SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934 For the transition period from to
Commission file number 0-29172
ProMedCo Management Company
(Exact name of Registrant as specified in its charter)
Delaware 75-2529809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
801 Cherry Street, Suite 3200
Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
(817) 335-5035
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock October 31, 2000
--------------------- ----------------
$.01 par value 21,177,148 shares
<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts are expressed in thousands)
<TABLE>
<CAPTION>
September 30, 2000 December 31,
(Unaudited) 1999
------------------ ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,073 $ 7,625
Accounts receivable, net 68,848 63,811
Management fees receivable 6,741 9,905
Due from affiliated medical groups 7,258 14,758
Deferred tax benefit 2,139 537
Income tax receivable 15,037 -
Prepaid expenses and other current assets 16,864 14,681
------------------ ------------------
Total current assets 126,960 111,317
------------------ ------------------
Property and equipment, net 26,255 24,352
Intangible assets, net 201,233 227,006
Long-term receivables 52,353 50,355
Deferred income taxes 2,252 993
Other assets 6,521 5,290
------------------ ------------------
Total assets $ 415,574 $ 419,313
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,333 $ 6,418
Payable to affiliated medical groups 11,075 10,297
Accrued salaries, wages and benefits 6,859 7,578
Accrued purchased medical services 8,418 9,722
Accrued expenses and other current liabilities 19,460 7,321
Current maturities of long-term debt 151,169 11,463
Current portion of obligations under capital leases 596 476
Current portion of deferred purchase price 7,077 2,293
Income taxes payable - 3,643
------------------ ------------------
Total current liabilities 212,987 59,211
------------------ ------------------
Long-term debt, net of current maturities 1,580 149,674
Obligations under capital leases, net of current portion 1,413 343
Deferred purchase price, net of current portion 7,190 17,592
Convertible subordinated notes payable 2,019 9,484
Other long-term liabilities 770 378
------------------ ------------------
Total liabilities 225,959 236,682
------------------ ------------------
Redeemable convertible preferred stock 52,508 -
Stockholders' equity:
Common stock 220 219
Additional paid-in capital 156,587 156,106
Common stock to be issued 90 90
Treasury stock (2,956) (2,865)
Stockholder notes receivable (250) (250)
Accumulated (deficit) earnings (16,584) 29,331
------------------- ------------------
Total stockholders' equity 137,107 182,631
------------------ ------------------
Total liabilities and stockholders' equity $ 415,574 $ 419,313
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(All amounts are expressed in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 72,351 $ 84,317 $ 255,687 $ 233,430
Operating expenses:
Clinic salaries and benefits 33,015 28,989 95,952 81,972
Clinic rent and lease expense 8,780 7,340 25,286 20,720
Clinic supplies 10,598 9,514 31,401 27,073
Purchased medical services 15,274 13,631 47,863 35,294
Other clinic costs 13,678 10,972 37,411 29,661
General corporate expenses 3,879 2,396 9,358 6,659
Depreciation and amortization 39,653 3,093 47,414 8,979
Interest expense 4,160 1,798 11,158 4,075
Restructuring charges 7,848 - 7,848 -
----------- ----------- ----------- -----------
Total 136,885 77,733 313,691 214,433
----------- ----------- ----------- -----------
Income (loss) before provision for (benefit from) income taxes and
extraordinary charge (64,534) 6,584 (58,004) 18,997
Provision for (benefit from) income taxes (16,534) 2,502 (13,776) 7,219
----------- ----------- ----------- -----------
Net income (loss) before extraordinary charge (48,000) 4,082 (44,228) 11,778
Extraordinary charge-loss on extinguishment of debt, net of benefit from
income taxes of approximately $468 - - 647 -
----------- ----------- ----------- -----------
Net income (loss) (48,000) 4,082 (44,875) 11,778
Dividends earned on preferred stock 918 - 1,040 -
----------- ----------- ----------- -----------
Net income (loss) available to common stockholders $ (48,918) $ 4,082 $ (45,915) $ 11,778
=========== =========== =========== ===========
Net earnings (loss) per share
Basic
Income (loss) before extraordinary charge $ (2.27) $ 0.19 $ (2.03) $ 0.56
Extraordinary charge - - (0.03) -
----------- ----------- ----------- -----------
Net income (loss) $ (2.27) $ 0.19 $ (2.06) $ 0.56
========== =========== ========== ===========
Diluted
Income (loss) before extraordinary charge $ (2.27) $ 0.18 $ (2.06) $ 0.51
Extraordinary charge - - (0.03) -
----------- ----------- ----------- -----------
Net income (loss) $ (2.27) $ 0.18 $ (2.06) $ 0.51
========== =========== ========== ===========
Weighted average number of common shares outstanding:
Basic 21,177 21,053 21,786 21,126
=========== =========== =========== ===========
Diluted 21,177 22,978 21,786 23,291
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(All amounts are expressed in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
September 30,
----------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (44,875) $ 11,778
Adjustments to reconcile net income (loss) to net cash
provided by operating activities (net of effects of purchase
transactions):
Depreciation and amortization 47,414 8,979
Provision for (benefit from) deferred income taxes (2,911) 1,488
Changes in assets and liabilities:
Accounts receivable, net (7,453) (5,892)
Management fees receivable 3,089 (1,342)
Due from affiliated medical groups 9,724 (789)
Prepaid expenses and other assets 3,456 (3,641)
Accounts payable 2,291 (369)
Payable to affiliated medical groups 691 495
Accrued expenses and other liabilities (7,227) (3,090)
------------------ ------------------
Net cash provided by operating activities 4,199 7,617
------------------ ------------------
Cash flows from investing activities:
Purchases of property and equipment (5,109) (4,885)
Purchases of clinic assets, net of cash acquired (29,225) (84,494)
(Increase) decrease in notes receivable (3,439) 1,462
------------------ ------------------
Net cash used in investing activities (37,773) (87,917)
------------------ ------------------
Cash flows from financing activities:
Borrowings under long-term debt 197,500 90,000
Payments on long-term debt (208,749) (8,816)
Payments on capital lease obligations (368) (390)
Payment of deferred financing costs (3,206) (736)
Proceeds from issuance of common stock, net 2 269
Proceeds from issuance of preferred stock, net 51,468 -
Purchase of treasury shares (625) (2,914)
Collection of stockholder note receivable - 120
------------------ ------------------
Net cash provided by financing activities 36,022 77,533
------------------ ------------------
Increase (decrease) in cash and cash equivalents 2,448 (2,767)
Cash and cash equivalents, beginning of period 7,625 13,871
------------------ ------------------
Cash and cash equivalents, end of period $ 10,073 $ 11,104
================== ================
Supplemental disclosure of cash flow information
Cash paid during the period for -
Interest expense $ 11,352 $ 5,567
Income taxes $ 7,552 $ 4,927
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation/Principles of Consolidation
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Management believes that the
disclosures herein are adequate to prevent the information presented from being
misleading. The foregoing financial information, not audited by independent
public accountants, reflects, in the opinion of the Company, all adjustments
(which included only normal recurring adjustments) necessary for a fair
presentation of the financial position and the results of operations for the
interim periods presented. The results of operations for any interim period are
not necessarily indicative of the results of the operations for the entire year.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Certain prior period amounts have been reclassified to conform with the 2000
presentation.
The accompanying condensed financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3, the
Company is in violation of certain provisions of its bank credit agreement. As a
result, the credit facility has been classified as a current liability in the
condensed balance sheet at September 30, 2000. These factors indicate that the
Company may be unable to continue as a going concern. The accompanying condensed
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
The Company has been advised by its independent public accountants that, if the
contingency relating to the Company's bank financing has not been resolved prior
to the completion of their audit of the Company's consolidated financial
statements for the year ending December 31, 2000, their auditors' report on
those consolidated financial statements will contain a going concern
modification for that contingency.
Earnings (Loss) Per Share
Basic earnings (loss) per share ("EPS") is calculated by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Common stock to be issued is assumed to be common
stock outstanding and is included in the weighted average number of common
shares outstanding for the basic EPS calculation. Options, warrants, and the
effects redeemable, convertible preferred stock and other potentially dilutive
securities are excluded from basic EPS. Diluted EPS includes the options and
warrants using the treasury method and the redeemable convertible preferred
stock and convertible subordinated notes using the if-converted method, to the
extent that these securities are not anti-dilutive. For the three-month and
nine-month periods ending September 30, 2000, approximately 5.0 million of stock
options were excluded from the computation of diluted EPS because the Company
had a net loss for these periods. Similarly, the conversion of convertible
subordinated notes into common shares, approximately 176,000 common shares as of
September 30, 2000, were excluded from the computation of diluted EPS because
the impact is anti-dilutive. Similarly, the impact of redeemable, convertible
preferred stock, convertible into 20.1 million shares of common stock, is
excluded from the computation of diluted EPS for the three-month period ending
September 30, 2000 since the impact is anti-dilutive.
<PAGE>
Net Revenue
Net revenue represents total revenue reduced by amounts paid to medical groups.
The amounts paid to medical groups (typically 80-85% of the medical group's
operating income) represents amounts paid to the groups pursuant to the service
agreements between the Company and the groups and primarily consists of the cost
of the services of the group's physicians. Under the service agreements, the
Company provides each medical group with the facilities and equipment used in
its medical practice, assumes responsibility for the management of the
operations of the practice, and employs substantially all of the non-provider
personnel.
Net revenue is detailed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue $ 112,978 $ 113,658 $ 368,397 $ 328,956
Less- Amounts paid to medical groups (40,627) (29,341) (112,710) (95,526)
----------- ----------- ----------- -----------
Net revenue $ 72,351 $ 84,317 $ 255,687 $ 233,430
=========== =========== =========== ===========
</TABLE>
During the third quarter of 2000, the Company adjusted total revenue and the
amounts paid to medical groups as part of the overall restructuring, impairment
and other charges (see Note 4). Excluding the impacts of these non-recurring
charges, net revenue would have been approximately $87.9 million and $271.2
million for the three and nine months ended September 30, 2000, respectively.
Revenue consists primarily of billings and charges to patients, third party
payors and others and payments received under capitated contracts for
professional and ancillary services rendered. Total revenue also includes
amounts earned for other services rendered, including contract billing; medical
directorships; interim management; strategic and financial planning and
management consulting. Revenue is recorded at the estimated realizable amounts,
net of contractual and other adjustments, including an allowance for doubtful
accounts. Revenue under certain third-party payor agreements is subject to audit
and retroactive adjustments. Provisions for third party settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as the final settlements are determined. There are no
material claims, disputes, or other unsettled matters that exist to management's
knowledge concerning third party reimbursements. In addition, management
believes there are no retroactive adjustments that would be material to the
Company's financial statements. Also, due to market changes and changes in the
strategic direction of the Company, management fee revenues from interim
management, strategic and financial planning and management consulting services
are not expected to be a significant net revenue source in the future.
<PAGE>
Impairment of Long-Lived Assets
The Company periodically reviews its intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. If this review indicates that the carrying amount
of the asset may not be recoverable, based on the undiscounted cash flows of the
operations over the remaining amortization period, then the carrying value of
the asset is reduced to estimated fair value. Among the factors that the Company
will continually evaluate are unfavorable changes in each physician group's
relative market share and local market competitive environment, current period
and forecasted operating and cash flow levels of the physician group and its
impact on the management fee earned by the Company, and legal factors governing
the practice of medicine. During the three months ended September 30, 2000, the
Company recorded approximately $35.6 million as an impairment to its intangible
assets (see Note 4).
2. ACQUISITIONS:
Through September 30, 2000 and during 1999, the Company, through its wholly
owned subsidiaries, acquired certain operating assets of the following medical
clinics:
Medical Group Date Location
2000: First Choice Medical (a) January 2000 Flower Mound, TX
Breton Medical Group (b) June 2000 California, MD
Healthtrac Resources July 2000 Amarillo, TX
Medical Group Date Location
1999: El Paseo Medical Center January 1999 (c) Las Cruces, NM
Boca Raton Medical Associates February 1999 (d) Boca Raton, FL
Medical Office Services May 1999 Flagstaff, AZ
Family Care Center of Indiana May 1999 Dyer, IN
MedGroup August 1999 Prescott, AZ
Horizon Medical Group October 1999 (e) Columbus, GA
(a) The physicians of First Choice Medical combined with the
HealthFirst Medical Group, which had previously affiliated with
the Company in June 1996.
(b) The physicians of Breton Medical Group combined with the
physicians of Shah Associates, which had previously affiliated
with the Company in November 1998.
(c) The Company operated El Paseo Medical Center under a long-term
service agreement effective December 1, 1998. The Company
completed its acquisition in January 1999. During the third
quarter of 2000, the Company recorded an impairment of the
intangible asset associated with this transaction (see Note 4).
(d) The Company operated Boca Raton Medical Associates under an
interim service agreement effective October 1, 1998. The Company
completed its acquisition in February 1999, and entered into a
long-term service agreement effective February 1, 1999.
<PAGE>
(e) The Company operated Horizon Medical Group under an interim
service agreement effective July 1, 1998. The Company completed
its acquisition in October 1999, and entered into a long-term
service agreement effective October 1, 1999.
Effective August 1, 1999, the Company, through a wholly owned subsidiary,
completed its acquisition of Primergy, Inc., ("Primergy"). Based in Kingston,
New York, Primergy is a medical network management company that owns and
operates five IPAs in the Hudson Valley of New York and has under contract more
than 1,500 physicians.
These acquisitions were accounted for as purchases, and the accompanying
condensed consolidated financial statements include the results of their
operations from the dates of their respective acquisitions. Purchase price
allocations to tangible assets acquired and liabilities assumed are based on the
estimated fair values at the dates of acquisitions and are subject to final
revisions. Simultaneous with each medical group acquisition, the Company entered
into a long-term service agreement with the related medical group. The service
agreements are typically 40 years in length.
3. LONG-TERM DEBT:
Long-term debt is summarized as follows (in thousands):
September 30, December 31,
2000 1999
------------- --------------
Borrowings under bank credit facility $ 150,500 $ 156,000
Notes payable issued to medical groups 1,635 4,309
Other long-term debt 614 828
-------------- --------------
152,749 161,137
Less- current maturities (151,169) (11,463)
--------------- --------------
Long-term debt, net of current maturities $ 1,580 $ 149,674
============== ==============
In 2000, the Company entered into a two-stage transaction in which it issued an
aggregate of 550,000 shares of convertible preferred stock to an investor group
for aggregate gross proceeds of $55 million. The first stage of the transaction,
which was completed in January 2000, involved the issuance of $16 million
principal amount of senior subordinated notes and 1,250,000 shares of common
stock for $16 million. In the second stage, which closed in June 2000, 425,000
shares of Series A Convertible Preferred Stock and 125,000 shares of Series B
Convertible Preferred Stock were issued to the new investors in exchange for the
notes, common stock, and an additional $39 million, bringing the total
investment to $55 million. Both series of convertible preferred stock have a
liquidation preference of $100 per share, are entitled to a dividend at the
annual rate of 6% of the liquidation preference, and are convertible into shares
of the Company's common stock. The conversion price of the Series A is $2.50 per
common share, and the conversion price of the Series B is $4.00 per common
share, subject to adjustment in accordance with customary anti-dilution
provisions. The net proceeds from the sale of the Convertible Preferred Stock
were used to reduce the outstanding amount under the revolving credit portion of
the Company's credit facility. The Company failed to make the quarterly dividend
payment due September 30, 2000, as a result of which the unpaid dividend is
accruing dividends at the annual rate of 8% of the liquidation preference.
<PAGE>
In connection with the completion of the second stage of the convertible
preferred stock sale, the Company expanded its credit facility by $20 million.
The new commitment is comprised of a $57.5 million term loan that matures March
30, 2006, a $20.0 million term loan that matures June 12, 2006, and a $100.0
million maximum revolving commitment that expires December 17, 2003. In
connection with the new, expanded credit facility, the Company was required to
write off the unamortized deferred financing costs relating to the prior credit
facility. The resulting extraordinary charge amounted to approximately $647,000,
net of applicable income taxes of approximately $468,000.
In connection with the conversion of the Company's affiliation structure with a
medical group in Pittsfield, MA (See Note 4.), the Company offset $6.5 million
of convertible subordinated notes that were payable to the group's shareholders
and $3.0 million of deferred purchase price payable to the group against that
group's obligations to the Company under the termination provisions of the
service agreement.
Due primarily to the Company's continuing inability to provide the lending banks
with certain documents relating to their security interest in the assets, the
Company was in violation of certain anks also asserted that the Company was in
breach of another covenant as a result of its termination of its service
agreement with its affiliated medical group in Pittsfield, MA, discussed in Note
4. As a result, the lending banks limited the amounts the Company was able to
borrow during the third quarter of 2000 and restricted its uses of the borrowed
proceeds. In light of these circumstances, together with the fact that the
Company was not in compliance with certain of the credit agreement's financial
covenants as of September 30, 2000, the Company requested an amendment of the
credit agreement that would include (i) waivers by the lending banks of all
covenant defaults, (ii) modification of the financial covenants, and (iii) a
commitment to permit future borrowings at a level sufficient to fund the
Company's working capital requirements for the next 12 to 15 months. The lending
banks have declined to enter into such an amendment, and have instead agreed
only to forbear from taking any action as a result of the existing defaults
through November 30, 2000, and to fund a single payment to meet our immediate
cash requirements. The Company intends to continue to negotiate with the lending
banks to obtain an amendment of the credit agreement that relaxes financial
covenants and provides for an adequate lending commitment, but thus far the
banks have not indicated a willingness to enter into such an amendment. As a
result of the banks' ability to declare all of the outstanding principal
immediately due and payable after November 30, 2000, the entire amount of the
indebtedness ($155.6 million at November 17, 2000) has been reclassified as a
current liability as of September 30, 2000.
<PAGE>
4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES
During the three months ended September 30, 2000, the Company decided to exit
the Las Cruces market and terminate its service agreement with the affiliated
medical group and closed one of its sites in Cullman, AL. The Company also
converted its affiliation structure with a medical group in Pittsfield, MA from
a traditional service agreement to an ancillary services model. Together, these
operations accounted for 6.6% and 8.9% of the Company's net revenue for the nine
months ended September 30, 2000 and the year ended December 31, 1999,
respectively. Also during this period, the Company reorganized PMC Medical
Management, its subsidiary that provides capitation management services.
The conversion of the agreement with the Pittsfield group was a result of the
physicians' decision to dissolve their group following the departures of several
specialty physicians as a result of disagreements concerning the allocation of
income within the group. The Company has terminated its original service
agreement with the group and entered into modified agreements with approximately
half the remaining physicians who were shareholders of the group. The actions in
Las Cruces and Cullman resulted from the Company's determination that continuing
these operations would not be beneficial for the Company.
The reorganization of PMC Medical Management consists of a substantial staff and
facilities reduction and results from the fact that managed care has not become
as significant a factor in the Company's affiliated medical groups as originally
anticipated in 1997 when the Company acquired PMC Medical Management. PMC
Medical Management's primary future role will be to support a managed care
initiative that began in 1999 with the affiliated groups and IPA in Pittsfield
and is expected to continue under the modified agreements with the physicians in
that market.
Primarily as the result of the terminations, conversion and reorganization, the
Company recorded restructuring, impairment and other charges of approximately
$60.3 million during the three months ended September 30, 2000. Considerable
management judgement is necessary to estimate fair value and, accordingly,
actual results could vary significantly from such estimates. The following table
summarizes the principal components of these charges (in thousands):
Non-recoverable management fees and bad debts $ 7,710
Reserves for advances to physicians 7,849
Impairment of intangible assets 35,646
Other clinic expenses 1,203
Restructuring costs 7,848
------------------
Total charges $ 60,256
==================
Restructuring costs include approximately $3.7 million for severance and other
employee-related costs. As part of the terminations, conversion and
reorganization, the Company plans to eliminate substantially all of the
approximately 400 employees at the locations mentioned above. During the three
months ended September 30, 2000, approximately $320,000 in severance costs were
paid to terminated employees.
The Company expects to record an additional estimated $1.4 million in
restructuring charges in the fourth quarter. It is expected that the
restructuring actions will be substantially completed by the end of the first
quarter of 2001.
5. INCOME TAXES:
Due to significant losses during the three-month period ended September 30, 2000
and certain other factors, deferred tax assets have been reduced in part by
valuation allowances established in the third quarter of 2000.
<PAGE>
6. SUPPLEMENTAL CASH FLOW INFORMATION:
In the first quarter of 2000, the Company converted approximately $35,000 of
convertible subordinated notes payable to a medical group into 3,912 shares of
the Company's common stock.
In the first nine months of 2000 and 1999, an affiliated medical group
surrendered 39,700 and 32,896 shares, respectively, of the Company's common
stock as partial payment of an outstanding note balance and accrued interest.
In the third quarter of 2000, the Company acquired approximately $250,000 of
equipment through the issuance of a note payable.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
ProMedCo, headquartered in Fort Worth, Texas, is a medical services company that
coordinates and manages the delivery of a wide variety of healthcare services in
non-urban communities. We currently operate in 26 communities throughout the
United States, where we are affiliated with medical groups comprised of
approximately 770 physicians and 140 mid-level providers. In addition, we are
associated with approximately 1,800 physicians in associated independent
practice association (IPA) networks.
Until recently, when affiliating with a medical group we typically purchased the
group's non-real estate operating assets and entered into a 40-year service
agreement with the group in exchange for various combinations of cash, our
common stock, other securities issued by us and/or our assumption of certain
liabilities. Under these service agreements, we receive a fixed percentage,
typically 15% to 20%, of the group's operating income before physician
compensation and a percentage, ranging from 15% to 50%, of income from ancillary
services added following our affiliation. We also typically earn initial fees
for interim management, strategic and financial planning and management
consulting services provided during the period leading to our affiliation and
share between 25% and 50% of each group's surplus or deficit under risk-sharing
arrangements pursuant to capitated managed care contracts.
Since 1999 we have also been developing alternative affiliation structures that,
unlike our traditional asset purchase model, require minimal initial
investment--a management services model, an ancillary services model and a
network services model. We have entered into one affiliation under the
management services model and one affiliation under the ancillary services
model, with a second ancillary services affiliation currently subject to a
letter of intent. Under the management services structure, we enter into a
25-year service agreement under which we receive between 7.5% and 10% of the
group's operating income and 6% to 8% of revenues and 50% of income from
ancillary services added following our affiliation. The service agreement also
allows the group to terminate the agreement for any reason at five-year
intervals, provided the group purchases any of the practice assets then owned by
us and pays us a multiple of additional cash flows created since the initial
affiliation date. Under the ancillary service model, we enter into an agreement
to develop ancillary services with a medical group, but do not take over the
day-to-day management of its clinic. We earn 6% to 8% of the revenues and 50% of
the income from these ancillary services. The network services model is still
under development but we expect to begin offering it within the next three to
six months. We do not anticipate significant future affiliations utilizing the
asset purchase model.
Substantially all of our net revenue to date consists of total revenue for
services rendered by our affiliated medical groups (reported at the estimated
realizable amounts from patients, third-party payors and others, net of
contractual and other adjustments including an allowance for doubtful accounts),
less amounts paid to the groups, consisting primarily of the cost of the
services of the groups' physicians. Under our traditional service agreements we
provide each medical group with the facilities and equipment used in its medical
practice. Under these service agreements, as well as those under our management
services model, we also assume responsibility for the management of the
operations of the clinic and employ substantially all of the non-provider
personnel. We do not consolidate the operating results and accounts of the
medical groups. Revenue under alternative affiliation structures is not yet
significant.
<PAGE>
Results of Operations
After beginning operations in our first two communities 1995, we entered five
additional communities in 1996, six in 1997, seven in 1998, four in 1999, and
two during the nine months ended September 30, 2000. Through June 30, 2000,
changes in results of operations have been generally the result of our expansion
into additional communities and same-market growth in our existing communities.
During the third quarter of 2000, however, we experienced a substantial
reduction in new affiliations and thus in the initial interim management and
consulting services fees that have normally been associated with new
affiliations. As a result of our future emphasis on the alternative affiliation
structures described above, we do not anticipate that new service agreements and
the interim management, strategic and financial planning and management
consulting fees associated with the asset purchase and management services
models, will be as significant a factor in our future growth as in the past.
Also during the three months ended September 30, 2000, we decided to exit the
Las Cruces, NM market and closed one of the sites in Cullman, AL. We also
converted our affiliation structure with an affiliated medical group in
Pittsfield, MA from a traditional asset purchase model to an ancillary services
model. Together, these operations accounted for 6.6% and 8.9% of our net revenue
for the nine months ended September 30, 2000 and the year ended December 31,
1999, respectively. Also during this period we reorganized PMC Medical
Management, our subsidiary that provides capitation management services.
The conversion of the agreement with the Pittsfield group was a result of the
physicians' decision to dissolve their group following the departures of several
specialty physicians as a result of disagreements concerning the allocation of
income within the group. We have terminated our original service agreement with
the group and entered into modified agreements with approximately half the
remaining physicians who were shareholders of the group. Our actions in Las
Cruces and Cullman resulted from our determination that continuing these
operations would not be beneficial for our Company.
The reorganization of PMC Medical Management consists of a substantial staff and
facilities reduction and results from the fact that managed care has not become
as significant a factor in our affiliated medical groups as originally
anticipated in 1997, when we acquired PMC Medical Management. PMC Medical
Management's primary future role will be to support a managed care initiative
begun in 1999 with the affiliated groups and IPA in Pittsfield that is expected
to continue under the modified agreements with the physicians in that market.
<PAGE>
Primarily as the result of the terminations, conversion and reorganization, we
recorded restructuring, impairment and other charges of approximately $60.3
million during the three months ended September 30, 2000 and will record another
estimated $1.4 million in the fourth quarter. Considerable management judgement
is necessary to estimate fair value and, accordingly, actual results could vary
significantly from such estimates. The following table summarizes the principal
components of these charges (in thousands):
Non-recoverable management fees and bad debts $ 7,710
Reserves for advances to physicians 7,849
Impairment of intangible assets 35,646
Other clinic expenses 1,203
Restructuring costs 7,848
------------------
Total charges $ 60,256
==================
Restructuring costs include approximately $3.7 million for severance and other
employee-related costs. As part of the terminations, conversion and
reorganization, we plan to eliminate substantially all of the approximately 400
employees at the locations mentioned above. During the three months ended
September 30, 2000, approximately $320,000 in severance costs were paid to
terminated employees. It is expected that the restructuring actions will be
substantially completed by the end of the first quarter of 2001.
The foregoing restructuring, impairment and other charges, the decline in
revenue of the medical groups associated with the events leading to the charges,
together with the decline in interim management and management consulting
services revenues associated with new service agreements, all combined to
adversely affect the results of the quarter.
The following table sets forth the percentages of net revenue represented by
certain items reflected in our condensed consolidated statements of operations.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Clinic salaries and benefits 45.7 34.4 37.5 35.2
Clinic rent and lease expense 12.1 8.7 9.9 8.9
Clinic supplies 14.6 11.3 12.3 11.6
Purchased medical services 21.1 16.2 18.7 15.1
Other clinic costs 18.9 13.0 14.6 12.7
General corporate expenses 5.4 2.8 3.7 2.9
Depreciation and amortization 54.9 3.7 18.5 3.8
Interest expense 5.7 2.1 4.4 1.7
Restructuring charge 10.8 - 3.1 -
------- -------- -------- --------
Income (loss) before provision for (benefit from)
income taxes (89.2) 7.8 (22.7) 8.1
Provision for (benefit from) income taxes (28.9) 3.0 (7.1) 3.1
------- -------- -------- -------
Net income (loss) before extraordinary charge (60.3) 4.8 (15.6) 5.0
Extraordinary charge, net of tax benefit - - 0.2 -
------- -------- -------- --------
Net income (loss) (60.3)% 4.8% (15.8)% 5.0%
======= ======== ======== =======
Other Financial Information:
Total revenue, amounts in thousands (1) $ 112,978 $ 113,658 $ 368,397 $ 328,956
Payor breakdown (2)
Commercial and discounted fee-for-service 42.4% 37.7% 41.8% 38.2%
Medicare/Medicaid 31.2 29.9 30.4 29.3
Capitation 15.3 17.2 15.7 17.1
Other 11.1 15.2 12.1 15.4
------- -------- -------- -------
100.0% 100.0% 100.0% 100.0%
======= ======== ======== =======
</TABLE>
(1) Total revenue represents amounts received for professional and
ancillary services and for other services, such as contract billing,
medical directorship and interim management. These amounts are
recorded at the estimated realizable amounts, net of contractual and
other adjustments including an allowance for doubtful accounts. Our
net revenue represents revenue, reduced by amounts paid to the medical
groups.
(2) As a percentage of total revenue.
<PAGE>
Three Months Ended September 30, 2000 Compared With Three Months Ended September
30, 1999
Net revenue decreased by 14.2% to $72.4 million for the quarter ended
September 30, 2000, from $84.3 million for the quarter ended September 30, 1999.
The decrease resulted primarily from that portion, aggregating $15.5 million, of
the non-recurring restructuring and other charges that adversely affected net
revenue. We also experienced declines in net revenue from the medical groups
with which we are terminating or converting our service agreements and in
interim management fees and consulting services revenue as a result of the
decline in new affiliations. These declines, aggregating approximately $22.9
million, were partially offset by increased revenue derived from our remaining
affiliated medical groups. Excluding the effects of these three groups and the
related adjustments, same market growth in net revenue (from new physicians,
increased productivity of existing physicians and additional ancillary
services)for communities in which we operated for longer than one year was over
10% for the three months ended September 30, 2000 compared with the same period
ended September 30, 1999. The remainder of the growth in net revenue was
attributable to communities we entered since July 1, 1999.
The restructuring, impairment and other charges impact the evaluation of
operating expenses in two ways. First, the charges taken into operating expenses
have caused those expense categories to rise. Second, the charges against net
revenue lower the base on which the operating expenses are typically evaluated.
As a result, overall clinic costs as a percentage of net revenue increased to
112.4% for the quarter ended September 30, 2000, compared to 83.6% for the
quarter ended September 30, 1999. Excluding the effects of the non-recurring
charges, operating expenses for the three months ended September 30, 2000 would
have been 91.3% of net revenue, which is still substantially higher than the
same period a year ago. This increase results from the higher operating expense
margins in the three locations where reorganization or terminations are
occurring and from the declines in interim management and consulting services
revenues associated with the decline in new affiliations.
General corporate expenses as a percentage of net revenue increased to 5.4% for
the quarter ended September 30, 2000, compared to 2.8% for the quarter ended
September 30, 1999. Excluding the effects of the non-recurring charges, general
corporate expenses for the three months ended September 30,2000 would have been
4.4% of net revenue. The primary reason for the increase in general corporate
expenses relates to legal expenses incurred with the termination and conversion
of the service agreements discussed earlier. During the quarter ended September
30, 2000, legal expenses were approximately $913,000, compared to approximately
$124,000 for the same period in 1999. Management expects legal expenses to
remain at or about the same level during the fourth quarter of 2000,before
declining in 2001. In addition to legal expenses, general corporate expenses
increased over prior year levels due to the addition of management and
technology infrastructure.
Depreciation and amortization as a percentage of net revenue increased to 54.9%
for the quarter ended September 30, 2000, compared to 3.7% for the quarter ended
September 30, 1999. This increase resulted primarily from the impairment of
intangible assets and the adjustments to bring property and equipment to its
estimated net realizable value associated with the termination and conversion of
service agreements with the medical groups discussed earlier.
<PAGE>
Net interest expense as a percentage of net revenue increased to 5.7% for the
quarter ended September 30, 2000, compared to 2.1% for the quarter ended
September 30, 1999. Excluding the effects of the non-recurring charges, net
interest expense for the three months ended September 30, 2000 would have been
4.7% of net revenue. The increase is primarily the result of an increase in the
effective interest rate under our credit facility, which was 11.2% as of
September 30, 2000, compared to 7.4% as of September 30, 1999.
The benefit from income taxes includes adjustments to bring our year-to-date
effective rate to 23.8%, which is our estimated effective rate for all of 2000.
This rate is less than the statutory federal rate of 35% because certain of the
restructuring charges recorded in the third quarter of 2000 are not immediately
deductible for income tax purposes, but will be carried forward to future
periods. The amounts carried forward have been reduced in part by valuation
allowances established in the third quarter of 2000.
Nine Months Ended September 30, 2000 Compared With Nine Months Ended September
30, 1999
Net revenue increased by 9.5% to $255.7 million for the nine months ended
September 30, 2000, from $233.4 million for the nine months ended September 30,
1999. This increase was offset by the $15.5 million of non-recurring
restructuring and other charges in the third quarter of 2000 described earlier,
as well as declines in net revenue from the medical groups with which we are
terminating or converting our service agreements and in interim management fees
and consulting services revenue as a result of the decline in new affiliations.
This decline was offset by a 30.5% increase in net revenue from our remaining
medical groups for the nine month period ended September 30, 2000 compared to
the same period in 1999. Excluding the effects of the previously noted medical
groups and the related adjustments discussed above, same market growth in net
revenue (from new physicians, increased productivity of existing physicians and
additional ancillary services) for communities in which we operated for longer
than one year was approximately 9.5% for the nine months ended September 30,
2000 compared with the same period ended September 30, 1999. The remainder of
the growth in net revenue was attributable to communities we entered since
January 1, 1999.
Overall clinic costs as a percentage of net revenue increased to 93.0% for the
nine months ended September 30, 2000, compared to 83.5% for the nine months
ended September 30, 1999. Excluding the effects of the non-recurring charges,
operating expenses for the three months ended September 30, 2000 would have been
87.2% of net revenue, which is still substantially higher than the same period a
year ago. This increase results from the higher operating expense margins in
those locations where reorganization or terminations are occurring and from the
declines in interim management and consulting services revenues associated with
the slow down in new affiliation activity.
General corporate expenses as a percentage of net revenue increased to 3.7% for
the nine months ended September 30, 2000, compared to 2.9% for the nine months
ended September 30, 1999. Excluding the effects of the non-recurring charges,
general corporate expenses for the three months ended September 30, 2000 would
have been 3.5% of net revenue.. The primary reason for the increase in general
corporate expenses relates to legal expenses incurred with the termination and
conversion of the service agreements discussed earlier. For the nine-months
ended September 30, 2000, legal expenses were approximately $1.5 million
compared to approximately $317,000 for the same period in 1999. In addition to
legal expenses, general corporate expenses increased due to the addition of
management and technology infrastructure.
<PAGE>
Depreciation and amortization as a percentage of net revenue increased to 18.5%
for the nine months ended September 30, 2000, compared to 3.8% for the nine
months ended September 30, 1999. This increase resulted primarily from the
impairment of intangible assets and adjustments to bring the value of property
and equipment down to its estimated net realizable value relating to the
termination and conversion of the service agreements with the medical groups
discussed earlier.
Net interest expense as a percentage of net revenue increased to 4.4% for the
nine months ended September 30, 2000, compared to 1.7% for the nine months ended
September 30, 1999. Excluding the effects of the non-recurring charges, net
interest expense for the three months ended September 30, 2000 would have been
4.1%. This increase is primarily the result of an increase in the effective
interest rate under our credit facility, which was 11.2% as of September 30,
2000 compared to 7.4% as of September 30, 1999. In addition, interest on the
subordinated notes payable which were outstanding between January and June 2000
as part of the convertible preferred stock transaction also contributed to the
increase in net interest expense.
The benefit from income taxes reflects an effective rate of 23.8%, which is our
estimated effective rate for all of 2000. This rate is less than the statutory
federal rate of 35% because certain of the restructuring charges recorded in the
third quarter of 2000 are not immediately deductible for income tax purposes,
but will be carried forward to future periods. The amounts carried forward have
been reduced in part by valuation allowances.
Liquidity and Capital Resources
At September 30, 2000, we had working capital of $(86.0) million, compared to
$52.1 million at December 31, 1999. The decrease in working capital resulted
primarily from the reclassification of our borrowings under the bank credit
facility from long-term to current liabilities based on our current status with
our bank group discussed later in this section. In addition, certain deferred
purchase price obligations that were previously classified as long-term are now
classified as current liabilities as of September 30, 2000 due to a lack of
availability under our credit facility. The amount outstanding under the senior
credit facility is $155.6 million at November 17, 2000.
In June 2000, we sold $55.0 million of convertible preferred stock and amended
and expanded our bank credit agreement. Application of the net proceeds from the
sale of the stock to reduce the amount outstanding under the revolving credit
portion of the credit facility, together with the credit agreement amendments,
left us at June 30, 2000 with $43.5 million available for borrowing under the
facility to fund acquisitions and general working capital, subject to certain
conditions in the credit agreement. Although we borrowed $23.0 million of that
amount subsequent to the amendment and expansion of the credit facility, as a
result of factors described below we are currently unable to borrow additional
amounts under the credit facility.
<PAGE>
In connection with the conversion of our affiliation structure with the
Pittsfield medical group, we offset $6.5 million of convertible subordinated
notes payable to the group's shareholders and $3.0 million of deferred purchase
price payable to the group against the group's obligations to us under the
termination provisions of the service agreement.
As amended in June 2000, our credit facility is comprised of a $57.5 million
term loan maturing March 30, 2006, a $20.0 million term loan maturing June 12,
2006, and a $100.0 million revolving commitment that expires December 17, 2003.
The term loans require scheduled quarterly principal payments beginning in March
2003. The interest rate is set at our option and varies based on our leverage,
as follows: (i) the prime rate plus 1.0% to 3.5%, or (ii) the Eurodollar rate
plus 2.5% to 3.5%. As of September 30, 2000, the effective interest rate was
11.2%. The credit agreement contains various restrictive covenants, including
limitations on the use of borrowed proceeds, as well as affirmative covenants
including requirements to maintain specified financial ratios. The credit
facility is secured by substantially all our assets and contains requirements
for the furnishing of various security documents to the lending banks.
Due primarily to our continuing inability to provide the lending banks with
certain documents relating to their security interest in our assets, we were in
violation of certain provisions of the credit agreement during the third quarter
of 2000. The lending banks also asserted that we were in breach of another
covenant as a result of our termination of the service agreement with the
Pittsfield group discussed above. As a result, the banks limited the amounts we
were able to borrow during the third quarter of 2000 and restricted our uses of
the borrowed proceeds. In light of these circumstances, together with the fact
that we were not in compliance with certain of the credit agreement's financial
covenants as of September 30, 2000, we requested an amendment of the credit
agreement that would include (i) waivers by the lending banks of all covenant
defaults, (ii) modification of the financial covenants, and (iii) a commitment
to permit future borrowings at a level sufficient to fund our working capital
requirements for the next 12 to 15 months. The lending banks have declined to
enter into such an amendment, and have instead agreed only to forbear from
taking any action as a result of the existing defaults through November 30,
2000, and to fund a single payment to meet our immediate cash requirements. We
intend to continue to negotiate with the lending banks to obtain an amendment of
the credit agreement that relaxes financial covenants and provides for an
adequate lending commitment, but thus far the banks have not indicated a
willingness to enter into such an amendment.
Net cash provided by operations for the nine months ended September 30, 2000 was
$4.2 million. Our net loss, combined with depreciation and amortization and
deferred taxes, an increase in accounts receivable and a decrease in the
combination of accrued expenses and other liabilities created a use of $15.1
million. This was offset by provisions of cash of $19.3 million resulting from
decreases in management fees receivable, due from affiliated medical groups and
prepaid expenses and other assets, and increases in accounts payable and payable
to affiliated medical groups.
<PAGE>
We had aggregate cash expenditures for purchases of clinic assets of $29.2
million for the nine months ended September 30, 2000. Of this amount, $11.2
million related primarily to deferred payments associated with previously
completed acquisitions and $18.0 million related to acquisitions completed in
the first nine months of 2000. Our capital expenditures amounted to $5.1 million
for the nine months ended September 30, 2000. Although each of the service
agreements with our affiliated medical groups requires us to provided capital
for equipment, additional physicians and other major expenditures, we have not
committed a specific amount in advance. Capital expenditures are made based
partially upon the availability of funds, the sources of funds, alternative
projects and an acceptable return on investment.
During the first nine months of 2000, we loaned $3.4 million to affiliated
medical groups and to affiliated physicians. Loans totaling $2.3 million were
used for new physicians starting their practice. Additionally, in connection
with a 1999 affiliation, we lent an affiliated medical group $1.1 million,
during the second quarter of 2000, who used the proceeds to purchase
split-dollar life insurance policies for the physicians in the group.
We had cash and cash equivalents of $10.1 million at September 30, 2000. In
addition to this, our current principal source of liquidity is accounts
receivable ($68.8 million at September 30, 2000). This level of liquidity may
not be sufficient to meet our short-term working capital needs. As a result of
our limited working capital and our inability to obtain an amendment of the
credit agreement, we may be unable to continue as a going concern. If we do not
obtain an amendment, the lending banks could declare all amounts outstanding
under the credit facility immediately due and payable.
We have been advised by our independent public accountants that, if the
contingency relating to our bank financing has not been resolved prior to the
completion of their audit of our consolidated financial statements for the year
ending December 31, 2000, their auditors' report on those consolidated financial
statements will contain a going concern modification for that contingency.
Forward-Looking Statements
This report includes "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995 about anticipated results, including statements as
to operating results, liquidity and capital resources, and expansion into and
within additional communities. These forward-looking statements are based upon
our internal estimates, which are subject to change because they reflect
preliminary information and our assumptions. Thus, a variety of factors could
cause our actual results and experience to differ materially from the
anticipated results or other expectations we have expressed in the
forward-looking statements. The factors that could cause actual results or
outcomes to differ from our expectations include our ability to: o continue to
operate profitably;
o expand in our existing communities;
o establish operations in additional communities; and
o obtain additional financing upon terms acceptable to us;
along with the uncertainties and other factors described in this report and in
our public filings and reports.
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
In May 2000, the Company issued 178,362 shares of Common Stock to stockholders
of a physician group in connection with December 1997 affiliation. In June 2000,
the Company issued 405,000 shares of Series A Convertible Preferred Stock and
125,000 shares of Series B Convertible Preferred Stock to a private investor
group. These issuances were exempt from registration under the Securities Act,
pursuant to section 4(2) of the Act as they did not involve any public offering.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting of stockholders on June 15, 2000. At the
meeting, the stockholders approved the second of a two-stage transaction in
which the Company issued an aggregate of 550,000 shares of convertible preferred
stock to an investor group for aggregate gross proceeds of $55 million.
The voting results for the approval of the convertible preferred stock
transaction are as follows:
For 11,713,398
Against 1,558,531
Abstain 45,751
The Company held its annual meeting of stockholders on September 8, 2000. At the
meeting, the stockholders elected H. Wayne Posey, Richard E. Ragsdale and E.
Thomas Chaney as Class III members of the Board of Directors with terms expiring
in 2003. Other members of the Board of Directors whose terms continue after the
meeting include James F. Herd, M.D., Charles J. Buysse, M.D. and Curtis S. Lane
who are Class I directors with terms expiring in 2001, and Jack W. McCaslin and
Sanjeev K. Mehra who are Class II directors with terms expiring in 2002.
The voting results of the election of directors are as follows:
Votes Withheld
Nominee: For Authority
------- --- ---------
H. Wayne Posey 35,752,199 357,453
Richard E. Ragsdale 35,960,999 148,653
E. Thomas Chaney 35,960,249 149,403
Item 5. Other Information.
On November 1, 2000 The Nasdaq Stock Market notified the Company that, because
the Company's Common Stock had failed to maintain a minimum bid price of $1.00
over the preceding 30 consecutive trading days as required for continued listing
on the Nasdaq National Market, unless the bid price is at least $1.00 for a
minimum of 10 consecutive trading days prior to January 30, 2001 the Common
Stock will be delisted at the opening of business on February 1, 2001.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ H. WAYNE POSEY
--------------------------------------
H. Wayne Posey Chairman, President, Chief Executive November 20, 2000
Officer, and Director
(Chief Executive Officer)
/s/ ROBERT D. SMITH
--------------------------------------
Robert D. Smith Senior Vice President - Finance and November 20, 2000
Chief Financial Officer
(Chief Accounting Officer)
</TABLE>
<PAGE>
PROMEDCO MANAGEMENT COMPANY
EXHIBIT 11
Computation of Per Share Earnings
(All amounts are expressed in thousands, except for earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC
Weighted average shares outstanding 21,177 21,043 21,786 20,873
Contingently issuable shares in business
combinations - 10 - 253
-- --------- ---------- ---------- ----------
Number of common shares outstanding 21,177 21,053 21,786 21,126
========= ========== ========== ==========
DILUTED
Weighted average shares outstanding 21,177 21,043 21,786 20,873
Contingently issuable shares in business
combinations - 10 - 253
Net common shares issuable on exercise of certain
stock options and warrants (1) - 1,324 - 1,559
Net common shares issuable on conversion of
preferred stock(2) - - - -
Other dilutive securities(2) - 601 - 606
-------- ---------- ---------- ----------
Number of common shares outstanding 21,177 22,978 21,786 23,291
======== ========== ========== ==========
Net income (loss) available to common stockholders $ 48,000) $ 4,082 $ (44,875) $ 11,778
Dividends earned assuming conversion of preferred stock - - - -
Interest expense, net of tax assuming conversion of
convertible subordinated notes payable - 66 - 199
-------- ---------- ---------- ----------
$ (48,000) $ 4,148 $ (44,875) $ 11,977
========= ========= ========== =========
</TABLE>
(1) Net common shares issuable on exercise of certain stock options and
warrants are calculated based on the treasury stock method to the extent
the individual options and warrants are not anti-dilutive.
(2) Redeemable convertible preferred stock and other dilutive securities are
calculated based on the if-converted method to the extent that the
securities are not anti-dilutive.
