(Exact Name of Registrant as Specified in its Charter)
TENNESSEE 62-1493316
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ONE BURTON HILLS BOULEVARD
SUITE 350
NASHVILLE, TN 37215
(Address of principal executive offices) (Zip code)
(615) 665-1283
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
As of November 12, 1997, there were outstanding 28,469,548 shares of
the Registrant's Common Stock, no par value.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,625,801 $ 3,192,408
Accounts receivable, net 7,884,505 5,640,946
Supplies inventory 752,473 554,839
Other current assets 798,856 680,761
Deferred tax asset 303,000 303,000
----------- -----------
Total current assets 13,364,635 10,371,954
Long-term receivables and deposits 493,898 643,516
Property and equipment, net 16,901,827 12,335,892
Other assets, net 867,977 530,312
Excess of cost over net assets of purchased operations, net 41,040,299 30,771,784
----------- -----------
$72,668,636 $54,653,458
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 750,118 $ 982,547
Accrued salaries and benefits 898,378 829,582
Accrued liabilities 2,168,337 1,128,856
Current income taxes payable 378,489 82,586
Current portion of long-term debt 2,762,777 2,616,714
----------- -----------
Total current liabilities 6,958,099 5,640,285
Deferred income taxes 765,000 765,000
Long-term debt 21,729,560 9,218,281
Minority interest 8,481,675 5,673,960
Preferred stock, no par value, 5,000,000 shares authorized, 2,750,000
shares outstanding 5,192,261 4,982,057
Stockholders' equity:
Common stock, no par value, 40,000,000 shares authorized, 28,469,548
and 27,598,577 shares outstanding 27,725,045 26,064,085
Retained earnings 1,816,996 2,309,790
----------- -----------
Total stockholders' equity 29,542,041 28,373,875
----------- -----------
$72,668,636 $54,653,458
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
AMSURG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 14,589,937 $ 8,781,571 $ 41,162,839 $ 24,075,288
Expenses:
Salaries and benefits 4,444,648 3,040,518 12,551,809 7,976,212
Other operating expenses 5,110,427 2,960,755 14,563,740 7,914,391
Depreciation and amortization 1,287,574 763,393 3,510,515 2,095,566
Interest 424,598 246,633 1,140,587 668,370
Net (gain) loss on sale of assets (826,835) -- 1,494,333 --
Distribution cost 458,000 -- 458,000 --
------------ ------------ ------------ ------------
Total expenses 10,898,412 7,011,299 33,718,984 18,654,539
------------ ------------ ------------ ------------
Income before minority interest
and income taxes 3,691,525 1,770,272 7,443,855 5,420,749
Minority interest 2,213,505 1,299,976 6,447,445 3,755,799
------------ ------------ ------------ ------------
Income before income taxes 1,478,020 470,296 996,410 1,664,950
Income tax expense 543,000 188,000 1,279,000 665,000
------------ ------------ ------------ ------------
Net income (loss) 935,020 282,296 (282,590) 999,950
Accretion of preferred stock discount 72,649 -- 210,204 --
------------ ------------ ------------ ------------
Net income (loss) attributable to
common stockholders $ 862,371 $ 282,296 $ (492,794) $ 999,950
============ ============ ============ ============
Net income (loss) per share
attributable to common
stockholders $ 0.03 $ 0.01 $ (0.02) $ 0.04
============ ============ ============ ============
Weighted average common shares
and equivalents 29,775,694 27,481,828 28,310,008 26,908,598
============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (282,590) $ 999,950
Income tax expense 1,279,000 665,000
Minority interest 6,447,445 3,755,799
------------ ------------
Income before minority interest and income taxes 7,443,855 5,420,749
Noncash expense, revenues, losses and gains included in net income (loss):
Depreciation and amortization 3,510,515 2,095,566
Net loss on sale of assets 1,494,333 --
Increase in working capital items (1,111,679) (269,050)
Other noncash transactions 45,840 71,222
------------ ------------
11,382,864 7,318,487
Increase in other assets (686,388) (152,301)
Income taxes paid (983,097) (774,750)
------------ ------------
Net cash flows provided by operating activities 9,713,379 6,391,436
------------ ------------
Cash flows from investing activities:
Acquisition of majority interest in surgery centers and physician practices (12,626,007) (8,535,956)
Acquisition of property and equipment (7,737,744) (2,438,419)
Proceeds from sale of assets 1,978,462 --
Decrease in long-term receivables 35,118 102,939
------------ ------------
Net cash flows used in investing activities (18,350,171) (10,871,436)
------------ ------------
Cash flows from financing activities:
Additions to long-term debt 15,533,041 6,639,000
Payments on long-term debt (2,903,616) (2,091,237)
Distributions to minority partners (6,342,236) (3,666,597)
Issuance of common stock, net of issuance costs 494,006 1,670,510
Capital contributions by minority partners 2,288,990 779,602
------------ ------------
Net cash flows provided by financing activities 9,070,185 3,331,278
------------ ------------
Net increase (decrease) in cash and cash equivalents 433,393 (1,148,722)
Cash and cash equivalents, beginning of period 3,192,408 3,469,661
------------ ------------
Cash and cash equivalents, end of period $ 3,625,801 $ 2,320,939
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
AMSURG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of AmSurg
Corp. and subsidiaries ("the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited interim financial statements
contained in this report reflect all adjustments, consisting of only normal
recurring accruals which are necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
The accompanying consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Registration Statement on Form 10/A-3 dated November 3, 1997.
(2) PUBLIC DISTRIBUTION OF COMMON STOCK
On March 7, 1997, the Board of Directors of American Healthcorp, Inc.
("AHC"), the Company's majority shareholder, approved a plan to distribute on a
substantially tax-free basis all of the shares of the Company's common stock
owned by AHC to the holders of AHC common stock ("the Distribution"). The plan
of Distribution also includes effecting a one for three reverse stock split
prior to the Distribution. During the three and nine months ended September 30,
1997, the Company expensed $458,000 for its proportionate share of costs
incurred to date associated with the Distribution.
(3) ACQUISITIONS AND DISPOSITIONS
In 1997, the Company, through wholly-owned subsidiaries, acquired
majority interests in five physician practice-based surgery centers and one
physician practice and related entities. The aggregate purchase price and
related cost for the acquisitions in 1997 was $14,047,840, which consisted of
cash of $12,230,464 and Company common stock valued at $1,817,376. With these
transactions, the Company acquired tangible assets of $1,555,939, excess cost
over net assets of purchased operations of $13,285,659 and assumed liabilities
of $793,758, inclusive of minority interest.
In September 1997, the Company sold its investment in a partnership that
owned two surgery centers acquired in 1994. Various disagreements with the sole
physician partner over the operation of these centers had adversely impacted the
operations of these centers. After a series of discussions and attempts to
resolve these differences, the Company determined that the partners could not
resolve their disagreements and that as a result the carrying value of the
assets associated with this partnership would not likely be fully recovered. The
Company projected the undiscounted cash flows from these centers and determined
these cash flows to be less than the carrying value of the long-lived assets
attributable to this partnership. Accordingly, an impairment loss equal to the
excess of the carrying value of the long-lived assets over the present value of
the estimated future cash flows was recorded in March 1997 in accordance with
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." In
September 1997, when the Company sold its interest in the partnership assets to
its physician partner it recognized a partial loss recovery. The net loss
associated with these transactions is $1,954,000 for the nine months ended
September 30, 1997.
In July 1997, the Company sold a surgery center building and equipment
which the Company leased to a physician practice and recognized a pretax gain of
approximately $460,000. In July 1997, the Company also terminated its management
agreement with the physician practice for the surgery center in which it had no
ownership interest but had managed since 1994.
5
<PAGE> 6
AMSURG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards No.
128 "Earnings Per Share" for the year ending December 31, 1997. This accounting
pronouncement requires the disclosure of basic and diluted earnings per share.
The Company believes that, upon adoption, diluted earnings (loss) per share will
approximate earnings (loss) per share as previously reported. Because the
concept of basic earnings per share does not include the impact of common stock
equivalents, such as preferred stock and stock options, basic earnings per share
will be higher than diluted earnings per share.
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise
and Related Information" become effective for the Company for the year ended
December 31, 1998. The Company is still evaluating the effects of adopting these
two statements, but does not expect the adoption of either pronouncement to have
a material effect on the Company's consolidated financial statements.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
AmSurg Corp. (the "Company") develops, acquires and operates
practice-based ambulatory surgery centers in partnership with physician practice
groups through partnerships and limited liability companies. As of September 30,
1997, the Company owned a majority interest (51% or greater) in 35 surgery
centers, owned a majority interest (60% or greater) in two physician practices
and had established and was the majority owner (51%) of three start-up specialty
physician networks.
On March 7, 1997, the Board of Directors of American Healthcorp, Inc.
("AHC"), the Company's majority shareholder, approved a plan to distribute on a
substantially tax-free basis all of the shares of the Company's common stock
owned by AHC to the holders of AHC common stock ("the Distribution"). The plan
of Distribution also includes effecting a one for three reverse stock split
prior to the Distribution. The principal purpose of the Distribution is to
enable the Company to have access to debt and equity capital markets as an
independent, publicly traded company in order to finance the development and
acquisition of ambulatory surgery centers and specialty physician networks. The
plan of Distribution has been amended based on discussions with the Internal
Revenue Service ("IRS") in response to AHC's requests for a favorable IRS ruling
on the Distribution. While the Distribution is subject to several conditions,
including the receipt of either a ruling from the IRS or legal opinions from
AHC's tax counsel on the substantially tax-free nature of the Distribution, the
Company anticipates that the Distribution will be completed during December
1997.
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements which are based upon current
expectations and involve a number of risks and uncertainties. In order for the
Company to utilize the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, investors are hereby cautioned that these
statements may be affected by the important factors, among others, set forth
below, and consequently, actual operations and results may differ materially
from those expressed in these forward-looking statements. The important factors
include: the Company's ability to enter into partnership or operating agreements
for new practice-based ambulatory surgery centers and new specialty physician
networks; its ability to identify suitable acquisition candidates and negotiate
and close acquisition transactions; its ability to contract with managed care
payors for its existing centers and its centers that are currently under
development; its ability to obtain and retain appropriate licensing approvals
for its existing centers and centers currently under development; its ability to
minimize start-up losses at its development centers; and its ability to maintain
favorable relations with its physician partners.
The components of changes in the number of surgery centers in operation
and centers under development during the three and nine month periods ended
September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Centers in operation, beginning of period 31 19 27 18
New center acquisitions placed in operation 2 2 5 2
New development centers placed in operation 5 2 6 3
Centers sold (3) -- (3) --
--- --- --- ---
Centers in operation, end of period 35 23 35 23
=== === === ===
Centers under development, end of period 14 15 14 15
=== === === ===
</TABLE>
7
<PAGE> 8
Twenty-seven of the surgery centers in operation as of September 30,
1997, perform gastrointestinal endoscopy procedures, five centers perform
ophthalmology surgery procedures, one center performs otolaryngology procedures,
one center performs orthopedic procedures and one center performs ophthalmology,
urology, general surgery and otolaryngology procedures. The other partner or
member in each partnership or limited liability company is in each case an
entity owned by physicians who perform procedures at the center.
In addition, on January 1, 1996, the Company acquired a 70% interest in
the assets of a gastroenterology and primary care physician practice associated
with a surgery center in which the Company already held an ownership interest.
On January 1, 1997, the Company acquired a 60% interest in the assets of a
urology practice and currently has a surgery center under development with this
same practice. The other partner in each of the two physician group practice
partnerships is an entity owned by the principal physicians who provide
professional medical services to patients of the practice. All third party payor
contracts under which the two physician group practices provide professional
services are entered into by the group practice in which the Company is the
general partner and owns a majority interest.
The start-up specialty physician networks are owned through limited
partnerships and limited liability companies. The Company owns a majority
interest in these entities, and the other partners are individual physicians who
will provide the medical services to the patient population covered by the
contracts the network will seek to enter into with managed care payors. It is
not expected that the specialty physician networks in themselves will be a
significant source of income for the Company. These networks were and will be
formed primarily as a contracting vehicle to generate revenues for the Company's
practice-based surgery centers and physician practices. These networks have not
generated any revenues to date.
The Company intends to expand primarily through the development and
acquisition of additional surgery centers in targeted surgical specialties. In
addition, the Company believes that its surgery centers, combined with its
relationships with specialty physician practices in the surgery centers'
markets, will provide the Company with other opportunities for growth from
specialty network development that, if appropriate, may include the acquisition
of specialty physician practices. By using its surgery centers as a base to
develop specialty physician networks that are designed to serve large numbers of
covered lives, the Company believes that it will strengthen its market position
in contracting with managed care organizations.
While the Company generally owns 51% to 70% of the entities that own the
surgery center or physician group practice, the Company's consolidated
statements of operations include 100% of the results of operations of the
entities, reduced by the minority partners' share of the net income or loss of
the surgery center/practice entities.
The Company's sources of revenues are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
Source of Revenues 1997 1996 1997 1996
- ------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Surgery centers 84% 82% 82% 82%
Physician practices 15 16 16 15
Management fee -- 1 1 1
Interest and other 1 1 1 2
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
</TABLE>
The facility fees and fees for physician services received by the
Company's surgery centers and physician practices are generally paid by third
party reimbursement programs, including governmental and private insurance
programs. The Company derived approximately 34% and 36% of its revenues in the
nine months ended September 30, 1997 and 1996, respectively, from governmental
healthcare programs including Medicare and Medicaid.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table shows certain statement of operations items expressed as a
percentage of revenues for the three and nine month periods ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries and benefits 30.5 34.6 30.5 33.1
Other operating expenses 35.0 33.7 35.4 32.9
Depreciation and amortization 8.8 8.7 8.5 8.7
Interest 2.9 2.8 2.8 2.8
Net (gain) loss on sale of assets (5.6) -- 3.6 --
Distribution cost 3.1 -- 1.1 --
----- ----- ----- -----
Total expenses 74.7 79.8 81.9 77.5
----- ----- ----- -----
Income before minority interest and
income taxes 25.3 20.2 18.1 22.5
Minority interest 15.2 14.8 15.7 15.6
----- ----- ----- -----
Income before income taxes 10.1 5.4 2.4 6.9
Income taxes 3.7 2.2 3.1 2.7
----- ----- ----- -----
Net income (loss) 6.4 3.2 (0.7) 4.2
Accretion of preferred stock discount 0.5 -- 0.5 --
----- ----- ----- -----
Net income (loss) attributable to common
stockholders 5.9% 3.2% (1.2)% 4.2
===== ===== ===== =====
</TABLE>
Revenues were $14.6 million and $41.2 million for the three months and
nine months ended September 30, 1997, respectively, an increase of $5.8 million
and $17.1 million, or 66% and 71%, respectively, over revenues for the
comparable periods in 1996. The increase is primarily attributable to additional
centers in operation during the 1997 periods and the acquisition of a urology
physician practice on January 1, 1997. Excluding the three centers which were
disposed of as described below, same-center revenues for the three and nine
month periods ended September 30, 1997 increased by 8% and 6%, respectively.
Same-center growth resulted from increased case volume and increases in fees.
The Company anticipates further revenue growth during the remainder of 1997 as a
result of additional start-up and acquisition centers placed in operation and
from same-center revenue growth.
Salaries and benefits expense was $4.4 million and $12.6 million for the
three months and nine months ended September 30, 1997, respectively, an increase
of $1.4 million and $4.6 million, or 46% and 57%, respectively, over salaries
and benefits expense for the comparable periods in 1996. Other operating
expenses were $5.1 million and $14.6 million for the three months and nine
months ended September 30, 1997, respectively, an increase of $2.1 million and
$6.6 million, or 73% and 84%, respectively, over other operating expenses for
the comparable periods in 1996. These increases resulted primarily from
additional centers in operation, the acquisition of the interest in the urology
physician practice and from an increase in corporate staff primarily to support
growth in the number of centers in operation and anticipated future growth.
Salaries and benefits expense and other operating expenses in the aggregate as a
percentage of revenues remained comparable at approximately 66% for the three
month and nine month periods ended September 30, 1997, compared with 68% and 66%
for the comparable periods during fiscal 1996. However, salaries and benefits
expense as a percentage of revenues decreased during the 1997 periods while
other operating expenses as a percentage of revenues increased proportionately
during the 1997 periods compared to the 1996 periods due to contracted physician
services for the urology practice acquired in January 1997.
9
<PAGE> 10
Depreciation and amortization expense increased $524,000 and $1.4
million, or 69% and 68%, for the three and nine month periods ended September
30, 1997, respectively, over the comparable periods in 1996, primarily due to 12
additional surgery centers and one physician practice in operation in the 1997
periods compared to the 1996 periods. Interest expense increased $178,000 and
$472,000, or 72% and 71%, in the three month and nine month periods ended
September 30, 1997, respectively, over the comparable periods in 1996 due to
debt assumed or incurred in connection with additional acquisitions of interests
in surgery centers and a physician practice plus the interest expense associated
with newly opened start-up surgery centers financed partially with bank debt.
The Company anticipates further increases in operating expenses during
the remainder of 1997 primarily due from additional start-up centers placed in
operation in excess of the number of development centers historically opened by
the Company within a nine month period. Typically a start-up center will incur
start-up losses during its initial one to three months of operations and
experiences lower revenues and operating margins than an established center
until its case load grows to a more optimal operating level, which generally is
expected to occur within 12 months after a center opens.
Included in net loss on sale of assets in the nine month period ended
September 30, 1997 is a loss of approximately $2.0 million from the disposition
in September 1997 of the Company's investment in a partnership that owned two
surgery centers acquired in 1994. Various disagreements with the sole physician
partner over the operation of these centers had adversely impacted the
operations of these centers. After a series of discussions and attempts to
resolve these differences, the Company determined that the partners could not
resolve their disagreement and that as a result the carrying value of the assets
associated with this partnership would not likely be fully recovered. The
Company projected the undiscounted cash flows from these centers and determined
these cash flows to be less than the carrying value of the long-lived assets
attributable to this partnership. Accordingly, an impairment loss equal to the
excess of the carrying value of the long-lived assets over the present value of
the estimated future cash flows was recorded in the first quarter of 1997 in
accordance with Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of." In September 1997, the Company sold its interest in the partnership assets
to its physician partner and recognized a partial loss recovery. Management
believes it has good relationships with its other physician partners and that
the loss attributable to the partnership discussed above resulted from a unique
set of circumstances. The Company does not believe that the absence of the
operations of these two centers will have a significant impact on the Company's
future ongoing results of operations.
In addition, net loss on sale of assets includes a gain of approximately
$460,000 from the sale in July 1997 of the surgery center building and equipment
which the Company leased to a gastrointestinal physician practice. In July 1997,
the Company also terminated its management agreement with the physician practice
for the surgery center in which it had no ownership interest but had managed
since 1994.
Distribution cost in the three and nine month periods ended September 30,
1997 represents costs incurred to date related to effecting the Distribution.
The Company's minority interest in earnings for the three and nine month
periods ended September 30, 1997 increased by $914,000 and $2.7 million,
respectively, from the comparable 1996 periods primarily as a result of minority
partners' interest in earnings at surgery centers recently added to operations
and from increased profitability at same-centers.
The Company recognized income tax expense of $543,000 and $1.3 million in
the three and nine month periods ended September 30, 1997, respectively,
compared to $188,000 and $665,000 in the comparable periods in 1996. Because the
net loss on sale of assets may only be deducted for tax purposes against future
capital gains for up to five years, the Company has recognized no tax benefit
associated with this loss in the current period. However, certain tax aspects of
the gain transaction recorded during the nine month period ended September 30,
1997 resulted in income tax expense of approximately $100,000. In addition, the
distribution cost recognized by the Company is not deductible for tax purposes.
The Company's effective tax rate in both periods is 40% of earnings prior to the
impact of the net loss on sale of assets and distribution cost, and differs from
the federal statutory income tax rate of 34% due primarily to the impact of
state income taxes.
10
<PAGE> 11
Accretion of preferred stock discount resulted from the issuance during
November 1996 of redeemable preferred stock with a redemption amount of $3.0
million in November 1996. The preferred stock was recorded at its fair market
value, net of issuance costs. The redeemable preferred stock is being accreted
to its redemption value including potential dividends which will begin in
November 1998 unless redeemed by that date.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the nine month period ended September 30, 1997
generated $9.7 million in cash flow. Investing activities during the nine month
period ended September 30, 1997 used $18.4 million, including $12.6 million used
to acquire interests in five additional surgery centers and an interest in the
urology physician practice, and $7.7 million to acquire property and equipment
for new start-up surgery centers and for new or replacement property at existing
centers, which were partially offset by $2.0 million in proceeds from the sale
of a surgery center building and equipment and the sale of a partnership
interest in two surgery centers. Financing activities during the nine month
period ended September 30, 1997 provided $9.1 million in cash flow, primarily as
a result of (i) net additions to long-term debt of $12.6 million, (ii) minority
partner capital contributions to the Company's partnerships and limited
liability companies of $2.3 million and (iii) $494,000 in cash proceeds from the
issuance of common stock; these financing proceeds were partially offset by $6.3
million in distributions to surgery center minority partners. At September 30,
1997, the Company had $3.3 million in outstanding term loan borrowings under its
amended and restated bank credit agreement which is repayable through June 2000.
The Company also had outstanding borrowings of $17.0 million under a related
revolving credit facility which provides up to $25.0 million in available credit
through April 1999 for acquisitions and development projects. Borrowings under
the bank credit agreement and related credit facility bear interest at a rate
equal to the prime rate or 1.75% above LIBOR or a combination thereof at the
Company's option, plus a .35% fee for unused commitments. At September 30, 1997,
the Company's partnerships and limited liability companies had unfunded
construction and equipment purchase commitments for centers under development of
approximately $3.1 million, of which the Company anticipates approximately $2.1
million will be borrowed under the Company's credit facility (and guaranteed on
a pro rata basis by the physicians) and that the remaining amount will be
provided by the Company and the physician partners in proportion to their
respective ownership interests. The Company intends to fund its portion out of
cash flow from operations.
On November 20, 1996, the Company issued shares of its Series A Preferred
Stock and Series B Preferred Stock to certain unaffiliated institutional
investors for cash proceeds of approximately $5.0 million, after payment of
offering expenses. The purpose of the offering was to fund the acquisition and
development of surgery centers and to provide other working capital as needed
prior to being in position to access capital markets as an independent public
company following the Distribution. The Series A Preferred Stock has a
liquidation value of $3.0 million and will accrue dividends of 8% per annum on
such liquidation value, commencing November 21, 1998. This stock is subject to
redemption at the Company's option at any time, and is subject to redemption at
the option of the holders on November 20, 2002 and upon the occurrence of
certain events, including a public offering yielding at least $20.0 million in
net proceeds to the Company and/or its stockholders (or $25.0 million in net
proceeds if the Distribution does not occur) (a "Qualified IPO"). The Series A
Preferred Stock may also be converted into shares of Common Stock at the option
of the holders for a limited period of time following the Distribution or upon a
Qualified IPO at the then current market price of the Common Stock. Upon a
Qualified IPO or other triggering event, the Series B Preferred Stock will be
automatically converted into a number of shares of Common Stock that
approximates 6% of the equity of the Company determined as of November 20, 1996,
with that percentage being ratably increased to 8% of the equity of the Company
if a triggering event has not occurred by November 20, 2000. If a Qualified IPO
or other triggering event does not occur by November 20, 2002, the holders of
the Series B Preferred Stock will have the right to sell such stock to the
Company at a formula price.
Historically the Company has depended on AHC for the majority of its
equity financing. A principal purpose of the Distribution is to permit the
Company to have access to public debt and equity capital markets as an
independent public company. Management believes that the Company will have
access to such capital on more favorable terms as an independent public company
than it could have as a majority-owned subsidiary of AHC, particularly in public
equity markets. While the Company anticipates that its operating activities will
continue to provide positive cash flow and increased revenues, the Company will
require additional financing in order to fund its development and acquisition
plans and to achieve its long-term strategic growth plans. This additional
financing could take the form of a private or public offering of debt or equity
securities or additional bank financing. No assurances can be given that the
necessary financing will be obtainable on terms satisfactory to the Company. The
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failure to raise the funds necessary to finance its future cash requirements
could adversely affect the Company's ability to pursue its strategy and could
adversely affect its results of operations for future periods.
The Company is evaluating the Year 2000 issues and the impact upon
information systems and computer technologies. While certain applications in
system software critical to processing financial and operational information are
Year 2000 compliant, the Company expects to incur some costs in testing and
implementing updates to such software. The Company is also evaluating the impact
of the Year 2000 on other computer technologies and software. All costs to
evaluate and make modifications will be expensed as incurred and are not
expected to have a significant impact on the Company's ongoing results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards No.
128 "Earnings Per Share" for the year ended December 31, 1997. This accounting
pronouncement requires the disclosure of basic and diluted earnings per share.
The Company believes that, upon adoption, diluted earnings (loss) per share will
approximate earnings (loss) per share as previously reported. Because the
concept of basic earnings per share does not include the impact of common stock
equivalents, such as preferred stock and stock options, basic earnings per share
will be higher than diluted earnings per share.
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise
and Related Information" become effective for the Company for the year ended
December 31, 1998. The Company is still evaluating the effects of adopting these
two statements, but does not expect the adoption of either pronouncement to have
a material effect on the Company's consolidated financial statements.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(10.1) Second Amended and Restated Loan Agreement dated as of
April 15, 1997 among the Company, SunTrust Bank,
Nashville, N.A. and NationsBank of Tennessee, N.A. as
amended on May 6, 1997 and on September 2, 1997
(incorporated by reference to Exhibit 10.4 to
Registration Statement on Form 10/A-3)
(10.2) Agreement dated as of April 11, 1997, between the Company
and Rodney H. Lunn (incorporated by reference to Exhibit
10.11 to Registration Statement on Form 10/A-3)
(10.3) Agreement dated as of April 11, 1997, between the Company
and David L. Manning (incorporated by reference to
Exhibit 10.12 to Registration Statement on Form 10/A-3)
(b) Reports on Form 8-K
The Company filed one report on Form 8-K dated September
2, 1997 during the quarter ended September 30, 1997 to report the
acquisition of an undivided 60% interest in the assets of The
Endoscopy Center, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMSURG CORP.
By: /s/ Claire M. Gulmi
-----------------------------------
CLAIRE M. GULMI
Senior Vice President and Chief Financial Officer
(Principal Financial and Duly Authorized Officer)
Date: November 12, 1997
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