Amsurg Corp. Reports Operating Results (10-Q)

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May 09, 2009
Amsurg Corp. (AMSG, Financial) filed Quarterly Report for the period ended 2009-03-31.

AmSurg Corp. is in the business 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. Amsurg Corp. has a market cap of $661 million; its shares were traded at around $21 with a P/E ratio of 13.2 and P/S ratio of 1.1. Amsurg Corp. had an annual average earning growth of 18.7% over the past 10 years. GuruFocus rated Amsurg Corp. the business predictability rank of 3-star.

Highlight of Business Operations:

At March 31, 2009, we had working capital of $84.8 million compared to $85.5 million at December 31, 2008. Operating activities for the three months ended March 31, 2009 generated $29.4 million in cash flow from operations compared to $21.5 million in the three months ended March 31, 2008. The increase in operating cash flow resulted primarily from higher net earnings in the 2009 period and reduced days outstanding in our accounts receivable. Cash and cash equivalents at March 31, 2009 and 2008 were $31.4 million and $24.1 million, respectively.

During the three months ended March 31, 2009, we received $898,000 on the payment of a short-term note receivable for the sale of a surgery center in 2008. In addition, we collected $624,000 on a note receivable related to the sale of a surgery center in 2004. The note is secured by a pledge of a 51% ownership interest in the center, is guaranteed by the physician partners at the center and is due in installments through 2009. The balance of this note at March 31, 2009 was $833,000.

During the three months ended March 31, 2009, we had net borrowings on long-term debt of $5.3 million, and at March 31, 2009, we had $257.0 million outstanding under our revolving credit facility. Pursuant to our credit facility, we may borrow up to $300.0 million to, among other things, finance our acquisition and development projects and any future stock repurchase programs at a rate equal to, at our option, the prime rate, LIBOR plus 0.50% to 1.50% or a combination thereof. The loan agreement provides for a fee of 0.15% to 0.30% of unused commitments, 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 March 31, 2009. Borrowings under the revolving credit facility are due in July 2011 and are secured primarily by a pledge of the stock of our subsidiaries that serve as the general partners of our limited partnerships and our partnership and membership interests in the limited partnerships and limited liability companies.

In September 2008, our board of directors authorized a stock repurchase program for up to $25.0 million of our outstanding common stock. During the three months ended March 31, 2009, we repurchased 830,700 shares, which completed this program. On April 22, 2009, our board of directors approved another stock repurchase program for up to $40.0 million of our outstanding shares of common stock over the next 18 months. We intend to fund the purchase price for shares acquired using primarily cash generated from our operations and borrowings under our credit facility. The size, cost and timing of any repurchases may result in a reduction in the number of center acquisitions we complete during 2009.

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 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. We entered into an interest rate swap agreement in April 2006 in which $50.0 million of the principal amount outstanding under the revolving credit facility will bear interest at a fixed-rate of 5.365% for the period from April 28, 2006 to April 28, 2011. Interest rate changes would result in gains or losses in the market value of our debt portfolio due to differences in market interest rates and the rates at the inception of the debt agreements. Based upon our indebtedness at March 31, 2009, a 100 basis point interest rate change would impact our net earnings and cash flow by approximately $2.1 million annually. 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 our net earnings or cash flows in 2009.

Read the The complete ReportAMSG is in the portfolios of David Dreman of Dreman Value Management, David Dreman of Dreman Value Management.