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Article by DailyStocks_admin    (01-01-08 02:41 AM)

The Daily Magic Formula Stock for 12/30/2007 is AmSurg Corp. According to the Magic Formula Investing Web Site, the ebit yield is 15% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Our company was formed in 1992 for the purpose of developing, acquiring and operating practice-based ambulatory surgery centers, or ASCs, in partnership with physician practice groups throughout the United States. An AmSurg surgery center is typically located adjacent to or in close proximity to the specialty medical practice of a physician group partner’s office. Each of our 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 multi-specialty outpatient surgery centers for similar services performed on an outpatient basis. As of December 31, 2006, we owned a majority interest in 156 surgery centers in 32 states and the District of Columbia and had five centers under development. In addition, we acquired a majority interest in seven surgery centers as of January 1, 2007.
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 many 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 sites, including ASCs.
According to Verispan’s Freestanding Outpatient Surgery Center Market Report (2006 Edition), there were 5,349 freestanding ASCs in the United States as of November 2006. We believe that approximately 1,000 of these surgery centers are single-specialty centers. Approximately 29% of all ASCs are owned by multi-facility healthcare providers, while approximately 71% are independently owned.
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-based surgery. We believe that surgery performed at a practice-based ASC 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.
Physician and Patient Preference. We believe that many physicians prefer practice-based ASCs 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 ASCs 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 ASC 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 ASCs. 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 acquisition, development and operation of practice-based ASCs. The key components of our strategy are to:

• selectively acquire practice-based ASCs with substantial minority physician ownership;
• develop, in partnership with physicians, new practice-based ASCs; and
• grow revenues and profitability at our existing surgery centers.


Ninety-two percent of our centers specialize in gastroenterology or ophthalmology procedures. These specialties have a higher concentration of older patients than other specialties, such as orthopedic or enterology. We believe the aging demographics of the U.S. population will be a source of procedure growth for these specialties.
Acquisition and Development of Surgery Centers
Our practice-based ASCs are 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, orthopedic and otolaryngology (ear, nose and throat) 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 a single specialty results in significantly lower capital and operating costs than the costs of hospitals and freestanding ASCs that must be designed to provide more intensive services for a broader array of surgical specialties. In addition, our practice-based surgery centers typically provide a more convenient setting for the patient and the physician performing the procedure.
Our development staff identify existing centers that are potential acquisition candidates and identify physician practices that are potential partners for new center development in the medical specialties which we have targeted. These candidates are then evaluated against our project criteria, which include the quality of the physicians and their growth opportunities in their market, 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 payors in the market and state certificate of need, or CON, requirements for the development of a new center.
We begin our acquisition process with a due diligence review of the target 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;
• payor and case mix;
• growth opportunities;
• staffing and supply review; and
• equipment assessment.


In presenting the advantages to physicians of developing a new practice-based ASC 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 the 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 manager of our surgery center limited partnerships and limited liability companies, we market the centers to third-party payors.


CEO BACKGROUND

Ken P. McDonald age 66

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 age 53

Executive Vice President since February 2006; Chief Financial Officer since September 1994; Director since May 2004; Senior Vice President from March 1997 to February 2006; Secretary since December 1997; Vice President from September 1994 through March 1997.

David L. Manning age 57

Executive Vice President and Chief Development Officer since February 2006; Senior Vice President of Development and Assistant Secretary from April 1992 to February 2006.

Frank J. Coll age 47

Senior Vice President of Operations since February 2005; President and Principal of The Bottom Line Solution, a private management consulting company, from November 2001 to February 2005; Senior Vice President, Operations for Web MD/Envoy Corporation from November 1999 to October 2001.

Royce D. Harrell age 61

Senior Vice President of Corporate Services since September 2000; Senior Vice President of Operations from October 1992 until September 2000.




SHARE OWNERSHIP

Ken P. McDonald owns 2.5 % of shares, Claire M. Gulmi owns 1.1 %, David L. Manning owns 1.7 %


COMPENSATION


Consistent with its past practices, during the first quarter of 2007, the Compensation Committee established 2007 base salaries and bonus criteria for the executive officers and granted stock options to the executive officers. The 2007 base salaries for the executive officers are as follows: Mr. McDonald, $510,000; Ms. Gulmi, $350,000; Mr. Manning, $350,000; Mr. Coll, $295,000, and Mr. Harrell, $230,000. For 2007, cash bonuses for Mr. McDonald and Ms. Gulmi will be based 50% upon the attainment of Company earnings targets, 33% upon targets related to surgery center profits, and 17% upon the annual earnings of surgery centers acquired and de novo surgery center partnerships formed during 2007. The cash bonus for Mr. Coll during 2007 will be based 20% upon the attainment of Company earnings targets 30% upon targets related to surgery center profits, 30% upon targets related to revenue growth at our surgery centers and 20% upon the annual earnings of surgery centers acquired and de novo partnerships formed during 2007. The cash bonus for Mr. Harrell will be based 33% upon the attainment of Company earnings targets, 50% upon targets related to surgery center profits, and 17% upon the annual earnings of surgery centers acquired and de novo surgery center partnerships formed during 2007. The maximum total bonus award, as a percentage of their base salaries, that the executive officers other than Mr. Manning can receive in 2007 is 100% for Mr. McDonald, 80% for Ms. Gulmi, and 60% for Messrs. Coll and Harrell. Mr. Manning is eligible to receive a cash bonus of up to 40% of his base salary based upon the earnings of surgery centers acquired during 2007. Mr. Manning is eligible to receive an additional cash bonus based upon the annual earnings of surgery centers acquired and de novo surgery center partnerships formed during 2007.

MANAGEMT DISCUSSION FROM LATEST 10K


Revenues increased $76.8 million, or 20%, to $464.6 million in 2006 from $387.8 million in 2005. The additional revenues resulted primarily from:

• 19 centers acquired or opened in 2005, which contributed $38.2 million of additional revenues due to having a full period of operations in 2006;
• eight centers acquired and three development centers opened in 2006, which generated $20.5 million in revenues; and
• $18.1 million of revenue growth by 126 centers in our 2006 same-center group, reflecting a 5% increase, primarily as a result of procedure growth.


Our procedures increased by 117,259, or 16%, to 851,328 in 2006 from 734,069 in 2005. The difference between our revenue growth and our procedure growth was primarily the result of an increase in our average revenue per procedure because of the increase in the number of orthopedic, eye and multi-specialty centers in operation in 2006 and a change in the mix of procedures in our same-center group.
Staff at newly acquired and developed centers, as well as the additional staffing required at existing centers due to increased volume, resulted in a 19% increase in salaries and benefits at our surgery centers in 2006. We experienced a 60% increase in salaries and benefits at our corporate offices during 2006 over 2005. The increase in corporate office salaries and benefits was primarily due to share-based compensation expense of approximately $7.0 million related to the adoption of SFAS, No. 123R, “ Share-Based Payment (Revised 2004) ,” effective January 1, 2006 (see Recent Accounting Pronouncements”), increased employee incentive compensation expense for our corporate employees and expense associated with additional corporate employees needed to manage our additional centers in operation during 2006. Salaries and benefits increased in total by 25% to $137.9 million in 2006 from $110.0 million in 2005. Salaries and benefits as a percentage of revenues increased in 2006 over 2005 due to the impact of share-based compensation expense.
Supply cost was $54.3 million in 2006, an increase of $10.5 million, or 24%, over supply cost in 2005. This increase was primarily the result of additional procedure volume. In addition, our average supply cost per procedure increased to $64 in 2006 from $60 in 2005. During 2006 certain surgery centers performed cataract procedures that included a reimbursable presbyopia correcting lens, which has a higher cost and increased our average cost per procedure during 2006 as compared to 2005, during which these type of cataract procedures were not performed. In addition, the increase in the number of orthopedic and multi-specialty centers in operation since 2005 resulted in an increase in supply cost per procedure due to the higher supply cost incurred at these types of centers.
Other operating expenses increased $15.4 million, or 20%, to $91.9 million in 2006 from 2005. The additional expense in the 2006 period resulted primarily from:

• 19 centers acquired or opened during 2005, which resulted in an increase of $7.6 million in other operating expenses;
• an increase of $3.9 million in other operating expenses from our 2006 same-center group resulting primarily from additional procedure volume and general inflationary cost increases; and
• eight centers acquired and three development centers opened during 2006, which resulted in an increase of $3.8 million in other operating expenses.

Depreciation and amortization expense increased $2.1 million, or 14%, in 2006 from 2005, primarily as a result of centers acquired since 2005 and the newly developed surgery centers in operation, which have an initially higher level of depreciation expense due to their construction costs.
We anticipate further increases in operating expenses in 2007, primarily due to additional acquired centers and additional start-up 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 operation and will experience lower revenues and operating margins than an established center. This typically continues until the case load at the center grows to a more normal operating level, which generally is expected to occur within 12 months after the center opens. At December 31, 2006, we had five centers under development and three centers that had been open for less than one year.
Minority interest in earnings from continuing operations before income taxes in 2006 increased $14.7 million, or 19%, from 2005, primarily as a result of minority partners’ interest in earnings at surgery centers recently added to operations. As a percentage of revenues, minority interest remained reasonably consistent between the 2006 and 2005 periods.
Interest expense increased $3.6 million in 2006, or 86%, from 2005, primarily due to additional long-term debt outstanding during 2006 resulting from acquisition activity, as well as an increase in interest rates. See “– Liquidity and Capital Resources.”
We recognized income tax expense from continuing operations of $24.2 million in 2006 compared to $23.4 million in 2005. Our effective tax rate in 2006 and 2005 was 38.8% and 39.2%, respectively, of earnings from continuing operations before income taxes, and differed from the federal statutory income tax rate of 35%, primarily due to the impact of state income taxes. During 2007, we anticipate that our effective tax rate will be approximately 39.2%. Because we deduct goodwill amortization for tax purposes only, approximately 20% of our overall income tax expense is deferred, which results in a continuing increase in our deferred tax liability, which would only be due in part or in whole upon the disposition of a portion or all of our surgery centers. While we continue to recognize this increase in deferred tax liability, beginning in 2006 deferred tax assets established as a result of expensing share-based compensation began to reduce the overall net increase in deferred taxes and net deferred tax liabilities.

During 2006, we sold our interests in four surgery centers. In 2005, we sold our interests in two surgery centers, and one center was rendered non-operational by Hurricane Katrina and was abandoned. These centers’ results of operations and gains and losses associated with their dispositions have been classified as discontinued operations in all periods presented. We recognized an after tax loss for the disposition of discontinued interests in surgery centers of $463,000 and $986,000 during 2006 and 2005, respectively. The net earnings derived from the operations of the discontinued surgery centers for 2006 were $92,000 and the net loss derived from the operations of the discontinued surgery centers for 2005 was $190,000.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Our revenues are directly related to the number of procedures performed at our surgery centers. Our overall growth in procedure volume is impacted directly by the increase in the number of surgery centers in operation and the growth in procedure volume at existing centers. We increase our number of surgery centers through both acquisitions and developments. Procedure growth at any existing center may result from additional contracts entered into with third-party payors, increased market share of the associated medical practice of our physician partners, additional physicians utilizing the center and/or scheduling and operating efficiencies gained at the surgery center. A significant measurement of how much our revenues grow from year to year for existing centers is our same-center revenue percentage. We define our same-center group each year as those centers that contain full year-to-date operations in both comparable reporting periods, including the expansion of the number of operating centers within a limited partnership or limited liability company. We expect our annual same-center revenue growth to be 3% to 4% in 2007. Our 2007 same-center group, comprised of 145 centers, had revenue growth of 5% and 4% in the three and nine months ended September 30, 2007, respectively.
Expenses directly and indirectly related to procedures performed at our surgery centers include clinical and administrative salaries and benefits, supply cost and other operating expenses such as linen cost, repair and maintenance of equipment, billing fees and bad debt expense. The majority of our corporate salary and benefits cost is associated directly with the number of centers we own and manage and tends to grow in proportion to the growth of our centers in operation. Our centers and corporate offices also incur costs that are more fixed in nature, such as lease expense, legal fees, property taxes, utilities and depreciation and amortization.
Surgery center profits are allocated to our minority partners in proportion to their individual ownership percentages and reflected in the aggregate as minority interest. The minority partners of our surgery center limited partnerships and
limited liability companies typically are organized as general partnerships, limited partnerships or limited liability companies that are not subject to federal income tax. Each minority partner shares in the pre-tax earnings of the surgery center of which it is a minority partner. Accordingly, the minority interest in each of our surgery center limited partnerships and limited liability companies is determined on a pre-tax basis and presented before earnings before income taxes in order to present that amount of earnings on which we must determine our tax expense.
Our interest expense results primarily from our borrowings used to fund acquisition and development activity, as well as interest incurred on capital leases.
We file a consolidated federal income tax return and numerous state income tax returns with varying tax rates. Our income tax expense reflects the blending of these rates.
The following table shows certain statement of earnings items expressed as a percentage of revenues for the three and nine months ended September 30, 2007 and 2006:

Revenues increased $18.6 million and $46.9 million, or 16% and 14%, to $132.1 million and $390.2 million in the three and nine months ended September 30, 2007, respectively, from $113.5 million and $343.3 million in the comparable 2006 periods. The additional revenues resulted primarily from:
• 15 centers acquired in the nine months ended September 30, 2007, which generated $10.0 million and $21.6 million in revenues during the three and nine months ended September 30, 2007, respectively;

• eight centers acquired or opened throughout 2006, which generated $3.7 million and $15.8 million of additional revenues due to having a full period of operations in the three and nine months ended September 30, 2007, respectively; and
• $5.2 million and $9.3 million of revenue growth for the three and nine months ended September 30, 2007, respectively, recognized by our 2007 same-center group, reflecting a 5% and 4% increase, respectively, primarily as a result of procedure growth.

Our procedures increased by 39,831 and 89,553, or 19% and 14%, in the three and nine months ended September 30, 2007, respectively, to 246,939 and 721,953 in the three and nine months ended September 30, 2007, respectively, from 207,108 and 632,400 in the comparable 2006 periods. The difference between our revenue growth and our procedure growth was primarily the result of the change in the mix of procedures in our same-center group.
Staff at newly acquired and developed centers, as well as the additional staffing required at existing centers due to increased volume, resulted in a 15% and 16% increase in salaries and benefits at our surgery centers in the three and nine months ended September 30, 2007, respectively, compared to the comparable 2006 periods. We experienced a 19% increase in salaries and benefits at our corporate offices during the three months ended September 30, 2007 over the comparable 2006 period. The increase in the corporate office salaries and benefits in the three months ended September 30, 2007 was primarily due to the additional corporate staff needed to manage our additional centers in operation during the period. Corporate salaries and benefits remained consistent in the nine months ended September 30, 2007, over the comparable 2006 period. In 2007, we began issuing fewer annual stock option awards, and issued restricted stock awards to employees for the first time. Those awards vest 100% on the fourth anniversary date of grant for all employees then in service. These changes resulted in a reduction in our share-based compensation expense in the three and nine months ended September 30, 2007 over the comparable 2006 periods thus offsetting the impact of additional corporate staff needed to manage our additional centers in operation. Salaries and benefits increased in total by 15% and 13% during the three and nine months ended September 30, 2007, respectively, to $39.0 million and $115.2 million from $33.8 million and $102.3 million in the comparable 2006 periods. Salaries and benefits as a percentage of revenues decreased during the three and nine months ended September 30, 2007 over the comparable 2006 periods due in part to the changes instituted in our share-based compensation.
Supply cost was $15.5 million and $45.0 million in the three and nine months ended September 30, 2007, respectively, an increase of $2.5 million and $5.3 million, or 19% and 13%, respectively, over supply cost in the comparable 2006 periods. This increase was primarily the result of additional procedure volume. During the three months ended September 30, 2007, our average supply cost per procedure remained unchanged compared to June 30, 2006. Our average supply cost per procedure decreased to $62 during the nine months ended September 30, 2007 compared to $63 in the comparable 2006 period. The increase in the number of gastroenterology surgery centers in operation in 2007 over 2006 resulted in a decrease in average supply cost per procedure due to the lower supply cost incurred at these types of centers.
Other operating expenses increased $3.7 million, or 16%, to $26.7 million in the three months ended September 30, 2007 over the comparable 2006 period and $12.4 million, or 19%, to $79.3 million in the nine months ended September 30, 2007 over the comparable 2006 period. The additional expense in the three and nine months ended September 30, 2007 resulted primarily from:
• an increase of $1.1 million and $5.0 million in other operating expenses from our 2007 same-center group in the three and nine months ended September 30, 2007, respectively, resulting primarily from additional procedure volume and general inflationary cost increases, as well as a $1.3 million impairment charge and property loss incurred in the nine-month period at a center that will be relocating its facility during 2008;

• 15 centers acquired during the three and nine months ended September 30, 2007, respectively, which resulted in an increase of $1.9 million and $3.8 million, respectively, in other operating expenses; and

• eight centers acquired or opened in 2006, which resulted in an increase of $500,000 and $2.2 million in other operating expenses due to having a full period of operations in the three and nine months ended September 30, 2007, respectively.
Depreciation and amortization expense increased $571,000 and $1.6 million, or 13%, in the three and nine months ended September 30, 2007, respectively, from the comparable 2006 periods, primarily as a result of centers acquired since September 30, 2006 and the newly developed surgery centers in operation, which have an initially higher level of depreciation expense due to their construction costs.
We anticipate further increases in operating expenses in 2007, primarily due to additional acquired centers and additional start-up 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 operation and will experience lower revenues and operating margins than an established center. This typically continues until the case load at the center grows to a more normal operating level, which generally is expected to occur within 12 months after the center opens. At September 30, 2007, we had four centers under development and three centers that had been open for less than one year.
Minority interest in earnings from continuing operations before income taxes for the three and nine months ended September 30, 2007 increased $3.9 million and $7.2 million, or 17% and 10%, respectively, from the comparable 2006 periods, primarily as a result of minority partners’ interest in earnings at surgery centers recently added to operations. As a percentage of revenues, minority interest remained reasonably consistent in the three months ended September 30, 2007 from the comparable 2006 period. During the nine months ended September 30, 2007, minority interest as a percentage of revenues decreased to 19.8% from 20.4% in the comparable 2006 period as a result of lower same-center revenue growth and the impact of the impairment charge and property loss incurred at a center in the 2007 period.
Interest expense increased approximately $290,000 and $1.2 million during the three and nine months ended September 30, 2007, or 15% and 22%, respectively, over the comparable 2006 periods, primarily due to additional long-term debt outstanding during the three and nine months ended September 30, 2007 resulting from acquisition activity. See “ — Liquidity and Capital Resources.”
We recognized income tax expense from continuing operations of $6.9 million and $20.2 million in the three and nine months ended September 30, 2007, respectively, compared to $6.1 million and $18.0 million in the comparable 2006 periods. Our effective tax rate in the three and nine months ended September 30, 2007 was 38.8% and 38.7%, respectively, of earnings from continuing operations before income taxes, and differed from the federal statutory income tax rate of 35.0%, primarily due to the impact of state income taxes. Effective January 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109,” or FIN No. 48, and recorded a cumulative reduction to beginning retained earnings of $634,000. In addition, during the three and nine months ended September 30, 2007, we incurred a tax benefit of $67,000 and additional income tax expense of $122,000, respectively, related to FIN No. 48. We estimate that the adoption of FIN No. 48 will result in additional income tax expense of approximately $224,000 for the full year ended December 31, 2007. In addition, we recognized an additional tax benefit of approximately $400,000 in the nine months ended September 30, 2007 associated with the recognition of a capital loss carryforward. We anticipate that our overall effective tax rate for the remainder of 2007 will be approximately 39.2% of earnings from continuing operations. Because we deduct goodwill amortization for tax purposes only, our deferred tax liability continues to increase, which would only be due in part or in whole upon the disposition of a portion or all of our surgery centers.
During 2007, we sold our ownership interest in a surgery center and closed a surgery center. The results of operation of the centers have been classified as discontinued operations in all periods present. The net loss derived from the operations and disposition of the discontinued surgery centers in the three and nine months ended September 30, 2007 was $909,000 and $631,000, respectively.
Liquidity and Capital Resources
At September 30, 2007, we had working capital of $73.3 million compared to $66.6 million at December 31, 2006. Operating activities for the nine months ended September 30, 2007 generated $56.6 million in cash flow from operations compared to $54.2 million in the nine months ended September 30, 2006. The increase in operating cash flow activity resulted primarily from higher net earnings as of September 30, 2007, compared to the 2006 period. Cash and cash equivalents at September 30, 2007 and December 31, 2006 were $19.9 million and $20.1 million, respectively.
The principal source of our operating cash flow is the collection of accounts receivable from governmental payors, commercial payors and individuals. Each of our surgery centers bills for services as delivered, either electronically or in paper form, usually within several days following the delivery of the procedure. Generally, unpaid amounts that are 30 days past due are rebilled based on a standard set of procedures. If amounts remain uncollected after 60 days, our surgery centers proceed with a series of late-notice notifications until amounts are either collected, contractually written-off in accordance with contracted rates or determined to be uncollectible, typically after 90 to 120 days. Receivables determined to be uncollectible are written off and such amounts are applied to our estimate of allowance for bad debts as previously established in accordance with our policy for allowance for bad debt. The amount of actual write-offs of account balances for each of our surgery centers is continuously compared to established allowances for bad debt to

ensure that such allowances are adequate. At September 30, 2007 and December 31, 2006, our accounts receivable represented 38 and 40 days of revenue outstanding, respectively.
During the nine months ended September 30, 2007, we had total capital expenditures of $101.9 million, which included:
• $84.8 million for acquisitions of interests in practice-based ASCs;

• $13.4 million for new or replacement property at existing surgery centers, including $590,000 in new capital leases; and

• $3.7 million for surgery centers under development.
Our cash flow from operations was approximately 56% of our cash payments for acquisition and development activity, and we received approximately $154,000 from capital contributions of our minority partners to fund their proportionate share of development activity. At September 30, 2007, we had unfunded construction and equipment purchase commitments for centers under development or under renovation of approximately $6.2 million, which we intend to fund through additional borrowings of long-term debt, operating cash flow and capital contributions by minority partners.
During the nine months ended September 30, 2007, notes receivables decreased by approximately $1.9 million, primarily due to payments 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 September 30, 2007 was $4.8 million.
During the nine months ended September 30, 2007, we had net borrowings on long-term debt of $24.4 million. At September 30, 2007, we had $139.5 million outstanding under our revolving credit facility. We expanded our credit facility on October 29, 2007 to increase our maximum borrowing capacity from $200 million to $300 million. We may use our credit facility 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 September 30, 2007. 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.
During the nine months ended September 30, 2007, we received approximately $13.5 million from the exercise of options and issuance of common stock under our employee stock option plans. The tax benefit received from the exercise of those options was approximately $2.8 million.

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