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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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.)
20 BURTON HILLS BOULEVARD
NASHVILLE, TN 37215
(Address of principal executive offices) (Zip code)
(615) 665-1283
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, NO PAR VALUE
----------------------------------
(Title of class)
CLASS B COMMON STOCK, NO PAR VALUE
----------------------------------
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 24, 2000, 9,769,108 shares of the Registrant's Class A
Common Stock and 4,787,131 shares of the Registrant's Class B Common Stock were
outstanding. The aggregate market value of the shares of Common Stock (based
upon the closing sale price of these shares as reported on the Nasdaq National
Market on March 24, 2000) of the Registrant held by nonaffiliates on March 24,
2000 was approximately $84,600,000. This calculation assumes that all shares of
Common Stock beneficially held by executive officers and members of the Board of
Directors of the Registrant are owned by "affiliates," a status which each of
the officers and directors individually may disclaim.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 19, 2000 are incorporated by reference into Part III
of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
AmSurg Corp. (the "Company" or "AmSurg") was formed in April 1992 for
the purpose of developing, acquiring and operating practice-based ambulatory
surgery centers, in partnerships with physician practice groups, throughout the
United States. An AmSurg surgery center is typically located adjacent to or in
the immediate vicinity of the specialty medical practice of a physician group
partner's office. Each of the surgery centers provides a narrow range of high
volume, lower-risk surgical procedures, generally in a single specialty, and has
been designed with a cost structure that enables the Company to charge fees
which management believes are generally less than those charged by hospitals and
freestanding outpatient surgery centers for similar services performed on an
outpatient basis. As of December 31, 1999, the Company owned a majority interest
in 63 surgery centers in 23 states and the District of Columbia. As of December
31, 1999, the Company also had 12 centers under development and had executed
letters of intent to acquire or develop four additional centers. The Company is
utilizing its surgery centers in selected markets as a base to develop specialty
physician networks that are designed to serve large numbers of covered lives and
thus strengthen the Company's position in dealing with managed care
organizations. As of December 31, 1999, the Company had established eight
specialty physician networks, located in Alabama, Florida, Kansas, Ohio,
Tennessee and Texas.
AmSurg Corp. was organized as a Tennessee corporation in 1992. The
Company's principal executive offices are located at 20 Burton Hills Boulevard,
Nashville, Tennessee 37215, and its telephone number is 615-665-1283.
INDUSTRY OVERVIEW
In recent years, government programs, private insurance companies,
managed care organizations and self-insured employers have implemented various
cost-containment measures to limit the growth of healthcare expenditures. These
cost-containment measures, together with technological advances, have resulted
in a significant shift in the delivery of healthcare services away from
traditional inpatient hospitals to more cost-effective alternate sites,
including ambulatory surgery centers.
According to SMG Marketing Group Inc.'s Freestanding Outpatient Surgery
Center Directory (June 1999), an industry publication, freestanding outpatient
surgery centers are one of the fastest growing segments of the healthcare
industry and are positioned well to become the premier provider of outpatient
surgery. The number of outpatient surgery cases increased 84% from 3.1 million
in 1993 to 5.7 million in 1999. As of June 1999, there were 2,726 freestanding
ambulatory surgery centers in the U.S., of which 93 were owned by hospitals and
733 were owned by corporate entities. The remaining 1,900 centers were
independently owned, primarily by physicians.
The Company believes that the following factors have contributed to the
growth of ambulatory surgery:
Cost-Effective Alternative. Ambulatory surgery is generally less
expensive than hospital inpatient surgery. In addition, the Company believes
that surgery performed at a practice-based ambulatory surgery center is
generally less expensive than hospital-based ambulatory surgery for a number of
reasons, including lower facility development costs, more efficient staffing and
space utilization and a specialized operating environment focused on cost
containment. Interest in ambulatory surgery centers has grown as managed care
organizations have continued to seek a cost-effective alternative to inpatient
services.
Physician and Patient Preference. The Company believes that many
physicians prefer practice-based ambulatory surgery centers. The Company
believes that such centers enhance physicians' productivity by providing them
with greater scheduling flexibility, more consistent nurse staffing and faster
turnaround time between cases, allowing them to perform more surgeries in a
defined period of time. In contrast, hospitals and freestanding multi-specialty
ambulatory surgery centers generally serve a broader group of physicians,
including those involved with emergency procedures, resulting in postponed or
delayed surgeries. Additionally, many physicians choose to perform surgery in a
practice-based ambulatory surgery center because their patients prefer the
simplified admissions and discharge procedures and the less institutional
atmosphere.
New Technology. New technology and advances in anesthesia, which have
been increasingly accepted by physicians, have significantly expanded the types
of surgical procedures that are being performed in ambulatory surgery centers.
Lasers, enhanced endoscopic techniques and fiber optics have reduced the trauma
and recovery time associated with many surgical procedures. Improved anesthesia
has shortened recovery time by minimizing post-operative side effects such as
nausea and drowsiness, thereby avoiding, in some cases, overnight
hospitalization.
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STRATEGY
The Company believes it is a leader in the development, acquisition and
operation of practice-based ambulatory surgery centers. The key components of
the Company's strategy are:
Develop and Acquire Practice-Based Ambulatory Surgery Centers. The
Company has grown and expects to continue to grow through a combination of
acquisitions and development of single specialty centers throughout the United
States.
Achieve Growth in Surgery Center Revenues and Profitability. The
Company believes it enhances physician productivity and promotes increased
same-center revenues and profitability by creating operating efficiencies,
including improved scheduling, group purchasing programs and the clinical
efficiencies associated with operating a single specialty surgery center. In
addition, the Company's operations are designed to attract additional managed
care contracts by emphasizing convenience, a single specialty focus, lower cost
procedures and the ability to contract for large numbers of covered lives.
Develop Specialty Networks. Utilizing single specialty ambulatory
surgery centers to provide a cost advantage, the Company's strategy has evolved
to include the development and ownership of specialty physician networks which
offer specialty physician services, as well as outpatient surgery procedures
with wide geographic coverage to managed care payers. The Company expects to
continue the development of specialty networks in selected markets to provide
broad geographic patient access points in the market through the network
participation of high quality and strategically located practices.
As part of this strategy, the Company has established eight specialty
physician networks. By establishing these networks, the Company believes it will
be able to obtain additional contracts with managed care payers and increase the
profitability of its surgery centers.
ACQUISITION AND DEVELOPMENT OF SURGERY CENTERS
Practice-based ambulatory surgery centers are licensed outpatient
surgery centers generally equipped and staffed for a single medical specialty
and are typically located in or adjacent to a physician group practice. The
Company has targeted ownership in centers that perform gastrointestinal
endoscopy, ophthalmology, urology, orthopaedics or otolaryngology procedures.
These specialties perform many high volume, lower-risk procedures that are
appropriate for the practice-based setting. The focus at each center on only the
procedures in a single specialty results in these centers generally having
significantly lower capital and operating costs than the costs of hospital and
freestanding ambulatory surgery center alternatives that are designed to provide
more intensive services in a broader array of surgical specialties. In addition,
the practice-based surgery center, which is located in or adjacent to the group
practice, provides a more convenient setting for the patient and for the
physician performing the procedure. Improvements in technology are also enabling
additional types of procedures to be performed in the practice-based setting.
The Company's development staff identifies existing centers that are
potential acquisition candidates and identifies physician practices that are
potential partners for new center development in the medical specialties which
the Company has targeted for development. These candidates are then evaluated
against the Company's project criteria which include several factors such as
number of procedures currently being performed by the practice, competition from
and the fees being charged by other surgical providers, relative competitive
market position of the physician practice under consideration, ability to
contract with payers in the market and state certificate of need ("CON")
requirements for development of a new center.
In presenting the advantages to physicians of developing a new
practice-based ambulatory surgery center in partnership with the Company, the
Company's development staff emphasizes the proximity of a practice-based surgery
center to a physician's office, the simplified administrative procedures, the
ability to schedule consecutive cases without preemption by inpatient or
emergency procedures, the rapid turnaround time between cases, the high
technical competency of the center's clinical staff that performs only a limited
number of specialized procedures, and state-of-the-art surgical equipment. The
Company also focuses on its expertise in developing and operating centers. In
addition, as part of the Company's role as the general partner or manager of the
surgery center partnerships and limited liability companies, the Company markets
the centers to third party payers.
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In a development project, AmSurg, among other things, provides the
following services:
- Financial feasibility pro forma analysis;
- Assistance in state CON approval process;
- Site selection;
- Assistance in space analysis and schematic floor plan design;
- Analysis of local, state, and federal building codes;
- Negotiation of equipment financing with lenders;
- Equipment budgeting, specification, bidding, and purchasing;
- Construction financing;
- Architectural oversight;
- Contractor bidding;
- Construction management; and
- Assistance with licensing, Medicare certification and third
party payer contracts.
The Company's ownership interests in practice-based ambulatory surgery
centers generally are structured through limited and general partnerships or
limited liability companies. The Company generally owns 51% to 70% of the
partnerships or limited liability companies and acts as the general partner in
each limited partnership. In development transactions, capital contributed by
the physicians and the Company plus bank financing provides the partnership or
limited liability company with the funds necessary to construct and equip a new
surgery center and to provide initial working capital.
As part of each development and acquisition transaction, the Company
enters into a partnership agreement or, in the case of a limited liability
company, an operating agreement with its physician group partner. Under these
agreements, the Company receives a percentage of the net income and cash
distributions of the entity equal to its percentage ownership interest in the
entity and has the right to the same percentage of the proceeds of a sale or
liquidation of the entity. As sole general partner, the Company is generally
liable for the debts of the partnership.
These agreements generally provide that the Company will oversee the
business, marketing, financial reporting accreditation and administrative
operations of the surgery center, and that the physician group partner will
provide the center with a medical director, and with certain specified services
such as billing and collections, transcription and accounts payable processing.
In addition, these agreements may provide that the limited partnership
or limited liability company will lease certain non-physician personnel from the
physician practice, who will provide services at the center. The cost of the
salary and benefits of these personnel are reimbursed to the practice by the
limited partnership or limited liability company. Certain significant aspects of
the limited partnership's or limited liability company's governance are overseen
by an operating board, which is comprised of equal representation by the Company
and the physician partners.
The partnership and operating agreements provide that if certain
regulatory changes take place the Company will be obligated to purchase some or
all of the minority interests of the physicians affiliated with the Company in
the partnerships or limited liability companies that own and operate the
Company's surgery centers. The regulatory changes that could trigger such an
obligation include changes that: (i) make the referral of Medicare and other
patients to the Company's surgery centers by physicians affiliated with the
Company illegal; (ii) create the substantial likelihood that cash distributions
from the partnership or limited liability company to the physicians associated
therewith will be illegal; or (iii) cause the ownership by the physicians of
interests in the partnerships or limited liability companies to be illegal.
There can be no assurance that the Company's existing capital resources would be
sufficient for it to meet the obligation, if it arises, to purchase minority
interests held by physicians in the partnerships or limited liability companies
which own and operate the Company's surgery centers. The determination of
whether a triggering event has occurred is made by the concurrence of counsel
for the Company and the physician partners or, in the absence of such
concurrence, by independent counsel having an expertise in healthcare law and
who is chosen by both parties. Such determination is therefore not within the
control of the Company. While the Company has structured the purchase
obligations to be as favorable as possible to the Company, the triggering of
these obligations could have a material adverse effect on the financial
condition and results of operations of the Company. See "--Government
Regulation."
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SURGERY CENTER LOCATIONS
The following table sets forth certain information relating to centers
in operation as of December 31, 1999:
<TABLE>
<CAPTION>
ACQUISTION/ OPERATING OR
SPECIALTY OPENING PROCEDURE
LOCATION PRACTICE DATE ROOMS
-------- -------- ---- -----
<S> <C> <C> <C>
ACQUIRED CENTERS:
Knoxville, Tennessee Gastroenterology November 1992 7
Topeka, Kansas Gastroenterology November 1992 4
Nashville, Tennessee Gastroenterology November 1992 3
Nashville, Tennessee Gastroenterology December 1992 3
Washington, D.C. Gastroenterology November 1993 3
Melbourne, Florida Ophthalmology November 1993 3
Torrance, California Gastroenterology February 1994 2
Sebastopol, California Ophthalmology April 1994 2
Maryville, Tennessee Gastroenterology January 1995 3
Miami, Florida Gastroenterology April 1995 7
Panama City, Florida Gastroenterology July 1996 3
Ocala, Florida Gastroenterology August 1996 3
Columbia, South Carolina Gastroenterology October 1996 3
Wichita, Kansas Orthopaedics November 1996 3
Minneapolis, Minnesota Gastroenterology November 1996 2
Crystal River, Florida Gastroenterology January 1997 3
Abilene, Texas Ophthalmology March 1997 2
Fayetteville, Arkansas Gastroenterology May 1997 2
Independence, Missouri Gastroenterology September 1997 2
Kansas City, Missouri Gastroenterology September 1997 2
Phoenix, Arizona Ophthalmology February 1998 2
Denver, Colorado Gastroenterology April 1998 3
Sun City, Arizona Ophthalmology May 1998 4
Westlake, California Ophthalmology August 1998 1
Baltimore, Maryland Gastroenterology November 1998 2
Naples, Florida Gastroenterology November 1998 2
Boca Raton, Florida Ophthalmology December 1998 2
West Orange, New Jersey Otolaryngology May 1999 2
Indianapolis, Indiana Gastroenterology June 1999 4
Chattanooga, Tennessee Gastroenterology July 1999 2
Mount Dora, Florida Ophthalmology September 1999 2
Oakhurst, New Jersey Gastroenterology September 1999 1
Cape Coral, Florida Gastroenterology November 1999 2
La Jolla, California Gastroenterology December 1999 2
Burbank, California Ophthalmology December 1999 1
Waldorf, Maryland Gastroenterology December 1999 1
Las Vegas, Nevada Ophthalmology December 1999 2
DEVELOPED CENTERS:
Santa Fe, New Mexico Gastroenterology May 1994 3
Tarzana, California Gastroenterology July 1994 3
Beaumont, Texas Gastroenterology October 1994 3
Abilene, Texas Gastroenterology December 1994 3
Knoxville, Tennessee Ophthalmology June 1996 2
West Monroe, Louisiana Gastroenterology June 1996 2
Miami, Florida Gastroenterology September 1996 3
Sidney, Ohio Ophthalmology, Urology, December 1996 3
General Surgery, Otolaryngology
Montgomery, Alabama Ophthalmology May 1997 2
Willoughby, Ohio Gastroenterology July 1997 2
Milwaukee, Wisconsin Gastroenterology July 1997 2
Chevy Chase, Maryland Gastroenterology July 1997 2
Melbourne, Florida Gastroenterology August 1997 2
Lorain, Ohio Gastroenterology August 1997 2
Hillmont, Pennsylvania Gastroenterology October 1997 2
Minneapolis, Minnesota Gastroenterology November 1997 2
Hialeah, Florida Gastroenterology December 1997 3
Cleveland, Ohio Ophthalmology December 1997 2
Cincinnati, Ohio Gastroenterology January 1998 3
Evansville, Indiana Ophthalmology February 1998 2
Shawnee, Kansas Gastroenterology April 1998 2
Salt Lake City, Utah Gastroenterology April 1998 2
Oklahoma City, Oklahoma Gastroenterology May 1998 2
El Paso, Texas Gastroenterology December 1998 3
Toledo, Ohio Gastroenterology December 1998 3
Florham Park, New Jersey Gastroenterology December 1999 2
</TABLE>
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The Company's partnerships and limited liability companies generally
lease certain of the real property in which its centers operate and the
equipment used in certain of its centers, either from the physician partners or
from unaffiliated parties. Two centers in operation at December 31, 1999 are
located in buildings owned indirectly by the Company.
SURGERY CENTER OPERATIONS
The Company generally designs, builds, staffs and equips each of its
facilities to meet the specific needs of a single specialty physician practice
group. The Company's typical ambulatory surgery center averages 3,000 square
feet and is located adjacent to or in the immediate vicinity of the specialty
physicians' offices. Each center developed by the Company typically has two to
three operating or procedure rooms with areas for reception, preparation,
recovery and administration. Each surgery center is developed to perform an
average of 2,500 procedures per year. As of December 31, 1999, 46 of the
Company's centers in operation performed gastrointestinal endoscopy procedures,
14 centers performed ophthalmology procedures, one center performed orthopaedic
procedures, one center performed otolaryngology procedures and one center
performed ophthalmology, urology, general surgery and otolaryngology procedures.
The procedures performed at the Company's centers generally do not require an
extended recovery period following the procedures. The Company's centers are
typically staffed with three to five clinical professionals and administrative
personnel, some of whom may be shared with the physician practice group. The
clinical staff includes nurses and surgical technicians.
The types of procedures performed at each center depend on the
specialty of the practicing physicians. The typical procedures performed or to
be performed most commonly at AmSurg centers in operation or under development
within each specialty are:
- Gastroenterology--colonoscopy and endoscopy procedures
- Ophthalmology--cataracts and retinal laser surgery
- Orthopaedics--knee arthroscopy and carpal tunnel repair
- Urology--cystoscopy and biopsy
- Otolaryngology--myringotomy and tonsillectomy
The Company markets its surgery centers and networks directly to
third-party payers, including health maintenance organizations ("HMOs"),
preferred provider organizations ("PPOs"), other managed care organizations and
employers. Payer-group marketing activities conducted by the Company's
management and center administrators emphasize the high quality of care, cost
advantages and convenience of the Company's surgery centers and are focused on
making each center an approved provider under local managed care plans. In
addition, the Company is pursuing relationships with selected physician groups
in its markets in order to market a comprehensive specialty physician network
that includes its surgery centers to managed care payers.
JCAHO ACCREDITATION
Forty-three of the Company's surgery centers are currently accredited
by the Joint Commission for the Accreditation of Healthcare Organizations
("JCAHO") and eight surgery centers are scheduled for initial or renewal
accreditation surveys during 2000. Of the accredited centers, all have received
three-year certification. The Company believes that JCAHO accreditation is the
quality benchmark for managed care organizations. Many managed care
organizations will not contract with a facility until it is JCAHO accredited.
The Company believes that its historical performance in the accreditation
process reflects the Company's commitment to providing high quality care in its
surgery centers.
SPECIALTY PHYSICIAN NETWORKS
Managed care organizations with significant numbers of covered lives
are seeking to direct large numbers of patients to high-quality, low-cost
providers and provider groups. The Company believes that specialty physician
networks that include its practice-based surgery centers are attractive to
managed care organizations because of the geographic coverage of the network,
the lower costs associated with treatment, the availability of the complete
delivery system for a specific specialty and high levels of patient
satisfaction. As a result, the Company believes the development of such networks
will enable the Company to secure additional managed care contracts, including
capitated contracts, and will increase the market share and profitability of the
Company's surgery centers.
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.
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As of December 31, 1999, the Company had established and was the
operator of eight specialty physician networks consisting of three
gastroenterology networks in Miami, Florida, Kansas City, Kansas and El Paso,
Texas and five ophthalmology/eye care networks in Knoxville, Tennessee,
Montgomery, Alabama, Cleveland, Ohio, Abilene, Texas and Melbourne, Florida. As
of December 31, 1999, five networks had secured managed care contracts and were
operational. Each specialty physician network is formed as either a limited
partnership or limited liability company in which the Company owns a majority
interest. Individual physicians who practice in the medical specialty on which
the network is focused own the minority interests in the network. These minority
physician owners, who may or may not be affiliated with an AmSurg surgery
center, will provide the medical services to the patient population covered by
the contracts the network will enter into with managed care payers. Following
the establishment of a network, the Company will provide management services and
marketing services to the network in an effort to secure patient service
contracts with managed care payers. Fees paid by these networks to the Company
are nominal and generally are intended to cover the Company's cost in providing
such services.
In addition, as part of its network development strategy, in January
1996 and January 1997 the Company acquired a majority interest in the assets of
two physician practices in Miami, Florida. As a result of the Company's
experience in developing specialty physician networks, the Company concluded
that ownership of physician practices is not required in order to establish a
specialty physician network. In May 1998, the Board of Directors approved a plan
for the Company to dispose of its physician practice interests 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. Both practices were sold in 1998.
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. The Company's other source of revenues
historically has been fees for physician services performed by the two physician
group practices in which the Company owned a majority interest, but which were
disposed of in the second and fourth quarters of 1998.
Practice-based ambulatory surgery centers 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 38% of its net revenues
from governmental healthcare programs, including Medicare and Medicaid, in 1999.
The Medicare program currently pays ambulatory surgery centers and physicians in
accordance with fee schedules which are prospectively determined.
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 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 Medicare, Medicaid and SCHIP Balanced
Budget Refinement Act of 1999, enacted in November 1999, requires HCFA to either
update the surgery center cost survey used in the proposed rule or to phase the
new rates and methodology into use over a three-year period. The rule is
expected to be revised and published in the spring of 2000 and the Company
expects the earliest implementation date to be July 1, 2000. There can be no
assurance that the final rule will not adversely impact the Company's financial
condition, results of operation and business prospects.
The Company believes that the rule, if adopted as proposed in June
1998, would adversely affect the Company's annual revenues by approximately 4%
at the time of full implementation based on the rates stated therein and the
Company's historical procedure mix. However, the Company expects that the
earnings impact will be offset by certain actions taken by the Company or that
the Company intends to take, including actions to effect certain cost
efficiencies in center operations, reduce corporate overhead costs and provide
for contingent purchase price adjustments for future acquisitions prior to
implementation. 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.
In addition to payment from governmental programs, ambulatory surgery
centers derive a significant portion of their net revenues from private
healthcare reimbursement plans. These plans include both standard indemnity
insurance programs as well as managed care structures such as PPOs, HMOs and
other similar structures. The strengthening of managed care systems nationally
has resulted in substantial competition among providers of services, including
providers of surgery center services with greater financial resources and market
penetration than the Company, to contract with these systems. The Company
believes that all payers, both governmental and private, will continue their
efforts over the next several years to reduce healthcare costs and that their
efforts will generally result in a less stable market for healthcare services.
While no assurances can be given concerning the ultimate success of the
Company's efforts to contract with healthcare payers, the Company believes that
its position as a low-cost alternative for certain surgical procedures should
enable the Company's centers to compete effectively in the evolving healthcare
marketplace.
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Approximately 2% of the Company's revenues during 1999 were generated
by capitated payment contracts with HMOs. These revenues generally were
attributable to contracts held by the network and surgery centers in which the
Company held a majority interest. The 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.
COMPETITION
The Company encounters competition in three separate areas: competition
for partnership development of practice-based centers, competition with other
companies for its physician partnership relationships, and competition with
other providers for patients and for contracting with managed care payers in
each of its markets.
Competition for Partnership Development of Practice-based Centers. The
Company believes that it does not have a direct corporate competitor in the
development of practice-based ambulatory surgery centers across the specialties
of gastroenterology, ophthalmology, otolaryngology, urology, and orthopaedic
surgery. There are, however, several large, publicly held companies, or
divisions or subsidiaries of large publicly held companies, that develop
freestanding multi-specialty surgery centers, and these companies may compete
with the Company in the development of centers.
However, many physician groups develop surgery centers without a
corporate partner, utilizing consultants who typically perform these services
for a fee and who do not take an equity interest in the ongoing operations of
the center. It is generally difficult, however, in the rapidly evolving
healthcare industry, for a single practice to create effectively the efficient
operations and marketing programs necessary to compete with other provider
networks and companies. Because of this, as well as the financial investment
necessary to develop surgery centers, physician groups are attracted to a
corporate partner, such as AmSurg. Other factors that may influence the
physicians' decisions concerning the choice of a corporate partner are the
potential corporate partner's experience, reputation and access to capital.
Competition for Partnership Acquisitions. There are several companies,
many in niche markets, that acquire existing practice-based ambulatory surgery
centers and specialty physician practices. Many of these competitors have
greater resources than the Company. Most of the Company's competitors acquire
centers through the acquisition of the related physician practice. The principal
competitive factors that affect the ability of the Company and its competitors
to acquire surgery centers are price, experience and reputation, access to
capital and willingness to acquire a surgery center without acquiring the
physician practice.
While there are a few national networking companies that specialize in
the establishment and operation of single specialty networks similar to the
Company's networks, most networks are either multi-specialty or primary care
based. The competitive factors the Company primarily experiences in the
development of specialty networks include the ability to attract physician
practice groups to the network and to achieve market penetration and geographic
coverage.
Competition for Patients and Managed Care Contracts. The Company
believes that its surgery centers can provide lower-cost, high quality surgery
in a more comfortable environment for the patient in comparison to hospitals and
to freestanding surgery centers with which the Company competes for managed care
contracts. In addition, the existence of the Company's specialty physician
networks provides the geographic access that managed care companies desire.
Competition for managed care contracts with other providers is focused on
pricing of services, quality of services, and affiliation with key physician
groups in a particular market.
GOVERNMENT REGULATION
The healthcare industry is subject to extensive regulation by a number
of governmental entities at the federal, state and local level. Regulatory
activities affect the business activities of the Company, by controlling the
Company's growth, requiring licensure and certification for its facilities,
regulating the use of the Company's properties, and controlling reimbursement to
the Company for the services it provides.
CONs and State Licensing. CON regulations control the development of
ambulatory surgery centers in certain states. CONs generally provide that prior
to the expansion of existing centers, the construction of new centers, the
acquisition of major items of equipment or the introduction of certain new
services, approval must be obtained from the designated state health planning
agency. State CON statutes generally provide that, prior to the construction of
new facilities or the introduction of new services, a designated state health
planning agency must determine that a need exists for those facilities or
services. The Company's development of ambulatory surgery centers generally
focuses on states that do not require CONs. However, acquisitions of existing
surgery centers, even in states that require CONs for new centers, generally do
not require CON regulatory approval.
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State licensing of ambulatory surgery centers is generally a
prerequisite to the operation of each center and to participation in federally
funded programs, such as Medicare and Medicaid. Once a center becomes licensed
and operational, it must continue to comply with federal, state and local
licensing and certification requirements in addition to local building and life
safety codes. In addition, every state imposes licensing requirements on
individual physicians, and facilities and services operated and owned by
physicians. Physician practices are also subject to federal, state and local
laws dealing with issues such as occupational safety, employment, medical leave,
insurance regulations, civil rights and discrimination, and medical waste and
other environmental issues.
Corporate Practice of Medicine. The Company is not required to obtain a
license to practice medicine in any jurisdiction in which it owns and operates
an ambulatory surgery center, because the surgery centers are not engaged in the
practice of medicine. The physicians who perform procedures at the surgery
centers are licensed to practice medicine through their group practices which
are not affiliated with the Company other than through the physicians' ownership
in the partnerships and limited liability companies that own the surgery
centers.
Insurance Laws. Laws in all states regulate the business of insurance
and the operation of HMOs. Many states also regulate the establishment and
operation of networks of healthcare providers. The Company believes that its
operations are in compliance with these laws in the states in which it currently
does business. The National Association of Insurance Commissioners (the "NAIC")
recently endorsed a policy proposing the state regulation of risk assumption by
healthcare providers. The policy proposes prohibiting providers from entering
into capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
healthcare providers will be precluded from entering into capitated contracts
directly with employers and benefit plans other than HMOs and insurance
companies.
The Company and its affiliated groups may in the future enter into
contracts with managed care organizations, such as HMOs, whereby the Company and
its affiliated groups would assume risk in connection with providing healthcare
services under capitation arrangements. If the Company or its affiliated groups
are considered to be in the business of insurance as a result of entering into
such risk sharing arrangements, they could become subject to a variety of
regulatory and licensing requirements applicable to insurance companies or HMOs,
which could have a material adverse effect upon the Company's ability to enter
into such contracts.
With respect to managed care contracts that do not involve capitated
payments or some other form of financial risk sharing, federal and state
antitrust laws restrict the ability of healthcare provider networks such as the
Company's specialty physician networks to negotiate payments on a collective
basis.
Reimbursement. The Company depends upon third-party programs, including
governmental and private health insurance programs, to reimburse it for services
rendered to patients in its ambulatory surgery centers. In order to receive
Medicare reimbursement, each ambulatory surgery center must meet the applicable
conditions of participation set forth by the Department of Health and Human
Services ("DHHS") relating to the type of facility, its equipment, personnel and
standard of medical care, as well as compliance with state and local laws and
regulations, all of which are subject to change from time to time. Ambulatory
surgery centers undergo periodic on-site Medicare certification surveys. Each of
the existing AmSurg centers is certified as a Medicare provider. Although the
Company intends for its centers to participate in Medicare and other government
reimbursement programs, there can be no assurance that these centers will
continue to qualify for participation.
Medicare-Medicaid Illegal Remuneration Provisions. The anti-kickback
statute makes unlawful knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate) directly
or indirectly to induce or in return for referring an individual to a person for
the furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Violation is
a felony punishable by a fine of up to $25,000 or imprisonment for up to five
years, or both. The Medicare and Medicaid Patient Program Protection Act of 1987
(the "1987 Act") provides administrative penalties for healthcare practices
which encourage overutilization or illegal remuneration when the costs of
services are reimbursed under the Medicare program. Loss of Medicare
certification and severe financial penalties are included among the 1987 Act's
sanctions. The 1987 Act, which adds to the criminal penalties under preexisting
law, also directs the Inspector General of the DHHS to investigate practices
which may constitute overutilization, including investments by healthcare
providers in medical diagnostic facilities, and to promulgate regulations
establishing exemptions or "safe harbors" for investments by medical service
providers in legitimate business ventures that will be deemed not to violate the
law even though those providers may also refer patients to such a venture.
Regulations identifying safe harbors were published in final form in July 1991,
and additional safe harbors were published in final form in November 1999 (the
"Regulations").
The Regulations set forth two specific exemptions or "safe harbors"
related to "investment interests": the first concerning investment interests in
large publicly traded companies ($50,000,000 in net tangible assets) and the
second for investments in smaller entities. The Regulations also include a safe
harbor for investments in certain types of ambulatory surgery centers. The
partnerships and limited liability companies that own the AmSurg centers do not
meet all of the criteria of either existing "investment interests" safe harbor
or the surgery center safe harbor as set forth in the Regulations.
9
<PAGE> 10
While several federal court decisions have aggressively applied the
restrictions of the anti-kickback statute, they provide little guidance as to
the application of the anti-kickback statute to the Company's partnerships and
limited liability companies. The Company believes that it is in compliance with
the current requirements of applicable federal and state law because among other
factors:
i. the partnerships and limited liability companies exist to
effect legitimate business purposes, including the ownership, operation
and continued improvement of quality, cost effective and efficient
services to their patients;
ii. the partnerships and limited liability companies function
as an extension of the group practices of physicians who are affiliated
with the surgery centers and the surgical procedures are performed
personally by these physicians without referring the patients outside
of their practice;
iii. the physician partners have a substantial investment at
risk in the partnership or limited liability company;
iv. terms of the investment do not take into account volume
of the physician partner's past or anticipated future services provided
to patients of the centers;
v. the physician partners are not required or encouraged as a
condition of the investment to treat Medicare or Medicaid patients at
the centers or to influence others to refer such patients to the
centers for treatment;
vi. the partnership, limited liability company, the AmSurg
subsidiary and their affiliates generally will not loan any funds to or
guarantee any debt on behalf of the physician partners; and
vii. distributions by the partnerships and limited liability
companies are allocated uniformly in proportion to ownership interests.
The Regulations also set forth a safe harbor for personal services and
management contracts. Certain of the Company's partnerships and limited
liability companies have entered into ancillary services agreements with their
physician partners' group practice pursuant to which the practice provides the
center with billing and collections, transcription, payables processing and
payroll services. The consideration payable by a partnership or limited
liability company for these services is based on the volume of services provided
by the practice, which is measured by the partnership or limited liability
company's revenues. Although these relationships do not meet all of the criteria
of the personal services and management contracts safe harbor, the Company
believes that the ancillary services agreements are in compliance with the
current requirements of applicable federal and state law because, among other
factors, the fees payable to the physician practice approximate the practice's
cost of providing the services thereunder.
Notwithstanding the Company's belief that the relationship of physician
partners to the AmSurg surgery centers should not constitute illegal
remuneration under the anti-kickback statute, no assurances can be given that a
federal or state agency charged with enforcement of the anti-kickback statute
and similar laws might not assert a contrary position or that new federal or
state laws might not be enacted that would cause the physician partners'
ownership interest in the AmSurg centers to become illegal, or result in the
imposition of penalties on the Company or certain of its facilities. Even the
assertion of a violation could have a material adverse effect upon the Company.
Prohibition on Physician Ownership of Healthcare Facilities. The
so-called "Stark II" provisions of the Omnibus Budget Reconciliation Act of 1993
("OBRA 93") amend the federal Medicare statute to prohibit a referral by a
physician for "designated health services" to an entity in which the physician
has an investment interest or other financial relationship, subject to certain
exceptions. A referral under Stark II that does not fall within an exception is
strictly prohibited. This prohibition took effect on January 1, 1995. Sanctions
for violating Stark II can include civil monetary penalties and exclusion from
Medicare and Medicaid.
Ambulatory surgery is not identified as a "designated health service",
and the Company, therefore, does not believe that ambulatory surgery is
otherwise subject to the restrictions set forth in Stark II. Proposed
regulations pursuant to Stark II that were published on January 9, 1998
specifically provide that services provided in any ambulatory surgery center and
reimbursed under the composite payment rate are not designated health services.
However, unfavorable final Stark II regulations or subsequent adverse court
interpretations concerning similar provisions found in recently enacted state
statutes could prohibit reimbursement for treatment provided by the physicians
affiliated with the Company's centers to their patients. The Company cannot
predict whether other regulatory or statutory provisions will be enacted by
federal or state authorities which would prohibit or otherwise regulate
relationships which the Company has established or may establish with other
healthcare providers or the possibility of material adverse effects on its
business or revenues arising from such future actions. The Company believes,
however, that it will be able to adjust its operations so as to be in compliance
with any regulatory or statutory provision, as may be applicable.
10
<PAGE> 11
The Company is subject to state and federal laws that govern the
submission of claims for reimbursement. These laws generally prohibit an
individual or entity from knowingly and willfully presenting a claim (or causing
a claim to be presented) for payment from Medicare, Medicaid or other third
party payers that is false or fraudulent. The standard for "knowing and willful"
often includes conduct that amounts to a reckless disregard for whether accurate
information is presented by claims processors. Penalties under these statutes
include substantial civil and criminal fines, exclusion from the Medicare
program, and imprisonment. One of the most prominent of these laws is the
federal False Claims Act, which may be enforced by the federal government
directly, or by a qui tam plaintiff on the government's behalf. Under the False
Claims Act, both the government and the private plaintiff, if successful, are
permitted to recover substantial monetary penalties, as well as an amount equal
to three times actual damages. In recent cases, some qui tam plaintiffs have
taken the position that violations of the anti-kickback statute and Stark II
should also be prosecuted as violations of the federal False Claims Act. The
Company believes that it has procedures in place to ensure the accurate
completion of claims forms and requests for payment. However, the laws and
regulations defining the proper parameters of proper Medicare or Medicaid
billing are frequently unclear and have not been subjected to extensive judicial
or agency interpretation. Billing errors can occur despite the Company's best
efforts to prevent or correct them, and no assurances can be given that the
government will regard such errors as inadvertent and not in violation of the
False Claims Act or related statutes.
Under its agreements with its physician partners, the Company is
obligated to purchase the interests of the physicians at the greater of the
physicians' capital account or a multiple of earnings in the event that their
continued ownership of interests in the partnerships and limited liability
companies becomes prohibited by the statutes or regulations described above. The
determination of such a prohibition is required to be made by counsel of the
Company in concurrence with counsel of the physician partners, or if they cannot
concur, by a nationally recognized law firm with an expertise in healthcare law
jointly selected by the Company and the physician partners. The interest
required to be purchased by the Company will not exceed the minimum interest
required as a result of the change in the statute or regulation causing such
prohibition.
EMPLOYEES
As of December 31, 1999, the Company and its affiliated entities
employed approximately 400 persons, 285 of whom were full-time employees and 115
of whom were part-time employees. Of the above, 68 were employed at the
Company's headquarters in Nashville, Tennessee. In addition, approximately 260
employees are leased on a full-time basis and 170 are leased on a part-time
basis from the associated physician practices. None of these employees are
represented by a union. The Company believes its relationship with its employees
to be excellent.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, the Company may be named a party to legal claims and
proceedings in the ordinary course of business. Management is not aware of any
claims or proceedings against it, its partnerships or limited liability
companies that might have a material financial impact on the Company.
Each of the Company's surgery centers and physician practices maintains
separate medical malpractice insurance in amounts it deems adequate for its
business.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Nashville,
Tennessee and contain an aggregate of approximately 22,060 square feet of office
space, which the Company leases from a third party pursuant to an agreement that
expires in 2009. AmSurg partnerships and limited liability companies generally
lease space for their surgery centers. Sixty-one of the centers in operation at
December 31, 1999 lease space ranging from 1,200 to 13,400 square feet with
remaining lease terms ranging from two to fifteen years. Two centers in
operation at December 31, 1999 are located in buildings owned indirectly by the
Company.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
<PAGE> 12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding executive
officers of the Company as of December 31, 1999. Executive officers of the
Company serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Ken P. McDonald 59 Chief Executive Officer since December 1997; President and a
director since July 1996; Executive Vice President from
December 1994 through July 1996 and Chief Operating Officer
from December 1994 until December 1997.
Claire M. Gulmi 46 Chief Financial Officer since September 1994; Senior Vice
President since March 1997; Secretary since December 1997;
Vice President from September 1994 through March 1997.
Royce D. Harrell 54 Senior Vice President of Operations since October 1992.
Rodney H. Lunn 50 Senior Vice President of Center Development since 1992;
director from 1992 until February 1997.
David L. Manning 50 Senior Vice President of Development and Assistant Secretary
of the Company since April 1992.
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock and Class B Common Stock trade on
the Nasdaq Stock Market's National Market under the symbols "AMSGA" and "AMSGB,"
respectively. The following table sets forth the high and low sales prices per
share of each class of common stock as reported on the Nasdaq National Market
for each of the quarters in 1998 and 1999.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Quarter ended March 31, 1998:
AMSGA ...................... $ 10.25 $ 6.75
AMSGB ...................... $ 10.00 $ 6.63
Quarter ended June 30, 1998:
AMSGA ...................... $ 11.25 $ 7.25
AMSGB ...................... $ 11.00 $ 6.00
Quarter ended September 30, 1998:
AMSGA ...................... $ 7.81 $ 6.00
AMSGB ...................... $ 7.38 $ 5.00
Quarter ended December 31, 1998:
AMSGA ...................... $ 7.88 $ 6.50
AMSGB ...................... $ 7.56 $ 6.00
Quarter ended March 31, 1999:
AMSGA ...................... $ 9.50 $ 6.50
AMSGB ...................... $ 8.75 $ 6.50
Quarter ended June 30, 1999:
AMSGA ...................... $ 8.75 $ 6.00
AMSGB ...................... $ 8.63 $ 5.75
Quarter ended September 30, 1999:
AMSGA ...................... $ 8.13 $ 5.66
AMSGB ...................... $ 7.75 $ 5.88
Quarter ended December 31, 1999:
AMSGA ...................... $ 8.13 $ 5.13
AMSGB ...................... $ 7.88 $ 4.75
</TABLE>
12
<PAGE> 13
At March 24, 2000 there were approximately 1,900 holders of the Class
A Common Stock, including 159 shareholders of record, and 1,200 holders of the
Class B Common Stock, including 97 shareholders of record.
The Company has never declared or paid a cash dividend on its common
stock. The Company intends to retain its earnings to finance the growth and
development of its business and does not expect to declare or pay any cash
dividends in the foreseeable future. The declaration of dividends is within the
discretion of the Company's Board of Directors, which will review this dividend
policy from time to time. Presently, the declaration of dividends would violate
certain covenants associated with the Company's credit facility with lending
institutions.
At various times during 1999, the Company issued an aggregate of
184,330 shares of Class A Common Stock to physicians as partial consideration in
connection with the acquisition of surgery centers. The per share price of these
issuances ranged from $5.66 to $6.36. The shares described above were issued
without registration under the Securities Act to accredited investors in
reliance upon the exemptions from registration afforded by Section 4(2) of the
Securities Act and Regulation D of the Securities Act.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- --------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ....................................... $ 101,446 $ 80,322 $ 57,414 $34,898 $22,389
Operating expenses ............................. 69,428 63,370(1) 44,084(2) 26,191 16,198
--------- -------- --------- ------- -------
Operating income .......................... 32,018 16,952 13,330 8,707 6,191
Minority interest .............................. 19,431 13,645 9,084 5,433 3,938
Interest and other expenses .................... 1,122 1,499 2,396(3) 808 627
--------- -------- --------- ------- -------
Earnings before income taxes and cumulative
effect of an accounting change .......... 11,465 1,808 1,850 2,466 1,626
Income tax expense ............................. 4,414 1,047 1,774 985 578
--------- -------- --------- ------- -------
Net earnings before cumulative effect of an
accounting change ....................... 7,051 761 76 1,481 1,048
Cumulative effect of a change in the method in
which pre-opening costs are recorded .... (126) -- -- -- --
--------- -------- --------- ------- -------
Net earnings .............................. 6,925 761 76 1,481 1,048
Accretion of preferred stock discount .......... -- -- 286 22 --
--------- -------- --------- ------- -------
Net earnings (loss) available to common
shareholders .............................. $ 6,925 $ 761 $ (210) $ 1,459 $ 1,048
========= ======== ========= ======= =======
Basic earnings per common share:
Net earnings before cumulative effect of an
accounting change ....................... $ 0.49 $ 0.06 $ (0.02) $ 0.17 $ 0.13
Net earnings .............................. $ 0.48 $ 0.06 $ (0.02) $ 0.17 $ 0.13
Diluted earnings per common share:
Net earnings before cumulative effect of an
accounting change ....................... $ 0.48 $ 0.06 $ (0.02) $ 0.16 $ 0.12
Net earnings .............................. $ 0.47 $ 0.06 $ (0.02) $ 0.16 $ 0.12
Weighted average number of shares and share
equivalents outstanding:
Basic ..................................... 14,429 12,247 9,453 8,689 8,174
Diluted ................................... 14,778 12,834 9,453 9,083 8,581
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- --------- ------- -------
(In thousands, except center data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...................... $ 9,523 $ 6,070 $ 3,407 $ 3,192 $ 3,470
Working capital ................................ 21,029 12,954 9,312 4,732 2,931
Total assets ................................... 137,868 98,421 75,238 54,653 35,106
Long-term debt ................................. 34,901 12,483 24,970 9,218 4,786
Minority interest .............................. 17,358 11,794 9,192 5,674 3,010
Preferred stock ................................ -- -- 5,268 4,982 --
Shareholders' equity ........................... 72,708 64,369 29,991 28,374 22,479
CENTER DATA:
Procedures ..................................... 207,754 156,521 101,819 71,323 55,344
Centers at end of year ......................... 63 52 39 27 18
</TABLE>
(1) Includes a loss attributable to the sale of two partnership interests in
two physician practices, which had an impact after taxes of reducing basic
and diluted net earnings per share by $0.29 and $0.28, respectively, for
the year ended December 31, 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Notes to the
Consolidated Financial Statements - Note 3(c)."
(2) Includes a loss attributable to the sale of a partnership interest, net of
a gain on the sale of a surgery center building and equipment, which had an
impact after taxes of reducing basic and diluted net earnings per share by
$0.16 for the year ended December 31, 1997. See "Notes to the Consolidated
Financial Statements - Note 3(c)."
(3) Reflects cost incurred related to the distribution of the Company's common
stock held by American Healthways, Inc. (f/k/a American Healthcorp, Inc.)
to American Healthways, Inc.'s stockholders, which had an impact of
reducing basic and diluted earnings per share by $0.09.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (all statements
other than with respect to historical fact) within the meaning of the federal
securities laws, which are intended to be covered by the safe harbors created
thereby. Investors are cautioned that all forward-looking statements involve
known and unknown risks and uncertainties including, without limitation, those
described below, some of which are beyond the control of the Company. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate. Therefore there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. Actual results
could differ materially and adversely from those contemplated by any forward-
looking statement. In light of the significant risks and uncertainties inherent
in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by us or any other person
that the objectives and plans of the Company will be achieved. We undertake no
obligation to publicly release any revisions to any forward-looking statements
contained herein to reflect events and circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
Forward-looking statements and the Company's liquidity, financial
condition and results of operations may be affected by 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 which would update the ratesetting methodology, payment rates,
payment policies and the list of covered surgical procedures for ambulatory
surgery centers; risks associated with the Company's status as a general partner
of the limited partnerships; and risks relating the Company's technological
systems. Additionally, with regard to the proposed transaction with Physicians
Resource Group, Inc. ("PRG"), factors include, but are not limited to, the
parties' respective ability to meet all the conditions of the definitive
agreement and the consummation of the transactions contemplated thereunder; the
Company's ability to obtain the necessary financing or capital on terms
satisfactory to the Company for the PRG transaction; the Company's ability to
enter into partnership or operating agreements with the physician owners of PRG
surgery centers; the Company's ability to effectively integrate the operations
of the PRG surgery centers into its operations; and the Company's ability to
operate the PRG surgery centers profitably.
OVERVIEW
The Company develops, acquires and operates practice-based ambulatory
surgery centers in partnership with physician practice groups. As of December
31, 1999, the Company owned a majority interest (51% or greater) in 63 surgery
centers and had established eight specialty physician networks, of which it was
the majority owner (51%) of seven of such networks.
The Company operated as a majority owned subsidiary of American
Healthways, Inc. ("AHI"), formerly known as American Healthcorp, Inc., from 1992
until December 3, 1997 when AHI distributed to its stockholders all of its
holdings in 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, AHI 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.
15
<PAGE> 16
The following table presents the components of changes in the number of
surgery centers in operation and centers under development for the years ended
December 31, 1999, 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Centers in operation, beginning of year ... 52 39 27
New center acquisitions placed in operation 10 7 5
New development centers placed in operation 1 7 10
Centers sold .............................. -- (1) (3)
---- ---- ----
Centers in operation, end of year ......... 63 52 39
==== ==== ====
Centers under development, end of year .... 12 5 10
==== ==== ====
</TABLE>
The specialty physician networks are owned through limited partnerships
and limited liability companies in which the Company generally 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 enters into with managed care payers. The Company does not expect
that the specialty physician networks alone will be a significant source of
income. These networks were and will 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 December 31, 1999, five
networks had secured managed care contracts and were operational.
The Company intends to expand primarily through the development and
acquisition of additional practice-based ambulatory 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.
On January 31, 2000, the Company signed a definitive agreement with PRG
for the purchase of a portion of PRG's ownership interest in 11 single specialty
ophthalmology ambulatory surgery centers for approximately $40 million in cash.
In addition, AmSurg may purchase additional centers from PRG upon completion of
satisfactory due diligence. As a part of this agreement, the Company began
managing these 11 centers and an additional four centers the Company may
purchase upon completion of negotiations with PRG. PRG has filed for bankruptcy
in the United States Bankruptcy Court for the Northern District of Texas.
Consummation of this transaction, which is expected during the first
half of 2000, is subject to, among other things, the ability of AmSurg and PRG
to meet all the conditions contemplated under the definitive agreement; AmSurg's
ability to enter into partnership or operating agreements with the physician
owners of PRG surgery centers; and AmSurg's ability to obtain the necessary
financing or capital on terms satisfactory to AmSurg.
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 Consolidated
Financial Statements - Note 3(c)).
While the Company generally owns 51% to 70% of the entities that own
the surgery centers, 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 earnings or loss of the surgery center 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 had been the fees for physician services
performed by two physician group practices in which the Company owned a majority
interest. However, as a result of the disposition of these practices occurring
in 1998, the Company no longer earns such revenue.
16
<PAGE> 17
Practice-based ambulatory surgery centers 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 38%, 41% and 37% of its
revenues in the years ended December 31, 1999, 1998 and 1997, respectively, from
governmental healthcare programs including Medicare and Medicaid. The Medicare
program currently pays ambulatory surgery centers and physicians in accordance
with fee schedules which are prospectively determined.
The Company's sources of revenues as a percentage of total revenues for
the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Surgery centers ........................................... 99% 94% 83%
Physician practices ....................................... -- 6 15
Other ..................................................... 1 -- 2
------ ------ ------
Total ................................................. 100% 100% 100%
====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
The following table shows certain statement of operations items
expressed as a percentage of revenues for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenues ................................................ 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits ............................... 27.4 28.6 30.2
Other operating expenses ............................ 33.8 35.3 35.5
Depreciation and amortization ....................... 7.2 8.2 8.6
Net loss on sale of assets .......................... -- 6.8 2.5
------ ------ ------
Total operating expenses ....................... 68.4 78.9 76.8
------ ------ ------
Operating income ............................... 31.6 21.1 23.2
Minority interest ....................................... 19.2 17.0 15.8
Other expenses:
Interest expense, net of interest income ............ 1.1 1.9 2.7
Distribution cost ................................... -- -- 1.5
------ ------ ------
Earnings before income taxes and cumulative effect
of an accounting change ...................... 11.3 2.2 3.2
Income tax expense ...................................... 4.4 1.3 3.1
------ ------ ------
Net earnings before cumulative effect of an
accounting change ............................ 6.9 0.9 0.1
Cumulative effect of a change in the method in which
pre-opening costs are recorded ........................ 0.1 -- --
------ ------ ------
Net earnings ................................... 6.8 0.9 0.1
Accretion of preferred stock discount ................... -- -- 0.5
------ ------ ------
Net earnings (loss) available to common
shareholders ................................. 6.8% 0.9% (0.4)%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues were $101.4 million in 1999, an increase of $21.1 million, or
26%, over revenues in 1998. The increase is primarily attributable to additional
centers in operation in 1999 and same-center revenue growth of 10%. Same-center
growth is primarily attributable to additional procedure volume. The Company
anticipates further revenue growth during 2000 as a result of additional
start-up and acquired centers expected to be placed in operation and from
same-center revenue growth.
17
<PAGE> 18
Salaries and benefits expense was $27.9 million in 1999, an increase of
$4.9 million, or 22%, over salaries and benefits expense in 1998. This increase
resulted primarily from additional centers in operation and from an increase in
corporate staff primarily to support growth in the number of centers in
operation and anticipated future growth. The increase was offset in part by a
$2.0 million decrease due to the absence of physician salaries of a practice
disposed of in June 1998, which also contributed to a decrease in salaries and
benefits expense as a percentage of revenues in 1999.
Other operating expenses were $34.3 million in 1999, an increase of
$5.9 million, or 21%, over other operating expenses in 1998. This increase also
resulted primarily from additional centers in operation but was offset by a $2.1
million reduction in physician practice expenses of the practices disposed of in
1998.
The Company anticipates further increases in operating expenses in 2000
primarily due to additional start-up centers and acquired centers expected to be
placed in operation. Typically a start-up center will incur start-up losses
while under development and during its initial months of operations and will
experience 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. The Company had 12
centers under development at December 31, 1999.
Depreciation and amortization expense increased $722,000, or 11%, in
1999 over 1998, primarily due to 11 additional surgery centers in operation in
1999 compared to 1998. This increase was offset by a reduction in the
depreciation, amortization of excess of cost over net assets of purchased
operations and deferred pre-opening cost in the aggregate of approximately $1.0
million in 1999 due to physician practices sold in 1998 and the adoption in 1999
of Statement of Position ("SOP") No. 98-5 "Reporting on Cost of Start-Up
Activities," as further discussed below.
The Company experienced no significant capital gain/loss transactions
in 1999. The net loss on sale of assets in 1998 primarily resulted from the
Company's decision 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. The ultimate disposition
of the practices, which occurred later in 1998, resulted in no significant
change from the estimate originally recorded in the second quarter of 1998.
The Company's minority interest in earnings in 1999 increased by $5.8
million, or 42%, over 1998 primarily as a result of minority partners' interest
in earnings at surgery centers recently added to operations and from increased
same-center profitability. Minority interest as a percentage of revenues
increased in 1999 compared to 1998 primarily as a result of the absence of
physician practice revenues of the practices disposed of in 1998 which are not
as marginally profitable to the Company's respective minority partners as are
the Company's existing surgery centers, as well as increased same-center
profitability as a result of same-center revenue growth.
Interest expense decreased $377,000, or 25%, in 1999 in comparison to
1998 due to 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
reduction in interest expense was partially offset by an increase in debt
assumed or incurred in connection with additional acquisitions of interests in
surgery centers in late 1998 and throughout 1999, together with the interest
expense associated with newly opened start-up surgery centers financed partially
with bank debt.
The Company recognized income tax expense of $4.4 million in 1999,
compared to $1.0 million in 1998. Excluding the impact of the practice
dispositions in 1998, the Company's effective tax rate in 1999 and 1998 was
38.5% and 40.0%, respectively, of net earnings before income taxes and
cumulative effect of an accounting change and differed from the federal
statutory income tax rate of 34% primarily due to the impact of state income
taxes.
Prior to January 1, 1999, deferred pre-opening costs, which consist of
costs incurred for surgery centers while under development, had been amortized
over one year, starting upon the commencement date of operations. In 1999, the
Company adopted SOP No. 98-5, which requires that pre-opening costs be expensed
as incurred and that upon adoption all unamortized deferred pre-opening costs be
expensed as a cumulative effect of a change in accounting principle.
Accordingly, as of January 1, 1999, the Company expensed $126,000, net of
minority interest and income taxes, as a cumulative effect of an accounting
change.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues were $80.3 million in 1998, an increase of $22.9 million, or
40%, over revenues in 1997. The increase is primarily attributable to additional
centers in operation in 1998 and same-center revenue growth of 12%. Same-center
growth is primarily attributable to additional procedure volume.
Salaries and benefits expense was $22.9 million in 1998, an increase of
$5.6 million, or 32%, over salaries and benefits expense in 1997. This increase
resulted primarily from additional centers in operation 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 as a
percentage of revenue decreased in 1998 due to the absence of physician salaries
of the practice disposed of in June 1998.
18
<PAGE> 19
Other operating expenses were $28.4 million in 1998, an increase of
$8.0 million, or 40%, over other operating expenses in 1997. This increase
resulted primarily from additional centers in operation. This increase was
offset by a reduction in physician practice expenses of the practices disposed
of in 1998.
Depreciation and amortization expense increased $1.6 million, or 33%,
in 1998 over 1997, primarily due to 13 additional surgery centers in operation
in 1998 compared to 1997.
Net loss on sale of assets in 1998 primarily resulted from the
Company's decision 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. The ultimate disposition
of the practices, which occurred later in 1998, resulted in no significant
change from the estimate originally recorded in the second quarter of 1998.
The Company's minority interest in earnings in 1998 increased by $4.6
million, or 50%, over 1997 primarily as a result of minority partners' interest
in earnings at surgery centers recently added to operations and from increased
same-center profitability.
Interest expense decreased $55,000, or 4%, in 1998 over 1997 due to 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 reduction in interest
expense was partially offset by an increase in debt assumed or incurred in
connection with additional acquisitions of interests in surgery centers,
together with the interest expense associated with newly opened start-up surgery
centers financed partially with bank debt.
Distribution cost in 1997 represents costs incurred by the Company
related to effecting the Distribution.
The Company recognized income tax expense of $1.0 million in 1998,
compared to $1.8 million in 1997. The Company's effective tax rate in both years
was 40% of earnings prior to the impact of net loss on sale of assets and
distribution cost 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 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 recorded no accretion
in 1998.
QUARTERLY STATEMENT OF OPERATIONS DATA
The following table presents certain quarterly statement of operations
data for the years ended December 31, 1999 and 1998. The quarterly statement of
operations data set forth below was derived from unaudited financial statements
of the Company and includes all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation
thereof. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year or predictive of future
periods.
<TABLE>
<CAPTION>
1998 1999
---------------------------------------- ------------------------------------
Q1 Q2(1) Q3 Q4 Q1(2) Q2 Q3 Q4
------- -------- ------- ------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................ $17,829 $ 20,120 $20,125 $22,248 $23,394 $24,677 $25,386 $27,989
Earning (loss) before
income taxes and
cumulative effect of
an accounting change .......... 1,166 (3,877) 1,981 2,538 2,544 2,819 2,913 3,189
Net earnings (loss)
available to common
shareholders .................. 700 (2,650) 1,188 1,523 1,439 1,733 1,792 1,961
Diluted earnings (loss)
per common share .............. 0.07 (0.25) 0.08 0.10 0.10 0.12 0.12 0.13
</TABLE>
(1) Includes a loss from sale of assets of $3.6 million, net of income
taxes, or $0.33 per share, on two partnership interests.
(2) Includes a charge of $126,000, net of income taxes, or $0.01 per share,
for the cumulative effect of an accounting change related to the method
in which pre-opening costs are recorded.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of $21.0 million
compared to $13.0 million in 1998. Operating activities for 1999 generated $16.8
million in cash flow from operations compared to $11.3 million in 1998. Cash and
cash equivalents at December 31, 1999 and 1998 were $9.5 million and $6.1
million, respectively.
During 1999 the Company used approximately $26.6 million to acquire
interests in 10 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 $4.1 million in 1999, of which $533,000 was funded from the capital
contributions of the Company's minority partners. The Company used its cash flow
from operations and net borrowings on notes payable and long-term debt of $18.6
million to fund its acquisition and development obligations. At December 31,
1999, the Company had unfunded contingent acquisition purchase price commitments
of approximately $3.4 million, which the Company intends to fund through
additional borrowings of long-term debt and operating cash flow. At December 31,
1999, the Company and the Company's partnerships and limited liability companies
had unfunded construction and equipment purchase commitments for centers under
development of approximately $3.2 million, which the Company intends to fund
through additional borrowings of long-term debt, operating cash flow and capital
contributions by minority partners.
During 1999, notes receivable increased by approximately $1.8 million
primarily as the result of the financing of a sale of an additional interest in
a surgery center to a minority partner and development costs incurred by a
development surgery center.
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 in 1998, were used to repay $32.8
million in borrowings under the Company's revolving credit facility (the "Loan
Agreement") and other long-term debt.
At December 31, 1999, borrowings under the Company's revolving credit
facility were $31.3 million 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 0.15% and 0.40% 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 December
31, 1999. In March 2000, the Company amended the Loan Agreement to extend the
due date of the credit facility to January 1, 2002.
The consummation of the acquisition agreement with PRG would require
the Company to increase its revolving credit facility in order to finance in
full this transaction. The Company is in negotiations with its lenders to
increase this facility and it is anticipated that the refinancing of the Loan
Agreement will increase the borrowing rates on the facility. There can be no
assurance that the Company will be able to consummate the agreement with PRG or
effect this increase in its revolving credit facility on terms acceptable to the
Company.
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 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 Medicare, Medicaid and SCHIP Balanced
Budget Refinement Act, enacted in November 1999, requires HCFA to either update
the surgery center cost survey used in the proposed rule or to phase the new
rates and methodology into use over a three-year period. The rule is expected to
be revised and published in the spring of 2000 and the Company expects the
earliest implementation date to be July 1, 2000. There can be no assurance that
the final rule will not adversely impact the Company's financial condition,
results of operation and business prospects.
The Company believes that the proposed rule if adopted as proposed in
June 1998 would adversely affect the Company's annual revenues by approximately
4% at the time of full implementation based on the rates stated therein and the
Company's historical procedure mix. However, the Company expects that the
earnings impact will be offset by certain actions taken by the Company or that
the Company intends to take, including actions to effect certain cost
efficiencies in center operations, reduce corporate overhead costs and provide
for contingent purchase price adjustments for future acquisitions prior to
implementation. 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.
20
<PAGE> 21
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company is
evaluating the effects of adopting SFAS No. 133, but does not expect the
adoption of this pronouncement to have a material effect the Company's
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing and cash management activities.
The Company utilizes a balanced mix of debt maturities along with both
fixed-rate and variable-rate debt to manage its exposures to changes in interest
rates. Although there can be no assurances that interest rates will not change
significantly, the Company does not expect changes in interest rates to have a
material effect on income or cash flows in 2000. The table below provides
information about the Company's long-term debt obligations that are sensitive to
changes in interest rates, including principal cash flows and related weighted
average interest rates by expected maturity dates.
<TABLE>
<CAPTION>
FAIR MARKET
YEARS ENDED DECEMBER 31, VALUE AT
------------------------------------------------- DECEMBER 31,
2000 2001 2002 2003 2004 1999
------- -------- ------ ----- ------ --------
(In thousands, except percentage data)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate .......... $ 1,101 $ 922 $ 554 $ 291 $ 93 $ 2,961
Average interest rate 8.08% 7.85% 7.93% 7.76% 7.89%
Variable rate ....... $ 708 $ 32,016 $ 390 $ 370 $ 265 $ 33,749
Average interest rate 5.58% 7.70% 8.66% 8.20% 6.00%
</TABLE>
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
AmSurg Corp.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of AmSurg
Corp. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of AmSurg Corp. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, AmSurg
Corp. changed its method of accounting for pre-opening costs in 1999.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 16, 2000
22
<PAGE> 23
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 9,523 $ 6,070
Accounts receivable, net of allowance of $2,266 and
$1,938, respectively .......................................... 17,462 12,122
Supplies inventory .............................................. 2,077 1,250
Deferred income taxes (note 10) ................................. 590 507
Prepaid and other current assets ................................ 1,608 952
-------- --------
Total current assets ................................... 31,260 20,901
Long-term receivables and deposits (note 3) .......................... 2,036 2,045
Property and equipment, net (notes 4, 6 and 7) ....................... 27,995 23,140
Intangible assets, net (notes 3 and 5) ............................... 76,577 52,335
-------- --------
Total assets ........................................... $137,868 $ 98,421
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (note 3) .......................................... $ 1,238 $ 2,385
Current portion of long-term debt (note 6) ...................... 1,809 1,378
Accounts payable ................................................ 1,915 1,195
Accrued salaries and benefits ................................... 2,204 1,725
Other accrued liabilities ....................................... 2,594 888
Current income taxes payable .................................... 471 376
-------- --------
Total current liabilities .............................. 10,231 7,947
Long-term debt (note 6) .............................................. 34,901 12,484
Deferred income taxes (note 10) ...................................... 2,670 1,827
Minority interest .................................................... 17,358 11,794
Preferred stock, no par value, 5,000,000 shares authorized (note 8) .. -- --
Shareholders' equity:
Common stock (note 9):
Class A, no par value, 35,000,000 shares authorized
9,760,228 and 9,533,486 shares outstanding, respectively .. 49,393 48,116
Class B, no par value, 4,800,000 shares authorized, 4,787,131
shares outstanding ........................................ 13,529 13,529
Retained earnings ............................................... 9,786 2,861
Deferred compensation on restricted stock (note 11) ............. -- (137)
-------- --------
Total shareholders' equity ............................. 72,708 64,369
-------- --------
Commitments and contingencies (notes 4, 7, 11 and 12)
Total liabilities and shareholders' equity ............. $137,868 $ 98,421
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE> 24
AMSURG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(ALL AMOUNT ARE EXPRESSED IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- --------
<S> <C> <C> <C>
Revenues (note 2) ........................................................... $ 101,446 $80,322 $ 57,414
Operating expenses:
Salaries and benefits (note 11) ........................................ 27,895 22,947 17,363
Other operating expenses (note 11) ..................................... 34,268 28,393 20,352
Depreciation and amortization .......................................... 7,290 6,568 4,944
Net (gain) loss on sale of assets (note 3) ............................. (25) 5,462 1,425
--------- ------- --------
Total operating expenses ........................................... 69,428 63,370 44,084
--------- ------- --------
Operating income ................................................... 32,018 16,952 13,330
Minority interest ........................................................... 19,431 13,645 9,084
Other expenses:
Interest expense, net of interest income of $237, $125 and $69,
respectively ......................................................... 1,122 1,499 1,554
Distribution cost (note 9) ............................................. -- -- 842
--------- ------- --------
Earnings before income taxes and cumulative effect of an accounting
change ........................................................... 11,465 1,808 1,850
Income tax expense (note 10) ................................................ 4,414 1,047 1,774
--------- ------- --------
Net earnings before cumulative effect of an accounting change ...... 7,051 761 76
Cumulative effect of a change in the method in which pre-opening costs are
recorded ................................................................. (126) -- --
--------- ------- --------
Net earnings ....................................................... 6,925 761 76
Accretion of preferred stock discount (note 8) .............................. -- -- 286
--------- ------- --------
Net earnings (loss) available to common shareholders ............... $ 6,925 $ 761 $ (210)
========= ======= ========
Basic earnings per common share (note 9):
Net earnings before cumulative effect of an accounting change .......... $ 0.49 $ 0.06 $ (0.02)
Net earnings ........................................................... $ 0.48 $ 0.06 $ (0.02)
Diluted earnings per common share (note 9):
Net earnings before cumulative effect of an accounting change .......... $ 0.48 $ 0.06 $ (0.02)
Net earnings ........................................................... $ 0.47 $ 0.06 $ (0.02)
Weighted average number of shares and share equivalents outstanding (note 9):
Basic .................................................................. 14,429 12,247 9,453
Diluted ................................................................ 14,778 12,834 9,453
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE> 25
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
COMMON STOCK ON
------------------- RETAINED RESTRICTED
SHARES AMOUNT EARNINGS STOCK TOTAL
------- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 ..................... 9,199 $ 26,064 $ 2,310 $ -- $ 28,374
Issuance of common stock ................. 146 934 -- (274) 660
Issuance of common stock in
conjunction with acquisitions .......... 301 1,847 -- -- 1,847
Acquisition of stock ..................... (101) (680) -- -- (680)
Net loss available to common shareholders -- -- (210) -- (210)
------- -------- ------- ----- --------
Balance December 31, 1997 ..................... 9,545 28,165 2,100 (274) 29,991
Issuance of common stock, net of
offering cost .......................... 3,706 27,635 -- -- 27,635
Issuance of common stock in
conjunction with acquisitions .......... 56 451 -- -- 451
Stock options exercised, including related
tax benefit of $42 ..................... 26 126 -- -- 126
Conversion of preferred stock ............ 987 5,268 -- -- 5,268
Net earnings ............................. -- -- 761 -- 761
Amortization of deferred compensation
on restricted stock .................... -- -- -- 137 137
------- -------- ------- ----- --------
Balance December 31, 1998 ..................... 14,320 61,645 2,861 (137) 64,369
Issuance of common stock in
conjunction with acquisitions .......... 9 61 -- -- 61
Issuance of common stock ................. 184 1,100 -- -- 1,100
Stock options exercised, including related
tax benefit of $9 ...................... 34 116 -- -- 116
Net earnings ............................. -- -- 6,925 -- 6,925
Amortization of deferred compensation
on restricted stock .................... -- -- -- 137 137
------- -------- ------- ----- --------
Balance December 31, 1999 ..................... 14,547 $ 62,922 $ 9,786 $ -- $ 72,708
======= ======== ======= ===== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
25
<PAGE> 26
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ...................................................... $ 6,925 $ 761 $ 76
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Cumulative effect of an accounting change ..................... 126 -- --
Minority interest ............................................. 19,431 13,645 9,084
Distributions to minority partners ............................ (16,369) (13,480) (8,908)
Depreciation and amortization ................................. 7,290 6,568 4,944
Deferred income taxes ......................................... 760 525 333
Amortization of deferred compensation on restricted stock ..... 137 137 --
Net (gain) loss on sale of assets ............................. (25) 5,462 1,425
Increase (decrease) in cash, net of effects of acquisitions and
dispositions, due to changes in:
Accounts receivable, net ................................. (3,223) (2,560) (1,620)
Supplies inventory ....................................... (560) (77) (212)
Prepaid and other current assets ......................... (216) 42 (573)
Other assets ............................................. 103 (325) (803)
Accounts payable ......................................... 720 123 (385)
Accrued expenses and other liabilities ................... 1,677 519 323
Other, net ............................................... (8) (1) 273
-------- -------- --------
Net cash flows provided by operating activities .......... 16,768 11,339 3,957
Cash flows from investing activities:
Acquisition of interest in surgery centers ........................ (26,644) (18,565) (12,643)
Acquisition of property and equipment ............................. (4,110) (6,967) (10,579)
Proceeds from sale of assets ...................................... 29 669 1,978
(Increase) decrease in long-term receivables ...................... (1,842) 335 58
-------- -------- --------
Net cash flows used in investing activities .............. (32,567) (24,528) (21,186)
Cash flows from financing activities:
Repayment of notes payable ........................................ (2,385) -- --
Proceeds from long-term borrowings ................................ 38,060 19,874 17,629
Repayment on long-term borrowings ................................. (17,063) (32,787) (3,525)
Net proceeds from issuance of common stock ........................ 107 27,659 524
Proceeds from capital contributions by minority partners .......... 533 1,167 2,953
Financing cost incurred ........................................... -- (61) (138)
-------- -------- --------
Net cash flows provided by financing activities .......... 19,252 15,852 17,443
-------- -------- --------
Net increase in cash and cash equivalents .............................. 3,453 2,663 214
Cash and cash equivalents, beginning of year ........................... 6,070 3,407 3,193
-------- -------- --------
Cash and cash equivalents, end of year ................................. $ 9,523 $ 6,070 $ 3,407
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
26
<PAGE> 27
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
AmSurg Corp. (the "Company"), through its wholly owned subsidiaries,
owns majority interests primarily between 51% and 70% in limited partnerships
and limited liability companies ("LLCs") which own and operate practice-based
ambulatory surgery centers ("Centers"). The Company also has majority ownership
interests in other partnerships and LLCs formed to develop additional centers.
The consolidated financial statements include the accounts of the Company and
its subsidiaries and the majority owned limited partnerships and LLCs in which
the Company is the general partner or member. Consolidation of such partnerships
and LLCs is necessary as the Company has 51% or more of the financial interest,
is the general partner or majority member with all the duties, rights and
responsibilities thereof and is responsible for the day-to-day management of the
partnership or LLC. The limited partner or minority member responsibilities are
to supervise the delivery of medical services with their rights being restricted
to those which protect their financial interests, such as approval of the
acquisition of significant assets or incurring debt which they, as physician
limited partners or members, are required to guarantee on a pro rata basis based
upon their respective ownership interests. All material intercompany profits,
transactions and balances have been eliminated. All subsidiaries and minority
owners are herein referred to as partnerships and partners, respectively.
The Company operates in one business segment, the ownership and
operation of ambulatory surgery centers. The Company's ownership and management
of physician practices was discontinued in 1998 and such businesses did not meet
the quantitative thresholds for segment reporting under Financial Accounting
Standard ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and
Related Information."
B. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised principally of demand deposits
at banks and other highly liquid short-term investments with maturities less
than three months when purchased.
C. SUPPLIES INVENTORY
Supplies inventory consists of medical and drug supply and is recorded
at cost on a first-in, first-out basis.
D. PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets are comprised of prepaid expenses and
other receivables.
E. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the present value of minimum lease payments at the inception
of the related leases. Depreciation for buildings and improvements is recognized
under the straight-line method over 20 years, or for leasehold improvements,
over the remaining term of the lease plus renewal options. Depreciation for
moveable equipment is recognized over useful lives of five to ten years.
F. INTANGIBLE ASSETS
EXCESS OF COST OVER NET ASSETS OF PURCHASED OPERATIONS
Excess of cost over net assets of purchased operations is amortized
over 25 years. The Company has consistently assessed impairment of the excess of
cost over net assets of purchased operations and other long-lived assets in
accordance with criteria consistent with the provisions of SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Whenever events or changes in circumstances indicate that the
carrying amount of long-term assets may not be recoverable, management assesses
whether or not an impairment loss should be recorded by comparing estimated
undiscounted future cash flows with the assets' carrying amount at the
partnership level. If the assets' carrying amount is in excess of the estimated
undiscounted future cash flows, an impairment loss is recognized as the excess
of the carrying amount over estimated future cash flows discounted at an
applicable rate.
27
<PAGE> 28
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DEFERRED PRE-OPENING COSTS AND CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
Prior to January 1, 1999, deferred pre-opening costs, which consist of
costs incurred for surgery centers while under development, had been amortized
over one year, starting upon the commencement date of operations. In 1999, the
Company adopted Statement of Position ("SOP") No. 98-5 "Reporting on the Costs
of Start-Up Activities," which requires that pre-opening costs be expensed as
incurred and that upon adoption all unamortized deferred pre-opening costs be
expensed as a cumulative effect of a change in accounting principle.
Accordingly, as of January 1, 1999, the Company expensed $126,000, net of
minority interest and income taxes, as a cumulative effect of an accounting
change. The impact of the accounting change on the Company' results of
operations in 1999 was not material.
OTHER INTANGIBLE ASSETS
Other intangible assets consist primarily of deferred financing costs
of the Company and the entities included in the Company's consolidated financial
statements and are amortized over the term of the related debt.
G. INCOME TAXES
The Company files a consolidated federal income tax return. Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
H. EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings
(loss) available to common shareholders by the combined weighted average number
of Class A and Class B common shares while diluted earnings (loss) per share is
computed by dividing net earnings (loss) available to common shareholders by the
weighted average number of such common shares and dilutive share equivalents.
I. STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for
Stock Issued to Employees," and related interpretations. Compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. The Company also provides disclosure in
accordance with SFAS No. 123 "Accounting for Stock-Based Compensation," to
reflect pro forma earnings per share as if the fair value of all stock-based
awards on the date of grant are recognized over the vesting period.
J. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables and payables are reflected in
the financial statements at cost which approximates fair value. Management
believes that the carrying amounts of long-term debt approximate market value,
because it believes the terms of its borrowings approximate terms which it would
incur currently.
K. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
L. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company is evaluating the effects of adopting SFAS No. 133,
but does not expect the adoption of this pronouncement to have a material effect
on the Company's consolidated financial statements.
28
<PAGE> 29
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. REVENUE RECOGNITION
Revenues for the years ended December 31, 1999, 1998 and 1997 are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Surgery centers ... $100,937 $75,334 $47,804
Physician practices -- 4,786 8,678
Other ............. 509 202 932
-------- ------- -------
Revenues ...... $101,446 $80,322 $57,414
======== ======= =======
</TABLE>
Surgery center revenues consist of the billing for the use of the
Centers' facilities (the "usage fee") directly to the patient or third party
payer. The usage fee excludes any amounts billed for physicians' services which
are billed separately by the physicians to the patient or third party payer.
Physician practice revenues consist of the billing for physician
services of the Company's two majority owned physician practices acquired in
1997 and 1996 and disposed of in 1998. The billings were made by the practice
directly to the patient or third party payer.
Revenues from surgery centers and physician practices are recognized on
the date of service, net of estimated contractual allowances from third party
medical service payers including Medicare and Medicaid. During the years ended
December 31, 1999, 1998 and 1997 approximately 38%, 41% and 37%, respectively,
of the Company's revenues were derived from the provision of services to
patients covered under Medicare and Medicaid. Concentration of credit risk with
respect to other payers is limited due to the large number of such payers.
3. ACQUISITIONS AND DISPOSITIONS
A. ACQUISITIONS
The Company, through wholly owned subsidiaries and in separate
transactions, acquired a majority interest in ten, seven and five practice-based
surgery centers during 1999, 1998 and 1997, respectively. In addition, the
Company acquired through wholly owned subsidiaries one physician practice and
related entities in 1997. Consideration paid for the acquired interests
consisted of cash, common stock and notes payable at rates ranging from 7.75% to
9%. Total consideration paid in 1999, 1998 and 1997 for all acquisitions was
$29,417,000, $21,172,000 and $14,472,000, respectively, of which the Company
assigned $27,360,000, $19,504,000 and $13,738,000, respectively, to excess of
cost over net assets of purchased operations. In conjunction with acquisitions
in 1999 and 1998, the Company is obligated to pay an additional $3,430,000
ratably over each six month interval from 2000 to 2005 in which proposed surgery
center reimbursement rates by the Health Care Financing Administration are not
effective, of which the Company had accrued $287,000 as of December 31, 1999.
The Company will be released from any outstanding purchase price commitments
upon the final implementation of proposed reimbursement rates. All acquisitions
were accounted for as purchases, and the accompanying consolidated financial
statements include the results of their operations from the dates of
acquisition.
B. PRO FORMA INFORMATION
The unaudited consolidated pro forma results for the years ended
December 31, 1999 and 1998, assuming all 1999 and 1998 acquisitions had been
consummated on January 1, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenues ............................................... $114,788 $103,987
Net earnings ........................................... 7,491 1,940
Earnings per common share:
Basic .............................................. 0.51 0.16
Diluted ............................................ 0.50 0.15
Weighted average number of shares and share equivalents:
Basic .............................................. 14,556 12,446
Diluted ............................................ 14,905 13,033
</TABLE>
29
<PAGE> 30
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
C. DISPOSITIONS
In three separate transactions in 1998, the Company sold certain assets
comprising a surgery center developed in 1995 and its interest in two separate
partnerships that owned two physician practices. The net loss associated with
these transactions was $5,443,000. The Company recognized an income tax benefit
of approximately $1,850,000 associated with these losses. In conjunction with
the sale of the interest in one physician practice, the Company received a note
for $1,945,000 which is to be paid through 2010. The note bears interest at
6.5%, is secured by the assets of the physician practice and certain personal
guarantees by the owners of the physician practice.
In two separate transactions in 1997, the Company sold its investment
in a partnership that owned two surgery centers acquired in 1994 and a surgery
center building and equipment which the Company leased to a physician entity. In
conjunction with the sale of the surgery center building and equipment, the
Company also terminated its management agreement with the physician entity for
the surgery center in which it had no ownership interest but had managed since
1994. The net loss associated with these transactions was $1,494,000.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land and improvements ........................ $ 99 $ 99
Building and improvements .................... 16,947 13,544
Moveable equipment ........................... 24,244 18,468
Construction in progress ..................... 429 46
-------- --------
41,719 32,157
Less accumulated depreciation and amortization (13,724) (9,017)
-------- --------
Property and equipment, net .............. $ 27,995 $ 23,140
======== ========
</TABLE>
At December 31, 1999, the Company and its partnerships had unfunded
construction and equipment purchase commitments for centers under development of
approximately $3,214,000 in order to complete construction in progress.
5. INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Excess of cost over net assets of purchased operations, net of accumulated
amortization of $8,097 and $5,587, respectively ........................ $76,461 $51,765
Deferred pre-opening cost, net of accumulated amortization of $0 and $273,
respectively ........................................................... -- 346
Other intangible assets, net of accumulated amortization of $444 and $408,
respectively ........................................................... 116 224
------- -------
Intangible assets, net ............................................... $76,577 $52,335
======= =======
</TABLE>
30
<PAGE> 31
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
$50,000,000 credit agreement at prime or LIBOR plus a spread of 1.0% to 2.25%
(average rate of 7.7% at December 31, 1999), due January 10, 2001 ......... $ 31,300 $ 8,800
Other debt at an average rate of 8.4%, due through September 30, 2004 ....... 3,577 4,046
Capitalized lease arrangements at an average rate of 8.1%, due through
June 30, 2004 (see note 7) ................................................ 1,833 1,016
-------- --------
36,710 13,862
Less current portion ........................................................ (1,809) (1,378)
-------- --------
Long-term debt .......................................................... $ 34,901 $ 12,484
======== ========
</TABLE>
The borrowings under the credit facility are guaranteed by the wholly
owned subsidiaries of the Company, and in some instances, the underlying assets
of certain developed centers. The credit agreement, as most recently amended on
May 19, 1998, permits the Company to borrow up to $50,000,000 to finance the
Company's acquisition and development projects at prime rate or LIBOR plus a
spread of 1.0% to 2.25% or a combination thereof, provides for a fee ranging
between 0.15% and 0.40% of unused commitments based on borrowing levels,
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 December 31, 1999.
Certain partnerships and LLCs included in the Company's consolidated
financial statements have loans with local lending institutions which are
collateralized by certain assets of the centers with a book value of
approximately $7,009,000. The Company and the partners or members have
guaranteed payment of the loans.
Principal payments required on long-term debt in the five years
subsequent to December 31, 1999 are $1,809,000, $32,938,000, $944,000, $660,000
and $359,000.
7. LEASES
The Company has entered into various building and equipment operating
leases and equipment capital leases for its surgery centers in operation and
under development and for office space, expiring at various dates through 2014.
Future minimum lease payments at December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITALIZED
YEAR ENDED EQUIPMENT OPERATING
DECEMBER 31, LEASES LEASES
------------ ------ ------
<S> <C> <C>
2000 $ 929 $ 5,249
2001 695 4,903
2002 313 4,434
2003 79 3,877
2004 40 2,680
Thereafter -- 8,244
------- -------
Total minimum rentals 2,056 $29,387
=======
Less amounts representing interest at rates ranging from 6.0% to 13.5% (223)
-------
Capital lease obligations $ 1,833
=======
</TABLE>
At December 31, 1999, equipment with a cost of approximately $3,013,000
and accumulated amortization of approximately $1,139,000 was held under capital
lease. The Company and its limited partners have guaranteed payment of the
leases. Rental expense for operating leases for the years ended December 31,
1999, 1998 and 1997 was approximately $5,314,000, $4,167,000 and $3,093,000 (see
note 11).
31
<PAGE> 32
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. PREFERRED STOCK
Preferred stock, consisting of Series A Redeemable and Series B
Convertible and originally recorded at $4,960,000, was converted to 986,950
shares of Class A Common Stock in 1998. From the time of issuance, the Series A
Redeemable Preferred Stock had been accreted toward its stated amount, including
potential dividends, over the redemption term. The Series B Convertible
Preferred Stock was not accreted because management expected its conversion.
9. SHAREHOLDERS' EQUITY
A. COMMON STOCK
The Company operated as a majority owned subsidiary of American
Healthways, Inc. ("AHI"), formerly known as American Healthcorp, Inc., from 1992
until the distribution by AHI to its stockholders of the shares of the AmSurg
common stock owned by it (the "Distribution") on December 3, 1997. 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.
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, AHI exchanged a portion of its shares of Class A
Common Stock for shares of Class B Common Stock which differs from Class A
Common Stock in that it has ten votes per share in the election and removal of
directors of the Company, while the Class A Common Stock has one vote per share.
Other than the election and removal of directors of the Company, the Class A
Common Stock and the Class B Common Stock have equal voting and other rights.
The Company does not have the right to issue additional Class B Common Stock.
All shares and earnings per share data included herein have been adjusted to
reflect the recapitalization. Expenses incurred in connection with the
Distribution are reflected as distribution cost in the consolidated statement of
operations for the year ended December 31, 1997.
From the time of the Company's inception, the Company has sold Class A
Common Stock to AHI, partners and members of certain of its partnerships and
LLCs and other private investors at fair value. In addition, the Company has
issued shares of Class A Common Stock in connection with acquisitions of surgery
center assets. 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, which were used to repay borrowings under the Company's revolving
credit facility.
B. EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominators of
basic and diluted earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
EARNINGS (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
For the year ended December 31, 1999:
Basic earnings per share:
Net earnings ......................................... $ 6,925 14,429 $ 0.48
Effect of dilutive securities options ..................... -- 349
------- ------
Diluted earnings per share:
Net earnings ......................................... $ 6,925 14,778 $ 0.47
======= ======
For the year ended December 31, 1998:
Basic earnings per share:
Net earnings ......................................... $ 761 12,247 $ 0.06
Effect of dilutive convertible preferred stock ............ -- 192
Effect of dilutive securities options ..................... -- 395
------- ------
Diluted earnings per share:
Net earnings ......................................... $ 761 12,834 $ 0.06
======= ======
For the year ended December 31, 1997:
Net earnings .............................................. $ 76
Less accretion of preferred stock ......................... (286)
-------
Basic and diluted loss per share:
Loss available to common shareholders ................ $ (210) 9,453 $(0.02)
======= ======
</TABLE>
32
<PAGE> 33
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
C. STOCK OPTIONS
The Company has two stock option plans under which it has granted
non-qualified options to purchase shares of Class A Common Stock to employees
and outside directors. Options are granted at market value on the date of the
grant and vest ratably over four years. Options have a term of 10 years from the
date of grant. As of December 31, 1999, 299,412 shares were reserved and
available for future option grants. Stock option activity for the years ended
December 31, 1999, 1998 and 1997 is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------ -----
<S> <C> <C>
Outstanding at December 31, 1996 906,783 2.61
Options granted ............ 294,033 6.70
Options exercised .......... (1,500) 3.44
Options terminated ......... (24,467) 5.21
---------
Outstanding at December 31, 1997 1,174,849 3.56
Options granted ............ 233,902 8.76
Options exercised .......... (26,151) 3.18
Options terminated ......... (38,106) 7.21
---------
Outstanding at December 31, 1998 1,344,494 4.37
Options granted ............ 362,961 7.41
Options exercised .......... (33,562) 3.20
Options terminated ......... (38,089) 7.41
---------
Outstanding at December 31, 1999 1,635,804 5.00
=========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.75 - $ 2.50 422,332 2.35 $ 1.06 422,332 $ 1.06
2.51 - 4.25 201,888 4.31 3.01 201,888 3.01
4.26 - 6.00 308,136 6.67 5.33 208,989 5.26
6.01 - 7.75 462,194 8.74 7.16 136,781 6.75
7.76 - 9.50 231,254 7.86 8.96 79,083 8.91
9.51 - 10.13 10,000 8.32 10.08 2,502 10.08
--------- ---------
0.75 - 10.13 1,635,804 6.03 5.00 1,051,575 3.62
========= =========
</TABLE>
The Company accounts for its stock options issued to employees and
outside directors pursuant to APB No. 25. Accordingly, no compensation expense
has been recognized in connection with the issuance of stock options. The
estimated weighted average fair values of the options at the date of grant using
the Black-Scholes option pricing model as promulgated by SFAS No. 123 in 1999,
1998 and 1997 were $4.48, $4.79 and $3.93 per share, respectively. In applying
the Black-Scholes model, the Company assumed no dividends, an expected life for
the options of seven years and a forfeiture rate of 3% in 1999, 1998 and 1997
and an average risk free interest rate of 5.2%, 5.6% and 6.4% in 1999, 1998 and
1997, respectively. The Company also assumed a volatility rate of 60% and 50% in
1999 and 1998, respectively, based on its own volatility and 54% in 1997 based
upon the volatility rate of AHI. Had the Company used the Black-Scholes
estimates to determine compensation expense for the options granted in the years
ended December 31, 1999, 1998 and 1997 net earnings (loss) and net earnings
(loss) per share attributable to common shareholders would have been reduced to
the following pro forma amounts (in thousands, except per share amounts):
33
<PAGE> 34
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) available to common shareholders:
As reported ................................................... $ 6,925 $ 761 $ (210)
Pro forma ..................................................... 6,091 152 (690)
Basic earnings (loss) per share available to common shareholders:
As reported ................................................... 0.48 0.06 (0.02)
Pro forma ..................................................... 0.42 0.01 (0.07)
Diluted earnings (loss) per share available to common shareholders:
As reported ................................................... 0.47 0.06 (0.02)
Pro forma ..................................................... 0.41 0.01 (0.07)
</TABLE>
10. INCOME TAXES
Total income tax expense for the year ended December 31, 1999, 1998 and
1997 was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Income from operations ........................................... $ 4,414 $ 1,047 $1,774
Cumulative effect of a change in the method in which pre-opening
costs are recorded ............................................. (84) -- --
Shareholders' equity, for compensation expense for tax purposes in
excess of amounts recognized for financial reporting purposes .. (9) (42) --
------- ------- ------
Total income tax expense ..................................... $ 4,321 $ 1,005 $1,774
======= ======= ======
</TABLE>
Income tax expense from operations for the years ended December 31,
1999, 1998 and 1997 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Current:
Federal ...................................................... $ 3,010 $ 220 $1,188
State ........................................................ 560 302 253
Deferred ......................................................... 844 525 333
------- ------- ------
Income tax expense ...................................... $ 4,414 $ 1,047 $1,774
======= ======= ======
</TABLE>
Income tax expense from operations for the years ended December 31,
1999, 1998 and 1997 differed from the amount computed by applying the U.S.
Federal income tax rate of 34 percent to earnings before income taxes as a
result of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Statutory Federal income tax ..................................... $ 3,898 $ 615 $ 629
State income taxes, net of Federal income tax benefit ............ 515 71 188
Increase (decrease) in valuation allowance ....................... (8) (10) (26)
Non-deductible distribution cost and net loss on sale of assets .. -- 324 812
Other ............................................................ 9 47 171
------- ------- ------
Income tax expense ........................................... $ 4,414 $ 1,047 $1,774
======= ======= ======
</TABLE>
34
<PAGE> 35
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts ..................................... $ 504 $ 475
State net operating losses ............................................... 25 26
Other .................................................................... 86 32
------- -------
Gross deferred tax assets ................................................ 615 533
Valuation allowance ...................................................... (16) (24)
------- -------
Net deferred tax assets ............................................. 599 509
Deferred tax liabilities:
Property and equipment, principally due to difference in depreciation .... 185 197
Excess of cost over net assets of purchased operations, principally due to
differences in amortization ............................................ 2,494 1,632
------- -------
Gross deferred tax liabilities ........................................... 2,679 1,829
------- -------
Net deferred tax liability .......................................... $ 2,080 $ 1,320
======= =======
</TABLE>
The net deferred tax liability at December 31, 1999 and 1998, is
recorded as follows (in thousands):
<TABLE>
1999 1998
------- -------
<S> <C> <C>
Current deferred income tax asset ............................................ $ 590 $ 507
Noncurrent deferred income tax liability ..................................... 2,670 1,827
------- -------
Net deferred tax liability ............................................... $ 2,080 $ 1,320
======= =======
</TABLE>
The Company has provided a valuation allowance on its gross deferred
tax asset primarily related to state net operating losses to the extent that
management does not believe that it is more likely than not that such asset will
be realized.
11. RELATED PARTY TRANSACTIONS
The Company leases space for certain surgery centers from its physician
partners affiliated with its centers at rates the Company believes approximate
fair market value. Payments on these leases were approximately $2,516,000,
$2,378,000 and $2,199,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company reimburses certain of its limited partners for salaries and
benefits related to time spent by employees of their practices on activities of
the centers. Total reimbursement of such salary and benefit costs totaled
approximately $10,857,000, $9,652,000 and $7,025,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Included in other operating expenses for the year ended December 31,
1997 is $382,000 paid to AHI for management and financial services provided by
AHI to the Company. These expenses were incurred pursuant to an agreement under
which AHI was paid for the services of AHI's chief executive officer and chief
financial officer as well as ongoing accounting and tax services for surgery
center and corporate operations. Upon the Distribution, the Company issued to
AHI's chief executive officer and chief financial officer, who also serve as
directors of the Company, restricted shares of Class A Common Stock valued at
approximately $350,000, in accordance with an agreement in which they provided
advisory services to the Company through December 3, 1999. Deferred compensation
associated with the restricted stock was amortized over the term of the
agreement.
The Company also rented approximately 15,000 square feet of office
space from AHI pursuant to a sublease which expired in December 1999. Included
in other operating expenses is $271,000 related to this sublease for the year
ended December 31, 1997, the last annual period in which AHI held an interest in
the Company.
35
<PAGE> 36
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company believes that the foregoing transactions are in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, five percent shareholders and their affiliates
will be entered into only if such transactions are on terms no less favorable to
the Company than could be obtained from unaffiliated parties, are reasonably
expected to benefit the Company and are approved by a majority of the
disinterested independent members of the Company's Board of Directors.
12. COMMITMENTS AND CONTINGENCIES
The Company and its partnerships are insured with respect to medical
malpractice risk on a claims made basis. Management is not aware of any claims
against it or its partnerships which would have a material financial impact.
The Company or its wholly owned subsidiaries, as general partners in
the limited partnerships, are responsible for all debts incurred but unpaid by
the partnership. As manager of the operations of the partnership, the Company
has the ability to limit its potential liabilities by curtailing operations or
taking other operating actions.
In the event of a change in current law which would prohibit the
physicians' current form of ownership in the partnerships or LLCs, the Company
is obligated to purchase the physicians' interests in the partnerships or LLCs.
The purchase price to be paid in such event is generally the greater of the
physicians' capital account or a multiple of earnings.
13. SUBSEQUENT EVENTS
On January 21, 2000, the Company, through a wholly owned subsidiary,
acquired a majority interest in a physician practice-based surgery center for
approximately $4,628,000.
On January 31, 2000, the Company signed a definitive agreement with
Physicians Resource Group, Inc. ("PRG") for the purchase of PRG's majority
ownership interest in 11 surgery centers for approximately $40,000,000. During
the period of time in which the Company and PRG expect to consummate this
transaction, the Company is to manage the operations of these 11 centers as well
as four additional centers under a management agreement beginning on January 1,
2000.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31,
1999, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest .................................................... $ 1,139 $ 1,573 1,584
Income taxes, net of refunds ................................ 3,475 229 1,398
Noncash investing and financing activities:
Capital lease obligations incurred to acquire equipment ..... 1,202 799 333
Conversion of preferred stock ............................... -- 5,267 --
Note received for sale of a partnership interest ............ 245 1,945 --
Conversion of note to partnership interest .................. 2,047 -- --
Forgiveness of debt and treasury stock received in connection
with sale of a partnership interest ....................... -- -- 808
Effect of acquisitions:
Assets acquired, net of cash ........................... 31,864 22,810 15,253
Liabilities assumed .................................... (2,483) (1,409) (763)
Issuance of common stock ............................... (1,099) (451) (1,847)
Purchase price payable ................................. (1,638) (2,385) --
-------- -------- --------
Payment for assets acquired ........................ $ 26,644 $ 18,565 $ 12,643
======== ======== ========
</TABLE>
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company, set forth in
the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders
to be held May 19, 2000, under the caption "Election of Directors," is
incorporated herein by reference. Pursuant to General Instruction G(3),
information concerning executive officers of the Company is included in Part I
of this Annual Report on Form 10-K under the caption "Executive Officers of the
Registrant."
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, set forth in the Company's Definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held May 19,
2000, under the caption "Stock Ownership," is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to the executive officers of the Company, set
forth in the Company's Definitive Proxy Statement relating to the Annual Meeting
of Shareholders to be held May 19, 2000, under the caption "Executive
Compensation," is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management, set forth in the Company's Definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held May 19,
2000, under the caption "Stock Ownership," is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions, set forth in the Company's Definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held May 19, 2000, under the caption
"Certain Relationships and Related Transactions," is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Financial Statement
Schedules and Exhibits
(1) FINANCIAL STATEMENTS: See Item 8 herein.
(2) FINANCIAL STATEMENT SCHEDULES:
Independent Auditors' Report ................................ S-1
Schedule II - Valuation and Qualifying Accounts ............. S-2
All other schedules are omitted, because they are not
applicable or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
37
<PAGE> 38
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
2.1 Amended and Restated Distribution Agreement (incorporated by
reference to Exhibit 2.1 to the Registration Statement on Form
10, as amended)
2.2 Exchange Agreement (incorporated by reference to Exhibit 2.2
to the Registration Statement on Form 10, as amended)
2.3 Membership Purchase Agreement, dated June 15, 1999, by and
among AmSurg Holdings, Inc., AmSurg Corp. and Northside
Gastroenterology Endoscopy Center, LLC (incorporated by
reference to Exhibit 2 of the Current Report on Form 8-K,
dated July 1, 1999)
2.4 Asset Purchase Agreement, dated September 24, 1999, by and
among AmSurg Holdings, Inc., AmSurg Corp. and Mid-Florida
Surgery Center, Inc. (incorporated by reference to Exhibit 2
of the Current Report on Form 8-K, dated October 8, 1999, as
amended)
2.5 Asset Purchase Agreement, dated September 30, 1999, by and
among AmSurg Holdings, Inc. and the shareholders of Ocean
Surgical Pavilion, Inc. (incorporated by reference to Exhibit
2 of the Current Report on Form 8-K, dated October 8, 1999, as
amended)
2.6 Asset Purchase Agreement, dated December 31, 1998, by and among
AmSurg Holdings, Inc., AmSurg Corp. and Gulf Coast Endoscopy
Center, Inc. (incorporated by reference to Exhibit 2.1 of the
Current Report on Form 8-K, dated November 23, 1999)
2.7 Amendment to Asset Purchase Agreement, dated as of November 1,
1999, by and among AmSurg Holdings, Inc., AmSurg Corp. and Gulf
Coast Endoscopy Center, Inc. (incorporated by reference to
Exhibit 2.2 of the Current Report on Form 8-K, dated November
23, 1999)
2.8 Asset Purchase Agreement, dated effective as of December 1,
1999, by and between AmSurg La Jolla, Inc. and La Jolla
Gastroenterology Medical Group, Inc. (incorporated by
reference to Exhibit 2 of the Current Report on Form 8-K,
dated December 21, 1999)
2.9 Asset Purchase Agreement, dated December 31, 1999, by and among
AmSurg Burbank, Inc., AmSurg Corp. and Pacific Eye Surgery
Center, LLC (incorporated by reference to Exhibit 2 of the
Current Report on Form 8-K, dated January 14, 2000)
2.10 Acquisition Agreement, dated January 31, 2000, by and among
Physicians Resource Group, Inc., AmSurg Corp., and other
entities (incorporated by reference to Exhibit 99.1 of the
Current Report on Form 8-K, dated February 15, 2000, of
Physicians Resource Group, Inc.)
2.11 Agreement of Dissolution of Partnership and Asset Purchase,
dated January 21, 2000, by and among AmSurg Glendale, Inc., R.
Phillip Doss and the limited partners of American Surgery
Centers of Glendale, Ltd. (incorporated by reference to
Exhibit 2.1 of the Current Report on Form 8-K, dated February
7, 2000)
3.1 Amended and Restated Charter of AmSurg (incorporated by
reference to Exhibit 3 of the Current Report on Form 8-K,
dated December 3, 1999, restated electronically for SEC filing
purposes only)
3.2 Amended and Restated Bylaws of AmSurg (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form
10, as amended)
4.1 Specimen certificate representing the Class A Common Stock
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form 10, as amended)
4.2 Specimen certificate representing the Class B Common Stock
(incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form 10, as amended)
4.3 Preferred Stock Purchase Agreement, dated November 20, 1996, by
and among AmSurg, Electra Investment Trust P.L.C., Capitol
Health Partners, L.P. and Michael E. Stephens (incorporated by
reference to Exhibit 4.4 to the Registration Statement on Form
10, as amended)
4.4 Rights Agreement, dated December 2, 1999, between AmSurg Corp.
and SunTrust Bank Atlanta, including the Form of Rights
Certificate (Exhibit A), the Form of Summary of Rights
(Exhibit B) and the Form of Articles of Amendment to the
Amended and Restated Charter of AmSurg Corp. (Exhibit C)
(incorporated by reference to Exhibit 4 of the Current Report
on Form 8-K, dated December 3, 1999)
10.1 Form of Management and Human Resources Agreement between
AmSurg and AHI (incorporated by reference to Exhibit 10.1 to
the Registration Statement on Form 10, as amended)
10.2 Registration Agreement, dated April 2, 1992, as amended
November 30, 1992, and November 20, 1996 among AmSurg and
certain named investors therein (incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form 10, as
amended)
10.3 * Form of Indemnification Agreement with directors, executive
officers and advisors (incorporated by reference to Exhibit
10.3 to the Registration Statement on Form 10, as amended)
10.4 Third Amended and Restated Loan Agreement, dated as of May 19,
1998, among AmSurg, SunTrust Bank, Nashville, N.A., and
NationsBank of Tennessee, N.A., as amended on May 6, 1997 and
September 2, 1997 (incorporated by reference to Exhibit 10.4
of the Registration Statement on Form S-1, as amended)
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
10.5 First Amendment to Amended and Restated Revolving Credit Note,
dated as of March 13, 2000, by and between AmSurg and SunTrust
Bank
10.6 First Amendment to Amended and Restated Revolving Credit
Note, dated as of March 13, 2000, by and between AmSurg and
Bank of America, N.A.
10.7 Sublease dated June 9, 1996 between AHI and AmSurg
(incorporated by reference to Exhibit 10.5 to the Registration
Statement on Form 10, as amended)
10.8 * 1992 Stock Option Plan (incorporated by reference to Exhibit
10.7 to the Registration Statement on Form 10, as amended)
10.9 * 1997 Stock Incentive Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form
S-8, dated March 30, 2000)
10.10 * Form of Employment Agreement with executive officers
(incorporated by reference to Exhibit 10.9 to the Registration
Statement on Form 10, as amended)
10.11 * Form of Advisory Agreement with Thomas G. Cigarran and Henry
D. Herr (incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form 10, as amended)
10.12 * Agreement dated April 11, 1997 between AmSurg and Rodney H.
Lunn (incorporated by reference to Exhibit 10.11 to the
Registration Statement on Form 10, as amended)
10.13 * Agreement dated April 11, 1997 between AmSurg and David L.
Manning (incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form 10, as amended)
10.14 * Medical Director Agreement dated as of January 1, 1998,
between the Company and Bergein F. Overholt, M.D.
(incorporated by reference to Exhibit 10 of the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)
10.15 Lease Agreement dated February 24, 1999 between Burton Hills
III, L.L.C. and AmSurg (incorporated by reference to Exhibit
10.1 of the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999)
21 Subsidiaries of AmSurg
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
-----------------
* Management contract or compensatory plan, contract or arrangement
39
<PAGE> 40
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 8, 1999
during the quarter ended December 31, 1999 to report the acquisition of
an undivided 54% interest in the assets comprising the business
operations of an ambulatory surgery center in Mount Dora, Florida.
The Company filed a report on Form 8-K dated October 8, 1999
during the quarter ended December 31, 1999 to report the acquisition of
a 100% interest in certain intangible assets owned by the shareholders
of Ocean Surgical Pavilion, Inc., the owner of an endoscopy center
located in Oakhurst, New Jersey.
The Company filed a report on Form 8-K dated November 23, 1999
during the quarter ended December 31, 1999 to report the acquisition of
an undivided 51% ownership interest in the assets comprising the
business operations of an ambulatory surgery center in Cape Coral,
Florida.
The Company filed a report on Form 8-K dated December 21, 1999
during the quarter ended December 31, 1999 to report the acquisition of
an undivided 51% ownership interest in the assets comprising the
business operations of an ambulatory surgery center in La Jolla,
California.
(c) Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report. See Item 14(a)(3).
(d) Financial Statement Schedules
Additional information relating to the response to this
portion of Item 14 is submitted as a separate section of this report.
See Item 14(a)(2).
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 27, 2000 By: /s/ Ken P. McDonald
----------------------------------------
Ken P. McDonald
(President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas G. Cigarran Chairman of the Board March 27, 2000
- ---------------------------------------
Thomas G. Cigarran
/s/ James A. Deal Director March 27, 2000
- ---------------------------------------
James A. Deal
/s/ Steven I. Geringer Director March 27, 2000
- ---------------------------------------
Steven I. Geringer
/s/ Debora A. Guthrie Director March 27, 2000
- ---------------------------------------
Debora A. Guthrie
/s/ Henry D. Herr Director March 27, 2000
- ---------------------------------------
Henry D. Herr
/s/ Bergein F. Overholt, M.D. Director March 27, 2000
- ---------------------------------------
Bergein F. Overholt, M.D.
/s/ Ken P. McDonald President, Chief Executive Officer and March 27, 2000
- --------------------------------------- Director
Ken P. McDonald (Principal Executive Officer)
/s/ Claire M. Gulmi Senior Vice President, Chief Financial March 27, 2000
- --------------------------------------- Officer and Secretary
Claire M. Gulmi (Principal Financial and Accounting Officer)
</TABLE>
41
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
AmSurg Corp.
Nashville, Tennessee
We have audited the consolidated financial statements of AmSurg Corp.
(the "Company") as of December 31, 1999 and 1998 and for each of the years in
the three-year period ended December 31, 1999, and have issued our report
thereon dated February 16, 2000; such report is included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement schedule of
the Company, listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 16, 2000
S-1
<PAGE> 43
AMSURG CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
--------- -------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS INCLUDED
UNDER THE BALANCE SHEET CAPTION "ACCOUNTS
RECEIVABLE":
Year ended December 31, 1999 $1,937,765 $3,075,703 $193,164 $2,941,461 $2,265,171
========== ========== ======== ========== ==========
Year ended December 31, 1998 $1,436,468 $2,862,112 $167,885 $2,528,700 $1,937,765
========== ========== ======== ========== ==========
Year ended December 31, 1997 $1,272,651 $1,534,992 $673,758 $2,044,933 $1,436,468
========== ========== ======== ========== ==========
</TABLE>
(1) Valuation of allowance for uncollectible accounts at the acquisition of
AmSurg physician practice-based ambulatory surgery centers and
physician practices, net of dispositions. Between 51% and 70% was
charged to excess of cost over net assets of purchased companies. See
note 3 of Notes to the Consolidated Financial Statements.
(2) Charge-off against allowance.
S-2
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT NOTE
ENTERED INTO by and between AMSURG CORP., a Tennessee corporation (the
"Borrower"), and SUNTRUST BANK, successor-in-interest to SunTrust Bank,
Nashville, N.A., its successors, assigns or any subsequent lawful holder of the
Note referenced herein (the "Lender"), as of this 13th day of March, 2000.
RECITALS:
1. The Borrower issued to the order of Lender an Amended and Restated
Revolving Credit Note dated May 19, 1998 in the principal amount of up to
$30,000,000.00 (the "Note").
2. The Borrower and the Lender desire to amend the Note as set forth
herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Borrower and the Lender agree as follows:
1. The fourth paragraph of the Note is amended and restated as follows:
This Note shall be repaid as follows:
(a) Commencing on the tenth (10th) day of June, 1998,
and on the tenth day of each consecutive month through and
including December 10, 2001, the Borrower shall pay to Lender
an amount equal to all then accrued interest; and
(b) On January 10, 2002, this Note shall mature at
which time the Borrower shall pay to Lender an amount equal to
all outstanding principal, plus all then accrued interest.
2. The Note is not amended in any other respect.
3. The Borrower reaffirms its obligations under the Note, as amended,
and the Borrower agrees that its obligations thereunder are valid and binding,
enforceable in accordance with its terms, subject to no defense, counterclaim,
or objection.
4. In connection with this amendment agreement, the Borrower agrees to
pay to the Lender an extension fee equal to $52,500 payable as follows: (a)
$15,000 shall be paid on the execution of this amendment agreement, and (b)
$37,500 shall be paid on January 10, 2001 if the indebtedness evidenced by the
Note has not been replaced by an expanded credit facility by January 10, 2001,
provided that if the indebtedness evidenced by this Note has been replaced by an
expanded credit facility by such date, then the $37,500 portion of the extension
fee described herein shall be canceled.
ENTERED INTO as of the date first set forth above.
BORROWER: LENDER:
AMSURG CORP. SUNTRUST BANK
By: /s/ Claire M. Gulmi By: /s/ Mark D. Mattson
---------------------------- ----------------------------------------
Title: CFO Title: Director
------------------------- ------------------------------------
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT NOTE
ENTERED INTO by and between AMSURG CORP., a Tennessee corporation (the
"Borrower"), and BANK OF AMERICA, N.A., successor-in-interest to NationsBank of
Tennessee, N.A., its successors, assigns or any subsequent lawful holder of the
Note referenced herein (the "Lender"), as of this 13th day of March, 2000.
RECITALS:
1. The Borrower issued to the order of Lender an Amended and Restated
Revolving Credit Note dated May 19, 1998 in the principal amount of up to
$20,000,000.00 (the "Note").
2. The Borrower and the Lender desire to amend the Note as set forth
herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Borrower and the Lender agree as follows:
1. The fourth paragraph of the Note is amended and restated as follows:
This Note shall be repaid as follows:
(a) Commencing on the tenth (10th) day of June, 1998,
and on the tenth day of each consecutive month through and
including December 10, 2001, the Borrower shall pay to Lender
an amount equal to all then accrued interest; and
(b) On January 10, 2002, this Note shall mature at
which time the Borrower shall pay to Lender an amount equal to
all outstanding principal, plus all then accrued interest.
2. The Note is not amended in any other respect.
3. The Borrower reaffirms its obligations under the Note, as amended,
and the Borrower agrees that its obligations thereunder are valid and binding,
enforceable in accordance with its terms, subject to no defense, counterclaim,
or objection.
4. In connection with this amendment agreement, the Borrower agrees to
pay to the Lender an extension fee equal to $35,000 payable as follows: (a)
$10,000 shall be paid on the execution of this amendment agreement, and (b)
$25,000 shall be paid on January 10, 2001 if the indebtedness evidenced by the
Note has not been replaced by an expanded credit facility by January 10, 2001,
provided that if the indebtedness evidenced by this Note has been replaced by an
expanded credit facility by such date, then the $25,000 portion of the extension
fee described herein shall be canceled.
ENTERED INTO as of the date first set forth above.
BORROWER: LENDER:
AMSURG CORP. BANK OF AMERICA, N.A.
By: /s/ Claire M. Gulmi By: /s/ Kimberly R. Dupuy
---------------------------- ----------------------------------------
Title: CFO Title: VP
------------------------- ------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (1 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
AmSurg KEC, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Knoxville, TN AmSurg KEC, Inc. 51%
L.P.
AmSurg EC Topeka, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Topeka, L.P. TN AmSurg EC Topeka, Inc. 60%
AmSurg EC St. Thomas, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of St. Thomas, TN AmSurg EC St. Thomas, Inc. 60%
L.P.
AmSurg EC Centennial, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Centennial, TN AmSurg EC Centennial, Inc. 60%
L.P.
AmSurg EC Beaumont, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Southeast TN AmSurg EC Beaumont, Inc. 51%
Texas, L.P.
AmSurg EC Santa Fe, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Santa Fe, TN AmSurg EC Santa Fe, Inc. 60%
L.P.
AmSurg EC Washington, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Washington TN AmSurg EC Washington, Inc. 60%
D.C., L.P.
AmSurg Torrance, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of South Bay, TN AmSurg Torrance, Inc. 51%
L.P.
</TABLE>
<PAGE> 2
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (2 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
AmSurg Encino, Inc. TN AmSurg Corp. 100%
The Valley Endoscopy Center, L.P. TN AmSurg Encino, Inc. 51%
AmSurg Brevard, Inc. TN AmSurg Corp. 100%
The Ophthalmology Center of Brevard, TN AmSurg Brevard, Inc. 51%
L.P.
AmSurg Sebastopol, Inc. TN AmSurg Corp. 100%
The Sebastopol ASC, L.P. TN AmSurg Sebastopol, Inc. 60%
AmSurg Abilene, Inc. TN AmSurg Corp. 100%
The Abilene ASC, L.P. TN AmSurg Abilene, Inc. 60%
AmSurg Lorain, Inc. TN AmSurg Corp. 100%
The Lorain ASC, L.P. TN AmSurg Lorain, Inc. 51%
AmSurg Maryville, Inc. TN AmSurg Corp. 100%
The Maryville, ASC TN AmSurg Maryville, Inc. 51%
AmSurg Miami, Inc. TN AmSurg Corp. 100%
The Miami ASC, L.P. TN AmSurg Miami, Inc. 70%
AmSurg Melbourne, Inc. TN AmSurg Corp. 100%
The Melbourne ASC, L.P. TN AmSurg Melbourne, Inc. 51%
AmSurg Hillmont, Inc. TN AmSurg Corp. 100%
The Hillmont ASC, L.P. TN AmSurg Hillmont, Inc. 51%
</TABLE>
<PAGE> 3
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (3 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
AmSurg Northwest Florida, Inc. TN AmSurg Corp. 100%
The Northwest Florida ASC, L.P. TN AmSurg Northwest Florida, Inc. 51%
AmSurg Palmetto, Inc. TN AmSurg Corp. 100%
The Palmetto ASC, L.P. TN AmSurg Palmetto, Inc. 51%
AmSurg Hallandale, Inc. TN AmSurg Corp. 100%
The Hallandale Surgery ASC, L.P. TN AmSurg Hallandale 67.3%
AmSurg Ocala, Inc. TN AmSurg Corp. 100%
The Ocala Endoscopy ASC, L.P. TN AmSurg Ocala, Inc. 51%
AmSurg South Florida Network, Inc. TN AmSurg Corp. 100%
The GI Network of South Florida, L.P. TN AmSurg South Florida Network, 51%
Inc.
AmSurg Crystal River, Inc. TN AmSurg Corp. 100%
The Crystal River Endoscopy ASC, TN AmSurg Crystal River, Inc. 51%
L.P.
AmSurg Abilene Eye, Inc. TN AmSurg Corp. 100%
The Abilene Eye ASC, L.P. TN AmSurg Abilene Eye, Inc. 51%
AmSurg El Paso, Inc. TN AmSurg Corp. 100%
The El Paso ASC, L.P. TN AmSurg El Paso, Inc. 51%
</TABLE>
<PAGE> 4
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (4 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
AmSurg Westlake, Inc. TN AmSurg Corp. 100%
The Westlake Ophthalmology ASC, TN AmSurg Westlake, Inc. 57%
L.P.
AmSurg FL EyeCare Network, Inc. TN AmSurg Corp. 100%
The Southeast EyeCare Network, L.P. TN AmSurg FL EyeCare Network, 51%
Inc.
AmSurg Naples, Inc. TN AmSurg Corp. 100%
The Naples Endoscopy ASC, L.P. TN AmSurg Naples, Inc. 60%
AmSurg La Jolla, Inc. TN AmSurg Corp. 100%
The La Jolla Endoscopy Center, L.P. TN AmSurg La Jolla, Inc. 51%
AmSurg Burbank, Inc. TN AmSurg Corp. 100%
The Burbank Ophthalmology ASC, TN AmSurg Burbank, Inc. 51%
L.P.
AmSurg Inglewood, Inc. TN AmSurg Corp. 100%
The Inglewood Endoscopy ASC, L.P. TN AmSurg Inglewood, Inc. 51%
AmSurg Glendale, Inc. TN AmSurg Corp. 100%
The Glendale Ophthalmology ASC, TN AmSurg Glendale, Inc. 51%
L.P.
AmSurg Largo, Inc. TN AmSurg Corp. 100%
AmSurg Suncoast, Inc. TN AmSurg Corp. 100%
AmSurg Miami Urology, Inc. TN AmSurg Corp. 100%
</TABLE>
<PAGE> 5
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (5 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
AmSurg Dade County, Inc. TN AmSurg Corp. 100%
AmSurg SWFLA, Inc. TN AmSurg Corp. 100%
AmSurg ENT Brevard, Inc. TN AmSurg Corp. 100%
AmSurg-Las Vegas, Inc. TN AmSurg Corp. 100%
AmSurg Holdings, Inc. TN AmSurg Corp. 100%
The Knoxville Ophthalmology ASC, TN AmSurg Holdings, Inc. 60%
LLC
The West Monroe Endoscopy ASC, TN AmSurg Holdings, Inc. 55%
LLC
The Montgomery Eye Surgery Center, TN AmSurg Holdings, Inc. 51%
LLC
EyeCare Consultants Surgery Center, TN AmSurg Holdings, Inc. 51%
LLC
The Sidney ASC, LLC TN AmSurg Holdings, Inc. 51%
The Cleveland ASC, LLC TN AmSurg Holdings, Inc. 51%
The Milwaukee ASC, LLC TN AmSurg Holdings, Inc. 51%
The Pinnacle Eyecare Network, LLC TN AmSurg Holdings, Inc. 51%
The Alabama Eye Care Network, LLC TN AmSurg Holdings, Inc. 51%
The Columbia ASC, LLC TN AmSurg Holdings, Inc. 51%
The Wichita Orthopaedic ASC, LLC TN AmSurg Holdings, Inc. 51%
The Minneapolis Endoscopy ASC, TN AmSurg Holdings, Inc. 51%
LLC
The Willoughby ASC, LLC TN AmSurg Holdings, Inc. 51%
The Westglen Endoscopy Center, LLC TN AmSurg Holdings, Inc. 51%
The West Texas Eyecare Network, TN AmSurg Holdings, Inc. 51%
LLC
Cleveland Eyecare Network, LLC TN AmSurg Holdings, Inc. 51%
The Chevy Chase ASC, LLC TN AmSurg Holdings, Inc. 51%
</TABLE>
<PAGE> 6
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (6 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
The Oklahoma City ASC, LLC TN AmSurg Holdings, Inc. 51%
The Mountain West Gastroenterology TN AmSurg Holdings, Inc. 51%
ASC, LLC
The Cincinnati ASC, LLC TN AmSurg Holdings, Inc. 51%
The Fayetteville ASC, LLC TN AmSurg Holdings, Inc. 51%
The Independence ASC, LLC TN AmSurg Holdings, Inc. 60%
AmSurg Northern Kentucky GI, LLC TN AmSurg Holdings, Inc. 51%
AmSurg Louisville GI, LLC TN AmSurg Holdings, Inc. 51%
AmSurg Kentucky Ophthalmology, TN AmSurg Holdings, Inc. 51%
LLC
The Phoenix Ophthalmology ASC, TN AmSurg Holdings, Inc. 51%
LLC
The Toledo Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Midwest GI Network, LLC TN AmSurg Holdings, Inc. 33.33% Financial
51% Governance
The Englewood ASC, LLC TN AmSurg Holdings, Inc. 51%
The Sun City Ophthalmology ASC, TN AmSurg Holdings, Inc. 60%
LLC
The Cape Coral/Ft. Myers Endoscopy TN AmSurg Holdings, Inc. 51%
ASC, LLC
The Baltimore Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 60%
The Boca Raton Ophthalmology ASC, TN AmSurg Holdings, Inc. 51%
LLC
The Minneapolis Ophthalmology ASC, TN AmSurg Holdings, Inc. 51%
LLC
The Florham Park Endoscopy TN AmSurg Holdings, Inc. 51%
ASC, LLC
The West Texas GI Network, LLC TN AmSurg Holdings, Inc. 51%
The West Orange ENT ASC, LLC TN AmSurg Holdings, Inc. 51%
The Northside Gastroenterology IN AmSurg Holdings, Inc. 51%
Endoscopy Center, LLC
The Chattanooga Endoscopy ASC, TN AmSurg Holdings, Inc. 51%
LLC
</TABLE>
<PAGE> 7
EXHIBIT 21
SUBSIDIARY LIST
AS OF MARCH 24, 2000
PAGE (7 OF 7)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------ ------------ -------- ----------
<S> <C> <C> <C>
The Mount Dora Ophthalmology ASC, TN AmSurg Holdings, Inc. 54%
LLC
The Oakhurst Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Seneca PA ASC, LLC TN AmSurg Holdings, Inc. 51%
The Orlando Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Tamarac Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Waldorf Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Sarasota Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Melbourne Premiere Senior TN AmSurg Holdings, Inc. 51%
Refractive, LLC
The Melbourne RC, LLC TN The Melbourne Premiere 90%
Senior Retractive, LLC
The Las Vegas Ophthalmology ASC, TN AmSurg Holdings, Inc. 60%
LLC
AmSurg-Las Vegas, LLC TN AmSurg Holdings, Inc. 100%
West Texas Preferred Vision Care, TN 50% Owned by The West Texas 50%
L.L.C. EyeCare Network, LLC
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-41961 of AmSurg Corp. on Form S-8 and the Registration Statement, dated
March 30, 2000, of AmSurg Corp. on Form S-8 of our report dated February 16,
2000, appearing in the Annual Report on Form 10-K of AmSurg Corp. for the year
ended December 31, 1999.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMSURG
CORP.'S BALANCE SHEET AS OF DECEMBER 31, 1999 AND STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,523
<SECURITIES> 0
<RECEIVABLES> 17,462<F1>
<ALLOWANCES> 0
<INVENTORY> 2,077
<CURRENT-ASSETS> 31,260
<PP&E> 27,995<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 137,868
<CURRENT-LIABILITIES> 10,231
<BONDS> 34,901
0
0
<COMMON> 62,922
<OTHER-SE> 9,786
<TOTAL-LIABILITY-AND-EQUITY> 137,868
<SALES> 0
<TOTAL-REVENUES> 101,446
<CGS> 0
<TOTAL-COSTS> 69,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,122
<INCOME-PRETAX> 11,465
<INCOME-TAX> 4,414
<INCOME-CONTINUING> 7,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (126)
<NET-INCOME> 6,925
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.47
<FN>
<F1>Value represents net amount.
</FN>
</TABLE>
