<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, 1998
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 11, 1998, there were outstanding 9,533,486 shares of
the Registrant's Class A Common Stock, no par value and 4,787,131 shares of the
Registrant's Class B Common Stock, no par value.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 4,850,847 $ 3,406,787
Accounts receivable, net ..................................... 11,871,497 8,220,616
Supplies inventory ........................................... 1,119,842 905,992
Deferred income taxes ........................................ 390,000 390,000
Prepaid and other current assets ............................. 1,089,834 1,020,835
------------ ------------
Total current assets ................................ 19,322,020 13,944,230
Long-term receivables and deposits ................................ 315,264 479,012
Property and equipment, net ....................................... 21,474,451 19,248,464
Intangible assets, net ............................................ 45,865,024 41,566,684
------------ ------------
Total assets ........................................ $ 86,976,759 $ 75,238,390
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................ $ 1,210,211 $ 1,330,595
Accounts payable ............................................. 1,019,679 922,188
Accrued salaries and benefits ................................ 1,063,222 1,018,844
Other accrued liabilities .................................... 998,266 1,235,626
Current income taxes payable ................................. 238,199 125,396
------------ ------------
Total current liabilities ........................... 4,529,577 4,632,649
Long-term debt .................................................... 6,989,962 24,969,718
Deferred income taxes ............................................. 838,439 1,185,000
Minority interest ................................................. 11,865,646 9,191,896
Preferred stock, no par value, 5,000,000 shares authorized, 0
and 916,666 shares outstanding, respectively ................... -- 5,267,672
Shareholders' equity:
Common stock:
Class A, no par value, 20,000,000 shares authorized
9,526,986 and 4,758,091 shares outstanding, respectively 48,057,136 14,636,331
Class B, no par value, 4,800,000 shares authorized,
4,787,131 shares outstanding ........................... 13,528,981 13,528,981
Retained earnings ............................................ 1,337,840 2,099,491
Deferred compensation on restricted stock .................... (170,822) (273,348)
------------ ------------
Total shareholders' equity .......................... 62,753,135 29,991,455
------------ ------------
Total liabilities and shareholders' equity .......... $ 86,976,759 $ 75,238,390
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
AMSURG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues .............................................. $ 20,125,797 $ 14,566,595 $ 58,074,392 $ 41,047,718
Operating expenses:
Salaries and benefits ............................ 5,393,533 4,444,648 16,665,770 12,551,809
Other operating expenses ......................... 7,407,918 5,110,427 20,994,332 14,563,740
Depreciation and amortization .................... 1,660,895 1,287,574 4,912,004 3,510,515
Net loss (gain) on sale of assets ................ -- (826,835) 5,463,509 1,430,148
------------ ------------ ------------ ------------
Total operating expenses ..................... 14,462,346 10,015,814 48,035,615 32,056,212
------------ ------------ ------------ ------------
Operating income ............................. 5,663,451 4,550,781 10,038,777 8,991,506
Minority interest ..................................... 3,509,692 2,213,505 9,472,427 6,447,445
Other expenses:
Interest expense, net of interest income ......... 172,961 401,256 1,295,882 1,089,651
Distribution cost ................................ -- 458,000 -- 458,000
------------ ------------ ------------ ------------
Earnings (loss) before income taxes .......... 1,980,798 1,478,020 (729,532) 996,410
Income tax expense .................................... 792,318 543,000 32,119 1,279,000
------------ ------------ ------------ ------------
Net earnings (loss) .......................... 1,188,480 935,020 (761,651) (282,590)
Accretion of preferred stock discount ................. -- 72,649 -- 210,204
------------ ------------ ------------ ------------
Net earnings (loss) available to
common shareholders ..................... $ 1,188,480 $ 862,371 $ (761,651) $ (492,794)
============ ============ ============ ============
Earnings (loss) per common share:
Basic ............................................ $ 0.08 $ 0.09 $ (0.07) $ (0.05)
Diluted .......................................... $ 0.08 $ 0.09 $ (0.07) $ (0.05)
Weighted average number of shares and share
equivalents outstanding:
Basic ............................................ 14,302,197 9,502,450 11,549,800 9,436,646
Diluted .......................................... 14,659,425 9,837,776 11,549,800 9,436,646
</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,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................................... $ (761,651) $ (282,590)
Adjustments to reconcile net loss to net cash provided by operating activities:
Minority interest ............................................................. 9,472,427 6,447,445
Distributions to minority partners ............................................ (8,880,449) (6,342,236)
Depreciation and amortization ................................................. 4,912,004 3,510,515
Deferred income taxes ......................................................... (346,561) --
Amortization of deferred compensation on restricted stock ..................... 102,526 --
Net loss on sale of assets .................................................... 5,463,509 1,494,333
Increase (decrease) in cash, net of effects of acquisitions, due to changes in:
Accounts receivable, net ................................................. (2,745,772) (1,255,421)
Supplies inventory ....................................................... 767 (41,837)
Prepaid and other current assets ......................................... (31,074) (349,775)
Other assets ............................................................. (176,511) (686,388)
Accounts payable ......................................................... (174,674) (232,429)
Accrued expenses and other liabilities ................................... (63,761) 1,063,686
Other, net ............................................................... (27,746) 162,650
------------ ------------
Net cash flows provided by operating activities .......................... 6,743,034 3,487,953
Cash flows from investing activities:
Acquisition of interest in surgery centers and physician practices ................ (11,830,592) (12,626,007)
Acquisition of property and equipment ............................................. (4,559,696) (7,423,033)
Proceeds from sale of assets ...................................................... 652,000 1,978,462
Decrease in long-term receivables ................................................. 120,739 35,118
------------ ------------
Net cash flows used in investing activities .............................. (15,617,549) (18,035,460)
Cash flows from financing activities:
Proceeds from long-term borrowings ................................................ 11,945,222 15,218,330
Repayment on long-term borrowings ................................................. (30,267,101) (2,903,616)
Net proceeds from issuance of common stock ........................................ 27,642,423 494,006
Proceeds from capital contributions by minority partners .......................... 1,053,130 2,288,990
Financing cost incurred ........................................................... (55,099) (116,810)
------------ ------------
Net cash flows provided by financing activities .......................... 10,318,575 14,980,900
------------ ------------
Net increase in cash and cash equivalents .............................................. 1,444,060 433,393
Cash and cash equivalents, beginning of period ......................................... 3,406,787 3,192,408
------------ ------------
Cash and cash equivalents, end of period ............................................... $ 4,850,847 $ 3,625,801
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
AMSURG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(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 1997 Annual Report on Form 10-K.
Certain amounts of prior periods have been reclassified to conform to
the current presentation.
(2) SHAREHOLDERS' EQUITY
On June 17, 1998, the Company completed a public offering of 3,700,000
shares of Class A Common Stock, for net proceeds of approximately $27,600,000.
Concurrent with the public offering, the Series B Convertible Preferred Stock
was converted into 605,998 shares of Class A Common Stock. Net proceeds from the
offering were used to repay borrowings under the Company's revolving credit
facility.
During the first quarter of 1998, the holders of the Series A
Redeemable Preferred Stock converted their preferred shares into 380,952 shares
of Class A Common Stock pursuant to a conversion ratio based on the market price
of the Class A Common Stock set forth in the Company's Charter.
(3) ACQUISITIONS AND DISPOSITIONS
In the nine months ended September 30, 1998, the Company, through
wholly owned subsidiaries and in separate transactions, acquired majority
interests in four physician practice-based surgery centers. The Company also
purchased an additional interest in an existing surgery center. The aggregate
purchase price and related cost for the acquisitions was approximately
$12,280,000, consisting primarily of cash and Class A Common Stock valued at
approximately $450,000, of which the Company assigned approximately $11,030,000
to excess cost over net assets of purchased operations.
Subsequent to September 30, 1998, the Company, through a wholly owned
subsidiary, acquired a majority interest in a physician practice-based surgery
center for approximately $2.0 million.
Also in the nine months ended September 30, 1998, a partnership in
which the Company through a wholly owned subsidiary owned a 51% interest, sold
certain assets comprising a surgery center developed in 1995 for approximately
$650,000 and incurred a net loss of $42,914.
In May 1998, the Company's Board of Directors approved a plan to
dispose of the Company's interests in the two specialty physician practices in
which it then owned a majority interest as part of an overall strategy to exit
the practice management business and focus solely on the development,
acquisition and operation of ambulatory surgery centers and specialty networks.
While the Company's past strategy for network development included the ownership
of related physician practices, the Company believes that physician practice
ownership is not necessary for the successful development of these networks.
Because of this change in strategy and the fact that the ownership of physician
practices is management intensive and produces lower profit margins than surgery
centers, the Company believes that its capital and management resources are
better allocated to the development and acquisition of surgery centers and
networks. In addition, the Company believes that the ownership of only two
physician practices does not allow for the economies of scale and growth
opportunities needed to be successful in the physician practice management
business.
In conjunction with the plan of disposal of these practices, the
Company reduced the carrying value of the long-lived assets held for sale by
approximately $5,400,000 in the second quarter of 1998, based on the estimated
sales proceeds less estimated costs to sell. The Company recognized an income
tax benefit of approximately $1,800,000 associated with the estimated loss. The
remaining carrying value of the net assets of the practices at the plan of
disposal date was approximately $1,700,000.
5
<PAGE> 6
AMSURG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
As of September 30, 1998, the Company had completed the disposal of one
of these practices and on October 1, 1998, the Company completed the disposition
of the second practice.
A summary of the information about the operations of the physician
practices for the three and nine months ended September 30, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ................................... $ 634,971 $2,145,321 $4,875,495 $6,749,637
Operating expenses ......................... 559,331 1,898,927 4,382,124 6,022,876
Minority interest .......................... 42,527 86,827 198,188 277,893
Interest expense (income) .................. (2,731) 75,551 111,885 238,093
---------- ---------- ---------- ----------
Contribution margin before income taxes $ 35,844 $ 84,016 $ 183,298 $ 210,775
========== ========== ========== ==========
</TABLE>
(4) RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" became effective for the Company during the first quarter
of 1998 and its adoption did not have a material impact on the Company's
financial reporting practices. SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" also becomes effective for the Company for
the year ended December 31, 1998. The Company is still evaluating the effects of
adopting this statement, but does not expect its adoption to have a material
effect on the Company's consolidated financial statements.
Statement of Position ("SOP") No. 98-5 "Reporting on the Costs of
Start-Up Activities" becomes effective for the Company for the year ended
December 31, 1999. SOP No. 98-5 requires that start-up costs be expensed as
incurred and that upon adoption, all deferred start-up costs be expensed as a
cumulative effect of a change in accounting principle. The Company does not
anticipate that the adoption of SOP No. 98-5 will have a material effect on the
Company's financial position or ongoing results of operations.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements. These statements,
which have been included in reliance on the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, involve risks and
uncertainties. The Company's actual operations and results may differ materially
from the results discussed in any such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, 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 obtain the necessary financing or capital on terms
satisfactory to the Company in order to execute its expansion strategy; its
ability to manage growth; its ability to contract with managed care payers on
terms satisfactory to the Company 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 of its development centers;
its ability to maintain favorable relations with its physician partners; the
implementation of the proposed rule issued by the Health Care Financing
Administration ("HCFA") which would update the ratesetting methodology, payment
rates, payment policies and the list of covered surgical procedures for
ambulatory surgery centers; and risks relating to the Company's technological
systems, including becoming Year 2000 compliant.
OVERVIEW
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, 1998, the
Company owned a majority interest (51% or greater) in 47 surgery centers, owned
a majority interest (60%) in a physician practice and had established and was
the majority owner (51%) of six start-up specialty physician networks.
The Company operated as a majority-owned subsidiary of American
Healthcorp, Inc. ("AHC") from 1992 until December 3, 1997 when AHC distributed
to its stockholders all of its holdings of AmSurg common stock (the
"Distribution"). Prior to the Distribution, the Company effected a
recapitalization pursuant to which every three shares of the Company's then
outstanding common stock were converted into one share of Class A Common Stock.
Immediately following the Recapitalization, AHC exchanged a portion of its
shares of Class A Common Stock for shares of Class B Common Stock. The principal
purpose of the Distribution was to enable the Company to have access to debt and
equity capital markets as an independent, publicly traded company. Upon the
Distribution, the Company became a publicly traded company.
The following table presents the changes in the number of surgery
centers in operation and centers under development during the three and nine
months ended September 30, 1998 and 1997. A center is deemed to be under
development when a partnership or limited liability company has been formed with
the physician group partner to develop the center.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Centers in operation, beginning of period ...... 46 31 39 27
New center acquisitions placed in operation .... 1 2 4 5
New development centers placed in operation -- 5 5 6
Centers sold ................................... -- (3) (1) (3)
----- ----- ----- -----
Centers in operation, end of period ............ 47 35 47 35
==== ===== ===== =====
Centers under development, end of period ....... 5 14 5 14
===== ===== ===== =====
</TABLE>
Thirty-five of the surgery centers in operation as of September 30,
1998, perform gastrointestinal endoscopy procedures, ten centers perform
ophthalmology surgery procedures, one center performs orthopaedic 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.
7
<PAGE> 8
During 1998, the Company had a majority interest in two specialty
physician practices which were acquired in January 1996 and January 1997, the
other partners of which were entities owned by the principal physicians who
provide professional medical services to patients of the practices. In May 1998,
the Company's Board of Directors approved a plan to dispose of the Company's
interests in these two physician practices as part of an overall strategy to
exit the practice management business and focus solely on the development,
acquisition and operation of ambulatory surgery centers and specialty networks.
Accordingly, the Company recorded a charge of $3.6 million, net of income tax
benefit of $1.8 million, in the second quarter of 1998 for the estimated loss on
the disposal of these assets, and on June 26, 1998 and October 1, 1998, the
Company completed the disposition of each of these practices (see Note 3 of the
Consolidated Financial Statements).
The start-up specialty physician networks are owned through limited
partnerships and limited liability companies in which the Company owns a
majority interest. The other partners or members 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 payers. The
Company does not expect that the specialty physician networks alone will be a
significant source of income for the Company. These networks were and may be
formed in selected markets primarily as a contracting vehicle for certain
managed care arrangements to generate revenues for the Company's practice-based
surgery centers. As of September 30, 1998, one network had secured a managed
care contract and was operational.
The Company intends to expand through the development and acquisition
of additional practice-based 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. 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.
SOURCES OF REVENUES
The Company's principal source of revenues is a facility fee charged
for surgical procedures performed in its surgery centers. This fee varies
depending on the procedure, but usually includes all charges for operating room
usage, special equipment usage, supplies, recovery room usage, nursing staff and
medications. Facility fees do not include the charges of the patient's surgeon,
anesthesiologist or other attending physicians, which are billed directly to
third-party payers by such physicians. Historically, the Company's other
significant source of revenues has been the fees for physician services
performed by the two physician group practices in which the Company owned a
majority interest. However, as a result of the disposition of these practices,
the Company will no longer earn such revenue.
Practice-based ambulatory surgery centers and physician practices such
as those in which the Company owns a majority interest depend upon third-party
reimbursement programs, including governmental and private insurance programs,
to pay for services rendered to patients. The Company derived approximately 40%
and 34% of its net revenues from governmental healthcare programs, including
Medicare and Medicaid, in the nine months ended September 30, 1998 and 1997,
respectively. The Medicare program currently pays ambulatory surgery centers and
physicians in accordance with fee schedules which are prospectively determined.
Approximately 7% and 11% of the Company's revenues for the nine months
ended September 30, 1998 and 1997, respectively, were generated by capitated
payment contracts with HMOs. These revenues generally were attributable to
contracts held by the physician practices and a surgery center in which the
Company held a majority interest. Approximately 66% of the revenue associated
with these contracts in the nine months ended September 30, 1998 were a part of
the operations of the disposed practices. The other contracts require the
surgery centers to provide certain outpatient surgery services for the HMO
members on an exclusive basis. The services required by these contracts are
provided almost solely by surgery centers in which the Company owns a majority
interest. Because the Company is only at risk for the cost of providing
relatively limited healthcare services to these HMO members, the Company's risk
of overutilization by HMO members is limited to the cost of the supplies, drugs
and nursing staff expense required for outpatient surgery.
8
<PAGE> 9
The Company's sources of revenues as a percentage of total revenues for
the three and nine months ended September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Surgery centers .......... 97% 85% 92% 83%
Physician practices ...... 3 15 8 16
Other .................... -- -- -- 1
---- ---- ---- ----
Total ................ 100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
RESULTS OF OPERATIONS
The following table shows certain statement of operations items
expressed as a percentage of revenues for the three and nine months ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ................................. 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits .................. 26.8 30.5 28.7 30.5
Other operating expenses ............... 36.8 35.1 36.1 35.5
Depreciation and amortization .......... 8.3 8.8 8.5 8.6
Net loss (gain) on sale of assets ...... -- (5.6) 9.4 3.5
----- ----- ----- -----
Total operating expenses ............. 71.9 68.8 82.7 78.1
----- ----- ----- -----
Operating income ..................... 28.1 31.2 17.3 21.9
Minority interest ........................ 17.4 15.2 16.3 15.7
Other and expenses:
Interest expense, net of interest income 0.9 2.8 2.2 2.7
Distribution cost ...................... -- 3.1 -- 1.1
----- ----- ----- -----
Earnings (loss) before income taxes .. 9.8 10.1 (1.2) 2.4
Income tax expense ....................... 3.9 3.7 0.1 3.1
----- ----- ----- -----
Net earnings (loss) .................. 5.9 6.4 (1.3) (0.7)
Accretion of preferred stock discount .... -- 0.5 -- 0.5
----- ----- ----- -----
Net earnings (loss) available to
common shareholders ............. 5.9% 5.9% (1.3)% (1.2)%
===== ===== ===== =====
</TABLE>
Revenues were $20.1 million and $58.1 million in the three and nine
months ended September 30, 1998, respectively, an increase of $5.6 million and
$17.0 million, or 38% and 41%, respectively, over revenues in the comparable
1997 periods. The increase is primarily attributable to additional centers in
operation during the 1998 periods, partially offset by a reduction of physician
practice revenue of $1.5 million and $1.9 million in the three and nine months
ended September 30, 1998, respectively. Same-center revenues in the three and
nine months ended September 30, 1998, increased by 12%. Same-center growth
resulted primarily from increased procedure volume. The Company anticipates
further revenue growth during 1998 as a result of additional start-up and
acquired centers expected to be placed in operation and from same-center revenue
growth, net of the revenue reduction due to the disposition of the physician
practices.
9
<PAGE> 10
Salaries and benefits expense was $5.4 million and $16.7 million in the
three and nine months ended September 30, 1998, respectively, an increase of
$949,000 and $4.1 million, or 21% and 33%, respectively, over salaries and
benefits expense in the comparable 1997 periods. Salaries and benefits expense
as a percentage of revenue decreased in the 1998 periods due to the elimination
of physician salaries of the practice disposed of in June 1998. Other operating
expenses were $7.4 million and $21.0 million in the three and nine months ended
September 30, 1998, respectively, an increase of $2.3 million and $6.4 million,
or 45% and 44%, respectively, over other operating expenses in the comparable
1997 periods. These increases resulted primarily from additional centers in
operation, from an increase in corporate staff primarily to support growth in
the number of centers in operation and anticipated future growth and additional
corporate cost associated with being a publicly traded company. These increases
were offset by a reduction in physician practice expenses of the practice
disposed of in June 1998.
The Company anticipates further increases in operating expenses in
1998, primarily due to additional start-up centers and acquired centers expected
to be placed in operation, offset by the elimination of physician practice
operating expenses of the practices disposed of in 1998. Typically, a start-up
center will incur start-up losses during its initial months of operation and
will experience lower revenues and operating margins than an established center
until its case load increases to a more optimal operating level, which generally
is expected to occur within 12 months after a center opens.
Depreciation and amortization expense increased $373,000 and $1.4
million, or 29% and 40%, respectively in the three and nine months ended
September 30, 1998, over the comparable 1997 periods, primarily due to 12
additional surgery centers in operation in the 1998 periods compared to the 1997
periods.
Net loss on sale of assets in the nine months ended September 30, 1998
resulted primarily from the Company's plan to exit the physician practice
management business. In the second quarter of 1998, the Company reduced the
carrying value of the long-lived assets of the practices held for sale by
approximately $5.4 million based on the estimated sales proceeds less estimated
costs to sell. Net gain on sale of assets of $827,000 in the three months ended
September 30, 1997 resulted from the sale of a surgery center building and
equipment as well as a partial loss recovery from a $2.3 million impairment loss
originally recorded in the first quarter of 1997. The combination of these
transactions resulted in a net loss on sale of assets of $1.4 million in the
nine months ended September 30, 1997.
The minority interest in earnings in the three and nine months ended
September 30, 1998, increased by $1.3 million and $3.0 million, or 59% and 47%,
respectively over the comparable 1997 periods primarily as a result of minority
partners' interest in earnings at surgery centers recently added to operations
and from increased same-center profitability. Because the 1998 periods reflect a
reduction in physician practice revenues, which generate lower profit margins
than surgery center revenues, minority interest as a percentage of revenues
increased 2.2% and 0.6% in the three and nine months ended September 30, 1998.
Interest expense decreased $228,000, or 57%, in the three months ended
September 30, 1998 from the comparable 1997 period. Interest expense increased
$206,000, or 19%, in the nine months ended September 30, 1998, from the
comparable 1997 period. The reduction in the three month period was the result
of the repayment of long-term debt from the proceeds of the public offering in
June 1998 (see "Liquidity and Capital Resources") and a decrease in the
Company's borrowing rate due to a decrease in borrowing levels. The increase in
interest expense in the nine month period was due to debt assumed or incurred in
connection with additional acquisitions of interests in surgery centers and
interest expense associated with newly opened start-up surgery centers financed
partially with bank debt. The increase was partially offset by the reduction in
long-term debt due to the application of offering proceeds in June 1998.
The Company recognized income tax expense of $792,000 and $32,000 in
the three and nine months ended September 30, 1998, respectively, compared to
$543,000 and $1.3 million in the comparable 1997 periods, respectively. A tax
benefit of $1.8 million was recognized in the nine months ended September 30,
1998 in connection with the net loss on sale of assets recorded in the second
quarter of 1998. The Company's effective tax rate in all periods was 40% of
earnings prior to the impact of the net loss on sale of assets and differed from
the federal statutory income tax rate of 34% primarily due to the impact of
state income taxes.
Accretion of preferred stock discount in the three and nine months
ended September 30, 1997, resulted from the issuance during November 1996 of
redeemable preferred stock with a redemption amount of $3.0 million. The
preferred stock was recorded at its fair market value, net of issuance costs.
From the time of issuance, the Series A Redeemable Preferred Stock was accreted
toward its redemption value, including potential dividends, over the redemption
term. During the first quarter of 1998, the holders of this series of preferred
stock elected to convert their preferred shares into 380,952 shares of Class A
Common Stock pursuant to the provisions of the Company's Charter using a
conversion ratio based on the market price of the Company's Class A Common
Stock. Accordingly, the Company has recorded no accretion in 1998.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had working capital of $14.8 million
compared to $6.4 million at September 30, 1997. Operating activities for the
nine months ended September 30, 1998, generated $6.7 million in cash flow
compared to $3.5 million in the comparable 1997 period, an increase of $3.3
million resulting primarily from increased earnings before consideration of
gains and losses from sales of assets. Cash and cash equivalents at September
30, 1998 and 1997 were $4.9 million and $3.6 million, respectively.
During the nine months ended September 30, 1998, the Company used
approximately $11.8 million to acquire interests in four additional
practice-based ambulatory surgery centers. In addition, the Company made capital
expenditures primarily for new start-up surgery centers and for new or
replacement property at existing centers which totaled approximately $4.6
million in the nine months ended September 30, 1998, of which approximately $1.1
million was funded from the capital contributions of the Company's minority
partners. The Company used its cash flow from operations and borrowings on
long-term debt of approximately $11.9 million to fund its acquisition and
development obligations.
On June 17, 1998, the Company completed a public offering of 3,700,000
shares of Class A Common Stock, for net proceeds of $27.6 million. The net
proceeds, along with cash flow from operations, were used to repay $30.3 million
in borrowings under the Company's revolving credit facility (the "Loan
Agreement") and other long-term debt during the nine months ended September 30,
1998. The Company also received cash proceeds of $650,000 from the sale of a
surgery center during the nine months ended September 30, 1998.
At September 30, 1998, the Company's partnerships and limited liability
companies had unfunded construction and equipment purchase commitments for
centers under development of approximately $2.2 million, of which the Company
expects approximately $2.0 million will be borrowed by the partnerships or
limited liability companies while the remainder will be provided by the Company
and the physician partners in proportion to their respective ownership interests
in the partnerships and limited liability companies. The Company intends to fund
its portion out of future cash flows from operations.
At September 30, 1998, borrowings under the Company's revolving credit
facility were $5.1 million, are due in January 2001 and are guaranteed by the
wholly owned subsidiaries of the Company, and in some instances, the underlying
assets of certain developed centers. The loan agreement permits the Company to
borrow up to $50.0 million to finance the Company's acquisition and development
projects at a rate equal to, at the Company's option, the prime rate or LIBOR
plus a spread of 1.0% to 2.25%, depending upon borrowing levels. The loan
agreement also provides for a fee ranging between .15% and .40% of unused
commitments based on borrowing levels. The loan agreement also prohibits the
payment of dividends and contains covenants relating to the ratio of debt to net
worth, operating performance and minimum net worth. The Company was in
compliance with all covenants at September 30, 1998.
On November 20, 1996, the Company issued shares of its Series A
Redeemable Preferred Stock and Series B Convertible Preferred Stock to certain
unaffiliated institutional investors for net cash proceeds of approximately $5.0
million. 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. The
Series A Preferred Stock, which had a liquidation value of $3.0 million and was
subject to redemption at any time at the option of the Company, upon the
occurrence of certain events and in 2002 at the option of the holders, was
converted during the three months ended March 31, 1998, by its holders into
380,952 shares of Class A Common Stock using a conversion ratio based on market
price of the Class A Common Stock pursuant to the provisions of the Company's
Charter. Upon the public offering completed on June 17, 1998, the Series B
Preferred Stock automatically converted into 605,998 shares of Class A Common
Stock as determined by a conversion ratio providing for the issuance of that
number of shares which approximated 6% of the equity of the Company determined
as of November 20, 1996.
On June 12, 1998, HCFA published a proposed rule that would update the
ratesetting methodology, payment rates, payment policies and the list of covered
surgical procedures for ambulatory surgery centers. The proposed rule is subject
to a comment period that has been extended until January 8, 1999, and provides
for an implementation date that has been extended to a date no earlier than
January 2000. The proposed rule reduces the rates paid for certain ambulatory
surgery center procedures reimbursed by Medicare, including a number of
endoscopy and ophthalmological procedures performed at the Company's centers.
The Company believes that the proposed rule if adopted in its current
form would adversely affect the Company's annual revenues by approximately 4% at
that time. The Company is prepared to take a number of specific actions,
including actions to effect certain cost efficiencies in center operations and
reduce corporate overhead costs, in anticipation of the implementation of a
final rule in order to offset the earnings impact of the rule. There can be no
assurance that the Company will be able to implement successfully these actions
or that if implemented the actions will offset fully the adverse impact of the
rule, as finally adopted, on the earnings of the Company. There also can be no
assurance that HCFA will not modify the proposed rule, before it is enacted in
final form, in a manner that would adversely impact the Company's financial
condition, results of operation and business prospects.
11
<PAGE> 12
YEAR 2000
The Company has evaluated its risks associated with software and
hardware components which may fail due to the millennium change and has
determined these risks include but are not limited to (i) risk that surgical
equipment critical to the patient's care may fail, (ii) risk that billing and
administration software will not support timely billing and collection efforts
and (iii) risks that third party payers will not provide timely reimbursement
for services performed.
In order to address these risks, the Company has designed and
implemented a Year 2000 assessment and action plan. Because the Company
generally has no internally designed software systems or hardware components nor
does the Company market or support any software or hardware products, the
Company has focused its efforts on ensuring that its systems are Year 2000
compliant by implementing a plan designed to evaluate all critical systems
purchased from third parties at each of its operating surgery centers and its
corporate offices. The assessment plan involves (i) identifying all potential
Year 2000 hardware and software components, including but not limited to
surgical equipment, office machinery, financial software and general service
equipment and components, (ii) contracting with a third party consultant to
measure surgical equipment products against their Year 2000 compliance database,
(iii) obtaining verification from third parties whether their products are Year
2000 compliant and, if not, the third parties' ability to make the appropriate
modifications and (iv) testing systems in a controlled environment to determine
their ability to function accurately beyond 1999. In addition, the Company
intends to contact all significant suppliers and third party payers to determine
if they are Year 2000 compliant and if they will be able to continue to provide
products, services or reimbursement in 2000. This assessment plan was initiated
in the third quarter of 1998 and is expected to continue throughout 1999. Nearly
all of the Company's surgery centers have completed their identification of
medical hardware and software and are awaiting the database results from the
third party consultant. Most non-medical equipment has also been identified, but
testing and/or communication with vendors have not been completed. Based on the
ongoing findings of the assessment plan, the Company will begin the remediation
process to replace or modify those systems not found to be Year 2000 compliant.
Although a complete cost assessment will not be determinable until all
operating locations have been fully assessed, the Company currently estimates
that the Company and the surgery centers in the aggregate may incur total
capitalizable and non-capitalizable costs ranging from $200,000 to $400,000 in
1999 to ensure that all centers and the corporate offices are Year 2000
compliant. However, until the assessment and remediation processes are
completed, the Company is unable to estimate with certainty the total costs to
make the Company Year 2000 compliant. No significant costs have been incurred to
date associated with Year 2000 compliance. All costs to evaluate and make
modifications will be expensed as incurred, will generally be shared by the
Company's physician partners in proportion to their ownership interest and are
not expected to have a significant impact on the Company's financial position or
ongoing results of operations.
The Company has yet to establish a contingency plan, but intends to
formulate one to address its significant risks by the second quarter of 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" became effective for the Company during the first quarter
of 1998 and its adoption did not have a material impact on the Company's
financial reporting practices. SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" also becomes effective for the Company for
the year ended December 31, 1998. The Company is still evaluating the effects of
adopting this statement, but does not expect its adoption to have a material
effect on the Company's consolidated financial statements.
Statement of Position ("SOP") No. 98-5 "Reporting on the Costs of
Start-Up Activities" becomes effective for the Company for the year ended
December 31, 1999. SOP No. 98-5 requires that start-up costs be expensed as
incurred and that upon adoption, all deferred start-up costs be expensed as a
cumulative effect of a change in accounting principle. The Company does not
anticipate that the adoption of SOP No. 98-5 will have a material effect on the
Company's financial position or ongoing results of operations.
12
<PAGE> 13
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 Medical Director Agreement dated as of January 1, 1998
between the Company and Bergein F. Overholt, M.D.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated August 4,
1998 during the quarter ended September 30, 1998 to report
the acquisition of an undivided 57% interest in the assets
comprising an ophthalmic ambulatory surgery center in Westlake
Village, California.
13
<PAGE> 14
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.
Date: November 13, 1998 By: /s/ Claire M. Gulmi
-------------------------------------
CLAIRE M. GULMI
Senior Vice President and Chief
Financial Officer(Principal Financial
and Duly Authorized Officer)
14
<PAGE> 1
EXHIBIT 10
MEDICAL DIRECTOR AGREEMENT
This MEDICAL DIRECTOR AGREEMENT ("Agreement") is entered into effective
the 1st day of January, 1998 (the "Effective Date") by and between AmSurg Corp.,
a Tennessee corporation ("AmSurg") and Bergein F. Overholt, M.D. ("Medical
Director").
WITNESSETH:
WHEREAS, AmSurg develops, acquires and operates practice-based
ambulatory surgery centers in partnership with physician practice groups
throughout the United States; and
WHEREAS, AmSurg desires to engage the Medical Director to assist AmSurg
in the direction and coordination of all medical aspects of AmSurg's operations;
and
WHEREAS, Medical Director is a physician duly licensed to practice
medicine in the State of Tennessee and is willing to serve in the capacity as
medical director of AmSurg upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the provisions set forth herein and
other good and valuable consideration, the receipt of which is hereby
acknowledged, AmSurg and the Medical Director agree as follows:
AGREEMENT
1. DUTIES AND RESPONSIBILITIES.
A. The Medical Director shall be responsible for the direction
and coordination of all medical aspects of AmSurg's
operations. The Medical Director shall have the duties and
responsibilities assigned to him from time to time by the
Company's senior management, including but not limited to:
(1) assisting in developing policies and procedures for
AmSurg's ambulatory surgery centers, physician
practices and specialty physician networks;
(2) ensuring that AmSurg adopts appropriate medical
procedures for implementation in its ambulatory
surgery centers that comply with all local, state and
federal regulations and policies;
(3) acting as a liaison between AmSurg and each of the
medical directors of the ambulatory surgery centers
owned by AmSurg;
(4) acting as a liaison between AmSurg and external
organizations and individuals, including managed care
organizations, consultants and others;
<PAGE> 2
(5) assisting AmSurg with designated compliance program
functions;
(6) assisting with peer review functions as needed or
requested by AmSurg; and
(7) assisting the Development staff as requested.
B. The Medical Director agrees to devote whatever time is
necessary to adequately perform his duties hereunder. The
parties anticipate that in order for the Medical Director to
adequately fulfill his duties and responsibilities, he will
need to devote approximately 150 hours per year to Medical
Director duties.
2. COMPENSATION. In consideration of the duties and responsibilities of
the Medical Director, AmSurg hereby agrees to pay the Medical Director
annual compensation in the amount of $50,000 to be paid in equal
monthly installments in arrears due on the first day of each month
commencing on the first month after the Effective Date.
3. TERM.
A. The initial term of this Agreement shall be for one (1) year
from the Effective Date (the "Initial Term"). This Agreement
shall be automatically renewed thereafter for additional one
(1) year terms unless either party gives the other party
written notice of termination no later than 90 days prior to
the anniversary date hereof.
B. This Agreement may be terminated by either party without cause
at any time upon ninety (90) days prior written notice to the
other party.
4. DEFAULT.
A. The Medical Director shall be in default of this Agreement if
he fails to perform any material term hereof, and such failure
is not cured within 30 days after receipt of written notice
from AmSurg of such failure. In the event of such default,
AmSurg shall have the right to terminate this Agreement
immediately by written notice to the Medical Director.
B. AmSurg shall be in default of this Agreement if it fails to
perform any material term hereof and such failure is not cured
with 30 days after receipt of written notice from the Medical
Director of such failure. In the event of such default, the
Medical Director shall have the right to terminate this
Agreement immediately by written notice to AmSurg.
2
<PAGE> 3
5. IMMEDIATE TERMINATION. Upon the occurrence of either of the following events:
A. Personal misconduct by the Medical Director, including, but
not limited to, failure to comply with the ethical
provisions of the American Medical Association; or
B. The conviction of the Medical Director of any crime punishable
as a felony involving moral turpitude, immoral conduct or
professional misconduct or negligence.
Then in such event this Agreement shall terminate immediately and
AmSurg shall have the right to engage another physician to serve as
Medical Director for AmSurg.
6. INDEPENDENT CONTRACTOR. The relationship between the Medical Director
and AmSurg is, and shall remain, one of independent contractorship.
Nothing in this Agreement shall be construed to constitute either
party as the agent, employee or joint venturer of the other, nor shall
either party have the right to bind the other party or make any
promises or representations on behalf of the other party. AmSurg shall
have no control or direction over the manner in which the Medical
Director performs his responsibilities hereunder. The Medical Director
shall have no claim against AmSurg for vacation pay, sick leave,
retirement benefits, social security, worker's compensation,
disability or unemployment insurance benefits or other employee
benefits of any kind.
7. INDEMNIFICATION.
A. The Medical Director will indemnify and hold harmless AmSurg,
its officers and directors from any and all losses, costs,
damages, expenses and/or liabilities, including but not
limited to any attorney's fees incurred by AmSurg, its
officers or directors resulting from any lawsuit, claim or
other legal proceeding or threatened proceeding arising out of
or in connection with the acts or negligence or deliberate
omissions of the Medical Director in the performance of his
duties under this Agreement.
B. AmSurg will indemnify and hold harmless the Medical Director
from any and all losses, costs, damages, expenses and/or
liabilities, including but not limited to any attorney's fees
incurred by Medical Director resulting from any lawsuit, claim
or other legal proceeding or threatened proceeding arising out
of or in connection with the acts or omissions of AmSurg or
any officer, director or employee of AmSurg in the performance
of its obligations under this Agreement.
8. LIMITATION. The Medical Director agrees that during the Initial Term of
this Agreement and any renewals thereof, and in the absence of prior
written consent of AmSurg, the Medical Director shall not accept
similar administrative or medical administrative responsibilities from,
or serve in a similar capacity with, any other entity which is at such
3
<PAGE> 4
time engaged or is proposing to engage in a business of like or similar
nature to the business being conducted by AmSurg that, in the opinion
of the Board of Directors of AmSurg, could interfere or conflict with
the Medical Director's ability to adequately perform his
responsibilities under this Agreement. The Medical Director may serve
on the medical staff of hospitals as well as teach, lecture, write or
provide consultations and other activities, which are not otherwise
prohibited by this Section 8.
9. LIMITED RENEGOTIATION. This Agreement shall be construed to be in
accordance with any and all federal and state laws, including laws
relating to Medicare, Medicaid and other third party payors. In the
event there is a change in such laws, whether by statute, regulation,
agency or judicial decision that has any material effect on any term of
this Agreement, then the applicable term(s) of the Agreement shall be
subject to renegotiation and either party may request renegotiation of
the affected term or terms of this Agreement, upon written notice to
the other party, to remedy such condition.
The parties expressly recognize that upon request for renegotiation,
each party has a duty and obligation to the other only to renegotiate
the affected term(s) in good faith and, further, the Medical Director
expressly agrees that its consent to proposals submitted by AmSurg
during renegotiation efforts shall not be unreasonably withheld.
Should the parties be unable to renegotiate the term or terms so
affected so as to bring it/them into compliance with the statute,
regulation, or judicial opinion that rendered it/them unlawful or
unenforceable within 30 days of the date on which notice of a desired
renegotiation is given, then either party shall be entitled, after the
expiration of said 30 day period, to terminate this Agreement upon 30
additional days written notice to the other party.
10. NO REQUIREMENT TO REFER. The parties acknowledge and agree that nothing
contained in this Agreement requires the Medical Director to use or
recommend the use of facilities or services owned or operated by
AmSurg.
11. MISCELLANEOUS.
A. Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of
Tennessee.
B. Waiver of Breach. The waiver by a party of any breach of any
provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach
of the same or any other provision hereof by that party.
C. Entire Agreement. This instrument contains the entire
agreement of the parties and supersedes all prior agreements
and understandings between the parties with respect
4
<PAGE> 5
to the subject matter hereof. Amendments may be made to this
Agreement only upon the written approval of both AmSurg and
the Medical Director.
D. Severability. The provisions of this Agreement shall be
severable, and the invalidity of any provision, or portion
thereof, shall not affect the validity of the other
provisions.
E. Arbitration. All disputes relative to this Agreement shall be
resolved by arbitration pursuant to the rules of the
American Health Lawyers Association ("AHLA") then pertaining.
Arbitration proceedings shall be held in Nashville, Tennessee.
The parties may, if they are able to do so, agree upon one
arbitrator; otherwise, there shall be three arbitrators
selected to resolve disputes pursuant to this Section 11, one
named in writing by each party within 15 days after notice
of arbitration is served upon either party by the other and
a third arbitrator selected by the two arbitrators selected
by the parties within 15 days thereafter.
If the two arbitrators cannot select a third arbitrator within
such 15 days, either party may request that the AHLA select
such third arbitrator. If one party does not choose an
arbitrator within 15 days, the other party shall request that
the AHLA name such other arbitrator. No one shall serve as
arbitrator who is in any way financially interested in this
Agreement or in the affairs of either party.
Each of the parties hereto shall pay its own expenses of
arbitration and one-half of the expenses of the arbitrators.
If any position by either party hereunder, or any defense or
objection thereto, is deemed by the arbitrators to have been
unreasonable, the arbitrators shall assess, as part of their
award against the unreasonable party or reduce the award to
the unreasonable party, all or part of the arbitration
expenses (including reasonable attorneys' fees) of the other
party and of the arbitrators.
F. No Presumption Created. The parties acknowledge that they have
independently negotiated the provisions of this Agreement,
that they have relied upon their own counsel as to matters of
law and any application to this Agreement and that neither
party has relied on the other party with regard to such
matters of law or application. The parties expressly agree
that there shall be no presumption created as a result of
either party having prepared in whole or in part any provision
of this Agreement.
G. Assignment. The Medical Director acknowledges that the
services to be rendered by him are unique and personal, and
that the Medical Director therefore may not assign such
rights, duties or obligations hereunder. The rights,
obligations and duties of AmSurg hereunder shall inure to the
benefit of and be binding upon successors and assigns of
AmSurg.
5
<PAGE> 6
H. Notices. Except as otherwise provided in this Agreement, any
notice, payment, demand or communication required or permitted
to be given by any provision of this Agreement shall be duly
given
(1) if delivered in writing, personally to the person to
whom it is authorized to be given,
(2) if sent by certified or registered mail, facsimile,
overnight courier service, or telegraph, as follows:
If to AmSurg:
AmSurg Corp.
Suite 350
One Burton Hills Boulevard
Nashville, Tennessee 37215
Facsimile: (615) 665-0755
Attn: Claire M. Gulmi
If to the Medical Director:
Bergein F. Overholt, M.D.
Gastrointestinal Associates, P.C.
801 Weisgarber Road
Suite 100
Knoxville, Tennessee 37950-9002
Facsimile: (423) 588-2126
or to such other address as either party may from time to time
specify by written notice to the other party.
Any such notice shall be deemed to be given as of the date so
delivered, if delivered personally, as of the date on which
the same was deposited in the United States mail, postage
prepaid, addressed and sent as aforesaid, or on the date
received if sent by electronic facsimile.
I. Access to Books and Records. Upon written request of the
Secretary of Health and Human Services or the Comptroller
General or any other duly authorized representatives
thereof, the Medical Director shall make available to the
Secretary those contracts, books, documents and records
necessary to verify the nature and extent of the cost of
providing his services. Such inspection shall be available
up to four (4) years after such services are rendered. If
the Medical Director carries out any of the duties of the
Agreement through a subcontract with a value of Ten Thousand
Dollars ($10,000) or more over a 12 month period with a
related
6
<PAGE> 7
individual or organization, the Medical Director agrees to
include this requirement in such subcontract. If a request
from the Secretary or her representative is served on the
Medical Director, the Medical Director will notify AmSurg in
writing prior to responding to the request.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
AMSURG CORP.
By:/s/ Ken P. McDonald
--------------------------------
Title: President
MEDICAL DIRECTOR:
/s/ Bergein F. Overholt, M.D.
-----------------------------------
Bergein F. Overholt, M.D.
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMSURG
CORP.'S BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
30, 1998.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,850,847
<SECURITIES> 0
<RECEIVABLES> 11,871,497<F1>
<ALLOWANCES> 0
<INVENTORY> 1,119,842
<CURRENT-ASSETS> 19,322,020
<PP&E> 21,474,451<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,976,759
<CURRENT-LIABILITIES> 4,529,577
<BONDS> 0
0
0
<COMMON> 61,586,117
<OTHER-SE> (170,822)
<TOTAL-LIABILITY-AND-EQUITY> 86,976,759
<SALES> 0
<TOTAL-REVENUES> 58,074,392
<CGS> 0
<TOTAL-COSTS> 48,035,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,295,882
<INCOME-PRETAX> (729,532)
<INCOME-TAX> 32,119
<INCOME-CONTINUING> (761,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (761,651)
<EPS-PRIMARY> (0.07)
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<FN>
<F1>Value represents net amount.
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