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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-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 March 31, 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 1450
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 April 30, 2000
$.01 par value 22,251,813 shares
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<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
INDEX
Page
No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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 9
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts are expressed in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31,
(Unaudited) 1999
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,637 $ 7,625
Accounts receivable, net 69,548 63,811
Management fees receivable 13,553 9,905
Due from affiliated medical groups 10,377 13,337
Deferred tax benefit 547 537
Prepaid expenses and other current assets 18,130 16,102
-------------- ----------------
Total current assets 117,792 111,317
-------------- ----------------
Property and equipment, net 23,871 24,352
Intangible assets, net 237,266 227,006
Long-term receivables 50,158 50,355
Deferred income taxes 605 993
Other assets 10,200 5,290
-------------- ----------------
Total assets $ 439,892 $ 419,313
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,193 $ 6,418
Payable to affiliated medical groups 13,483 10,297
Accrued salaries, wages and benefits 7,812 7,578
Accrued purchased medical services 10,392 9,722
Accrued expenses and other current liabilities 6,509 7,321
Current maturities of long-term debt 17,521 11,463
Current portion of obligations under capital leases 414 476
Current portion of deferred purchase price 3,050 2,293
Income taxes payable 5,296 3,643
-------------- ----------------
Total current liabilities 69,670 59,211
-------------- ----------------
Long-term debt, net of current maturities 137,541 149,674
Obligations under capital leases, net of current portion 253 343
Deferred purchase price, net of current portion 17,399 17,592
Convertible subordinated notes payable 24,994 9,484
Other long-term liabilities 800 378
-------------- ----------------
Total liabilities 250,657 236,682
-------------- ----------------
Stockholders' equity:
Common stock 230 219
Additional paid-in capital 159,805 156,106
Common stock to be issued 90 90
Treasury stock (2,964) (2,865)
Stockholder notes receivable (250) (250)
Retained earnings 32,324 29,331
-------------- ----------------
Total stockholders' equity 189,235 182,631
-------------- ----------------
Total liabilities and stockholders' equity $ 439,892 $ 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 earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Net revenue $ 94,351 $ 73,092
Operating expenses:
Clinic salaries and benefits 31,816 25,706
Clinic rent and lease expense 8,081 6,246
Clinic supplies 10,402 8,589
Purchased medical services 17,350 11,912
Other clinic costs 11,990 8,819
General corporate expenses 2,540 2,010
Depreciation and amortization 3,839 2,776
Interest expense 3,173 1,011
-------------- ----------------
Total 89,191 67,069
-------------- ----------------
Income before provision for income taxes 5,160 6,023
Provision for income taxes 2,167 2,289
-------------- ----------------
Net income $ 2,993 $ 3,734
============== ================
Earnings per share:
Basic $ 0.14 $ 0.17
============== ================
Diluted $ 0.13 $ 0.16
============== ================
Weighted average number of common shares outstanding:
Basic 22,076 21,457
============== ================
Diluted 24,008 23,740
============== ================
</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>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,993 $ 3,734
Adjustments to reconcile net income to net cash provided by operating
activities (net of effects of purchase transactions):
Depreciation and amortization 3,839 2,776
Provision for deferred income taxes 378 458
Changes in assets and liabilities:
Accounts receivable, net (7,811) (2,588)
Management fees receivable (3,723) 1,026
Due from affiliated medical groups 3,787 723
Prepaid expenses and other assets (1,586) (1,164)
Accounts payable (833) (1,004)
Payable to affiliated medical groups 3,099 (239)
Accrued expenses and other liabilities 2,444 (1,434)
--------------- --------------
Net cash provided by operating activities 2,587 2,288
--------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (1,626) (1,098)
Purchases of clinic assets, net of cash acquired (9,345) (36,961)
Increase in notes receivable (827) (561)
--------------- --------------
Net cash used in investing activities (11,798) (38,620)
--------------- --------------
Cash flows from financing activities:
Borrowings under long-term debt 27,827 38,031
Payments on long-term debt (22,030) (19)
Payments on capital lease obligations (152) (157)
Payment of deferred financing costs (1,471) -
Proceeds from issuance of common stock, net 3,674 18
Purchase of treasury shares (625) (169)
Collection of stockholder note receivable - 120
--------------- --------------
Net cash provided by financing activities 7,223 37,824
--------------- --------------
(Decrease) increase in cash and cash equivalents (1,988) 1,492
Cash and cash equivalents, beginning of period 7,625 13,871
--------------- --------------
Cash and cash equivalents, end of period $ 5,637 $ 15,363
=============== ==============
Supplemental disclosure of cash flow information
Cash paid during the period for -
Interest expense $ 2,867 $ 1,787
Income taxes $ 1,799 $ 1,965
</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.
Earnings Per Share
Basic earnings 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. Diluted EPS includes the options,
warrants, and other potentially dilutive securities that are excluded from basic
EPS using the treasury method to the extent that these securities are not
anti-dilutive. For the three-month period ending March 31, 2000, approximately
2.9 million of stock options were excluded from the computation of diluted EPS
because the options' exercise prices were greater than the average market price
of the common shares.
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):
Three Months Ended March 31,
2000 1999
Total revenue $ 132,007 $ 106,784
Less- Amounts paid to medical groups (37,656) (33,692)
------------- -------------
Net revenue $ 94,351 $ 73,092
============= =============
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. 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.
2. ACQUISITIONS:
Through March 31, 2000 and during 1999, the Company, through its wholly owned
subsidiaries, acquired certain operating assets of the following medical
clinics:
<TABLE>
<CAPTION>
Medical Group Date Location
<S> <C> <C> <C>
2000: First Choice Medical (a) January 2000 Flower Mound, TX
1999: El Paseo Medical Center January 1999 (b) Las Cruces, NM
Boca Raton Medical Associates February 1999 (c) 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 (d) Columbus, GA
</TABLE>
(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 Company operated El Paseo Medical Center under a long-term
service agreement effective December 1, 1998. The Company
completed its acquisition in January 1999.
(c) 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.
(d) 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 1,000 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.
The following unaudited pro forma information reflects the effect of
acquisitions of medical groups and Primergy on the consolidated results of
operations of the Company had the acquisitions occurred at January 1, 1999.
Future results may differ substantially from pro forma results and cannot be
considered indicative of future results (in thousands).
Three Months Ended
2000 1999
Net revenue $ 94,351 $ 85,208
========== =========
Net income $ 2,993 $ 3,863
========== =========
Earnings per share
Basic $ 0.14 $ 0.18
========== =========
Diluted $ 0.13 $ 0.16
========== =========
Weighted average number of
common shares outstanding
Basic 22,076 21,707
========== =========
Diluted 24,008 23,443
========== =========
The pro forma net income for the three months ended March 31, 2000, is less than
the amount for the same pro forma period in 1999 due to increased interest
expense from the increase in the overall effective rate on the credit facility
of over 1% and the issuance of senior subordinated notes to affiliates of
Goldman, Sachs & Co. (see Note 3.) and higher general corporate expenses none of
which includes a pro forma adjustment.
3. LONG-TERM DEBT:
Long-term debt is summarized as follows (in thousands):
March 31, December 31,
2000 1999
Borrowings under bank credit facility $ 150,000 $ 156,000
Notes payable issued to medical groups 4,253 4,309
Other long-term debt 809 828
-------------- -----------
155,062 161,137
Less- current maturities (17,521) (11,463)
-------------- -----------
Long-term debt, net of current maturities $ 137,541 $ 149,674
============== ===========
In January 2000, the Company entered into a two-stage transaction in which the
Company will issue 425,000 of convertible preferred stock to affiliates of
Goldman, Sachs & Co. for aggregate gross proceeds of $42.5 million ("the Goldman
Sachs Transaction"). 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 the Company's common stock for $16
million. In the second stage, which is expected to be completed in May 2000, the
investors will exchange the notes, common stock, and an additional $26.5 million
for 425,000 shares of the Company's convertible preferred stock, bringing the
total investment to $42.5 million. The convertible preferred stock has a
liquidation preference of $100 per share, a dividend rate of 6% and is
convertible into shares of the Company's common stock at a conversion price of
$2.50 per share, subject to adjustment in accordance with customary
anti-dilution provisions. In addition, the Company will issue three-year
warrants to purchase up to $12.5 million of 6% convertible preferred stock that
is convertible into the Company's common stock at a conversion price of $4.00
per share.
In connection with the completion of the second stage of the Goldman Sachs
Transaction, the Company intends to expand its credit facility by up to $25
million. This expansion is expected to come in the form of additional revolving
credit and six-year secured term loans. In addition to this initial expansion,
the Company may require Goldman Sachs to exercise its warrants if an incremental
$25 million of senior debt is obtained prior to December 31, 2000.
4. 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 three months of 2000 and 1999, an affiliated medical group
surrendered 39,700 and 19,111 shares, respectively of the Company's common stock
as partial payment of an outstanding note balance and accrued interest.
<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 believe that these non-urban communities, which have
fewer healthcare providers and lower HMO penetration than urban areas, offer an
opportunity for us to capture a substantial portion of local healthcare
expenditures. To enter these markets, we affiliate with a leading group,
establishing a platform from which we can grow our market share by adding
ancillary services and providers.
We currently operate in 25 communities throughout the United States, where we
are affiliated with medical groups comprised of approximately 840 physicians and
170 mid-level providers. In addition, the Company is associated with
approximately 1,850 physicians in associated independent practice association
("IPA") networks.
Our agreements with medical groups are structured to provide a common incentive
for growth. When affiliating with a medical group, we typically acquire, at fair
market value, the group's non-real estate operating assets and enter 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 each group's operating income before
physician compensation. In our more recent affiliations, our share of income
from new ancillary services has been increased to 50%. We also share between 25%
and 50% of each group's surplus or deficit under risk-sharing arrangements
pursuant to capitated managed care contracts.
We have also developed alternative affiliation structures that require minimal
initial investment and closed one such affiliation in 1999. The related 25-year
service agreement gives us a lower percentage of the group's operating income
than our typical agreement, but entitles us to 50% of the income from ancillary
services added following the initial affiliation date. The service agreement
also allows the group to terminate the agreement for any reason at five-year
intervals, but only if the group purchases all of the practice assets then owned
by us and pays us a multiple of additional cash flows created since the initial
affiliation date.
Our net revenue represents total revenue for services rendered (reported at the
estimated realizable amounts from patients, third-party payors and others, net
of contractual and other adjustments), less amounts paid to the medical groups.
The amounts paid to the medical groups, typically 80-85% of the medical groups'
operating income, primarily consist of the cost of the services of the groups'
physicians. Under our service agreements, we provide each medical group with the
facilities and equipment used in its medical practice, 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.
Results of Operations
After beginning operations in our first two communities 1995, we entered five
additional communities in 1996, six in 1997, eight in 1998 and four in 1999. In
addition to entering new markets, we continuously work to expand our market
share through affiliations with additional primary care physicians and
specialists and selective additions of ancillary services. Changes in results of
operations were caused primarily by expanding into additional communities and
same market growth in our existing communities. The following table sets forth
the percentages of revenue represented by certain items reflected in our
condensed consolidated statements of operations.
Three Months Ended
2000 1999
Net revenue 100.0% 100.0%
Operating expenses:
Clinic salaries and benefits 33.7 35.2
Clinic rent and lease expense 8.5 8.5
Clinic supplies 11.0 11.8
Purchased medical services 18.4 16.3
Other clinic costs 12.7 12.1
General corporate expenses 2.7 2.7
Depreciation and amortization 4.1 3.8
Interest expense 3.4 1.4
--------- ---------
Income before provision for income taxes 5.5 8.2
Provision for income taxes 2.3 3.1
--------- ---------
Net income 3.2% 5.1%
========== =========
Other Financial Information:
Total revenue, amounts in thousands (1) $ 132,007 $106,784
Payor breakdown (2)
Commercial and discounted fee-for-service 40.5% 37.6%
Medicare/Medicaid 29.9 28.3
Capitation 16.3 18.4
Other 13.3 15.7
--------- ---------
100.0% 100.0%
========= =========
(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. Our
net revenue represents revenue, reduced by amounts paid to the medical
groups.
(2) As a percentage of total revenue.
Three Months Ended March 31, 2000 Compared With Three Months Ended March 31,
1999
Net revenue increased by 27.3% to $94.4 million for the quarter ended March
31,2000, from $73.1 million for the quarter ended March 31, 1999. Approximately
76.1% of this increase was attributable to communities we entered since April 1,
1999, with the balance coming from communities in which we began operations
prior to 1999. Same market growth in net revenue for communities in which we
operated for longer than one year was over 10% for the quarter ended March 31,
2000 compared with the quarter ended March 31, 1999.
Overall clinic costs, including purchased medical services, as a percentage of
net revenue increased to 84.3% for the quarter ended March 31, 2000, compared to
83.9% for the quarter ended March 31, 1999. Purchased medical services reflect
the cost of services required under managed care contracts that are not provided
by our medical groups and supplemental services to support incremental ancillary
services. The primary reason for the overall increase in clinic expenses as a
percentage of net revenue was a change in purchased medical services, which
increased to 18.4% as a percentage of net revenue for the first quarter of 2000,
compared to 16.3% in the first quarter of 1999. This change resulted from the
relative increase in ancillary revenue and the related expenses to provide these
services. The increase in purchased medical services was partially offset by
decreases, as a percentage of net revenue, in clinic salaries and benefits and
clinic supplies which decreased to 33.7% and 11.0%, respectively, in the first
quarter of 2000 compared to 35.2% and 11.8%, respectively in the first quarter
of 1999.
General corporate expenses as a percentage of net revenue remained constant at
2.7% for the quarter ended March 31, 2000, and for the quarter ended March 31,
1999. While these costs remained constant as a percentage of net revenue, the
amount of general corporate expenses increased 26.4% to $2.5 million for the
quarter ended March 31, 2000 from $2.0 million for the quarter ended March 31,
1999. This increase in expenses was expected as the Company continued to add
management and technology infrastructure. Management expects these increases in
amounts to continue as the Company continues to grow.
Depreciation and amortization as a percentage of net revenue increased to 4.1%
for the quarter ended March 31,2000, compared to 3.8% for the quarter ended
March 31, 1999. This increase resulted primarily from an increase in
depreciation due to changes in the mix of our medical groups, with certain of
our more recent affiliations having a relatively higher amount of property and
equipment.
Net interest expense as a percentage of net revenue increased to 3.4% for the
quarter ended March 31, 2000, compared to 1.4% for the quarter ended March 31,
1999. This increase is a result of an overall effective rate on our credit
facility was higher in the first quarter of 2000 compared to the first quarter
of 1999. In addition, there was an increase interest from the issuance of
subordinated notes payable as part of the Goldman Sachs Transaction.
Provision for income taxes reflects an effective rate of 42.0%, which is our
estimated effective rate for all of 2000.
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, we had working capital of $48.1 million, compared to $52.1
million at December 31, 1999. This decrease in working capital resulted from an
increase in borrowings under the credit facility, of which a portion is due in
June 2000. Net cash provided by operations for the three months ended March 31,
2000 was $2.6 million. Net income, combined with depreciation and amortization
and deferred taxes, a decrease in due from affiliated medical groups and an
increases in payable to affiliated physician groups and accrued expenses and
other liabilities, provided $16.5 million in cash flows. This was offset by uses
of cash of $13.9 million that resulted from increases in accounts receivable,
management fees receivable and other assets, and a decrease in accounts payable.
Our accounts receivable increased $7.8 million, net of the effects of purchase
accounting since December 31, 1999. The increase is due primarily to the
increase in revenues in the first quarter of 1999 compared to the fourth quarter
of 1999. For the first quarter of 2000, the number of days in accounts
receivable was 47.7 days is a slight increase from the number of days in
accounts receivable of 47.2 days for the fourth quarter of 1999. While our
days-outstanding compares favorably within the healthcare industry, we continue
to focus significant efforts at all of our clinics to continue to improve the
collections and the overall business office processes.
We had aggregate cash expenditures for purchases of clinic assets of $9.3
million for the three months ended March 31, 2000. Of this amount, $4.8 million
related primarily to deferred payments associated with previously completed
acquisitions and $4.5 million related to acquisitions completed in the first
three months of 2000. Our capital expenditures amounted to $1.6 million for the
three months ended March 31, 2000. Although each of the service agreements with
our affiliated medical groups requires us to provide capital for equipment,
expansion, 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.
In November 1998, we authorized a common stock repurchase program whereby we may
repurchase up to $10.0 million of our common stock. During the first three
months of 2000, we purchased 43,317 shares at an average price of $2.28 per
share.
In January 2000, we entered into a two-stage transaction in which we will issue
an aggregate of 425,000 shares of convertible preferred stock to affiliates of
Goldman, Sachs & Co. for aggregate gross proceeds of $42.5 million. The first
stage of the transaction, which was completed in January 2000, involved the
issuance of $16 million principal amount of our senior subordinated notes and
1,250,000 shares of our common stock for $16 million. In the second stage, which
is expected to be completed in May 2000, the new investors will exchange the
notes, common stock, and an additional $26.5 million for 425,000 shares of our
convertible preferred stock, bringing the total investment to $42.5 million. The
convertible preferred stock has a liquidation preference of $100 per share and
is convertible into shares of our common stock at a conversion price of $2.50
per share, subject to adjustment in accordance with customary anti-dilution
provisions. In addition, the Company will issue three-year warrants to purchase
up to $12.5 million of 6% convertible preferred stock that is convertible into
the Company's common stock at a conversion price of $4.00 per share.
On December 17, 1998, we entered into a new revolving credit facility with a
syndicate of banks, to provide for a three-year commitment to fund revolving
credit borrowings of up to $125.0 million for acquisitions and general working
capital. During 1999, this credit facility was amended and expanded to its
current commitment level of $157.5 million. The commitment is comprised of
$142.5 million maximum commitment that expires December 17, 2001 and a $15.0
million commitment that expires June 27, 2000. The interest rate is set at our
option and varies based on our leverage, as follows: (i) the higher of the
federal funds rate plus 0.5% to 1.25% or the prime rate plus 0.0% to 0.75%, or
(ii) the Eurodollar rate plus 1.25% to 2.25%. As of March 31, 2000, the
effective interest rate under the credit facility was 8.4%. The credit facility
includes certain restrictive covenants, including limitations on the payment of
dividends, as well as requirements for the maintenance of certain financial
ratios. At the expiration of the revolving credit commitment, we can convert the
outstanding balance to a term loan. Upon such conversion, the outstanding
balance will be repaid in 5% increments over eight quarters, with the balance
due December 17, 2003. The credit facility is secured by substantially all of
our assets. In obtaining the credit facility and subsequent amendments, we paid
fees and other closing costs of approximately $1.7 million, which has been
capitalized in other assets on our consolidated balance sheets and is amortized
as an adjustment to interest expense using the effective interest method. As of
March 31, 2000, we had $150 million outstanding and $7.0 million available,
subject to certain conditions under the agreement.
We had cash and cash equivalents of $5.6 million at March 31, 2000. In addition
to this, our principal sources of liquidity at March 31, 2000 were accounts
receivable of $69.5 million and availability of $7.0 million under the credit
facility. We believe that this, combined with the proceeds from the Goldman
Sachs transaction, will be sufficient to meet our working capital needs for at
least the next twelve months. Our future acquisition, expansion and capital
expenditure programs may, however, require substantial amounts of additional
capital resources. To meet the additional capital needs of these programs, we
will continue to evaluate alternative sources of financing, including short- and
long-term bank indebtedness, additional equity and other forms of financing, the
availability and terms of which will depend upon market and other conditions.
There can be no assurance that we will be able to obtain additional financing at
acceptable terms.
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.
Item 2. Changes in Securities and Use of Proceeds
In January 2000, the Company issued 1,250,000 shares of Common Stock to
affiliates of Goldman, Sachs & Co. as a private offering. This issuance was
exempt from registration under the Securities Act, pursuant to section 4(2) of
the Act as it did not involve any public offering.
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 May 15, 2000
Officer, and Director
(Chief Executive Officer)
/s/ ROBERT D. SMITH
Robert D. Smith Senior Vice President - Finance and May 15, 2000
Chief Financial Officer
(Chief Accounting Officer)
</TABLE>
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
March 31,
2000 1999
<S> <C> <C>
BASIC
Weighted average shares outstanding 22,076 21,044
Contingently issuable shares in business
combinations - 413
---------- -----------
Number of common shares outstanding 22,076 21,457
========== ===========
DILUTED
Weighted average shares outstanding 22,076 21,044
Contingently issuable shares in business
combinations - 413
Net common shares issuable on exercise of certain
stock options and warrants (1) 1,190 1,736
Other dilutive securities (2) 742 547
---------- -----------
Number of common shares outstanding 24,008 23,740
========== ===========
Net income $ 2,993 $ 3,734
Interest expense, net of tax assuming conversion of
convertible subordinated notes payable 67 67
---------- -----------
$ 3,060 $ 3,801
========== ===========
</TABLE>
(1) Net common shares issuable on exercise of certain stock options and
warrants are calculated based on the treasury stock method.
(2) Other dilutive securities are calculated based on the if-converted method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 5,637
<SECURITIES> 0
<RECEIVABLES> 69,548
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,792
<PP&E> 249,615
<DEPRECIATION> 12,349
<TOTAL-ASSETS> 439,892
<CURRENT-LIABILITIES> 69,670
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> 189,005
<TOTAL-LIABILITY-AND-EQUITY> 439,892
<SALES> 0
<TOTAL-REVENUES> 94,351
<CGS> 0
<TOTAL-COSTS> 86,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,173
<INCOME-PRETAX> 5,160
<INCOME-TAX> 2,167
<INCOME-CONTINUING> 2,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,993
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.13
</TABLE>
