SEC Filings

AMSURG CORP filed this Form 10-Q on 08/14/1997
Entire Document
<PAGE>   10

       Depreciation and amortization expense increased $475,131 and $890,768, or
72% and 67%, for the three and six month periods ended June 30, 1997,
respectively, over the comparable periods in 1996, primarily due to 12
additional surgery centers and one physician practice in operation in the 1997
periods compared to the 1996 periods. Interest expense increased $166,000 and
$294,252, or 85% and 70%, in the three month and six month periods ended June
30, 1997, respectively, over the comparable periods in 1996 due to debt assumed
or incurred in connection with additional acquisitions of interests in surgery
centers and a physician practice plus the interest expense associated with newly
opened start-up surgery centers financed partially with bank debt.

       The Company anticipates further increases in operating expenses during
the remainder of 1997 primarily due from additional start-up centers placed in
operation in excess of the number of development centers historically opened by
the Company within a six month period. Typically a start-up center may incur
start-up losses during its initial one to three months of operations and
experiences lower revenues and operating margins than an established center
until its case load grows to a more optimal operating level, which generally is
expected to occur within 12 months after a center opens.

       Impairment loss of $2.3 million in the six month period ended June 30,
1997 represents a charge in accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." The Company determined in the first
quarter of 1997 that an impairment in the asset carrying value at one of its
partnerships that owns two surgery centers acquired in 1994 had taken place and
as a result it recorded an impairment of asset carrying value associated with
these centers. Various disagreements with the sole physician partner over the
operation of these centers have adversely impacted the operations of these
centers. After a series of discussions and attempts to resolve these
differences, the Company determined that the partners could not resolve their
disagreement and that as a result the carrying value of the assets associated
with this partnership is not likely to be fully recovered. In determining that
an impairment had occurred, the Company projected the undiscounted cash flows
from these centers and determined these cash flows to be less than the carrying
value of the long-lived assets attributable to this partnership. Accordingly an
impairment loss equal to the excess of the carrying value of the long-lived
assets over the present value of the estimated future cash flows was recorded.
While there has been no final decision, the Company believes that the most
probable outcome will be the discontinuance of its involvement with these
centers. It is management's intent to pursue a course of resolution that is as
economically favorable as possible to the Company. The physician partner has
initiated arbitration proceedings and the Company has initiated legal
proceedings to resolve the disagreements between the parties. Management
believes it has good relationships with its other physician partners and that
the impairment loss attributable to the partnership discussed above resulted
from a unique set of circumstances. The Company does not believe that the
operations of these two centers will have a significant impact on the Company's
future ongoing results of operations.

       The Company's minority interest in earnings for the three and six month
periods ended June 30, 1997 increased by $1.0 million and $1.8 million,
respectively, from the comparable 1996 periods primarily as a result of minority
partners' interest in earnings at surgery centers recently added to operations
and from increased profitability at same-centers.

       The Company recognized income tax expense of $407,000 and $736,000 in the
three and six month period ended June 30, 1997, respectively, compared to
$241,000 and $477,000 in the comparable periods in 1996. Because the loss
incurred associated with the impairment loss discussed above may only be
deducted for tax purposes against future capital gains for up to five years, the
Company has recognized no tax benefit associated with this loss in the current
period. The Company's effective tax rate is 40% of earnings prior to the
impairment loss in both periods, and differs from the federal statutory income
tax rate of 34% due primarily to the impact of state income taxes.

       Accretion of preferred stock discount resulted from the issuance during
November 1996 of redeemable preferred stock with a redemption amount of $3.0
million in November 1996. The preferred stock was recorded at its fair market
value, net of issuance costs. The redeemable preferred stock is being accreted
to its redemption value including potential dividends which will begin in
November 1998 unless redeemed by that date.