Back to GetFilings.com
1
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, 2000
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 9, 2001, 9,967,950 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 9, 2001) of the Registrant held by nonaffiliates on March 9,
2001 was approximately $256,700,000. 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.
2
PART I
ITEM 1. BUSINESS
Our Company was formed 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 us to charge fees which we believe 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, 2000, we
owned a majority interest in 81 surgery centers in 24 states and the District of
Columbia. As of December 31, 2000, we also had four centers under development
and had executed letters of intent to acquire or develop five additional
centers.
We were organized as a Tennessee corporation in 1992. Our principal
executive offices are located at 20 Burton Hills Boulevard, Nashville, Tennessee
37215, and our telephone number is 615-665-1283.
INDUSTRY OVERVIEW
For numerous 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 2000), the number of freestanding outpatient surgery
centers in the U.S. grew 29% to approximately 2,750 in the year 2000 from 2,134
in 1994. The number of outpatient surgical cases performed in freestanding
surgery centers increased 70% from 3.6 million in 1994 to a projected 6.2
million in 2000. We believe that approximately 1,000 of these surgery centers
are single-specialty centers.
We believe 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. We believe 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. We believe that many physicians
prefer practice-based ambulatory surgery centers because these 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.
STRATEGY
We believe we are a leader in the development, acquisition and
operation of practice-based ambulatory surgery centers. The key components of
our strategy are to:
- develop, in partnership with physicians, new practice-based
ambulatory surgery centers;
- selectively acquire practice-based ambulatory surgery centers
with substantial minority physician ownership; and
- grow revenues and profitability of our existing surgery
centers.
2
3
DEVELOPMENT AND ACQUISITION OF SURGERY CENTERS
Our 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. We have
targeted ownership in centers that perform gastrointestinal endoscopy,
ophthalmology, orthopedics, otolaryngology (ear, nose and throat) or urology
procedures. We target these medical specialties because they generally involve a
high volume of lower-risk procedures that can be performed in an outpatient
setting on a safe and cost-effective basis. 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 must be 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, typically provides a more convenient setting for the patient
and for the physician performing the procedure. Improvements in technology
continue to enable additional types of procedures to be performed in the
practice-based setting.
Our 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 we have
targeted for development. These candidates are then evaluated against our
project criteria which include several factors such as the 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, or CON, requirements for the development
of a new center.
In presenting the advantages to physicians of developing a new
practice-based ambulatory surgery center in partnership with us, our 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. We also focus on
our expertise in developing and operating centers. In addition, as part of our
role as the general partner or manager of the surgery center partnerships and
limited liability companies, we market the centers to third party payers.
In a development project, we provide, among other things, 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
contracting with third party payers.
We begin our acquisition process with a due diligence review of the
targeted center and its market. We use experienced teams of operations and
financial personnel to conduct a thorough review of all aspects of the center's
operations including the following:
- market position of the center and the physicians affiliated
with the center;
- payer and case mix;
- growth opportunities;
- staffing and supply review; and
- equipment assessment.
Our ownership interests in practice-based ambulatory surgery centers
generally are structured through limited partnerships or limited liability
companies. We generally own 51% to 70% of the partnerships or limited liability
companies and act as the general partner in each limited partnership and the
chief manager in each limited liability company. In development transactions,
capital contributed by the physicians and AmSurg 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, we enter into
a partnership agreement or, in the case of a limited liability company, an
operating agreement with our physician group partner. Under these agreements, we
receive a percentage of the net income and cash distributions of the entity
equal to our percentage ownership interest in the entity and have the right to
the same percentage of the proceeds of a sale or liquidation of the entity. In
the limited partnership structure, as the sole general partner, we are generally
liable for the debts of the partnership.
3
4
These agreements generally provide that we will oversee the business
office, 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 certain other 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 AmSurg and
our physician partners.
Because the physicians will continue to have a minority ownership
interest in the center, we work closely with the physicians throughout the
process to assess the likelihood of a successful partnership with them in the
surgery centers.
The partnership and operating agreements provide that if certain
regulatory changes take place, we will be obligated to purchase some or all of
the minority interests of the physicians affiliated with us in the partnerships
or limited liability companies that own and operate our surgery centers. The
regulatory changes that could trigger such an obligation include changes that:
(i) make the referral of Medicare and other patients to our surgery centers by
physicians affiliated with us illegal; (ii) create the substantial likelihood
that cash distributions from the partnership or limited liability company to the
affiliated physicians 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 our existing capital resources would be
sufficient for us to meet the obligation, if it arises, to purchase these
minority interests held by physicians. The determination of whether a triggering
event has occurred is made by the concurrence of counsel for AmSurg and counsel
for 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 our control. While we
have structured the purchase obligations to be as favorable as possible to us,
the triggering of these obligations could have a material adverse effect on our
financial condition and results of operations. See "Business--Government
Regulation."
SURGERY CENTER OPERATIONS
We generally design, build, staff and equip each of our facilities to
meet the specific needs of a single specialty physician practice group. Our
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 us 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.
Our cost of developing a typical surgery center ranges from $1.0 to $1.5
million. Constructing, equipping and licensing a surgery center generally takes
10 to 12 months. As of December 31, 2000, 53 of our centers in operation
performed gastrointestinal endoscopy procedures, 24 centers performed
ophthalmology procedures, one center performed orthopedic procedures, one center
performed otolaryngology procedures and two centers performed procedures in more
than one specialty. The procedures performed at our centers generally do not
require an extended recovery period following the procedures. Our centers are
staffed with approximately ten 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 other endoscopy procedures;
- Ophthalmology--cataracts and retinal laser surgery;
- Orthopedics--knee arthroscopy and carpal tunnel repair;
- Otolaryngology--myringotomy (ear tubes) and tonsillectomy; and
- Urology--cystoscopy and biopsy.
We market our surgery centers directly to third-party payers, including
health maintenance organizations, or HMOs, preferred provider organizations, or
PPOs, other managed care organizations and employers. Payer-group marketing
activities conducted by AmSurg management and center administrators emphasize
the high quality of care, cost advantages and convenience of our surgery centers
and are focused on making each center an approved provider under local managed
care plans.
JCAHO ACCREDITATION
Fifty-three of our surgery centers are currently accredited by the
Joint Commission for the Accreditation of Healthcare Organizations, or JCAHO, or
the Accreditation Association for Ambulatory Health Care, or AAAHC, and 11
surgery centers are scheduled for initial accreditation surveys during 2001. Of
the accredited centers, all have received three-year certification. We believe
that JCAHO or AAAHC accreditation is the quality benchmark for managed care
organizations. Many managed care organizations will not contract with a facility
until it is accredited. We believe that our historical performance in the
accreditation process reflects our commitment to providing high quality care in
our surgery centers.
4
5
SURGERY CENTER LOCATIONS
The following table sets forth certain information relating to centers
in operation as of December 31, 2000:
ACQUISITION/ OPERATING OR
SPECIALTY OPENING PROCEDURE
LOCATION PRACTICE DATE ROOMS
-------- --------- ----------- ------------
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 ........................ Orthopedics 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 (1) ............ 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
Glendale, California ................... Ophthalmology January 2000 1
Las Vegas East, Nevada ................. Ophthalmology May 2000 2
Hutchinson, Kansas ..................... Ophthalmology June 2000 3
New Orleans, Louisiana ................. Ophthalmology July 2000 2
Dothan, Alabama ........................ Ophthalmology August 2000 2
Kingston, Pennsylvania ................. Ophthalmology December 2000 3
Inverness, Florida ..................... Gastroenterology December 2000 3
Harlingen, Texas ....................... Gastroenterology December 2000 2
Coral Gables, Florida .................. Ophthalmology December 2000 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
5
6
ACQUISITION/ OPERATING OR
SPECIALTY OPENING PROCEDURE
LOCATION PRACTICE DATE ROOMS
-------- --------- ----------- ------------
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
Melbourne, Florida ..................... Lasik Ophthalmology February 2000 1
Minneapolis, Minnesota ................. Ophthalmology June 2000 2
Crestview Hills, Kentucky .............. Gastroenterology September 2000 2
Louisville, Kentucky ................... Gastroenterology September 2000 2
Louisville, Kentucky ................... Ophthalmology September 2000 2
Ft. Myers, Florida ..................... Gastroenterology October 2000 2
Seneca, Pennsylvania ................... Gastroenterology, October 2000 2
Ophthalmology
Sarasota, Florida ...................... Gastroenterology December 2000 2
Tamarac, Florida ....................... Gastroenterology December 2000 2
- ---------------
(1) Subsequent to December 31, 2000, we signed certain agreements which,
among other things, provide for the disposition of our interest in this
surgery center. See "Notes to the Consolidated Financial Statements --
Note 12."
Our partnerships and limited liability companies generally lease
certain of the real property in which our centers operate and the equipment used
in certain of our centers, either from the physician partners or from
unaffiliated parties. Two centers in operation at December 31, 2000 are located
in buildings owned indirectly by us.
REVENUES
Substantially all of our revenues is derived from the facility fee
charged for surgical procedures performed in the 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.
Practice-based ambulatory surgery centers depend upon third-party
reimbursement programs, including governmental and private insurance programs,
to pay for services rendered to patients. We derived approximately 37% of our
net revenues from governmental healthcare programs, primarily Medicare, in 2000.
The Medicare program currently pays ambulatory surgery centers and physicians in
accordance with predetermined fee schedules.
On June 12, 1998, DHHS 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 ophthalmology procedures performed
at our centers. DHHS initially planned to implement these new rates in the
spring of 2001. However, the Benefits Improvement and Protection Act of 2000, or
BIPA, made three changes to the June 1998 proposed rule. First, BIPA deferred
the date on which the proposal becomes effective to January 2002; second, BIPA
requires the phase-in of the new rates over four years; and third, it requires
that DHHS use data beginning in January 2003 based on a new surgery center cost
survey from 1999 or later in calculating new rates.
We estimate that if full implementation of the proposed rates occurred
in January 2002, they would adversely affect our annual revenues by 4% based on
the proposed rates and our historical procedure mix. However, we believe due to
the four year phase-in of the new rates coupled with updated rates based on a
new cost survey to be used in 2003 and cost efficiencies we can implement at
both the center and corporate level that our financial results will not be
materially impacted by the rule's implementation. However, there can be no
assurance that the implementation of this rule will not adversely impact our
financial condition, results of operation and business prospects.
6
7
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 programs such as PPOs and HMOs. The
strengthening of managed care systems nationally has resulted in substantial
competition among providers of surgery center services to contract with these
systems. Some of our competitors have greater financial resources and market
penetration than AmSurg. We believe 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 our efforts to contract with healthcare payers, we believe
that our position as a low-cost alternative for certain surgical procedures
should enable our centers to compete effectively in the evolving healthcare
marketplace.
COMPETITION
We encounter competition in three separate areas: competition for joint
venture development of practice-based centers, competition with other companies
for acquisition of existing centers and competition with other providers for
patients and for contracting with managed care payers in each of our markets.
Competition for joint venture development of practice-based centers. We
believe that we do not have a direct corporate competitor in the development of
practice-based ambulatory surgery centers across the specialties of
gastroenterology, ophthalmology, otolaryngology, urology, and orthopedic
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 us in the development of centers.
Further, 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 often 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 center acquisitions. There are several companies, many
in niche markets, that acquire existing practice-based ambulatory surgery
centers. These competitors may have greater resources than we have. The
principal competitive factors that affect our and our competitors' ability to
acquire surgery centers are price, experience and reputation, and access to
capital.
Competition for patients and managed care contracts. We believe that
our 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 we compete for managed care contracts.
GOVERNMENT REGULATION
The healthcare industry is subject to extensive regulation by a number
of governmental entities at the federal, state and local level. Government
regulation affects our business activities by controlling our growth, requiring
licensure and certification for our facilities, regulating the use of our
properties and controlling reimbursement to us for the services we provide.
CONs and state licensing. Certificate of need statutes and regulations
control the development of ambulatory surgery centers in certain states. CON
statutes and regulations 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. In giving approval, a
designated state health planning agency must determine that a need exists for
expanded or additional facilities or services. Our development of ambulatory
surgery centers generally focuses on states that do not require CONs. Further,
even in states that require CONs for new centers, acquisitions of existing
surgery centers generally do not require CON approval.
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
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.
7
8
Corporate practice of medicine. The laws of several states in which we
operate or may operate in the future do not permit business corporations to
practice medicine, exercise control over physicians who practice medicine or
engage in various business practices, such as fee-splitting with physicians. The
interpretation and enforcement of these laws vary significantly from state to
state. We are not required to obtain a license to practice medicine in any
jurisdiction in which we own and operate 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 individually licensed to
practice medicine. In most instances, the physicians and physician group
practices are not affiliated with us other than through the physicians'
ownership in the partnerships and limited liability companies that own the
surgery centers and the service agreements we have with some physicians. The
laws in most states regarding the corporate practice of medicine have been
subjected to limited judicial and regulatory interpretation. We cannot give you
assurances that our activities, if challenged, will be found to be in compliance
with these laws.
Certification. We depend upon third-party programs, including
governmental and private health insurance programs, to reimburse us for services
rendered to patients in our ambulatory surgery centers. In order to receive
Medicare reimbursement, each surgery center must meet the applicable conditions
of participation set forth by the Department of Health and Human Services, or
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 our existing
centers is certified as a Medicare provider. Although we intend for our 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 fraud and abuse provisions. The federal anti-kickback
statute prohibits healthcare providers and others from soliciting, receiving,
offering or paying, directly or indirectly, any remuneration (including any
kickback, bribe, or rebate) with the intent of generating referrals or orders
for services or items covered by a federal healthcare program. The anti-kickback
statute is very broad in scope and many of its provisions have not been
uniformly or definitely interpreted by case law or regulations. Violations may
result in criminal penalties or fines of up to $25,000 or imprisonment for up to
five years, or both. Violations of the anti-kickback statute may also result in
substantial civil penalties, including penalties of up to $50,000 for each
violation, plus three times the amount claimed and exclusion from participation
in the Medicare and Medicaid programs. Exclusion from these programs would
result in significant reductions in revenue and would have a material adverse
effect on our business.
DHHS has published final safe harbor regulations that outline
categories of activities that are deemed protected under the anti-kickback
statute. Two of the safe harbor regulations relate to investment interests in
general: 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 safe harbor 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 of the investment interests safe harbors or the surgery
center safe harbors. Thus, they do not qualify for safe harbor protection from
government review or prosecution under the anti-kickback statute. However, a
business arrangement that does not substantially comply with a safe harbor is
not necessarily illegal under the anti-kickback statute.
The Office of Inspector General is authorized to issue advisory
opinions regarding the interpretation and applicability of the federal
anti-kickback law, including whether an activity constitutes grounds for the
imposition of civil or criminal sanctions. We have not, however, sought such an
opinion regarding any of our arrangements. 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
our partnerships and limited liability companies. We believe that we are in
compliance with the current requirements of applicable federal and state law
because among other factors:
- 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;
- 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;
- the physician partners have a substantial investment at risk
in the partnership or limited liability company;
- 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;
- 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;
- the partnership, the limited liability company, our subsidiary
and our affiliates generally will not loan any funds to or
guarantee any debt on behalf of the physician partners; and
8
9
- distributions by the partnerships and limited liability
companies are allocated uniformly in proportion to ownership
interests.
The safe harbor regulations also set forth a safe harbor for personal
services and management contracts. Certain of our partnerships and limited
liability companies have entered into ancillary services agreements with our
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 may be 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, we
believe 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.
Many of the states in which we operate also have adopted laws that
prohibit payments to physicians in exchange for referrals similar to the federal
anti-kickback statute, some of which apply regardless of the source of payment
for care. These statutes typically provide criminal and civil penalties as well
as loss of licensure.
Notwithstanding our belief that the relationship of physician partners
to our surgery centers should not constitute illegal remuneration under the
federal anti-kickback statute or similar laws, we cannot assure you 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 our centers to become illegal, or result in the imposition
of penalties on us or certain of our facilities. Even the assertion of a
violation could have a material adverse effect upon us.
In addition to the anti-kickback statute, the Health Insurance
Portability and Accountability Act of 1996 broadened the scope of the fraud and
abuse laws by adding several criminal provisions for healthcare fraud offenses
that apply to all health benefit programs. This act also created new enforcement
mechanisms to combat fraud and abuse including the Medicare Integrity Program
and an incentive program under which individuals can receive up to $1,000 for
providing information on Medicare fraud and abuse that leads to the recovery of
at least $100 of Medicare funds. In addition, federal enforcement officials now
have the ability to exclude from Medicare and Medicaid any investors, officers
and managing employees associated with business entities that have committed
healthcare fraud. It also establishes a new violation for the payment of
inducements to Medicare and Medicaid beneficiaries in order to influence those
beneficiaries to order or receive services from a particular provider or
practitioner.
Evolving interpretations of current, or the adoption of new, federal or
state laws or regulations could affect many of our arrangements. Law enforcement
authorities, including the Office of the Inspector General, the courts and
Congress are increasing scrutiny of arrangements between healthcare providers
and potential referral sources to ensure that the arrangements are not designed
as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators also have demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purposes
of payments between healthcare providers and potential referral sources.
Prohibition on physician ownership of healthcare facilities and certain
self-referrals. The federal physician self-referral law, commonly referred to as
the Stark Law, prohibits a physician from making a referral for a designated
health service to an entity if the physician or member of the physician's
immediate family has a financial relationship with the entity. Sanctions for
violating the Stark Law include civil money penalties of up to $15,000 per
prohibited service provided, assessments equal to twice the dollar value of each
such service provided and exclusion from the federal healthcare programs. The
original Stark Law only addressed referrals involving clinical laboratory
services. However, in 1995, additional legislation, commonly known as Stark II,
expanded the ban on self-referrals by adding the following services to the
definition of "designated health services:" physical therapy services;
occupational therapy services; radiology services; radiation therapy services
and supplies; durable medical equipment and supplies; parenteral and enteral
nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices
and supplies; home health services; outpatient prescription drugs; and inpatient
and outpatient hospital services.
On January 4, 2001, DHHS issued final regulations subject to comment
intended to clarify parts of the Stark Law, and some exceptions to it. These
regulations are considered the first phase of a two-phase process, with the
remaining regulations to be published at an unknown future date. The second
phase of the regulations are expected to address services furnished in a surgery
center. Under the phase one regulations, services that would otherwise
constitute a designated health service, but that are paid by Medicare as a part
of the surgery center payment rate, are not a designated health service for the
purposes of the Stark Law. The phase one regulations are generally to be
effective January 4, 2002. DHHS is accepting comments on the phase one
regulations until April 4, 2001, which may lead to further changes. Therefore,
we believe the Stark Law generally does not prohibit physician ownership or
investment interests in surgery centers to which they refer patients. We cannot
predict the final form that these regulations will take or the effect that the
final regulations will have on us.
9
10
In addition, several states in which we operate have self-referral
statutes similar to the Stark Law. We believe that physician ownership of
surgery centers is not prohibited by these state self-referral statutes.
However, the Stark Law and similar state statutes are subject to different
interpretations with respect to many important provisions. Violations of these
self-referral laws may result in substantial civil or criminal penalties,
including large civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs. Exclusion of our surgery centers from these
programs could result in significant loss of revenues and could have a material
adverse effect on us. We can give you no assurances that further judicial or
agency interpretation of existing laws or further legislative restrictions on
physician ownership or investment in health care entities will not be issued
that could have a material adverse effect on us.
The federal False Claims Act and similar federal and state laws. We are
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 some
cases, qui tam plaintiffs and the federal government have taken the position
that violations of the anti-kickback statute and the Stark Law should also be
prosecuted as violations of the federal False Claims Act. We believe that we
have procedures in place to ensure the accurate completion of claims forms and
requests for payment. However, the laws and regulations defining proper Medicare
or Medicaid billing are frequently unclear and have not been subjected to
extensive judicial or agency interpretation. Billing errors can occur despite
our best efforts to prevent or correct them, and we cannot assure you that the
government will regard such errors as inadvertent and not in violation of the
False Claims Act or related statutes. We are currently not aware of any actions
against us under the False Claims Act.
A number of states, including states in which we operate, have adopted
their own false claims provisions as well as their own qui tam provisions
whereby a private party may file a civil lawsuit in state court.
Healthcare industry investigations. Both federal and state government
agencies have heightened and coordinated civil and criminal enforcement efforts
as part of numerous ongoing investigations of healthcare companies, as well as
their executives and managers. These investigations relate to a wide variety of
topics, including referral and billing practices.
The Office of the Inspector General of the U.S. Department of Health
and Human Services and the Department of Justice has, from time to time,
established national enforcement initiatives that focus on specific billing
practices or other suspected areas of abuse. Some of our activities could become
the subject of governmental investigations or inquiries. For example, we have
significant Medicare billings and we have joint venture arrangements involving
physician investors. In addition, our executives and managers, many of whom have
worked at other healthcare companies that are or may become the subject of
federal and state investigations and private litigation, could be included in
governmental investigations or named as defendants in private litigation. We are
not aware of any governmental investigations involving any of our facilities,
our executives or our managers. A future investigation of us, our executives or
our managers could result in significant liabilities or penalties to us, as well
as adverse publicity.
Privacy requirements and administrative simplification. There are
currently numerous legislative and regulatory initiatives at the state and
federal levels addressing patient privacy concerns. In particular, on December
28, 2000, DHHS released final health privacy regulations implementing portions
of the Administrative Simplification Provisions of the Health Insurance
Portability and Accountability Act of 1996. These final health privacy
regulations have an effective date of April 14, 2001, and a compliance date of
April 14, 2003. Subject to limited exceptions, these regulations restrict how
healthcare providers use and disclose medical records and other individually
identifiable health information, whether communicated electronically, on paper
or orally. The regulations also provide patients with significant new rights
related to understanding and controlling how their health information is used
and disclosed.
In addition, the Administrative Simplification Provisions require DHHS
to adopt standards to protect the security of health-related information. DHHS
proposed security regulations on August 12, 1998. As proposed, those security
regulations would require healthcare providers to implement organizational and
technical practices to protect the security of electronically maintained or
transmitted health-related information. Further, as required by the
Administrative Simplification Provisions, DHHS has adopted final regulations
establishing electronic data transmission standards that all healthcare
providers must use when submitting or receiving certain healthcare transactions
electronically. Compliance with these regulations is required by October 16,
2002. These statutes vary by state and could impose additional penalties.
Although we cannot predict the total financial or other impact of these
regulations on our business, compliance with these regulations could require us
to spend substantial sums, including but not limited to purchasing new computer
systems, which could negatively impact our financial results. Additionally, if
we fail to comply with these regulations, we could suffer civil penalties up to
$25,000 per calendar year for each violation and criminal penalties with fines
of up to $250,000 per violation. Our facilities will continue to remain subject
to any state laws that are more restrictive than the privacy regulations issued
under the Administrative Simplification Provisions.
10
11
Obligations to buy-out physician partners. Under our agreements with
physician partners, we are 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 our counsel 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 us and the physician partners. The interest
we are required to purchase 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, 2000, AmSurg and our affiliated entities employed
approximately 614 persons, 438 of whom were full-time employees and 176 of whom
were part-time employees. Of the above, 107 were employed at our headquarters in
Nashville, Tennessee. In addition, approximately 385 employees are leased on a
full-time basis and 251 are leased on a part-time basis from the associated
physician practices. None of these employees are represented by a union. We
believe our relationships with our employees to be excellent.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, we may be named a party to legal claims and
proceedings in the ordinary course of business. We are not aware of any claims
or proceedings against us, our partnerships or limited liability companies that
might have a material financial impact on us.
Each of our surgery centers maintains separate medical malpractice
insurance in amounts deemed adequate for our business.
ITEM 2. PROPERTIES
Our principal executive offices are located in Nashville, Tennessee and
contain an aggregate of approximately 22,060 square feet of office space, which
we lease 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. Seventy-nine of the centers in operation at December 31,
2000 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, 2000 are located in buildings owned indirectly by AmSurg.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding executive
officers of AmSurg as of December 31, 2000. Executive officers of AmSurg serve
at the pleasure of the Board of Directors.
NAME AGE POSITION WITH AMSURG
---- --- --------------------
Ken P. McDonald 60 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 47 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 55 Senior Vice President of Corporate Services since September 2000;
Senior Vice President of Operations from October 1992 until September
2000.
Rodney H. Lunn 51 Senior Vice President of Center Development since 1992; director from
1992 until February 1997.
David L. Manning 51 Senior Vice President of Development and Assistant Secretary of AmSurg
since April 1992.
Dennis J. Zamojski 44 Senior Vice President of Operations since September 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Common Stock trades under the symbol "AMSGA" and the Class
B Common Stock trades under the symbol "AMSGB" on the Nasdaq Stock Market's
National Market. The following table sets forth the high and low sales prices
per share for the Common Stock for each of the quarters in 1999 and 2000, as
reported on the Nasdaq National Market.
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------ -------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
1999:
First Quarter $ 9.50 $ 6.50 $ 8.75 $ 6.50
Second Quarter $ 8.75 $ 6.00 $ 8.63 $ 5.75
Third Quarter $ 8.13 $ 5.66 $ 7.75 $ 5.88
Fourth Quarter $ 8.13 $ 5.13 $ 7.88 $ 4.75
2000:
First Quarter $ 7.13 $ 5.00 $ 7.00 $ 5.50
Second Quarter $ 6.44 $ 4.75 $ 6.50 $ 5.13
Third Quarter $ 14.75 $ 5.25 $ 13.38 $ 5.38
Fourth Quarter $ 24.75 $ 11.25 $ 20.31 $ 10.50
At March 9, 2001 there were approximately 1,900 holders of the Class A
Common Stock, including approximately 130 shareholders of record, and 1,200
holders of the Class B Common Stock, including approximately 80 shareholders
of record.
We have never declared or paid a cash dividend on either class of our
common stock. We intend to retain our earnings to finance the growth and
development of our business and do not expect to declare or pay any cash
dividends in the foreseeable future. The declaration of dividends is within the
discretion of our Board of Directors, which will review this dividend policy
from time to time. Presently, the declaration of dividends would violate certain
covenants associated with our credit facility with lending institutions.
On January 4, 2000, we issued 8,830 shares of Class A Common Stock to
physicians as partial payment of a note issued in connection with the
acquisition of a surgery center. The market price of these shares was $5.66 per
share. 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.
12
13
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- -------- ---------- --------
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues .............................................. $ 143,261 $ 101,446 $ 80,322 $ 57,414 $ 34,898
Operating expenses .................................... 96,114 69,428 63,370(1) 44,084(2) 26,191
---------- ---------- -------- ---------- --------
Operating income ................................. 47,147 32,018 16,952 13,330 8,707
Minority interest ..................................... 27,702 19,431 13,645 9,084 5,433
Interest and other expenses ........................... 4,703 1,122 1,499 2,396(3) 808
---------- ---------- -------- ---------- --------
Earnings before income taxes and cumulative
effect of an accounting change ................. 14,742 11,465 1,808 1,850 2,466
Income tax expense .................................... 5,676 4,414 1,047 1,774 985
---------- ---------- -------- ---------- --------
Net earnings before cumulative effect of an
accounting change .............................. 9,066 7,051 761 76 1,481
Cumulative effect of a change in the method in
which pre-opening costs are recorded ........... -- (126) -- -- --
---------- ---------- -------- ---------- --------
Net earnings ..................................... 9,066 6,925 761 76 1,481
Accretion of preferred stock discount ................. -- -- -- 286 22
---------- ---------- -------- ---------- --------
Net earnings (loss) available to common
shareholders ..................................... $ 9,066 $ 6,925 $ 761 $ (210) $ 1,459
========== ========== ======== ========== ========
Basic earnings per common share:
Net earnings before cumulative effect of an
accounting change .............................. $ 0.62 $ 0.49 $ 0.06 $ (0.02) $ 0.17
Net earnings ..................................... $ 0.62 $ 0.48 $ 0.06 $ (0.02) $ 0.17
Diluted earnings per common share:
Net earnings before cumulative effect of an
accounting change .............................. $ 0.60 $ 0.48 $ 0.06 $ (0.02) $ 0.16
Net earnings ..................................... $ 0.60 $ 0.47 $ 0.06 $ (0.02) $ 0.16
Weighted average number of shares and share
equivalents outstanding:
Basic ............................................ 14,594 14,429 12,247 9,453 8,689
Diluted .......................................... 15,034 14,778 12,834 9,453 9,083
AT DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands, except center data)
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 7,688 $ 9,523 $ 6,070 $ 3,407 $ 3,192
Working capital ....................................... 26,589 21,029 12,954 9,312 4,732
Total assets .......................................... 190,652 137,868 98,421 75,238 54,653
Long-term debt and other long-term obligations ........ 71,832 34,901 12,483 24,970 9,218
Minority interest ..................................... 21,063 17,358 11,794 9,192 5,674
Preferred stock ....................................... -- -- -- 5,268 4,982
Shareholders' equity .................................. 83,145 72,708 64,369 29,991 28,374
CENTER DATA:
Centers at end of year ................................ 81 63 52 39 27
Procedures performed during year ...................... 288,494 207,754 156,521 101,819 71,323
- ---------------
(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.
(3) Reflects cost incurred related to the distribution of our common stock
held by American Healthways, Inc. to American Healthways, Inc.'s
stockholders, which had an impact of reducing basic and diluted
earnings per share by $0.09.
13
14
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 our control. Although we believe 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 our objectives and plans will be
achieved. We undertake no obligation to publicly release any revisions to any
forward-looking statements in this discussion to reflect events and
circumstances occurring after the date hereof or to reflect unanticipated
events.
Forward-looking statements and our liquidity, financial condition and
results of operations may be affected by our ability to enter into partnership
or operating agreements for new practice-based ambulatory surgery centers; our
ability to identify suitable acquisition candidates and negotiate and close
acquisition transactions; our ability to obtain the necessary financing or
capital on terms satisfactory to us in order to execute our expansion strategy;
our ability to manage growth; our ability to contract with managed care payers
on terms satisfactory to us for our existing centers and our centers that are
currently under development; our ability to obtain and retain appropriate
licensing approvals for our existing centers and centers currently under
development; our ability to minimize start-up losses of our development centers;
our ability to maintain favorable relations with our 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 our status as a general partner of the
limited partnerships; and risks relating to our technological systems.
Additionally, with regard to the remaining transactions with Physicians Resource
Group factors include, but are not limited to, the parties' respective abilities
to consummate the remaining transactions contemplated thereunder; our ability to
enter into partnership or operating agreements with the physician owners of the
remaining Physicians Resource Group surgery centers; our ability to effectively
integrate the operations of the Physicians Resource Group surgery centers into
our operations; and our ability to operate the Physicians Resource Group surgery
centers profitably.
OVERVIEW
We develop, acquire and operate practice-based ambulatory surgery
centers in partnership with physician practice groups. As of December 31, 2000,
we owned a majority interest (51% or greater) in 81 surgery centers.
We operated as a majority owned subsidiary of American Healthways from
1992 until December 3, 1997 when American Healthways distributed to its
stockholders all of its holdings in AmSurg common stock in a spin-off
transaction.
The following table presents the changes in the number of surgery
centers in operation and centers under development for the years ended December
31, 2000, 1999 and 1998. We consider a center to be under development when a
partnership or limited liability company has been formed with the physician
group partner to develop the center.
2000 1999 1998
---- ---- ----
Centers in operation, beginning of the year ...... 63 52 39
New center acquisitions placed in operation ...... 9 10 7
New development centers placed in operation ...... 9 1 7
Centers sold ..................................... -- -- (1)
---- ---- ----
Centers in operation, end of the year ............ 81 63 52
==== ==== ====
Centers under development, end of the year ....... 4 12 5
==== ==== ====
Of the surgery centers in operation as of December 31, 2000, 53 centers
perform gastrointestinal endoscopy procedures, 24 centers perform ophthalmology
surgery procedures, one center performs orthopedic procedures, one center
performs otolaryngology procedures and two centers perform procedures in more
than one specialty. The other partner or member in each partnership or limited
liability company is generally an entity owned by physicians who perform
procedures at the center. We intend to expand primarily through the development
and acquisition of additional practice-based ambulatory surgery centers in
targeted surgical specialties and through future same-center growth. As of March
6, 2001, we had acquired interests in five additional surgery centers.
14
15
On January 31, 2000, we signed a definitive agreement with Physicians
Resource Group for the purchase of a portion of Physicians Resource Group's
ownership interest in certain single specialty ophthalmology surgery centers for
approximately $40 million in cash. In addition, we may purchase additional
centers from Physicians Resource Group upon completion of satisfactory due
diligence and negotiation of partnership or operating agreements with the
physician owners of the remaining interest. As of December 31, 2000, we had
purchased from Physicians Resource Group six surgery centers and were pursuing
additional acquisitions of up to three surgery centers from Physicians Resource
Group. Of these three additional centers, one was acquired in the first quarter
of 2001. Physicians Resource Group has filed for bankruptcy in the United States
Bankruptcy Court for the Northern District of Texas.
In 1998, we disposed of our interests in 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. Accordingly, we 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. See "Notes to Consolidated Financial Statements -
Note 3(c)."
While we generally own 51% to 70% of the entities that own the surgery
centers, our 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
Substantially all our revenue is derived from facility fees charged for
surgical procedures performed in our 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 by
the physicians. Historically, our other significant source of revenues had been
the fees for physician services performed by two physician group practices in
which we owned a majority interest. However, as a result of the disposition of
these practices occurring in 1998, we no longer earn such revenue.
Practice-based ambulatory surgery centers such as those in which we own
a majority interest depend upon third-party reimbursement programs, including
governmental and private insurance programs, to pay for services rendered to
patients. We derived approximately 37%, 38% and 41% of our revenues in the years
ended December 31, 2000, 1999 and 1998, respectively, from governmental
healthcare programs, primarily Medicare. The Medicare program currently pays
ambulatory surgery centers and physicians in accordance with predetermined fee
schedules.
RESULTS OF OPERATIONS
The following table shows certain statement of operations items
expressed as a percentage of revenues for the years ended December 31, 2000,
1999 and 1998:
2000 1999 1998
------ ------ ------
Revenues ........................................................ 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits ....................................... 27.8 27.4 28.6
Supply cost ................................................. 11.6 11.3 11.4
Other operating expenses .................................... 20.5 22.5 23.9
Depreciation and amortization ............................... 7.2 7.2 8.2
Net loss on sale of assets .................................. -- -- 6.8
------ ------ ------
Total operating expenses ............................... 67.1 68.4 78.9
------ ------ ------
Operating income ....................................... 32.9 31.6 21.1
Minority interest ............................................... 19.3 19.2 17.0
Interest expense, net of interest income ........................ 3.3 1.1 1.9
------ ------ ------
Earnings before income taxes and cumulative effect
of an accounting change .............................. 10.3 11.3 2.2
Income tax expense .............................................. 4.0 4.4 1.3
------ ------ ------
Net earnings before cumulative effect of an
accounting change .................................... 6.3 6.9 0.9
Cumulative effect of a change in the method in which
pre-opening costs are recorded ................................ -- 0.1 --
------ ------ ------
Net earnings ........................................... 6.3% 6.8% 0.9%
====== ====== ======
15
16
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues were $143.3 million in 2000, an increase of $41.8 million, or
41%, over revenues in 1999. The increase is primarily attributable to additional
centers in operation in 2000 and same-center revenue growth of 10%. Same-center
growth is primarily attributable to additional procedure volume.
Salaries and benefits expense was $39.8 million in 2000, an increase of
$11.9 million, or 43%, over salaries and benefits expense in 1999. This increase
resulted primarily from 18 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. As a percentage of revenues, salaries
and benefits expense remained relatively constant.
Supply cost was $16.6 million in 2000, an increase of $5.1 million, or
44%, over supply cost in 1999. This increase resulted primarily from a 39%
increase in procedures over 1999 and an increased mix of ophthalmology
procedures, which require more costly supplies than gastroenterology procedures,
our predominant procedure type.
Other operating expenses were $29.4 million in 2000, an increase of
$6.7 million, or 29%, over other operating expenses in 1999. This increase
resulted primarily from additional centers in operation, which increased 26%
over the average number of centers in operation in 1999. As a percentage of
revenues, other operating expenses decreased by 2%. This is due to the fact that
other operating expenses includes many fixed expenses such as rents, operating
taxes and utilities, which contribute to higher profit margins when same-center
revenues increase.
We anticipate further increases in operating expenses in 2001 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. At December 31, 2000, we had four
centers under development and nine centers that had been open for less than one
year.
Depreciation and amortization expense increased $3.0 million, or 41%,
in 2000 over 1999, primarily due to 18 additional surgery centers in operation
in 2000 compared to 1999, as well as additional excess of cost over net assets
of purchased operations acquired throughout 2000 and 1999.
Our minority interest in earnings in 2000 increased by $8.3 million, or
43%, over 1999 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 increased $3.6 million, or 319%, in 2000 in comparison
to 1999 due to an increase in debt assumed or incurred in connection with
additional acquisitions of interests in surgery centers in late 1999 and
throughout 2000, together with the interest expense associated with newly opened
start-up surgery centers financed partially with bank debt. We also experienced
higher interest rates in 2000 compared to 1999.
We recognized income tax expense of $5.7 million in 2000, compared to
$4.4 million in 1999. Our effective tax rate in 2000 and 1999 was 38.5% 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.
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.
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.
Supply cost was $11.5 million in 1999, an increase of $2.3 million, or
25%, over supply cost in 1998. This increase resulted primarily from a 33%
increase in procedures over 1998.
Other operating expenses were $22.8 million in 1999, an increase of
$3.6 million, or 19%, 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. As a percentage of revenues, other operating expenses dropped by 1%. This
is due to the fact that other operating expenses included many fixed expenses
such as rents, operating taxes and utilities, which lead to higher profit
margins when same-center revenues increase.
16
17
Depreciation and amortization expense increased $0.7 million, 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, or SOP, No. 98-5 "Reporting on Cost of Start-Up
Activities," as further discussed below.
We experienced no significant capital gain/loss transactions in 1999.
The net loss on sale of assets in 1998 primarily resulted from our decision to
exit the physician practice management business. In the second quarter of 1998,
we 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.
Our 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 our respective minority partners as are our existing surgery
centers, as well as increased same-center profitability as a result of
same-center revenue growth.
Interest expense decreased $0.4 million, 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
our 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.
We 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,
our 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 we
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, we expensed $126,000, net of minority
interest and income taxes, as a cumulative effect of an accounting change.
QUARTERLY STATEMENT OF EARNINGS DATA
The following table presents certain quarterly statement of earnings
data for the years ended December 31, 1999 and 2000. The quarterly statement of
earnings data set forth below was derived from our unaudited financial
statements and includes all adjustments, consisting of normal recurring
adjustments, which we consider 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.
1999 2000
---------------------------------------- -----------------------------------------
Q1 (1) Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- -------
(In thousands, except per share data)
Revenues..................... $23,394 $24,677 $25,386 $27,989 $31,633 $34,590 $36,717 $40,321
Earnings before income
taxes and cumulative
effect of an accounting
change..................... 2,544 2,819 2,913 3,189 3,290 3,585 3,700 4,167
Net earnings................. 1,439 1,733 1,792 1,961 2,023 2,205 2,275 2,563
Diluted earnings per
common share............... $ 0.10 $ 0.12 $ 0.12 $ 0.13 $ 0.14 $ 0.15 $ 0.15 $ 0.17
(1) 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.
17
18
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had working capital of $26.6 million compared
to $21.0 million at December 31, 1999. Operating activities for 2000 generated
$18.5 million in cash flow from operations compared to $16.8 million in 1999.
Cash and cash equivalents at December 31, 2000 and 1999 were $7.7 million and
$9.5 million, respectively.
During 2000, we used approximately $30.7 million to acquire interests
in practice-based ambulatory surgery centers. In addition, we made capital
expenditures primarily for new start-up surgery centers and for new or
replacement property at existing centers which totaled $13.4 million in 2000, of
which $0.7 million was funded from the capital contributions of our minority
partners. We used our cash flow from operations and net borrowings of long-term
debt of $23.2 million to fund our acquisition and development obligations. At
December 31, 2000, we had outstanding obligations associated with recent
acquisitions of $10.5 million in the form of a combination of notes payable and
other obligations, which we funded through additional borrowings of long-term
debt in January 2001. At December 31, 2000, we and our partnerships and limited
liability companies had unfunded construction and equipment purchase commitments
for centers under development of approximately $0.7 million, which we intend to
fund through additional borrowings of long-term debt, operating cash flow and
capital contributions by minority partners.
During 2000, we raised approximately $0.7 million from the issuance of
stock under our employee stock option plans.
On May 5, 2000, we refinanced and amended our revolving credit facility
to permit us to borrow up to $100.0 million to finance our acquisition and
development projects at a rate equal to, at our option, the prime rate or LIBOR
plus a spread of 1.5% to 3.0%, depending upon borrowing levels. The amended loan
agreement provides for a fee ranging between 0.375% to 0.50% 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. We were in compliance with
all covenants at December 31, 2000. At December 31, 2000, borrowings under the
amended credit facility were $55.5 million, are due in May 2003, and are secured
primarily by a pledge of the stock of our subsidiaries and our membership
interests in the LLCs. During 2000, we incurred approximately $0.9 million in
financing costs associated with the amended credit facility.
On June 12, 1998, the Department of Health and Human Services, or DHHS,
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 ophthalmology procedures performed at our centers. DHHS
initially planned to implement these new rates in the spring of 2001. However,
the Benefits Improvement and Protection Act of 2000, or BIPA, made three changes
to the June 1998 proposed rule. First, BIPA deferred the date on which the
proposal becomes effective to January 2002; second, BIPA requires the phase-in
of the new rates over four years; and third, it requires that DHHS use data
beginning in January 2003 based on a new surgery center cost survey from 1999
or later in calculating new rates.
We estimate that if full implementation of the new rates
occurred in January 2002, they would adversely affect our annual revenues by 4%
based on the proposed rates and our historical procedure mix. However, we
believe due to the four year phase-in of the new rates, coupled with updated
rates based on a new cost survey to be used in 2003 and cost efficiencies we
expect to implement at both the center and corporate level, that our financial
results will not be materially impacted by the rule's implementation. There can
be no assurance that the implementation of this rule will not adversely impact
our financial condition, results of operation and business prospects.
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." We adopted this pronouncement on January
1, 2001, which had no impact on our consolidated financial statements.
SEC Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in
Financial Statements," released in December 1999 provides guidance for applying
generally accepted accounting principles to selected revenue recognition issues.
The implementation of SAB No. 101 was required no later than the fourth fiscal
quarter of fiscal year 2000 and had no impact on our consolidated financial
statements.
18
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk from exposure to changes in interest
rates based on our financing, investing and cash management activities. We
utilize a balanced mix of debt maturities along with both fixed-rate and
variable-rate debt to manage our exposures to changes in interest rates. Our
debt instruments are primarily indexed to the prime rate or LIBOR. Although
there can be no assurances that interest rates will not change significantly, we
do not expect changes in interest rates to have a material effect on income or
cash flows in 2001.
The table below provides information as of December 31, 2000 and 1999
about our long-term debt obligations based on maturity dates that are sensitive
to changes in interest rates, including principal cash flows and related
weighted average interest rates by expected maturity dates (in thousands, except
percentage data).
FAIR
YEARS ENDED DECEMBER 31, VALUE AT
---------------------------------------------------------------------------- DECEMBER 31,
2001 2002 2003 2004 2005 2006 2000
---------- ---------- ---------- ---------- ---------- ---------- ------------
Fixed rate ............... $ 1,643 $ 1,643 $ 1,140 $ 416 $ 213 $ 55 $ 5,110
Average interest rate .... 8.30% 8.55% 8.49% 8.59% 9.00% 9.00%
Variable rate ............ $ 653 $ 322 $ 55,797 $ 290 $ -- $ -- $57,062
Average interest rate .... 8.81% 8.96% 8.69% 9.00% -- --
FAIR
YEARS ENDED DECEMBER 31, VALUE AT
---------------------------------------------------------------- DECEMBER 31,
2000 2001 2002 2003 2004 1999
---------- ---------- ---------- ---------- ---------- ------------
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%
The difference in maturities of long-term obligations principally
resulted from the refinancing of our revolving credit facility on May 5, 2000,
which increased our borrowing capacity from $50.0 million to $100.0 million and
extended the maturity date to 2003. Outstanding borrowings under this facility
at December 31, 2000 increased as compared to December 31, 1999 due to the
acquisition of additional surgery centers. The average interest rate on these
borrowings at December 31, 2000 increased as compared to December 31, 1999 due
to higher borrowing levels and an overall increase in market rates.
19
20
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, 2000 and 1999, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
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 19, 2001, except for Note 13,
as to which the date is March 6, 2001
20
21
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 7,688 $ 9,523
Accounts receivable, net of allowance of $2,506 and $2,265, respectively ............... 24,468 17,462
Supplies inventory ..................................................................... 2,645 2,077
Deferred income taxes (note 9) ......................................................... 636 590
Prepaid and other current assets ....................................................... 2,091 1,608
-------- --------
Total current assets .......................................................... 37,528 31,260
Long-term receivables and deposits (note 3) ................................................. 1,861 2,036
Property and equipment, net (notes 4, 6 and 7) .............................................. 39,855 27,995
Intangible assets, net (notes 3 and 5) ...................................................... 111,408 76,577
-------- --------
Total assets .................................................................. $190,652 $137,868
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (note 3) ................................................................. $ -- $ 1,238
Current portion of long-term debt (note 6) ............................................. 2,296 1,809
Accounts payable ....................................................................... 2,234 1,915
Accrued salaries and benefits .......................................................... 2,759 2,204
Other accrued liabilities .............................................................. 2,632 2,594
Current income taxes payable ........................................................... 1,018 471
-------- --------
Total current liabilities ..................................................... 10,939 10,231
Long-term debt (note 6) ..................................................................... 59,876 34,901
Notes payable and other long-term obligations (note 3) ...................................... 11,956 --
Deferred income taxes (note 9) .............................................................. 3,673 2,670
Minority interest ........................................................................... 21,063 17,358
Preferred stock, no par value, 5,000,000 shares authorized .................................. -- --
Shareholders' equity:
Common stock (note 8):
Class A, no par value, 35,000,000 shares authorized, 9,951,656 and 9,760,228
shares outstanding, respectively ................................................. 50,764 49,393
Class B, no par value, 4,800,000 shares authorized, 4,787,131 shares outstanding ... 13,529 13,529
Retained earnings ...................................................................... 18,852 9,786
-------- --------
Total shareholders' equity .................................................... 83,145 72,708
-------- --------
Commitments and contingencies (notes 4, 7, 10 and 12)
Total liabilities and shareholders' equity .................................... $190,652 $137,868
======== ========
See accompanying notes to the consolidated financial statements.
21
22
AMSURG CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
2000 1999 1998
--------- --------- ---------
Revenues (note 2) .................................................................... $ 143,261 $ 101,446 $ 80,322
Operating expenses:
Salaries and benefits (note 10) ................................................. 39,770 27,895 22,947
Supply cost ..................................................................... 16,598 11,491 9,209
Other operating expenses (note 10) .............................................. 29,445 22,777 19,184
Depreciation and amortization ................................................... 10,301 7,290 6,568
Net (gain) loss on sale of assets (note 3) ...................................... -- (25) 5,462
--------- --------- ---------
Total operating expenses .................................................... 96,114 69,428 63,370
--------- --------- ---------
Operating income ............................................................ 47,147 32,018 16,952
Minority interest .................................................................... 27,702 19,431 13,645
Interest expense, net of interest income of $230, $237 and $125, respectively ........ 4,703 1,122 1,499
--------- --------- ---------
Earnings before income taxes and cumulative effect of an accounting
change .................................................................... 14,742 11,465 1,808
Income tax expense (note 9) .......................................................... 5,676 4,414 1,047
--------- --------- ---------
Net earnings before cumulative effect of an accounting change ............... 9,066 7,051 761
Cumulative effect of a change in the method in which pre-opening costs are
recorded .......................................................................... -- (126) --
--------- --------- ---------
Net earnings ................................................................ $ 9,066 $ 6,925 $ 761
========= ========= =========
Basic earnings per common share (note 8):
Net earnings before cumulative effect of an accounting change ................... $ 0.62 $ 0.49 $ 0.06
Net earnings .................................................................... $ 0.62 $ 0.48 $ 0.06
Diluted earnings per common share (note 8):
Net earnings before cumulative effect of an accounting change ................... $ 0.60 $ 0.48 $ 0.06
Net earnings .................................................................... $ 0.60 $ 0.47 $ 0.06
Weighted average number of shares and share equivalents outstanding (note 8):
Basic ........................................................................... 14,594 14,429 12,247
Diluted ......................................................................... 15,034 14,778 12,834
See accompanying notes to the consolidated financial statements.
22
23
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
DEFERRED
COMMON STOCK COMPENSATION
------------------- RETAINED ON RESTRICTED
SHARES AMOUNT EARNINGS STOCK TOTAL
------ ------- -------- ------------- -------
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
Issuance of common stock ....................... 30 172 -- -- 172
Stock options exercised, including related
tax benefit of $504 .......................... 162 1,199 -- -- 1,199
Net earnings ................................... -- -- 9,066 -- 9,066
------ ------- ------- ----- -------
Balance December 31, 2000 ........................... 14,739 $64,293 $18,852 $ -- $83,145
====== ======= ======= ===== =======
See accompanying notes to the consolidated financial statements.
23
24