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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 02-26762
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PEDIATRIX MEDICAL GROUP, INC.
(Exchange name of registrant as specified in its charter)
FLORIDA 65-0271219
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(State or other jurisdiction) (I.R.S. Employer
of incorporation or organization) Identification No.)
1455 NORTH PARK DRIVE, FT. LAUDERDALE, FLORIDA 33326
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (954) 384-0175
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on which registered
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COMMON STOCK NEW YORK STOCK EXCHANGE
$.01 PAR VALUE PER SHARE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of shares of Common Stock held by
non-affiliates of the registrant as of March 17, 1998, was approximately
$373,624,525 based on a $41.38 closing sales price for the Common Stock on the
New York Stock Exchange on such date. For purposes of this computation, all
executive officers, directors and 5% beneficial owners of the common stock of
the registrant have been deemed to be affiliates. Such determination should not
be deemed to be an admission that such directors, officers or 5% beneficial
owners are, in fact, affiliates of the registrant.
The number of shares of Common Stock, $.01 par value, of the registrant
outstanding as of March 17, 1998 were 15,175,087.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents have been incorporated by reference
into the parts indicated: The registrant's definitive Proxy Statement to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year covered by this report - Part III.
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INDEX TO ITEMS
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PART I............................................................................................................3
Item 1. Business.....................................................................................3
Item 2. Properties..................................................................................15
Item 3. Legal Proceedings...........................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.........................................15
PART II..........................................................................................................15
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters...................15
Item 6. Selected Financial Data.....................................................................17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................................18
Item 8. Financial Statements and Supplementary Data.................................................23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................................43
PART III.........................................................................................................43
Item 10. Directors and Executive Officers of the Registrant..........................................43
Item 11. Executive Compensation......................................................................43
Item 12. Security Ownership of Certain Beneficial Owners and Management..............................43
Item 13. Certain Relationships and Related Transactions..............................................43
PART IV..........................................................................................................44
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................44
Schedules........................................................................................................45
Exhibits ........................................................................................................46
Signatures.......................................................................................................49
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PART I
ITEM 1. BUSINESS
Pediatrix Medical Group, Inc. ("PMG") includes its subsidiaries and the
professional associations and partnerships (the "PA Contractors") which are
separate legal entities that contract with PMG to provide physician services in
certain states and Puerto Rico. PMG, its subsidiaries and the PA Contractors are
collectively referred to herein as the "Company" or "Pediatrix."
GENERAL
Pediatrix is the nation's leading provider of physician management
services to hospital-based neonatal intensive care units ("NICUs"). NICUs
provide medical care to newborn infants with low birth weight and other medical
complications, and are staffed with specialized pediatric physicians, known as
neonatologists. The Company also provides physician management services to (i)
hospital-based pediatric intensive care units ("PICUs"), units which provide
medical care to critically ill children and are staffed with specially-trained
pediatricians, and (ii) pediatrics departments in hospitals. In addition to the
above hospital based services, the Company began providing inpatient and
outpatient perinatal services during 1997. Perinatology is a subspecialty of
obstetrical medicine that focuses on the diagnostics, management and care of
high-risk and/or complicated pregnancies. As of December 31, 1997, the Company
provided services to over 100 hospital based units and one perinatology practice
in 20 states and Puerto Rico and employed or contracted with approximately 260
physicians.
The Company staffs and manages NICUs and PICUs in hospitals, providing
the physicians, professional management and administrative support, including
physician billing and reimbursement expertise and services. The Company's policy
is to provide 24-hour coverage at its NICUs and PICUs with on-site or on-call
physicians. As a result of this policy, physicians are available to provide
continuous pediatric support to other areas of the hospital on an as-needed
basis, particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical.
Pediatrix established its leading position in physician management
services to NICUs by developing a comprehensive care model and management and
systems infrastructure that address the needs of patients, hospitals, payor
groups and physicians. Pediatrix addresses the needs of (i) patients by
providing continuous, comprehensive, professional quality care, (ii) hospitals
by recruiting, credentialing, and retaining neonatologists and hiring related
staff to operate NICUs in a cost-effective manner thereby relieving hospitals of
the financial and administrative burdens of operating the NICUs, (iii) payor
groups by providing cost-effective care to patients and (iv) physicians by
providing administrative support, including physician billing and reimbursement
expertise and services, to enable them to focus on providing care to patients,
and by offering an opportunity for career advancement within Pediatrix.
RECENT DEVELOPMENTS
During 1997, the Company completed ten acquisitions, which added 28
NICUs. Additionally, three NICUs were added through the Company's internal
marketing activities. The Company has developed regional networks in Denver,
Phoenix, Southern California and Texas and intends to develop additional
regional and state-wide networks. The Company believes these networks, augmented
by ongoing marketing and acquisition efforts, will strengthen its position with
managed care organizations and other third party payors.
During the period of January 1 through March 25, 1998, the Company
completed the acquisition of five neonatal and three perinatal practices. In
addition, one NICU was added through internal marketing efforts.
INDUSTRY OVERVIEW
The evolving managed care environment has created substantial cost
containment pressures for all constituents of the healthcare industry. The
increasing use of fixed-payment systems that shift financial risk from payors to
providers has forced hospitals, in particular, to be more cost-effective in all
aspects of their operations. A
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trend among hospitals is to utilize third party contract management companies to
manage specialized functions in an effort to contain costs, improve utilization
management, and reduce administrative burdens. Physician management
organizations provide hospitals with professional management of staff, including
recruiting, staffing and scheduling of physicians.
Physicians are responding to cost containment pressures by joining
group practices through which they have greater leverage to negotiate and
contract with hospitals and managed care payors. Physician management
organizations provide a physician group practice an alternative to self
management that enables physicians to maintain their clinical autonomy while
creating greater negotiating power with payors and hospitals, and providing
administrative support to deal with the increasing complexity of billing and
reimbursement. Physician group practices are becoming larger and more prevalent.
The Company believes that as cost pressures continue to influence the medical
industry, the trend of physicians joining group practices will continue.
Although the Company continues to market its services to hospitals to obtain new
contracts, the Company has shifted its strategy to growth through acquisitions
as physicians become more receptive to being acquired.
The Company believes that hospitals will continue to outsource certain
units, such as NICUs, on a contract management basis. NICUs present significant
operational challenges for hospitals, including complex billing procedures,
highly variable admissions rates, and difficulties in recruiting and retaining
qualified physicians. These operational challenges generally make it difficult
for hospitals to operate these units profitably. Traditionally, hospitals have
staffed their NICUs internally, through affiliations with small, local physician
groups or with independent practitioners. These small practices typically lack
the necessary expertise and support services in billing and reimbursement,
recruiting and effective medical management to operate NICUs on a cost-effective
basis. Hospitals are increasingly seeking to contract with physician management
services organizations that have the capital resources, information and
reimbursement systems and practice management expertise that NICUs require to
accept and manage risk in the evolving managed care environment.
Of the approximately four million babies born in the United States
annually, approximately 10% to 15% require neonatal treatment. Demand for
neonatal services is primarily due to premature births, and to infants having
difficulty making the transition to extrauterine life. A majority of high-risk
mothers whose births require neonatal treatment are not identified until the
time of delivery, thus heightening the need for continuous coverage by
neonatologists. Across the United States, NICUs are concentrated primarily among
hospitals located in metropolitan areas with a higher volume of births. NICUs
are important to hospitals since obstetrics generates one of the highest volumes
of admissions and obstetricians generally prefer to perform deliveries at
hospitals with NICUs. Hospitals must maintain cost-effective care and service in
these units to enhance the hospital's desirability to the community, physicians
and managed care payors.
STRATEGY
The Company's objective is to enhance its position as the nation's
leading provider of physician management services to NICUs by adding new units
and increasing same unit growth. The key elements of the Company's strategy are
as follows:
FOCUS ON NEONATOLOGY, PERINATOLOGY AND PEDIATRICS. Since its
founding in 1979, the Company has focused primarily on neonatology and
pediatrics. As a result of this focus, the Company believes it has (i)
developed significant expertise in the complexities of billing and
reimbursement for neonatology physician services and (ii) a competitive
advantage in recruiting and retaining neonatologists seeking to join a
group practice. The Company believes its continued focus will allow it to
enhance its position as the nation's leading provider of physician
management services to NICUs. In 1997, the Company began providing
perinatal services in cooperation with one of its hospital customers. The
Company is continuing to pursue the integration of perinatology and, in the
future, will investigate obstetrics and other areas of pediatrics beyond
neonatology.
ACQUIRE NEONATAL AND PERINATAL PHYSICIAN GROUP PRACTICES. The
Company intends to further increase the number of locations at which it
provides physician management services by acquiring well-established
neonatal and perinatal physician group practices. The Company believes that
it will continue to benefit from
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physicians joining larger practice groups in an effort to increase
negotiating power with managed care organizations and eliminate
administrative burdens, while maintaining clinical autonomy. The Company
completed its first acquisition of a neonatology physician group practice
in California in July 1995 and since has completed acquisitions of an
additional 28 physician group practices. The Company is actively pursuing
acquisitions of other neonatal and perinatal physician group practices. No
assurance can be given that future acquisition candidates will be
identified or that any future acquisitions will be consummated. See "Recent
Developments" and "Factors to be Considered - Risks Relating to Acquisition
Strategy."
DEVELOP REGIONAL NETWORKS. The Company intends to develop regional
and state-wide networks of NICUs in geographic areas with high
concentrations of births. The Company operates regional networks in
Colorado, Arizona, Southern California and Texas. The Company believes that
the development of regional and state-wide networks will strengthen its
position with third party payors, such as Medicaid and managed care
organizations, since such networks will offer more choice to the patients
of third party payors.
INCREASE SAME UNIT GROWTH. The Company seeks to provide its
services to hospitals where the Company can benefit from increased
admissions and intends to increase revenues at existing units by providing
support to areas of the hospital outside the NICU, particularly in the
obstetrics, nursery and pediatrics departments, where immediate
accessibility to specialized care is critical. These services generate
incremental revenue to the Company, contribute to the Company's overall
profitability, enhance the hospital's profitability, strengthen the
Company's relationship with the hospital, and assist the hospital in
attracting more admissions by enhancing the hospital's reputation in the
community as a full-service critical care provider.
ASSIST HOSPITALS TO CONTROL COSTS. The Company intends to continue
assisting hospitals to control costs. The Company's comprehensive care
model, which promotes early intervention by neonatologists in emergency
situations, as well as the retention of qualified neonatologists, improves
the overall cost effectiveness of care. The Company believes that its
ability to assist hospitals to control costs will allow it to continue to
be successful in adding new units at which the Company provides physician
management services.
ADDRESS CHALLENGES OF MANAGED CARE ENVIRONMENT. The Company
intends to continue to develop new methods of doing business with managed
care and third party payors, which will allow it to develop relationships
among payors, hospitals and the Company. The Company is also prepared to
enter into flexible arrangements with third party payors, including
capitation arrangements. As the nation's leading provider of physician
management services to NICUs, the Company believes that it is
well-positioned to address the needs of managed care organizations and
other third party payors which seek to contract with cost-effective,
quality providers of medical services.
PHYSICIAN MANAGEMENT SERVICES
The Company provides physician management services to NICUs, providing
(i) a medical director to manage the unit, (ii) recruiting, staffing and
scheduling of physicians and certain other medical staff, (iii) neonatology and
pediatric support to other hospital departments, (iv) pediatric subspecialty
services and (v) billing and reimbursement expertise and services. These
physician management services include:
UNIT MANAGEMENT. The Company staffs each unit it manages with a
medical director who reports to a Regional Medical Officer ("RMO") of the
Company. The RMOs and all medical directors at these units are board
certified or board eligible in neonatology, pediatrics, pediatric critical
care or pediatric cardiology. In addition to providing medical care and
physician management in the unit, the medical director is responsible for
(i) the overall management of the unit, including quality of care,
professional discipline, utilization review, physician recruitment,
staffing and scheduling, (ii) serving as a liaison to the hospital
administration, (iii) maintaining professional and public relations in the
hospital and the community and (iv) monitoring the Company's financial
performance within the unit.
RECRUITING, STAFFING AND SCHEDULING. The Company is responsible for
recruiting, staffing and scheduling the neonatologists, pediatricians and
advanced registered nurse practitioners ("ARNPs") within the NICU. The
Company's recruiting department maintains an extensive database of
neonatologists and
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pediatricians nationwide from which to draw for recruiting purposes. All
candidates are pre-screened and their credentials, licensure and references
are checked and verified by the Company. The RMOs and the medical directors
play a key role in the recruiting and interviewing process before
candidates are introduced to hospital administrators. The units managed by
the Company are staffed with at least one neonatologist or pediatrician on
site or available on call. All of these physicians are board certified or
board eligible in neonatology, pediatrics, pediatric critical care or
pediatric cardiology. The Company also employs or contracts with ARNPs, who
assist medical directors and other physicians in operating the units. All
ARNPs have either a certificate as a neonatal nurse practitioner or
pediatric nurse practitioner or a masters degree in nursing, and have
previous neonatal or pediatric experience. With respect to the physicians
that are employed by or under contract with the Company, the Company
assumes responsibility for salaries, benefits, bonuses, group health
insurance and physician malpractice insurance. See "Business -- Contractual
Relationships."
SUPPORT TO OTHER HOSPITAL DEPARTMENTS. As part of the Company's
comprehensive care model, physicians provide pediatric support services to
other areas of hospitals, particularly in the obstetrics, nursery and
pediatrics departments, where immediate accessibility to specialized care
is critical. The Company believes this support (i) improves its relations
with hospital staff and referring physicians, (ii) enhances the hospital's
reputation in the community as a full-service critical care provider, (iii)
increases admissions from referring obstetricians and pediatricians, (iv)
integrates the physicians into a hospital's medical community, (v)
generates incremental revenue which contributes to the Company's overall
profitability and (vi) increases the likelihood of renewing and adding new
hospital contracts.
PEDIATRIC SUBSPECIALTIES. The Company has developed a pediatric
cardiology program consisting of several pediatric cardiologists to
complement and enhance its comprehensive care model. These physicians
provide out-patient services in offices outside contracting hospitals and
assist attending physicians at certain hospitals. The Company is exploring
the possibility of expanding the existing program in pediatric cardiology
in line with the Company's other strategic objectives in neonatology and
pediatric intensive care. Expansion of the program will depend in part on
the demand for such critical care services at hospitals and by payor
groups.
PERINATOLOGY. The Company has developed, in conjunction with a
hospital customer, a perinatal practice to manage the care of high-risk
and/or complicated pregnancies. The services provided include highly
technical invasive and non-invasive diagnostic procedures, sophisticated
medical consultations and hands-on patient management or co-management,
including deliveries. Since a significant portion of the pregnancies
managed by perinatologists result in admissions in the NICU, it is expected
that the addition of these services will result in better patient care. The
Company is continuing to pursue the development of perinatal programs in
other locations where it currently provides services to NICUs. See
"Business - Recent Developments."
BILLING AND REIMBURSEMENT. The Company assumes responsibility for
all aspects of the billing, reimbursement and collection process relating
to physician services. Patients and/or third party payors receive a bill
from the Company for physician services, and the hospital bills and
collects separately for all other services. To address the increasingly
complex and time-consuming processing for obtaining reimbursement for
medical services, the Company has invested in both the technical and human
resources necessary to create an efficient billing and reimbursement
process, including specific claim forms and software systems. The Company
begins this process by providing training to physicians that emphasizes a
detailed review of and proper coding protocol for all procedures performed
and services provided to achieve appropriate collection of revenues for
physician services. The Company's billing and collection operations are
conducted from its corporate headquarters in Ft. Lauderdale, Florida, as
well as regional business offices in Orange, California and Dallas, Texas.
MARKETING
Historically, most of the Company's growth was generated internally
through marketing efforts and referrals. Beginning in the latter part of 1995,
the Company significantly increased its acquisition activities to capitalize on
the opportunities created by the trend toward consolidation in the healthcare
industry. The Company's marketing program to physician groups consists of (i)
market research to identify established physician groups, (ii) telemarketing to
identify and contact acquisition candidates, as well as hospitals with high
demand for NICU
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services, and (iii) other sales and business development personnel that conduct
on-site visits along with senior management. The Company also advertises its
services in hospital and healthcare trade journals, participates at hospital and
physician trade conferences, and markets its services directly to hospital
administrators and medical staff. In addition, the Company intends to focus on
developing additional regional networks and state-wide networks to strengthen
its position with managed care organizations and other third party payors.
MANAGEMENT INFORMATION SYSTEMS
The Company maintains several systems to support day-to-day operations,
business development and ongoing clinical and business analysis, including (i) a
Company-wide electronic mail system to assist intracompany communications and
conferencing, (ii) an intranet site to facilitate clinical research and
interaction among physicians regarding clinical matters on a real-time basis,
(iii) electronic interchange with payors utilizing electronic benefits
verification and claims submission, (iv) a database used by the business
development and marketing departments in recruiting individual physicians and
identifying potential neonatal and perinatal physician group acquisition
candidates, which is updated through telemarketing activities, personal
contacts, professional journals and mail solicitation, (v) electronic imaging to
streamline accessibility to operational documents, and (vi) a clinical tracking
system used by the physicians to assist in the creation of their respective
paperwork and establish the basis for the consolidated clinical information
database used to support the Company's education, research and quality assurance
programs. Ongoing development will provide even greater streamlining of
information from the clinical systems through the reimbursement process,
allowing the overall process to be expedited further.
The Company's management information system is an integral component of
the billing and reimbursement process. The Company's system enables it to track
numerous and diverse third party payor relationships and payment methods and
provides for electronic interchange in support of insurance benefits
verification and claims processing to payors accepting electronic submission.
The Company's system was designed to meet its requirements by providing maximum
flexibility as payor groups upgrade their payment and reimbursement systems.
CONTRACTUAL RELATIONSHIPS
HOSPITAL RELATIONSHIPS. Many of the Company's contracts with hospitals
grant the Company the exclusive right and responsibility to manage the provision
of physician management services to the NICUs. The contracts typically have
terms of three to five years and renew automatically for additional terms of one
to five years unless otherwise terminated by either party. The contracts
typically provide that either party may terminate the agreement prior to the
expiration of the initial term in the event of material breach by the other
party and failure to cure after the notice and cure period has expired.
The Company bills for the physicians' services on a fee-for-service
basis separately from other charges billed by the hospital. Certain contracting
hospitals that do not generate sufficient patient volume agree to pay the
Company administrative fees to assure a minimum revenue level. Administrative
fees include guaranteed payments to the Company, as well as fees paid to the
Company by certain hospitals for administrative services performed by the
Company's medical directors at such hospitals. Administrative fees accounted for
12%, 8% and 5% of the Company's net patient service revenue during 1995, 1996
and 1997, respectively. The hospital contracts typically require that the
Company and the physicians performing services maintain minimum levels of
professional and general liability insurance. The Company contracts for and pays
the premiums for such insurance on behalf of the physicians. See "Business --
Professional Liability and Insurance."
PAYOR RELATIONSHIPS. While virtually all of the Company's contracts
with third party payors are discounted fee-for-service contracts, as of December
31, 1997, the Company had eight contracts that provide for capitated payments,
with payors located in California, Arizona, Texas and Florida. The Company is
prepared to enter into capitation arrangements with other third party payors. In
the event the Company enters into relationships with third party payors with
respect to regional and state-wide networks, such relationships may be on a
capitated basis. See "Factors to be Considered - Impact of Payor Discounts and
Capitation Arrangements."
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PA CONTRACTOR RELATIONSHIPS. PMG has entered into management agreements
("PA Management Agreements") with PA Contractors in all states in which it
operates, other than Florida. There is at least one PA Contractor in each state
in which the Company operates. Each PA Contractor is owned by a physician
licensed in the jurisdiction in which the PA Contractor operates, who is also an
officer of the PA Contractor. Under the PA Management Agreements, the PA
Contractors delegate to PMG the administrative, management and support functions
(but not any functions constituting the practice of medicine) that the PA
Contractors have agreed to provide to the hospital. In consideration of such
services, each PA Contractor pays PMG a percentage of the PA Contractor's gross
revenue (but in no event greater than the net profits of such PA Contractor), or
a flat fee. PMG has the discretion to determine whether the fee shall be paid on
a monthly, quarterly or annual basis. The management fee may be adjusted from
time to time to reflect industry standards and the range of services provided by
the PA Contractor. The agreements provide that the term of the arrangements are
permanent, subject only to termination by PMG, and that the PA Contractor shall
not terminate the agreement without PMG's prior written consent. Also, the
agreements provide that PMG or its assigns has the right, but not the
obligation, to purchase the stock of the PA Contractor. See Note 2 to the
Consolidated Financial Statements and "Factors to be Considered - State Laws
Regarding Prohibition of Corporate Practice of Medicine."
PHYSICIAN RELATIONSHIPS. The Company contracts with the PA Contractors
to provide the medical services required to fulfill its obligations to
hospitals. The physician employment agreements typically have terms of three to
five years and can be terminated by either party at any time upon 90 days prior
written notice. The physicians generally receive a base salary plus a
productivity bonus. The physician is required to hold a valid license to
practice medicine in the appropriate jurisdiction in which the physician
practices and to become a member of the medical staff, with appropriate
privileges at the hospital. The Company is responsible for billing patients and
third party payors for services rendered by the physician, and the Company has
the exclusive right to establish the schedule of fees to be charged for such
services. Substantially all of the physicians employed by PMG or the PA
Contractors have agreed not to compete with PMG or the PA Contractor within a
specified radius of any hospital for which the physician is rendering medical
services for a period of one to two years after termination of employment. The
Company contracts for and pays the premiums for professional liability insurance
on behalf of the physicians. See "Business -- Professional Liability and
Insurance."
ACQUISITIONS. The Company structures acquisitions of physician practice
groups as asset purchases, stock purchases and stock mergers. Generally, these
structures provide for: (i) the assignment to the Company of the contracts
between the physician practice group and the hospital at which the physician
practice group provides medical services; (ii) physician "tail insurance"
coverage under which the Company is an insured party to cover malpractice
liabilities that may arise after the date of the acquisition which relate to
events prior to the acquisition; and (iii) indemnification to the Company by the
previous owners of the acquired entity. Generally, in acquisitions structured as
asset purchases, the Company does not acquire the physician practice group's
receivables or liabilities, including professional liability claims, arising
from the physician practice group's activities prior to the date of the
acquisition. Generally, in acquisitions structured as stock purchases or stock
mergers, the physician practice group's receivables (net of any liabilities
accruing prior to the acquisition and permitted indemnification claims) are
assigned to the former owners of the physician practice group.
GOVERNMENT REGULATION
The Company's operations and relationships are subject to a variety of
governmental and regulatory requirements relating to the conduct of its
business. The Company is also subject to laws and regulations which relate to
business corporations in general. The Company believes that it exercises care in
an effort to structure its practices and arrangements with hospitals and
physicians to comply with relevant federal and state law and believes that such
arrangements and practices comply in all material respects with all applicable
statutes and regulations.
Approximately 23% and 22% of the Company's net patient service revenue
in 1996 and 1997, respectively, was derived from payments made by
government-sponsored healthcare programs (principally Medicaid). These programs
are subject to substantial regulation by the federal and state governments. Any
change in reimbursement regulations, policies, practices, interpretations or
statutes that places material limitations on reimbursement amounts or practices
could adversely affect the operations of the Company. Medicaid and other
government reimbursement programs are increasingly shifting to managed care,
which could result in reduced
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payments to the Company for Medicaid patients. In addition, funds received under
these programs are subject to audit with respect to the proper billing for
physician services and, accordingly, retroactive adjustments of revenue from
these programs may occur. See "Factors to be Considered -- Reliance upon
Government Programs; Possible Reduction in Reimbursement."
The Company is also subject to (i) certain provisions of the Social
Security Act, commonly referred to as the "Anti-kickback Statute," which
prohibits entities, such as the Company, from offering, paying, soliciting, or
receiving any form of remuneration in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease, or order of items or services
that are covered by Medicare or state health programs, (ii) prohibitions against
physician referrals, commonly known as "Stark II," which prohibit, subject to
certain exemptions, a physician or a member of his immediate family from
referring Medicare or Medicaid patients to an entity providing "designated
health services" (which include inpatient and outpatient hospital services) in
which the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement including the physician's
own group practice, (iii) state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment, on
healthcare providers which fraudulently or wrongfully bill governmental or other
third party payors for healthcare services and (iv) state laws similar to the
Anti-Kickback statute and Stark II which, in many cases, apply to privately paid
or insured services as well as services covered under governmentally sponsored
health care programs. Although the Company believes that it is not in violation
of these provisions, there can be no assurance that the Company's current or
future practices will not be found to be in violation of these provisions, and
any such finding could have a material adverse effect on the Company. See
"Factors to be Considered -- Risk of Applicability of Anti-Kickback and
Self-Referral Laws."
In addition, business corporations such as PMG are generally not
permitted under state law to practice medicine, exercise control over the
medical judgments or decisions of physicians, or engage in certain practices
such as fee-splitting with physicians. In states where PMG is not permitted to
practice medicine, the Company performs only nonmedical administrative services,
does not represent to the public or its clients that it offers medical services
and does not exercise influence or control over the practice of medicine by the
PA Contractors or the physicians employed by the PA Contractors. Accordingly,
the Company believes it is not in violation of applicable state laws relating to
the practice of medicine. In most states, PMG contracts with the PA Contractors
(which are owned by a licensed physician employed by the respective PA
Contractor), which in turn employ or contract with physicians to provide
necessary physician services. There can be no assurance that regulatory
authorities or other parties will not assert that PMG is engaged in the
corporate practice of medicine or that the percentage fee arrangements between
PMG and the PA Contractors constitute fee-splitting or the corporate practice of
medicine. If such a claim were successfully asserted in any jurisdiction, PMG
could be subject to civil and criminal penalties under such jurisdiction's laws
and could be required to restructure its contractual arrangements, which could
have a material adverse effect on the Company's financial condition and results
of operations. See "Factors to be Considered -- State Laws Regarding Prohibition
of Corporate Practice of Medicine."
In addition to current regulation, the public and state and federal
governments have recently focused significant attention on reforming the
healthcare system in the United States. Although the Company cannot predict
whether these or other reductions in the Medicare or Medicaid programs will be
adopted, the adoption of such proposals could have a material adverse effect on
the Company's business. Concern about such proposals has been reflected in
volatility of the stock prices of companies in healthcare and related
industries. See "Factors to be Considered -- Healthcare Regulatory Environment
Could Increase Restrictions on the Company."
PROFESSIONAL LIABILITY AND INSURANCE
The Company's business entails an inherent risk of claims of physician
professional liability. The Company maintains professional liability insurance
and general liability insurance on a claims-made basis in accordance with
standard industry practice. The Company believes that its coverage is
appropriate based upon claims experience and the nature and risks of its
business. There can be no assurance that a pending or future claim or claims
will not be successful or if successful will not exceed the limits of available
insurance coverage or that such coverage will continue to be available at
acceptable costs and on favorable terms. See "Factors to be Considered --
Professional Liability and Insurance" and "Legal Proceedings."
9
<PAGE> 10
The physicians that are employed by or under contract with the Company
are required to obtain professional liability insurance coverage, and the
Company contracts for and pays the premiums with respect to such insurance for
the physicians. The current professional liability insurance policy expires May
1, 1998 and the Company expects to be able to renew such policy upon expiration.
COMPETITION
The healthcare industry is highly competitive and has been subject to
continual changes in the method in which healthcare services are provided and
the manner in which healthcare providers are selected and compensated. The
Company believes that private and public reforms in the healthcare industry
emphasizing cost containment and accountability will result in an increasing
shift of NICU and related pediatric care from highly fragmented, individual or
small practice neonatology providers to physician management companies.
Companies in other healthcare industry segments, such as managers of other
hospital-based specialties or large physician group practices, some of which
have financial and other resources greater than those of the Company, may become
competitors in providing management of neonatal and pediatric services to
hospitals. See "Factors to be Considered -- Competition."
SERVICE MARKS
The Company has registered the service mark "Pediatrix Medical Group"
and its design with the United States Patent and Trademark Office, and has
applied for registration of a baby design logo. The United States Patent and
Trademark Office has issued a Notice of Allowance and registration should follow
in due course.
EMPLOYEES AND PROFESSIONALS UNDER CONTRACT
In addition to the approximately 260 physicians employed or under
contract with the Company as of December 31, 1997, Pediatrix employed or
contracted with approximately 60 other clinical professionals and 310 other
full-time and part-time employees. The Company's employees are not subject to
any collective bargaining agreements.
FACTORS TO BE CONSIDERED
The parts of this Annual Report on Form 10-K titled "Item 1. Business,"
"Item 3. Legal Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements which involve risks and uncertainties. In addition, officers of the
Company may from time to time make certain forward-looking statements which also
involve risks and uncertainties. Set forth below is a discussion of certain
factors that could cause the Company's actual results to differ materially from
the results projected in such forward-looking statements. In addition, to the
other information contained in this Annual Report on Form 10-K or incorporated
by reference herein, such factors should be considered when evaluating the
Company and its business.
HEALTHCARE REGULATORY ENVIRONMENT COULD INCREASE RESTRICTIONS ON THE
COMPANY. The healthcare industry and physicians' medical practices are highly
regulated. Neonatal and other healthcare services that the Company offers and
proposes to offer are subject to extensive federal and state laws and
regulations governing state matters such as licensure and certification of
facilities and personnel, conduct of operations, audit and retroactive
reimbursement policies, adjustment of prior government billings and prohibitions
on payments for the referral of business and self referrals. Failure to comply
with these laws, or a determination that in the past the Company has failed to
comply with these laws, could have a material adverse effect on the Company's
financial condition and results of operations. There can be no assurance that
the healthcare regulatory environment will not change so as to restrict the
Company's existing operations or limit the expansion of its business. Changes in
government regulation could also impose new requirements, involving compliance
costs which cannot be recovered through price increases. Finally, under the
Health Insurance Portability and Accountability Act of 1996, Congress expanded
the powers of and increased funding to the Office of Inspector General of the
Department of Health and Human Services to investigate violations of healthcare
laws. See "Business -- Government Regulations."
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<PAGE> 11
RELIANCE UPON GOVERNMENT PROGRAMS; POSSIBLE REDUCTION IN REIMBURSEMENT.
A significant portion of the Company's net patient service revenue is derived
from payments made by government-sponsored healthcare programs (principally
Medicaid). Increasing budgetary pressures may lead to reimbursement reductions
or limits, reductions in these programs or elimination of coverage for certain
individuals or treatments under these programs. Federal legislation could result
in a reduction of Medicaid funding or an increase in state discretionary funding
through block grants, or a combination thereof. State Medicaid waiver requests
if granted by the federal government could increase discretion, or reduce
coverage of or funding for certain individuals or treatments under the Medicaid
program, in the absence of new federal legislation. Increased state discretion
in Medicaid, coupled with the fact that Medicaid expenditures compromised a
substantial and growing share of state budgets, could lead to significant
reductions in reimbursement. In addition, these programs generally reimburse on
a fee schedule basis, rather than a charge-related basis. Therefore, the Company
generally cannot increase its revenues by increasing the amount it charges for
services provided. To the extent the Company's costs increase, the Company may
not be able to recover such cost increases from government reimbursement
programs. In various states, Medicaid managed care is encouraged and may become
mandated. In such systems, health maintenance organizations ("HMO's") bargain
for reimbursement with competing providers and contract with the state to
provide benefits to Medicaid enrollees. Such systems are intended and expected
to reduce Medicaid reimbursement of providers. Legislation enacted in states
could result in reduced payments to the Company for Medicaid patients.
Additionally, Proposition 187, which was adopted by referendum in California,
but has been enjoined by a California court, may limit the access by illegal
aliens to Medicaid funds in California. In the event similar legislation is
passed in other states with large illegal alien populations, such as Arizona and
Florida, the Company's ability to collect for medical services rendered to such
patients could be adversely affected. Changes in government-sponsored healthcare
programs which result in the Company being unable to recover cost increases
through price increases or otherwise could have a material adverse effect on the
Company's financial condition and results of operations. Because of cost
containment measures and market changes in non-governmental insurance plans, the
Company may not be able to shift cost increases to, or recover them from,
non-governmental payors. Also, state and federal statutes impose substantial
penalties, including civil and criminal fines and imprisonment, on healthcare
providers that fraudulently or wrongfully bill governmental or other third party
payors for healthcare services. The federal law prohibiting false billings
allows a private person to bring a civil action in the name of the United States
government for violations of its provisions. The Company believes it is in
material compliance with such laws, but there can be no assurances that the
Company's activities will not be challenged or scrutinized by governmental
authorities. Noncompliance with such regulations may adversely affect the
operations of the Company and subject it to penalties and additional costs. In
addition, funds received under government programs are subject to audit with
respect to the proper billing for physician services and, accordingly,
retroactive adjustments of revenue from these programs may occur. See
"Business--Government Regulation."
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE.
Business corporations, such as PMG, are generally not permitted under state law
to practice medicine, exercise control over the medical judgments or decisions
of physicians or engage in certain practices, such as fee-splitting with
physicians. In the states in which the Company operates, other than Florida,
there exist potential judicial or governmental interpretations which may extend
the scope of the corporate practice of medicine and/or medical practices acts
principles. For such reasons, or for business reasons, PMG contracts with the PA
Contractors (which are owned by a licensed physician in the state) in such
states, which in turn employ or contract with physicians to provide necessary
physician management services. There can be no assurance that the regulatory
authorities or other parties will not assert that PMG is engaged in the
corporate practice of medicine or that the percentage fee arrangements between
PMG and the PA Contractors constitute fee-splitting or the corporate practice of
medicine. For example, an order by the Florida Board of Medicine, which has been
stayed pending its appeal to the Florida courts, concludes that percentage-based
management arrangements violate applicable fee-splitting statutes. If such order
was upheld and adopted in other jurisdictions, or similar claim was successfully
asserted in any jurisdiction, PMG could be subject to civil and criminal
penalties under such jurisdiction's laws and could be required to restructure
its contractual arrangements. Such results or the inability to successfully
restructure contractual arrangements could have a material adverse effect on the
Company's financial condition and results of operations. In states where PMG is
not permitted to practice medicine, PMG performs only non-medical administrative
services, does not represent to the public or its clients that it offers medical
services and does not exercise influence or control over the practice of
medicine by the physicians employed by the PA Contractors. Accordingly, the
Company believes it is not in violation of applicable state laws in relation to
the corporate practice of medicine. See "Business-Contractual Relationships."
11
<PAGE> 12
RISK OF APPLICABILITY OF ANTI-KICKBACK AND SELF-REFERRAL LAWS. Federal
anti-kickback laws and regulations prohibit any knowing and willful offer,
payment, solicitation, or receipt of any form of remuneration, either directly
or indirectly, in return for, or to induce (i) referral of an individual for a
service for which payment may be made by Medicaid or another
government-sponsored healthcare program or (ii) purchasing, leasing, ordering or
arranging for, or recommending the purchase, lease or order of, any service or
item for which payment may be made by a government sponsored healthcare program.
Violations of anti-kickback rules are punishable by monetary fines, civil and
criminal penalties and exclusion from participation in Medicare and Medicaid
programs. Effective January 1, 1995, federal physician self-referral laws became
applicable to inpatient and outpatient hospital services. Subject to certain
exceptions, these laws, such as "Stark I" and "Stark II," prohibit Medicare or
Medicaid payments for services furnished by a physician who has a financial
relationship with the entity through ownership, investment, or compensation
agreement. Possible sanctions for violation of these laws include civil monetary
penalties, exclusion from Medicare and Medicaid programs and forfeiture of
amounts collected in violation of such prohibitions. Certain states in which the
Company does business have similar anti-kickback, anti-fee-splitting and
self-referral laws, imposing substantial penalties for violations. In many
cases, such state laws apply to privately insured or paid services as well as
services covered under governmentally sponsored plans. The Company's
relationships, including fee payments, among PA Contractors, hospital clients
and physicians have not been examined by federal or state authorities under
these laws and regulations. Although the Company believes it is in compliance
with these laws and regulations, there can be no assurance that federal or state
regulatory authorities will not challenge the Company's current or future
activities under these laws. See "Business-Strategy" and "Business-Government
Regulation."
RISKS RELATING TO ACQUISITION STRATEGY. The Company has expanded and
intends to continue to expand its geographic and market penetration primarily
through acquisitions of physician group practices. In implementing this
acquisition strategy, the Company will compete with other potential acquirers,
some of which may have greater financial or operational resources than the
Company. Competition for acquisitions may intensify due to the ongoing
consolidation in the healthcare industry, which may increase the costs of
capitalizing on such opportunities. While the Company has recently completed
several acquisitions, there can be no assurance that future acquisition
candidates will be identified or that any future acquisition will be consummated
or, if consummated, that any acquisition, including the recent acquisitions,
will be integrated successfully into the Company's operations or that the
Company will be successful in achieving its objectives. The recent acquisitions
also involve numerous short and long term risks, including diversion of
management's attention, failure to retain key personnel and amortization of
acquired intangible assets. The Company may also incur one-time acquisition
expenses in connection with acquisitions. Consummation of acquisitions could
result in the incurrence or assumption by the Company of additional indebtedness
and the issuance of additional equity. The issuance of shares of common stock
for an acquisition may result in dilution to shareholders. Also, as the Company
enters into new geographic markets, the Company will be required to comply with
laws and regulations of states that differ from those in which the Company's
operations are currently conducted. There can be no assurance that the Company
will be able to effectively establish a presence in these new markets. While
many of the expenses arising from the Company's efforts in these areas may have
a negative effect on operating results until such time, if at all, as these
expenses are offset by increased revenues, there can be no assurance that the
Company will be able to implement its acquisition strategy, or that this
strategy will be successful. See "Business-Strategy," "Business-Marketing" and
"Business-Government Regulation."
GROWTH STRATEGY; RAPID GROWTH. Since the Initial Public Offering
("IPO") the Company has experienced rapid growth in its business and number of
employees. Continued rapid growth may impair the Company's ability to
efficiently provide its physician management services and to adequately manage
its employees. While the Company is taking steps to manage rapid growth, future
results of operations could be materially adversely affected if it is unable to
do so effectively.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; POTENTIAL VOLATILITY. The
Company has historically experienced and expects to continue to experience
quarterly fluctuations in net patient service revenue and associated net income
due to unit specific volume and cost fluctuations. The Company has a high level
of fixed operating costs, including physician costs, and, as a result, is highly
dependent on the volume of births and capacity utilization of NICUs and PICUs to
sustain profitability. Results of operations for any quarter are not necessarily
12
<PAGE> 13
indicative of results of operations for any future period or full year. As a
result, there can be no assurance that the results of operations will not
fluctuate significantly from period to period. There has been significant
volatility in the market price of securities of healthcare companies that often
has been unrelated to the operating performance of such companies. The Company
believes that certain factors, such as legislative and regulatory developments,
quarterly fluctuations in the actual or anticipated results of operations of the
Company, lower revenues or earnings in the financial results of the Company than
those anticipated by securities analysts, the overall economy and the financial
markets, could cause the price of Common Stock to fluctuate substantially.
IMPACT OF PAYOR DISCOUNTS AND CAPITATION ARRANGEMENTS. The evolving
managed care environment has created substantial cost containment pressures for
the healthcare industry. The Company's business could be adversely affected by
reductions in reimbursement amounts or rates, changes in services covered and
similar measures which may be implemented by government sponsored healthcare
programs or by other third party payors. The Company contracts with payors and
managed care organizations traditionally have been fee-for-service arrangements.
At December 31, 1997, the Company had eight shared-risk capitated arrangements
with payors in California, Arizona, Texas and Florida. These arrangements and
many future arrangements may adversely affect the Company's financial condition
and results of operations if the Company is unable to limit the risks associated
with such arrangements. See "Business-Contractual Relationships,"
"Business-Government Regulation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PROFESSIONAL LIABILITY AND INSURANCE. The Company's business entails an
inherent risk of claims of physician professional liability. The Company
periodically becomes involved as a defendant in medical malpractice lawsuits,
some of which are currently ongoing, and is subject to the attendant risk of
substantial damage awards. See "Legal Proceedings." The Company's contracts with
hospitals generally require the Company to indemnify certain parties for losses
resulting from the negligence of physicians who are managed by or affiliated
with the Company. While the Company believes it has adequate professional
liability insurance coverage, there can be no assurance that a pending or future
claim or claims will not be successful or if successful, will not exceed the
limits of available insurance coverage or that such coverage will continue to be
available at acceptable costs and on favorable terms. See "Business-Professional
Liability and Insurance."
COLLECTION AND REIMBURSEMENT RISK. The Company assumes the financial
risk related to collection, including the potential uncollectibility of accounts
and delays attendant to reimbursement by third party payors, such as government
programs, private insurance plans and managed care plans. Failure to manage
adequately the collection risks and working capital demands could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business-Contractual Relationships" and "Business-Government
Regulation."
CANCELLATION OR NON-RENEWAL OF CONTRACTS. The Company's net patient
service revenue is derived primarily from fee-for-service billings for patient
care provided by its physicians and from administrative fees. Certain
contracting hospitals that do not generate sufficient patient volume pay the
Company administrative fees to assure the Company a minimum revenue level. If,
at the time of renewal of the contracts with the hospitals currently paying
administrative fees to the Company, such hospitals continue to generate
insufficient patient volume but elect not to pay administrative fees to assure
the Company a minimum revenue level, then the Company could either choose not to
renew the contract or renew the contract with lower gross profit margins at such
hospitals. The Company's contracts provide for terms of three to five years and
are generally terminable by the hospital upon 90 days written notice. While the
Company has in most cases been able to negotiate renewal of its contracts in the
past, no assurance can be given that the Company's contracts with hospitals will
not be canceled or will be renewed in the future or that the administrative fees
will be continued. To the extent that the Company's contracts with hospitals are
canceled or are not renewed or replaced with other contracts with at least as
favorable terms, the Company's financial position and results of operations
could be adversely affected. See "Business-Contractual Relationships."
COMPETITION. The healthcare industry is highly competitive and subject
to continual changes in the method in which services are provided and the manner
in which healthcare providers are selected and compensated. The Company believes
that private and public reforms in the healthcare industry emphasizing cost
containment and accountability will result in an increasing shift of NICU and
related pediatric care from highly fragmented,
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<PAGE> 14
individual or small practice neonatology providers to physician practice
management companies. Companies in other healthcare industry segments, such as
managers of other hospital-based specialties or currently expanding large
physician group practices, some of which have financial and other resources
greater than those of the Company, may become competitors in providing
management of neonatal and pediatric services to hospitals. Increased
competition could have a material adverse effect on the Company's financial
condition and results of operations. See "Business-Competition."
DEPENDENCE ON QUALIFIED NEONATALOGISTS. The Company's business strategy
is dependent upon its ability to recruit and retain qualified neonatologists.
The Company has been able to compete with many types of healthcare providers, as
well as teaching, research, and government institutions, for the services of
such physicians. No assurance can be given that the Company will be able to
continue to recruit and retain a sufficient number of qualified neonatologists
who provide services in markets served by the Company on terms similar to its
current arrangements. The inability to successfully recruit and retain
physicians could adversely affect the Company's ability to service existing or
new units at hospitals, or expand its business.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent on the continued contributions of its key management,
business development, sales and marketing personnel, including one of the
Company's principal shareholders, President, Chief Executive Officer and
co-founder, Dr. Roger Medel, for management of the Company and successful
implementation of its growth strategy. The loss of Dr. Medel or other key
personnel could have a material adverse effect on the Company's financial
condition, results of operations and plans for future development.
DEPENDENCE ON PA CONTRACTORS. The Company has a management agreement
with a PA Contractor in each state in which it operates except Florida. The
agreements provide that the terms of the arrangements are permanent, subject
only to termination by PMG and that the PA Contractor shall not terminate the
agreement without PMG's prior written consent. Any disruption of the Company's
or the PA Contractors' relationships with contracting hospitals (including the
determination that the PA Contractors arrangements with PMG constitute the
corporate practice of medicine) or any other event adverse to the PA Contractors
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business-Government Regulation" and
"Business-Contractual Relationships."
ANTI-TAKEOVER PROVISIONS; ISSUANCE OF PREFERRED STOCK. The Company's
Articles of Incorporation and Bylaws contain provisions that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of, the Company.
These provisions establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at shareholders' meetings and provide that only the Board of
Directors may call special meetings of the shareholders. In addition, the
Company's Articles of Incorporation authorize the Board of Directors to issue
preferred stock ("Preferred Stock") without shareholder approval and upon such
terms as the Board of Directors may determine. While no shares of Preferred
Stock are outstanding and the Company has no present plans to issue any shares
of Preferred Stock, the rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of any holders of Preferred
Stock that may be issued in the future.
YEAR 2000. The Company has conducted a comprehensive review of its
computer systems to identify the systems that could be affected by the
transition to the year 2000 and has developed an implementation plan to resolve
any related issues. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a major system failure or miscalculations. The Company presently believes
that, by modifying and upgrading its existing software the transition to the
year 2000 will not pose significant operational problems. The Company has not
had any discussion with its payors to determine the status of their systems.
However, if the Company or its vendors or payors do not make the modifications
and conversions required on a timely basis it could have a material adverse
effect on the Company's financial condition and results of operations.
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<PAGE> 15
ITEM 2. PROPERTIES
The Company owns its executive offices located in Ft. Lauderdale,
Florida (approximately 30,000 square feet) including a new building that was
completed in the third quarter of 1996. The Company also leases space in other
facilities in various states for its business offices, pediatric cardiology
offices, storage space, and temporary housing of medical staff, with aggregate
annual rents of approximately $395,000. To facilitate its acquisition and
business integration programs, in September 1996, the Company entered into a
contract to lease an aircraft. See Note 10 to the Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
During the ordinary course of business, the Company has become a party
to pending and threatened legal actions and proceedings, most of which involve
claims of medical malpractice and are generally covered by insurance. The
Company believes, based upon the investigations conducted by the Company to
date, that the outcome of such legal actions and proceedings, individually or in
the aggregate, will not have a material adverse effect on the Company's
financial condition, results of operations or liquidity, notwithstanding any
possible insurance recovery. If liability results from the medical malpractice
claims, there can be no assurance that the Company's medical malpractice
insurance coverage will be adequate to cover liabilities arising out of such
proceedings. See "Factors to be Considered--Professional Liability and
Insurance."
The Company is currently under examination by the Internal Revenue
Service (the "IRS") for the tax years ended December 31, 1992, 1993, and 1994.
The IRS has challenged certain deductions that, if ultimately disallowed, would
result in additional taxes of approximately $4.5 million, plus interest. The
Company and its tax advisors believe that the ultimate resolution of the
examination will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.
In 1997, the Company was notified by a hospital customer of a dispute
regarding the interpretation of the customer's contract with the Company. In
December 1997, this dispute was resolved amicably and the Company continues to
provide services to this hospital customer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fiscal quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock commenced trading on the NASDAQ National
Market (the "NASDAQ") under the symbol "PEDX" on September 20, 1995. The
Company's stock began trading on the New York Stock Exchange (the "NYSE") under
the symbol "PDX" on September 11, 1996 and ceased trading on the NASDAQ on
September 10, 1996. The following table sets forth, for the periods indicated,
the high and low sales prices for the Common Stock as reported on the NASDAQ and
the NYSE.
HIGH LOW
---- ---
1996
----
First Quarter 40 3/4 22 1/2
Second Quarter 64 3/4 35 1/4
Third Quarter 53 31 1/4
Fourth Quarter 50 3/8 32
1997
----
First Quarter 44 1/2 30 1/2
Second Quarter 46 28 5/8
Third Quarter 50 7/16 39 7/8
Fourth Quarter 46 15/16 38 5/8
As of March 17, 1998 there were approximately 112 holders of record of
the 15,175,087 outstanding shares of Common Stock. The closing sales price for
the Common Stock on March 17, 1998 was $41.38.
The Company did not declare or pay in 1995, 1996 or 1997, nor does it
currently intend to declare or pay in the future, any dividends on its Common
Stock, but intends to retain all earnings for the operation and expansion
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<PAGE> 16
of its business. The payment of any future dividends will be at the discretion
of the Board of Directors and will depend upon, among other things, future
earnings, results of operations, capital requirements, the general financial
condition of the Company, general business conditions and contractual
restrictions on payment of dividends, if any, as well as such other factors as
the Board of Directors may deem relevant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share and other
operating data)
The selected consolidated financial data set forth as of and for each
of the five years in the period ended December 31, 1997, have been derived from
the Consolidated Financial Statements, which statements have been audited by
Coopers & Lybrand L.L.P., independent accountants. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net patient service revenue $ 23,570 $ 32,779 $ 43,860 $ 80,833 $ 128,850
Operating expenses:
Salaries and benefits 14,852 20,723 29,545 52,732 81,486
Supplies and other operating expenses 2,230 2,774 3,451 6,262 9,765
Depreciation and amortization 95 244 363 1,770 4,522
--------- --------- --------- --------- ---------
Total operating expenses 17,177 23,741 33,359 60,764 95,773
--------- --------- --------- --------- ---------
Income from operations 6,393 9,038 10,501 20,069 33,077
Investment income 45 208 804 2,096 2,102
Interest expense (105) (90) (117) (192) (324)
Other expense, net (17) -- -- -- --
--------- --------- --------- --------- ---------
Income before income taxes 6,316 9,156 11,188 21,973 34,855
Income tax provision 2,166 3,749 4,475 8,853 13,942
--------- --------- --------- --------- ---------
Net income (1) $ 4,150 $ 5,407 $ 6,713 $ 13,120 $ 20,913
========= ========= ========= ========= =========
PER SHARE DATA:
Net income per common share
Basic $ 0.66 $ 0.70 $ 0.95 $ 1.39
========= ========= ========= =========
Diluted $ 0.49 $ 0.57 $ 0.90 $ 1.33
========= ========= ========= =========
Weighted average shares outstanding
Basic 6,272 8,092 13,806 15,021
========= ========= ========= =========
Diluted 10,945 11,855 14,535 15,743
========= ========= ========= =========
OTHER OPERATING DATA:
Number of physicians at end of period 52 75 114 195 260
Number of births 32,532 39,541 59,186 132,796 200,616
NICU admissions 4,777 5,823 7,611 14,250 21,203
NICU patient days 59,024 64,615 87,672 185,702 325,199
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 2,469 $ 7,384 $ 18,499 $ 18,435 $ 18,562
Working capital 8,052 13,772 53,448 81,187 53,908
Total assets 14,239 20,295 69,881 159,026 196,812
Total liabilities 3,762 4,203 7,071 22,705 33,103
Long-term debt, including
current maturities 965 879 815 2,950 2,750
Convertible preferred stock(2) 14,401 15,697 -- -- --
Stockholders' equity (deficit) (3,924) 395 62,810 136,321 163,709
</TABLE>
- ----------------
(1) The net income amounts do not include accrued and unpaid dividends with
respect to the Convertible Preferred Stock. See footnote 2 below.
(2) Immediately prior to the consummation of the Company's IPO in September
1995, the Convertible Preferred Stock was converted into 4,571,063 shares
of Common Stock and unpaid dividends of approximately $3.7 million were
forgiven pursuant to the terms of the Series A Preferred Stock Purchase
Agreement, dated as of October 26, 1992. Upon conversion, such amounts were
credited to the common stock and additional paid-in capital accounts.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Pediatrix is the nation's leading provider of physician management
services to hospital-based NICUs. The Company also provides physician management
services to hospital-based PICUs and pediatric departments in hospitals.
Pediatrix was founded in 1979 by Drs. Roger Medel and Gregory Melnick. Since
obtaining its first hospital contract in 1980, the Company has grown by
increasing revenues at existing units ("same unit growth") and by adding new
units.
In July 1995, the Company completed its first acquisition of a neonatal
physician group practice. Since its initial public offering in September 1995,
the Company has enhanced its management infrastructure, thereby strengthening
its ability to identify acquisition candidates, consummate transactions and
integrate acquired physician group practices into the Company's operations.
During 1997, the Company completed ten acquisitions, which added 28 NICUs.
Additionally, three NICUs were added through the Company's internal marketing
activities. The Company has developed networks in Colorado, Arizona, Southern
California and Texas and intends to develop additional regional and state-wide
networks. The Company believes these networks, augmented by ongoing marketing
and acquisition efforts, will strengthen its position with third party payors,
such as Medicaid and managed care organizations.
The Company bills payors for services provided by physicians based upon
rates for the specific services provided. The rates are substantially the same
for all patients in a particular geographic area regardless of the party
responsible for paying the bill. The Company determines its net patient service
revenue based upon the difference between the gross fees for services and the
ultimate collections from payors which differ from the gross fees due to (i)
Medicaid reimbursements at government-established rates, (ii) managed care
payments at contracted rates, (iii) various reimbursement plans and negotiated
reimbursements from other third parties and (iv) discounted and uncollectible
accounts of private pay patients.
The Company seeks to increase revenue at existing units in hospitals by
providing support to areas of the hospital outside the NICU and PICU,
particularly in the obstetrics, nursery and pediatric departments, where
immediate accessibility to specialized care is critical. The following table
indicates the point at which services originate, expressed as a percentage of
net patient service revenue, exclusive of administrative fees, for the periods
indicated.
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- -----------
NICU 74.7% 81.4% 85.4%
PICU and PEDS 6.0 3.4 2.2
Other(1) 19.3 15.2 12.4
--------- --------- --------
100.0% 100.0% 100.0%
========= ========= ========
- -----------------
(1) Represents principally the percentage of net patient service revenue
generated by physicians providing support to areas of hospitals outside
the NICU and PICU.
PAYOR MIX
The Company's payor mix is comprised of government (principally
Medicaid), managed care, other third parties and private pay patients. The
Company benefits when more patients are covered by Medicaid, despite Medicaid's
lower reimbursement rates as compared with other payors, because typically these
patients would not otherwise be able to pay for services due to lack of
insurance coverage. In addition, the Company benefits from the fact that most of
the medical services provided at the NICU or PICU are classified as emergency
services, a category typically classified as a covered service by managed care
payors. A significant increase in the managed
18
<PAGE> 19
care or capitated components of the Company's payor mix, however, could result
in reduced reimbursement rates and, in the absence of increased patient volume,
could have a material adverse effect on the Company's financial condition and
results of operations. The following is a summary of the Company's payor mix,
expressed as a percentage of net patient service revenue, exclusive of
administrative fees, for the periods indicated (the amounts reported for 1995
and 1996 have been restated to reflect revised classifications in certain payor
relationships).
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
----------------- ------------ ------------
Government 24% 23% 22%
Managed Care 24 34 31
Other third parties 50 42 44
Private pay 2 1 3
----------- --------- --------
100% 100% 100%
=========== ========= ========
The payor mix shown above is not necessarily representative of the
amount of services provided to patients covered under these plans. For example,
services provided to patients covered under government programs represented
approximately 44% of the Company's total gross patient service revenue during
1997.
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results
of operations and should be read in conjunction with the Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Annual Report.
The operating results for the periods presented were not significantly affected
by inflation.
The following table sets forth, for the periods indicated, certain
information related to the Company's operations expressed as a percentage of the
Company's net patient service revenue (patient billings net of contractual
adjustments and uncollectibles, and including administrative fees):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net patient service revenue 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits 67.4 65.2 63.2
Supplies and other operating expenses 7.9 7.8 7.6
Depreciation and amortization .8 2.2 3.5
----------- ---------- ----------
Total operating expenses 76.1 75.2 74.3
----------- ---------- ----------
Income from operations 23.9 24.8 25.7
Other income, net 1.6 2.4 1.3
----------- ---------- ----------
Income before income taxes 25.5 27.2 27.0
Income tax provision 10.2 11.0 10.8
----------- ---------- ----------
Net income 15.3% 16.2% 16.2%
=========== ========== ==========
</TABLE>
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company reported net patient service revenue of $128.9 million for
the year ended December 31, 1997, as compared with $80.8 million in 1996, a
growth rate of 59.4%. Of this $48.1 million increase, approximately $47.5
million, or 98.8%, was attributable to new units, including units at which the
Company provides services as a result of acquisitions. Same unit patient service
revenue increased approximately $603,000, or 1.2%, for the year ended December
31, 1997, compared to the year ended December 31, 1996. Same units are those
units at which the Company provided services for the entire period for which the
percentage is calculated and the entire prior comparable period. The same unit
growth resulted primarily from volume increases.
19
<PAGE> 20
Salaries and benefits increased $28.8 million, or 54.5%, to $81.5
million for the year ended December 31, 1997, as compared with $52.7 million for
the same period in 1996. Of this increase, $21.4 million, or 74.3%, was
attributable to hiring new physicians, primarily to support new unit growth, and
the remaining $7.4 million was primarily attributable to increased support staff
and resources added in the areas of nursing, management and billing and
reimbursement. Supplies and other operating expenses increased $3.5 million, or
55.9%, to $9.8 million for the year ended December 31, 1997, as compared with
$6.3 million for the year ended December 31, 1996, primarily as a result of new
units. Depreciation and amortization expense increased by $2.7 million, or
155.5%, to $4.5 million for the year ended December 31, 1997, as compared with
$1.8 million for the year ended December 31, 1996, primarily as a result of
amortization of goodwill in connection with acquisitions.
Income from operations increased $13.0 million, or 64.8%, to $33.1
million for the year ended December 31, 1997, as compared with $20.1 million for
the year ended December 31, 1996, representing an increase in the operating
margin from 24.8% to 25.7%. The increase in operating margin was primarily due
to increased volume, principally from acquisitions, without comparable increases
in corporate overhead.
The Company earned net interest income of approximately $1.8 million
for the year ended December 31, 1997, as compared with $1.9 million for the year
ended December 31, 1996.
The effective income tax rate was approximately 40.0% for the year
ended December 31, 1997 as compared with 40.3% for the year ended December 31,
1996.
Net income increased 59.4% to $20.9 million for the year ended December
31, 1997, as compared with $13.1 million for the year ended December 31, 1996.
Net income as a percentage of net patient service revenue remained consistent at
16.2% for the years ended December 31, 1996 and 1997.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company reported net patient service revenue of $80.8 million for
the year ended December 31, 1996, as compared with $43.9 million in 1995, a
growth rate of 84.3%. Of this $36.9 million increase, $34.7 million, or 94.0%,
was attributable to new units, including units at which the Company provides
services as a result of acquisitions. Same unit patient service revenue
increased $2.2 million, or 6.2%, for the year ended December 31, 1996, compared
to the year ended December 31, 1995. The same unit growth resulted from volume
increases as there were no general price increases during the periods.
Salaries and benefits increased $23.2 million, or 78.5%, to $52.7
million for the year ended December 31, 1996, as compared with $29.5 million for
the same period in 1995. Of this $23.2 million increase, $18.0 million, or
77.6%, was attributable to hiring new physicians, primarily to support new unit
growth, and the remaining $5.2 million was primarily attributable to increased
support staff and resources added in the areas of nursing, management and
billing and reimbursement. Supplies and other operating expenses increased $2.8
million, or 81.5%, to $6.3 million for the year ended December 31, 1996, as
compared with $3.5 million for the year ended December 31, 1995, primarily as a
result of new units. Depreciation and amortization expense increased by $1.4
million, or 387.6%, to $1.8 million for the year ended December 31, 1996, as
compared with $363,000 for the year ended December 31, 1995, primarily as a
result of amortization of goodwill in connection with acquisitions.
Income from operations increased approximately $9.6 million, or 91.1%,
to $20.1 million for the year ended December 31, 1996, as compared with $10.5
million for the year ended December 31, 1995, representing an increase in the
operating margin from 23.9% to 24.8%. The increase in operating margin was
primarily due to increased volume, principally from acquisitions, without
comparable increases in corporate overhead.
The Company earned net interest income of approximately $1.9 million
for the year ended December 31, 1996, as compared with $687,000 for the year
ended December 31, 1995. The increase in net interest income resulted primarily
from additional funds available for investment due to proceeds from the initial
and secondary public stock offerings, as well as cash flow from operations.
20
<PAGE> 21
The effective income tax rate was approximately 40.3% for the year
ended December 31, 1996 compared with 40.0% for the year ended December 31,
1995.
Net income increased 95.4% to $13.1 million for the year ended December
31, 1996, as compared with $6.7 million for the year ended December 31, 1995.
Net income as a percentage of net patient service revenue increased to 16.2% for
the year ended December 31, 1996, compared to 15.3% for the year ended December
31, 1995.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial data
for each of the quarters in the years ended December 31, 1996 and 1997. This
information has been prepared on the same basis as the Consolidated Financial
Statements appearing elsewhere in this Annual Report and include, in the opinion
of the Company, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the quarterly results when read in
conjunction with the Consolidated Financial Statements and the notes thereto.
The Company has historically experienced and expects to continue to experience
quarterly fluctuations in net patient service revenue and net income. As a
result, the operating results for any quarter are not necessarily indicative of
results for any future period or for the full year.
<TABLE>
<CAPTION>
1996 CALENDAR QUARTERS 1997 CALENDAR QUARTERS
------------------------------------------- -------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
---------- --------- --------- --------- --------- ---------- ---------- ---------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net patient service revenue $16,127 $17,808 $22,404 $24,494 $27,013 $30,599 $34,444 $36,794
Operating expenses:
Salaries and benefits 10,796 11,541 14,526 15,869 17,609 19,774 21,874 22,229
Supplies and other
operating expenses 1,213 1,269 1,740 2,040 2,102 2,358 2,467 2,838
Depreciation and
amortization 233 335 543 659 783 1,008 1,278 1,453
--------- -------- -------- -------- -------- --------- --------- --------
Total operating expenses 12,242 13,145 16,809 18,568 20,494 23,140 25,619 26,520
--------- -------- -------- -------- -------- --------- --------- --------
Income from operations 3,885 4,663 5,595 5,926 6,519 7,459 8,825 10,274
Other income, net 464 396 455 589 661 488 346 283
--------- -------- -------- -------- -------- --------- --------- --------
Income before income taxes 4,349 5,059 6,050 6,515 7,180 7,947 9,171 10,557
Income tax provision 1,737 2,024 2,485 2,607 2,872 3,179 3,668 4,223
--------- -------- -------- -------- -------- --------- --------- --------
Net income $2,612 $3,035 $3,565 $3,908 $4,308 $4,768 $5,503 $6,334
========= ======== ======== ======== ======== ========= ========= ========
Per share data:
Net income per common and
common equivalent share:
Basic $.20 $.23 $.25 $.26 $.29 $.32 $.37 $.42
========= ======== ======== ======== ======== ========= ========= ========
Diluted $.19 $.22 $.24 $.25 $.28 $.30 $.35 $.40
========= ======== ======== ======== ======== ========= ========= ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company completed the acquisition of ten physician
group practices, utilizing approximately $59.0 million in cash. These
acquisitions were funded principally by the net proceeds from the Company's
initial public stock offering in September 1995, and a secondary public stock
offering in August 1996. As of December 31, 1997, the Company had approximately
$45.7 million of cash, cash equivalents and marketable securities on hand.
As of December 31, 1997, the Company had working capital of
approximately $53.9 million, a decrease of $27.3 million from the working
capital of $81.2 million available at December 31, 1996. The net decrease is
principally the result of expenditures related to the acquisition of physician
group practices and additions to property and equipment offset by funds
generated from operations.
On June 27, 1996, the Company entered into an unsecured revolving
credit facility (the "Credit Facility") with BankBoston and SunTrust Bank.
During 1997, the Company increased the amount available under the Credit
Facility to $75.0 million, which includes a $2.0 million amount reserved to
cover deductibles under the Company's professional liability insurance policies.
The Company intends to use the amount available under the Credit Facility
primarily for acquisitions. The Credit Facility matures on September 30, 2000.
At the Company's option, the
21
<PAGE> 22
Credit Facility bears interest at either LIBOR plus .875%, or the prime rate
announced by BankBoston. There is no balance currently outstanding under the
Credit Facility.
The Company's annual capital expenditures have typically been for
computer hardware and software and for furniture, equipment and improvements at
the corporate headquarters. During the year ended December 31, 1997, capital
expenditures amounted to approximately $2.2 million.
The Company anticipates that funds generated from operations, together
with cash and marketable securities on hand, and funds available under the
Credit Facility will be sufficient to meet its working capital requirements and
finance required capital expenditures and acquisitions for at least the next
twelve months.
STATUS OF YEAR 2000 COMPLIANCE
The Company has completed a review of its computer systems to identify
any software that could be affected by the transition to the year 2000.
Currently, all the Company's systems are year 2000 compliant or are upgradeable
to commercially available versions that are compliant. In addition, all of the
vendors that the Company uses for the transmission of electronic claims
information are expected to complete the transition to year 2000 compliant
systems by the end of September 1998. The Company has not had any discussions
with its payors to determine the status of their systems. However, if a
substantial number of payors do not make the modifications and conversions
required on a timely basis it could have a material adverse effect on the
Company's financial condition and results of operations.
CHANGE IN ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which must be implemented by the Company in 1998. This statement
establishes standards for the reporting and display of comprehensive income and
its components. The Company expects that the implementation of SFAS No. 130 will
not have a material impact on its consolidated financial statements.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company are
included in this Annual Report on Form 10-K on the pages set forth below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.....................................................................24
Consolidated Balance Sheets as of December 31, 1996 and 1997..........................................25
Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997................26
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995,
1996 and 1997................................................................................27
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996
and 1997.....................................................................................28
Notes to Consolidated Financial Statements............................................................29
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors of
Pediatrix Medical Group, Inc.
Ft. Lauderdale, Florida
We have audited the consolidated financial statements and the financial
statement schedule of Pediatrix Medical Group, Inc. listed in Item 14(a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pediatrix Medical
Group, Inc. as of December 31, 1996 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included herein.
COOPERS & LYBRAND L.L.P.
Ft. Lauderdale, Florida
January 26, 1998, except
as to information presented
in Note 14, for which the
date is March 23, 1998
24
<PAGE> 25
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
ASSETS 1996 1997
--------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $18,435 $18,562
Investments in marketable securities 57,218 27,132
Accounts receivable, net 23,396 34,866
Prepaid expenses 1,283 873
Other assets 375 586
Income taxes receivable 202 --
--------------------- ---------------------
Total current assets 100,909 82,019
Property and equipment, net 8,676 9,898
Other assets, net 49,441 104,895
--------------------- ---------------------
Total assets $159,026 $196,812
===================== =====================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $13,423 $16,170
Income taxes payable -- 1,348
Current portion of note payable 200 200
Deferred income taxes 6,099 10,393
--------------------- ---------------------
Total current liabilities 19,722 28,111
Note payable 2,750 2,550
Deferred income taxes 233 2,442
--------------------- ---------------------
Total liabilities 22,705 33,103
--------------------- ---------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000
shares authorized, none issued and
outstanding at December 31, 1996 and 1997 -- --
Common stock; $.01 par value, 50,000,000
shares authorized at December 31, 1996
and 1997, 14,864,694 and 15,141,418
shares issued and outstanding at
December 31, 1996 and 1997, respectively 149 151
Additional paid-in capital 116,037 122,391
Retained earnings 20,165 41,078
Unrealized gain (loss) on investments (30) 89
--------------------- ---------------------
Total stockholders' equity 136,321 163,709
--------------------- ---------------------
Total liabilities and stockholders' equity $159,026 $196,812
===================== =====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE> 26
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net patient service revenue $43,860 $80,833 $128,850
------------ ------------ ------------
Operating expenses:
Salaries and benefits 29,545 52,732 81,486
Supplies and other operating expenses 3,451 6,262 9,765
Depreciation and amortization 363 1,770 4,522
------------ ------------ ------------
Total operating expenses 33,359 60,764 95,773
------------ ------------ ------------
Income from operations 10,501 20,069 33,077
Investment income 804 2,096 2,102
Interest expense (117) (192) (324)
------------ ------------ ------------
Income before income taxes 11,188 21,973 34,855
Income tax provision 4,475 8,853 13,942
------------ ------------ ------------
Net income $6,713 $13,120 $20,913
============ ============ ============
Per share data:
Net income per common and
common equivalent share:
Basic $.70 $.95 $1.39
============ ============ ============
Diluted $.57 $.90 $1.33
============ ============ ============
Weighted average shares used
in computing net income per common
and common equivalent share:
Basic 8,092 13,806 15,021
============ ============ ============
Diluted 11,855 14,535 15,743
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26
<PAGE> 27
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------------ ---------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 6,266 $ 63 $ -- $ 332
Net income -- -- -- 6,713
Accrued and unpaid preferred
stock dividends through
conversion date,
September 25, 1995 -- -- (1,040) --
Conversion of preferred stock 4,571 46 16,691 --
Common stock issued 2,240 22 39,848 --
Common stock retired (26) -- (131) --
Tax benefit related to
employee stock options -- -- 252 --
--------- --------- --------- ---------
Balance at December 31, 1995 13,051 131 55,620 7,045
Net income -- -- -- 13,120
Common stock issued 1,815 18 59,757 --
Common stock retired (1) -- (45) --
Tax benefit related to
employee stock options -- -- 705 --
--------- --------- --------- ---------
Balance at December 31, 1996 14,865 149 116,037 20,165
Net income -- -- -- 20,913
Common stock issued 276 2 3,480 --
Tax benefit related to
employee stock options
and stock purchase plans -- -- 2,874 --
--------- --------- --------- ---------
Balance at December 31, 1997 15,141 $ 151 $ 122,391 $ 41,078
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
27
<PAGE> 28
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,713 $ 13,120 $ 20,913
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 363 1,770 4,522
Deferred income taxes 1,456 4,423 6,503
Other (2) -- --
Changes in assets and liabilities:
Accounts receivable (3,131) (11,300) (11,470)
Prepaid expenses and other assets (493) (533) 199
Income taxes receivable/payable 101 833 4,424
Other assets 62 7 (232)
Accounts payable and accrued expenses 871 6,470 4,140
-------- -------- --------
Net cash provided from operating activities 5,940 14,790 28,999
-------- -------- --------
Cash flows used in investing activities:
Physician group acquisition payments (4,938) (42,487) (60,158)
Purchase of investments (34,382) (57,394) (14,003)
Proceeds from sale of investments 6,681 27,850 44,207
Purchase of property and equipment (1,861) (4,688) (2,200)
-------- -------- --------
Net cash used in investing activities (34,500) (76,719) (32,154)
-------- -------- --------
Cash flows from financing activities:
Borrowings on notes payable -- 3,000 --
Payments on notes payable (64) (865) (200)
Proceeds from issuance of common stock 39,870 59,775 3,482
Payments made to retire common stock (131) (45) --
-------- -------- --------
Net cash provided from financing activities 39,675 61,865 3,282
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 11,115 (64) 127
Cash and cash equivalents at beginning of year 7,384 18,499 18,435
-------- -------- --------
Cash and cash equivalents at end of year $ 18,499 $ 18,435 $ 18,562
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 117 $ 164 $ 310
Income taxes $ 2,943 $ 2,950 $ 2,651
Non-cash investing and financing activities:
Accrued and unpaid preferred stock
dividends $ 1,040 $-- $--
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
<PAGE> 29
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The principal business activity of Pediatrix Medical Group, Inc.
("Pediatrix" or the "Company") is to provide physician management
services to hospital-based neonatal units in 20 states and Puerto Rico.
Contractual arrangements with hospitals include a) fee-for-service
contracts whereby hospitals agree, in exchange for the Company's
services, to authorize the Company and its healthcare professionals to
bill and collect the professional component of the charges for medical
services rendered by the Company's healthcare professionals; and b)
administrative fees whereby the Company is assured a minimum revenue
level.
In September 1995, the Company completed its initial public offering
whereby it issued 2,200,000 shares of common stock, resulting in net
cash proceeds to the Company of approximately $39.7 million. In
addition, in connection with the initial public offering, the Company
authorized 50,000,000 shares of common stock and 1,000,000 shares of
preferred stock.
In August 1996, the Company completed a secondary public offering
whereby it issued 1,755,000 shares of common stock, resulting in net
cash proceeds to the Company of approximately $59.1 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF PRESENTATION
The financial statements (the "consolidated financial statements")
include all the accounts of Pediatrix and its wholly owned subsidiaries
combined with the accounts of the professional associations (the "PA
Contractors") with which the Company currently has specific management
billing arrangements. All significant intercompany and interaffiliate
accounts and transactions have been eliminated. The financial
statements of the PA Contractors are consolidated with Pediatrix
because Pediatrix, as opposed to affiliates of Pediatrix, has
unilateral control over the assets and operations of the PA
Contractors. Notwithstanding the lack of technical majority ownership,
consolidation of the PA Contractors is necessary to present fairly the
financial position and results of operations of Pediatrix because of
the existence of a parent-subsidiary relationship by means other than
record ownership of the PA Contractors' voting common stock. Control of
the assets and operations of the PA Contractors by Pediatrix is
permanent and other than temporary because the PA Contractor's
agreements with Pediatrix provide that the term of the arrangements are
permanent, subject only to termination by Pediatrix and that the PA
Contractors shall not terminate the agreements without the prior
written consent of Pediatrix. Also, the agreements provide that
Pediatrix or its assigns has the right, but not the obligation, to
purchase the stock of the PA Contractors.
In November 1997, the Emerging Issues Task Force of the FASB (the
"EITF") reached a consensus relating to the conditions under which a
physician practice management company would consolidate the accounts of
an affiliated physician practice. The Company believes that its
accounting policies conform to the EITF consensus.
29
<PAGE> 30
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE AND REVENUES
Accounts receivable are primarily amounts due under fee-for-service
contracts from third party payors, such as insurance companies,
self-insured employers and patients and government-sponsored healthcare
programs geographically dispersed throughout the United States and its
territories. These receivables are presented net of an estimated
allowance for contractual adjustments and uncollectibles which is
charged to operations based on the Company's evaluation of expected
collections resulting from an analysis of current and past due
accounts, past collection experience in relation to amounts billed and
other relevant information. Contractual adjustments result from the
difference between the physician rates for services performed and
reimbursements by government-sponsored healthcare programs and
insurance companies for such services. Bad debts are included in
contractual allowances and uncollectibles because they are not
considered material.
Concentration of credit risk relating to accounts receivable is limited
by number, diversity and geographic dispersion of the neonatology units
managed by the Company, as well as by the large number of patients and
payors, including the various governmental agencies in the states in
which the Company provides services. Receivables from government
agencies made up approximately 41% and 37% of accounts receivable at
December 31, 1996 and 1997, respectively.
CASH EQUIVALENTS
Cash equivalents are defined as all highly liquid financial instruments
with maturities of 90 days or less from the date of purchase. The
Company maintains its cash and cash equivalents which consist
principally of demand deposits, short-term government securities and
amounts on deposit in money market accounts with principally three
financial institutions.
INVESTMENTS
The Company determines the appropriate classification of its
investments in debt securities at the time of purchase and re-evaluates
such determination at each balance sheet date. Investments are
classified as available for sale and are carried at fair value, with
unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. Fair value is determined by the most
recently traded price of the security at the balance sheet date.
30
<PAGE> 31
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVESTMENTS, CONTINUED
The cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and interest
income and declines in value judged to be other than temporary are
included in investment income. Realized gains and losses are included
in earnings using the specific identification method for determining
the cost of securities sold.
Investments are stated at fair market value which approximates
amortized cost and consist principally of tax exempt municipal
obligations (fair value of $48.6 million and $26.6 million at December
31, 1996 and 1997, respectively), U.S. government and government agency
securities (fair value of $6.8 million and $511,000 at December 31,
1996 and 1997, respectively) and commercial paper (fair value of $1.5
million at December 31, 1996). The Company's investments in marketable
securities represent amounts available for current operations and are
accordingly classified as current assets.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation of property
and equipment is computed on the straight-line method over the
estimated useful lives which range from five to forty years. Upon sale
or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts
and the resulting gain or loss is included in earnings.
OTHER ASSETS
Other assets consists principally of the excess of cost over the fair
value of net assets acquired which is being amortized on a
straight-line basis over twenty-five years.
In 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement requires companies to review certain assets for impairment
whenever events or changes in circumstances indicate that the carrying
value of these assets may not be recoverable, in which case the asset
generally would be written down to fair value. The adoption of SFAS No.
121 did not affect the Company's financial position, results of
operations or liquidity.
At each balance sheet date following the acquisition of a business, the
Company reviews the carrying value of the goodwill to determine if
facts and circumstances suggest that it may be impaired or that the
amortization period may need to be changed. The Company considers
external factors relating to each acquired business, including hospital
and physician contract changes, local market developments, changes in
third party payments, national healthcare trends, and other publicly
available information. If these external factors indicate the goodwill
will not be recoverable, as determined based upon undiscounted cash
flows before interest charges of the business acquired over the
remaining amortization period, the carrying value of the goodwill will
be reduced. The Company does not believe there currently are any
indicators that would require an adjustment to the carrying value of
the goodwill or its estimated periods of recovery at December 31, 1997.
31
<PAGE> 32
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROFESSIONAL LIABILITY COVERAGE
The Company maintains professional liability coverage which indemnifies
the Company and its healthcare professionals on a claims made basis
with a portion of self insurance retention. The Company records an
estimate of its liabilities for claims incurred but not reported based
on an actuarial valuation. Such liabilities are not discounted.
INCOME TAXES
The Company utilizes the liability method of accounting for deferred
income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
STOCK OPTIONS
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options and other equity instruments to
employees based on new fair value accounting rules. The Company has
chosen the SFAS No. 123 alternative to disclose pro forma net income
and earnings per share under the new method but not to apply the fair
value accounting rules in the statements of income. No charge has been
reflected in the consolidated statements of income as a result of the
grant of stock options, as the market value of the Company's stock
equals the exercise price on the date the options are granted. To the
extent that the Company realizes an income tax benefit from the
exercise or early disposition of certain stock options, this benefit
results in a decrease in current income taxes payable and an increase
in additional paid-in capital.
NET INCOME PER SHARE
During 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
which requires the presentation of both basic and diluted earnings per
share. Net income per share information for all periods has been
restated to conform with the requirements of the standard.
Basic net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted net income per share is calculated by dividing net income by
the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of the
dilutive effect of outstanding options calculated using the treasury
stock method.
32
<PAGE> 33
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
investments in marketable securities, and accounts payable and accrued
expenses approximate fair value due to the short maturities of these
items.
The carrying amount of the note payable approximates fair value because
the interest rates on this instrument change with market interest
rates.
CHANGE IN ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which must be implemented by the
Company in 1998. This statement establishes standards for the reporting
and display of comprehensive income and its components. The Company
expects that the implementation of SFAS No. 130 will not have a
material impact on its consolidated financial statements.
3. ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1997
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Gross accounts receivable $53,991 $80,237
Less allowance for contractual adjustments
and uncollectibles (30,595) (45,371)
----------------- -----------------
$23,396 $34,866
================= =================
</TABLE>
Net patient service revenue consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross patient service revenue $79,360 $156,594 $260,112
Less contractual adjustments
and uncollectibles (40,843) (82,759) (137,385)
Hospital contract administrative
fees 5,343 6,998 6,123
-------------- -------------- --------------
$43,860 $80,833 $128,850
============== ============== ==============
</TABLE>
33
<PAGE> 34
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements $1,374 $1,493
Building 4,000 4,290
Equipment and furniture 4,312 6,351
------------- -------------
9,686 12,134
Less accumulated depreciation (1,275) (2,236)
Construction in progress 265 --
------------- -------------
$8,676 $9,898
============= =============
</TABLE>
5. OTHER ASSETS:
Other assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Excess of cost over net assets
acquired $48,963 $107,972
Physician agreements 1,692 1,692
Other 572 1,023
------------- -------------
51,227 110,687
Less accumulated amortization (1,786) (5,792)
------------- -------------
$49,441 $104,895
============= =============
</TABLE>
During 1996, the Company completed the acquisition of ten physician
group practices. Total consideration and related costs for these
acquisitions approximated $43.7 million. In connection with these
transactions, the Company recorded assets totaling $43.7 million,
including $43.0 million of goodwill, and liabilities of $3.4 million.
In 1997, the Company paid an aggregate of $1.3 million to the prior
shareholders of two physician group practices acquired in 1996. The
payments were earned based upon the achievement of certain targets as
outlined in the acquisition agreements.
During 1997, the Company completed the acquisition of ten physician
group practices. Total consideration and related costs for these
acquisitions approximated $59.0 million. In connection with these
transactions, the Company recorded assets totaling approximately $59.0
million, principally goodwill, and liabilities of $1.9 million.
34
<PAGE> 35
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. OTHER ASSETS, CONTINUED:
The Company has accounted for the transactions using the purchase
method of accounting and the excess of cost over fair value of net
assets acquired is being amortized on a straight-line basis over 25
years. The results of operations of the acquired companies have been
included in the consolidated financial statements from the dates of
acquisition.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and the companies acquired during
1996 and 1997 as if the acquisitions had occurred on January 1, 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997
------------ --------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net patient service revenue $113,303 $136,519
Net income 14,603 21,143
Net income per share:
Basic $1.06 $1.41
Diluted $1.00 $1.34
</TABLE>
The pro forma results do not necessarily represent results which would
have occurred if the acquisition had taken place at the beginning of
the period, nor are they indicative of the results of future combined
operations.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable $2,489 $2,988
Accrued salaries and bonuses 3,508 5,340
Accrued payroll taxes and benefits 2,009 3,013
Accrued professional liability
coverage 2,413 3,747
Other accrued expenses 3,004 1,082
------------- --------------
$13,423 $16,170
============= ==============
</TABLE>
35
<PAGE> 36
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. NOTE PAYABLE:
Note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Mortgage payable to bank $2,950 $2,750
Less current portion (200) (200)
------------- --------------
$2,750 $2,550
============= ==============
</TABLE>
During 1996, the Company negotiated a new mortgage loan agreement,
increasing the principal balance to $3.0 million and adjusting the
terms of the original mortgage. The new loan agreement requires
quarterly payments totaling $200,400 per year plus interest through the
maturity date of the loan, June 30, 2003, at which time the unpaid
principal balance of $1,647,300 is due, bears interest at prime (8.5%
at December 31, 1997), and is collateralized by the Company's two
buildings.
In June 1996, the Company entered into an unsecured revolving credit
facility. During 1997, the amounts available under the credit facility
were increased to $75 million, which includes a $2 million amount
reserved to cover deductibles under the Company's professional
liability insurance policies. The credit facility matures on September
30, 2000. At the Company's option, the credit facility bears interest
at either LIBOR plus .875% or prime. The Company had no outstanding
balance at December 31, 1996 or 1997.
The Company is required to maintain certain financial covenants
including a requirement that the Company maintain a minimum level of
net worth, as defined under the terms of the mortgage and credit
facility agreement.
8. PREFERRED STOCK:
In October 1992, the Company issued 4,571,063 shares of 9% voting,
redeemable, cumulative convertible Preferred Stock for $13,000,103. In
connection with the Company's initial public offering, the Preferred
Stock was converted into common stock of the Company and the unpaid
dividends of $3,736,589 were forgiven. As a result, the redemption
value of the Preferred Stock was credited to common stock and
additional paid-in capital accounts.
36
<PAGE> 37
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. INCOME TAXES:
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997
-------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current $2,573 $3,072 $6,004
Deferred 1,184 3,667 5,913
-------------- ------------- -------------
3,757 6,739 11,917
-------------- ------------- -------------
State:
Current 454 1,358 1,054
Deferred 264 756 971
-------------- ------------- -------------
718 2,114 2,025
-------------- ------------- -------------
Total $4,475 $8,853 $13,942
============== ============= =============
</TABLE>
The Company files its tax return on a consolidated basis with its
subsidiaries. The PA Contractors file tax returns on an individual
basis.
The effective tax rate on income was 40% for the years ended December
31, 1995, 1996 and 1997. The differences between the effective rate and
the U.S. federal income tax statutory rate are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997
-------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate $3,804 $7,472 $12,199
State income tax, net
of federal benefit 451 1,374 1,316
Permanent differences 16 (391) 43
Other, net 204 398 384
-------------- ------------- -------------
Income tax provision $4,475 $8,853 $13,942
============== ============= =============
</TABLE>
37
<PAGE> 38
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. INCOME TAXES, CONTINUED:
The significant components of deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------------- ----------------------------------
NON NON
TOTAL CURRENT CURRENT TOTAL CURRENT CURRENT
--------- --------- --------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance for uncollectible
accounts $ 150 $ 150 $ -- $ 766 $ 766 $ --
Net operating loss
carryforward 1,112 1,112 -- 398 398 --
Other -- -- -- 304 304 --
-------- -------- -------- -------- -------- --------
Total deferred
tax assets 1,262 1,262 -- 1,468 1,468 --
-------- -------- -------- -------- -------- --------
Accrual to cash adjustment (7,416) (7,355) (61) (8,878) (8,878) --
Property and equipment -- -- -- (1,251) -- (1,251)
Receivable discounts -- -- -- (2,966) (2,966) --
Other (178) (6) (172) (1,208) (17) (1,191)
-------- -------- -------- -------- -------- --------
Total deferred tax
liabilities (7,594) (7,361) (233) (14,303) (11,861) (2,442)
-------- -------- -------- -------- -------- --------
Net deferred tax
liability $ (6,332) $ (6,099) $ (233) $(12,835) $(10,393) $ (2,442)
======== ======== ======== ======== ======== ========
</TABLE>
The income tax benefit related to the exercise of stock options and the
purchase of shares under the Company's non-qualified employee stock
purchase plan, reduces taxes currently payable and is credited to
additional paid-in capital. Such amounts totaled $252,180, $704,630 and
$2,873,649 for the years ended December 31, 1995, 1996 and 1997,
respectively.
The Company's PA Contractors have net operating loss carryforwards for
federal and state tax purposes of approximately $1,377,000, $2,762,000
and $978,000 at December 31, 1995, 1996 and 1997, respectively,
expiring at various times commencing in 1999.
The Company is currently under examination by the Internal Revenue
Service for the tax years ended December 31, 1992, 1993 and 1994. The
IRS has challenged certain deductions that, if ultimately disallowed,
would result in additional taxes of approximately $4.5 million, plus
interest. The Company and its tax advisors believe that the ultimate
resolution of the examination will not have a material effect on the
Company's consolidated financial position or results of operations and
cash flows.
10. COMMITMENTS AND CONTINGENCIES:
During the ordinary course of business, the Company has become a party
to pending and threatened legal actions and proceedings, most of which
involve claims of medical malpractice and are generally covered by
insurance. These lawsuits are not expected to result in judgments which
would exceed professional liability insurance coverage, and therefore,
will not have a material impact on the Company's consolidated results
of operations, financial position or liquidity, notwithstanding any
possible insurance recovery.
38
<PAGE> 39
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$189,408, $1,118,594 and $1,721,964, respectively. At December 31,
1997, the future minimum lease payments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C> <C>
1998 $1,565
1999 1,472
2000 1,367
2001 1,315
2002 1,177
Thereafter 5,495
-----------
$12,391
===========
</TABLE>
11. RETIREMENT PLAN:
The Company has a qualified contributory savings plan (the "Plan") as
allowed under Section 401(k) of the Internal Revenue Code. The Plan
permits participant contributions and allows elective Company
contributions based on each participant's contribution. Participants
may defer up to 15% of their annual compensation by contributing
amounts to the Plan. The Company approved contributions of $559,125,
$1,107,092 and $1,731,829 to the Plan during the years ended December
31, 1995, 1996 and 1997, respectively.
39
<PAGE> 40
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
The calculation of basic and diluted net income per share for the years
ended December 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
-------------- ---------- -------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Basic net income per share:
Net income $ 6,713 $ 13,120 $ 20,913
Preferred stock dividends (1,040) -- --
-------- -------- --------
Income applicable to common shareholders $ 5,673 $ 13,120 $ 20,913
======== ======== ========
Weighted average common shares outstanding 8,092 13,806 15,021
======== ======== ========
Basic net income per share $ 0.70 $ 0.95 $ 1.39
======== ======== ========
Diluted net income per share:
Weighted average common shares outstanding 8,092 13,806 15,021
Preferred stock 3,354 -- --
Stock options 409 729 722
-------- -------- --------
Weighted average common and potential
common shares outstanding 11,855 14,535 15,743
======== ======== ========
Net income $ 6,713 $ 13,120 $ 20,913
======== ======== ========
Diluted net income per share $ 0.57 $ 0.90 $ 1.33
======== ======== ========
</TABLE>
13. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS:
In 1993, the Company's Board of Directors authorized a stock option
plan. Under the plan, options to purchase shares of common stock may be
granted to certain employees at a price not less than the fair market
value of the shares on the date of grant. The options must be exercised
within ten years from the date of grant. The stock options become
exercisable on a pro rata basis over a three year period from the date
of grant. In 1997, the Company's shareholders approved an amendment to
increase the number of shares authorized to be issued under the plan
from 2,500,000 to 3,250,000. At December 31, 1997, 220,164 shares were
available for future grants.
40
<PAGE> 41
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS, CONTINUED:
Pertinent information covering the stock option plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE EXPIRATION
SHARES PER SHARE PRICE DATE
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 1,231,700 $2.84-$10.00 $5.82 2003-2004
Granted 841,500 $10.00-$21.50 $17.95
Canceled (324,583) $3.12-$12.50 $5.33
Exercised (39,709) $3.12-$10.00 $3.46
-------------- -------------------------------
Outstanding at December 31, 1995 1,708,908 $2.84-$21.50 $12.03 2003-2005
Granted 600,400 $12.50-$36.75 $35.27
Canceled (34,660) $3.12-$36.00 $16.46
Exercised (47,187) $5.00-$20.50 $5.64
-------------- --------------- --------------
Outstanding at December 31, 1996 2,227,461 $2.84-$36.75 $18.27 2003-2006
Granted 783,500 $29.00-$41.38 $33.38
Canceled (68,021) $5.00-$36.00 $21.55
Exercised (229,710) $5.00-$36.00 $9.69
-------------- --------------- --------------
Outstanding at December 31, 1997 2,713,230 $2.84-$41.38 $23.28 2003-2007
============== =============== ==============
Exercisable at:
December 31, 1995 306,872 $2.84-$10.00 $6.15
December 31, 1996 828,631 $2.84-$21.50 $10.20
December 31, 1997 1,315,850 $2.84-$36.75 $14.74
</TABLE>
Significant option groups outstanding at December 31, 1997 and related
price and life information follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
----------------------- -------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$2.84 50,000 $2.84 5.5 50,000 $2.84
$5.00 278,770 $5.00 6.1 278,770 $5.00
$7.50 200,000 $7.50 6.8 200,000 $7.50
$10.00-$12.50 266,667 $10.80 7.0 226,249 $10.60
$19.25-$21.50 567,243 $19.59 7.2 369,074 $19.59
$24.00-$32.88 644,000 $29.71 9.2 51,788 $31.71
$36.00-$41.38 706,550 $38.22 8.7 139,969 $36.36
-------------- ------------ ------------- ------------- ------------
2,713,230 $23.28 7.9 1,315,850 $14.74
============== ============ ============= ============= ============
</TABLE>
Under the Company's stock purchase plans, employees may purchase the
Company's common stock at 85% of the average high and low sales price
of the stock as reported as of commencement of the purchase period or
as of the purchase date, whichever is lower. Under these plans, 12,786
and 47,302 shares were issued during 1996 and 1997, respectively. At
December 31, 1997, the Company has an additional 939,912 shares
reserved under the stock purchase plans.
41
<PAGE> 42
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS, CONTINUED:
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation expense has been recognized for stock
options granted under the stock option plan or stock issued under the
employee stock purchase plans. Had compensation expense been determined
based on the fair value consistent with the provisions of SFAS No. 123,
the Company's net income and net income per share would have been
reduced to the pro forma amounts below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income $6,381 $11,002 $16,272
Net income per share:
Basic $.66 $ .80 $1.08
Diluted $.55 $ .77 $1.05
</TABLE>
The fair value of each option or share to be issued is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1995, 1996
and 1997, respectively: dividend yield of 0% for all years; expected
volatility of 42%, 42% and 41%; and risk-free interest rates of 6.1%,
6.3% and 6.6% for options with expected lives of five years (certain
management and physicians of the Company) and 6.1%, 6.1% and 6.6% for
options with expected lives of three years (all other employees of the
Company).
The pro forma effect on net income is not representative of the pro
forma effect on net income in future periods because it does not take
into consideration pro forma compensation expense related to grants
made in prior periods.
14. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, the Company completed the acquisitions
of eight physician group practices. Total consideration for these
acquisitions approximated $48.6 million in cash and 2,951,327 shares of
stock in a subsidiary of the Company. The acquisitions will be
accounted for using the purchase method of accounting.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its independent
certified public accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of
the Company is incorporated by reference to the registrant's Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
43
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS.
An index to financial statements included in this
annual report on Form 10-K appears on page 23.
(2) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedules for the years ended December 31,
1995, 1996 and 1997 are included in this Annual Report on Form 10-K on the pages
set forth below.
ITEM PAGE
Financial Statement Schedules
Report of Independent Accountants............................. 24
Schedule II: Valuation and Qualifying Accounts............... 45
Any required information not included in the above described schedules is
included in the consolidated financial statements and notes thereto incorporated
herein by reference.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and therefore have been omitted.
44
<PAGE> 45
PEDIATRIX MEDICAL GROUP, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Allowance for contractual
adjustments and uncollectibles:
Balance at beginning of year $13,246,580 $13,087,899 $30,594,906
Portion charged against
operating revenue 40,843,431 82,759,087 137,385,310
Accounts receivable written-
off (net of recoveries) (41,002,112) (65,252,080) (122,608,986)
---------------- ---------------- -----------------
Balance at end of year $13,087,899 $30,594,906 $45,371,230
================ ================ =================
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
(3) EXHIBITS
<S> <C>
3.1 Pediatrix's Amended and Restated Articles of Incorporation (3.1)(1)
3.2 Pediatrix's Amended and Restated Bylaws (3.2)(12)
4.1 Registration Rights Agreement, dated as of September 13, 1995 between Pediatrix and certain
shareholders (4.1)(1)
10.1 Pediatrix's Amended and Restated Stock Option Plan (10.1)(10)
10.2 Form of Indemnification Agreement between Pediatrix and each of its directors and certain
executive officers (10.2)(1)
10.3 Employment Agreement, dated as of January 1, 1995, as amended, between Pediatrix and Roger
J. Medel, M.D. (10.3)(1)
10.4 Employment Agreement, dated as of February 1, 1995, as amended, between Pediatrix and
Richard J. Stull, II (10.4)(1)
10.5 Employment Agreement, dated as of May 1, 1995, as amended, between Pediatrix and Larry M.
Mullen (10.5)(1)
10.6 Employment Agreement, dated as of February 1, 1995, as amended, between Pediatrix and Brian
D. Udell, M.D., as amended (10.7)(1)
10.7 Employment Agreement, dated November 6, 1995, between Kristen Bratberg and Pediatrix
(10.9)(4)
10.8 Employment Agreement, dated June 1, 1996, between Pediatrix and M. Douglas Cunningham, M.D.
(10.21)(3)
10.9 Mortgage, Security Agreement and Assignment of Leases and Rents,
dated as of September 30, 1993, made by Pediatrix in favor of The
First National Bank of Boston (10.22)(1)
10.10 The Company's Profit Sharing Plan (10.23)(1)
10.11 Form of Non-competition and Nondisclosure Agreement (10.24)(1)
10.12 Form of Exclusive Management and Administrative Services Agreement between Pediatrix and
each of the PA Contractors (10.25)(1)
10.13 Agreement for Purchase and Sale of Stock, dated July 27, 1995, between Pediatrix Medical
Group of California and Neonatal and Pediatric Intensive Care Medical Group, Inc. and the
individual physicians set forth in Exhibit A therein (10.26)(1)
10.14 Stock Purchase Agreement, effective January 16, 1996, between Jack C. Christensen, M.D.,
Cristina Carballo-Perelman, M.D., Michael C. McQueen, M.D., Neonatal Specialists, Ltd. and
Brian Udell, M.D. (2.1)(4)
10.15 Asset Purchase Agreement, effective January 16, 1996, between Med-Support, L.P. and
Neonatal Specialists, Ltd.(2.2)(4)
10.16 Asset Purchase Agreement, effective January 16, 1996, between CMJ Leasing, L.P. and
Neonatal Specialists, Ltd. (2.3)(4)
10.17 Asset Purchase Agreement, dated January 29, 1996, among Pediatrix
Medical Group of Colorado, P.C., Pediatrix and Newborn
Consultants, P.C., and the shareholders of PNC (2.1)(5)
10.18 Agreement and Plan of Merger, dated January 29, 1996, among Pediatrix Medical Group of
Colorado, P.C., Colorado Neonatal Associates, P.C. and the shareholders of CNA (2.1)(5)
10.19 Amendment No. 4 to Credit Agreement dated as of December 30, 1995, between Pediatrix,
certain PA Contractors and The First National Bank of Boston (10.24)(2)
10.20 1996 Qualified Employee Stock Purchase Plan (10.25)(2)
10.21 1996 Non-Qualified Employee Stock Purchase Plan (10.26)(2)
10.22 Agreement and Plan of Merger, dated May 1, 1996, among Pediatrix Acquisition Corp., Rocky
Mountain Neonatology, P.C. and the shareholders of RMN (2.1)(7)
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C>
10.23 Asset Purchase Agreement, dated as of May 30, 1996, by and among
Pediatrix Medical Group of Texas, P.A., West Texas Neonatal
Associates and the individual physicians set forth in Exhibit A
therein (2.1)(8)
10.24 Agreement for Purchase and Sale of Assets, dated as of June 5, 1996, by and among Pediatrix
Medical Group of California, P.C., Infant Care Specialists Medical Group, Inc. and the
individual physicians set forth in Exhibit A therein (2.1)(9)
10.25 Airplane Purchase Agreement, dated March 22, 1996, between Pediatrix and Learjet Inc.
(10.22)(3)
10.26 First Amended and Restated Credit Agreement, dated as of June 27, 1996, between Pediatrix,
certain PA Contractors, The First National Bank of Boston and Sun Trust Bank (10.25)(3)
10.27 Modification of Mortgage, dated as of June 27, 1996, between PMG and The First National
Bank of Boston (10.26)(3)
10.28 Amendment No. 2 to the employment agreement between Pediatrix and Roger J. Medel, M.D.
(10.34)(10)
10.29 Amendment No. 1 to the employment agreement between Pediatrix and Kristen Bratberg
(10.35)(10)
10.30 Amendment No. 2 to First Amended and Restated Credit Agreement, dated October 21, 1997,
between Pediatrix, certain PA Contractors, BankBoston and SunTrust Bank (10.36)(11)
10.31 Regional Vice President of Medical Operations appointment, dated as of June 1, 1997,
between Pediatrix and M. Douglas Cunningham, M.D. (12)
10.32 Employment Agreement, dated as of April 7, 1997, between Pediatrix and Bruce A. Jordan (12)
21.1 Subsidiaries of Pediatrix (12)
23.1 Consent of Coopers & Lybrand L.L.P. (12)
27.1 Financial Data Schedule for current period and restated Financial Data Schedules for other
periods. (12)
</TABLE>
- ----------------------
(1) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form S-1 (File No. 33-95086).
(2) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 10-Q for the quarterly period ended
March 31, 1996.
(3) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form S-1 (File No. 333-07125).
(4) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 8-K, dated January 31, 1996.
(5) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 8-K, dated February 8, 1996.
(6) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Annual Report on Form 10-K for the year
ended December 31, 1995.
(7) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 8-K, dated May 9, 1996.
(8) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 8-K, dated May 30, 1996.
(9) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 8-K, dated June 5, 1996.
(10) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 10-Q for the quarterly period ended
June 30, 1997.
(11) Incorporated by reference to the exhibit shown in parentheses and
filed with the Pediatrix Form 10-Q for the quarterly period ended
September 30, 1997.
(12) Filed herewith.
47
<PAGE> 48
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this Report.
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
The index to exhibits that are listed in Item 14(a)(3) of this
report and not incorporated by reference follows the "Signatures" section hereof
and is incorporated herein by reference.
(D) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X
The financial statement schedules required by Regulation S-X which
are excluded from the Registrant's Annual Report to Shareholders for the Year
ended December 31, 1997, by Rule 14a-3(b)(1) are included above. See Item
14(a)(2) for index.
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEDIATRIX MEDICAL GROUP, INC.
Date: March 30, 1998 By: /s/ Roger J. Medel, M.D., M.B.A.
---------------------------------------
ROGER J. MEDEL, M.D., M.B.A., President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Chief Executive
/s/ ROGER J. MEDEL, M.D., M.B.A. Officer and Director (principal March 30, 1998
- ------------------------------------------------ executive officer)
Roger J. Medel, M.D., M.B.A.
Vice President and Chief Financial
/s/ LAWRENCE M. MULLEN Officer (principal financial officer March 30, 1998
- ------------------------------------------------ and principal accounting officer)
Lawrence M. Mullen
/s/ E. ROE STAMPS, IV Director March 30, 1998
- ------------------------------------------------
E. Roe Stamps, IV
/s/ BRUCE R. EVANS Director March 30, 1998
- ------------------------------------------------
Bruce R. Evans
/s/ M. DOUGLAS CUNNINGHAM, M.D. Director March 30, 1998
- ------------------------------------------------
M. Douglas Cunningham, M.D.
/s/ MICHAEL FERNANDEZ Director March 30, 1998
- ------------------------------------------------
Michael Fernandez
/s/ ALBERT H. NAHMAD Director March 30, 1998
- ------------------------------------------------
Albert H. Nahmad
/S/ CESAR L. ALVAREZ Director March 30, 1998
- ------------------------------------------------
CESAR L. ALVAREZ
</TABLE>
49
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PEDIATRIX MEDICAL GROUP, INC.
(A FLORIDA CORPORATION)
<PAGE> 2
INDEX
-----
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE ONE OFFICES................................................................................1
Section 1. Registered Office......................................................................1
Section 2. Principal Office.......................................................................1
Section 3. Other Offices..........................................................................1
ARTICLE TWO MEETINGS OF SHAREHOLDERS...............................................................1
Section 1. Place..................................................................................1
Section 2. Time of Annual Meeting.................................................................1
Section 3. Call of Special Meetings...............................................................1
Section 4. Conduct of Meetings....................................................................2
Section 5. Notice and Waiver of Notice............................................................2
Section 6. Business and Nominations for Annual and Special Meetings...............................2
Section 7. Quorum.................................................................................3
Section 8. Voting Per Share.......................................................................3
Section 9. Voting of Shares.......................................................................3
Section 10. Proxies................................................................................4
Section 11. Shareholder List.......................................................................4
Section 12. Action Without Meeting.................................................................4
Section 13. Fixing Record Date.....................................................................5
Section 14. Inspectors and Judges..................................................................5
Section 15. Voting for Directors...................................................................5
ARTICLE THREE DIRECTORS..............................................................................6
Section 1. Number; Election and Term; Removal.....................................................6
Section 2. Vacancies..............................................................................6
Section 3. Powers.................................................................................6
Section 4. Place of Meetings......................................................................6
Section 5. Annual Meeting.........................................................................6
Section 6. Regular Meetings.......................................................................7
Section 7. Special Meetings and Notice............................................................7
Section 8. Quorum; Required Vote; Presumption of Assent...........................................7
Section 9. Action Without Meeting.................................................................7
Section 10. Conference Telephone or Similar Communications Equipment Meetings......................8
Section 11. Committees.............................................................................8
Section 12. Compensation of Directors..............................................................8
Section 13. Chairman of the Board..................................................................8
ARTICLE FOUR OFFICERS...............................................................................9
Section 1. Positions..............................................................................9
Section 2. Election of Specified Officers by Board................................................9
Section 3. Election or Appointment of Other Officers..............................................9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4. Salaries...............................................................................9
Section 5. Term; Resignation......................................................................9
Section 6. President..............................................................................9
Section 7. Vice Presidents.......................................................................10
Section 8. Secretary.............................................................................10
Section 9. Treasurer.............................................................................10
Section 10. Other Officers; Employees and Agents..................................................10
ARTICLE FIVE CERTIFICATES FOR SHARES...............................................................10
Section 1. Issue of Certificates.................................................................10
Section 2. Legends for Preferences and Restrictions on Transfer..................................11
Section 3. Facsimile Signatures..................................................................11
Section 4. Lost Certificates.....................................................................11
Section 5. Transfer of Shares....................................................................12
Section 6. Registered Shareholders...............................................................12
Section 7. Redemption of Control Shares..........................................................12
ARTICLE SIX GENERAL PROVISIONS....................................................................12
Section 1. Dividends.............................................................................12
Section 2. Reserves..............................................................................12
Section 3. Checks................................................................................12
Section 4. Fiscal Year...........................................................................13
Section 5. Seal..................................................................................13
Section 6. Gender................................................................................13
ARTICLE SEVEN AMENDMENT OF BYLAWS...................................................................13
</TABLE>
-ii-
<PAGE> 4
PEDIATRIX MEDICAL GROUP, INC.
BYLAWS
ARTICLE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of PEDIATRIX
MEDICAL GROUP, INC., a Florida corporation (the "Corporation"), shall be at 1455
Northpark Drive, in the City of Ft. Lauderdale, County of Broward, State of
Florida, unless otherwise designated by the Board of Directors.
Section 2. PRINCIPAL OFFICE. The principal office of the Corporation
shall be at 1455 Northpark Drive, in the City of Ft. Lauderdale, County of
Broward, State of Florida, unless otherwise designated by the Board of
Directors.
Section 3. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided that there shall be an annual meeting held every
year at which the shareholders shall elect a Board of Directors (or the
appropriate class of the Board of Directors if the Board of Directors is divided
into two or more classes) and transact such other business as may properly be
brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called in accordance with the procedures set forth
in the Corporation's Articles of Incorporation (the "Articles of Incorporation")
for the call of a special meeting of shareholders.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and
<PAGE> 5
special meetings of shareholders and shall be given full discretion in
establishing the rules and procedures to be followed in conducting the meetings,
except as otherwise provided by law, the Articles of Incorporation or in these
Bylaws.
Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the day of the meeting, either personally or by first-class
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than first
class. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail addressed to the shareholder at his address as it appears
on the stock transfer books of the Corporation, with postage thereon prepaid. If
a meeting is adjourned to another time and/or place, and if an announcement of
the adjourned time and/or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting unless the Board of Directors,
after adjournment, fixes a new record date for the adjourned meeting. Whenever
any notice is required to be given to any shareholder, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether signed
before, during or after the time of the meeting stated therein, and delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records, shall be equivalent to the giving of such notice. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
shareholders need be specified in any written waiver of notice. Attendance of a
person at a meeting shall constitute a waiver of (a) lack of or defective notice
of such meeting, unless the person objects at the beginning to the holding of
the meeting or the transacting of any business at the meeting, or (b) lack of
defective notice of a particular matter at a meeting that is not within the
purpose or purposes described in the meeting notice, unless the person objects
to considering such matter when it is presented.
Section 6. BUSINESS AND NOMINATIONS FOR ANNUAL AND SPECIAL MEETINGS.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation. Only such persons who are nominated for election as
directors of the Corporation in accordance with the requirements and procedures
set forth in the Articles of Incorporation shall be eligible for election as
directors of the Corporation.
Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one-third (1/3) of the shares of each voting group entitled to vote.
In the event shareholder approval is a prerequisite to the listing of any
additional or new securities on the New York Stock Exchange, the minimum vote
for such approval shall be a majority of the votes cast on
- 2 -
<PAGE> 6
such a proposal, provided that the total votes cast on such proposal represents
over 50% in interest of securities entitled to vote upon such matter. If less
than a majority of outstanding shares entitled to vote are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. After a quorum has been established at any
shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting below the number
required for a quorum, shall not affect the validity of any action taken at the
meeting or any adjournment thereof. Once a share is represented for any purpose
at a meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting.
Section 8. VOTING PER SHARE. Except as otherwise provided in the
Articles of Incorporation or by law, each shareholder is entitled to one (1)
vote for each outstanding share held by him on each matter voted at a
shareholders' meeting.
Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
- 3 -
<PAGE> 7
Section 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized to tabulate
votes, and shall be valid for up to 11 months, unless a longer period is
expressly provided in the appointment form. The death or incapacity of the
shareholder appointing a proxy does not affect the right of the Corporation to
accept the proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. An appointment
of a proxy is revocable by the shareholder unless the appointment is coupled
with an interest.
Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required by law to be
taken at a meeting of shareholders, or any action that may be taken at a meeting
of shareholders, may be taken without a meeting or prior notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted with respect to the subject
matter thereof, and such consent shall have the same force and effect as a vote
of shareholders taken at such a meeting. Within 10 days after obtaining such
action by written consent, notice thereof must be given to those shareholders
who have not consented or who are not entitled to vote on the action, in
accordance with the requirements of Section 607.0704 of the Florida Business
Corporation Act.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any
- 4 -
<PAGE> 8
such determination of shareholders, such date in any case to be not more than
seventy (70) days, and, in case of a meeting of shareholders, not less than ten
(10) days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which the notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 13, such determination
shall apply to any adjournment thereof, except where the Board of Directors
fixes a new record date for the adjourned meeting or as required by law.
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment(s) thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by the
Board of Directors in advance of the meeting, or at the meeting by the person
presiding thereat. The inspectors or judges, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
ARTICLE THREE
DIRECTORS
Section 1. NUMBER; ELECTION AND TERM; REMOVAL. The number of directors
of the Corporation shall be fixed from time to time, within the limits specified
by the Articles of Incorporation, by resolution of the Board of Directors;
provided, however, that no director's term shall be shortened by reason of a
resolution reducing the number of directors. The directors (or the appropriate
class of the Board of Directors if the Board of Directors is divided into two or
more classes) shall be elected at the annual meeting of the shareholders, except
as provided in Section 2 of this Article, and each director elected shall hold
office for the term for which he is elected and until his successor is elected
and qualified or until his earlier resignation, removal
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<PAGE> 9
from office or death. Directors must be natural persons who are 18 years of age
or older but need not be residents of the State of Florida, shareholders of the
Corporation or citizens of the United States. Shareholders shall have the right
to remove directors only as provided in the Articles of Incorporation.
Section 2. VACANCIES. A director may resign at any time by giving
written notice to the Corporation, the Board of Directors or the Chairman of the
Board. Such resignation shall take effect when the notice is delivered unless
the notice specifies a later effective date, in which event the Board of
Directors may fill the pending vacancy before the effective date if they provide
that the successor does not take office until the effective date. Any vacancy
occurring in the Board of Directors and any directorship to be filled by reason
of an increase in the size of the Board of Directors shall be filled only by the
affirmative vote of a majority of the current directors though less than a
quorum of the Board of Directors. Shareholders shall not, and shall have no
power to, fill any vacancy on the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office,
or until the next election of one or more directors by shareholders if the
vacancy is caused by an increase in the number of directors.
Section 3. POWERS. Except as provided in the Articles of Incorporation
and by law, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, its Board of Directors.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given to
each director at least forty-eight (48) hours before the meeting. Except as
required by statute, neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting. Notices to directors shall be
in writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be received. Notice to
directors may also be given by telegram, teletype or other form of electronic
communication. Notice of a meeting of the Board of Directors need not be given
to any director who signs a written waiver of notice before, during or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting and a waiver of any and all objections
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<PAGE> 10
to the place of the meeting, the time of the meeting and the manner in which it
has been called or convened, except when a director states, at the beginning of
the meeting or promptly upon arrival at the meeting, any objection to the
transaction of business because the meeting is not lawfully called or convened.
Section 8. QUORUM; REQUIRED VOTE; PRESUMPTION OF ASSENT. A majority of
the number of directors fixed by, or in the manner provided in, the Articles of
Incorporation and these Bylaws shall constitute a quorum for the transaction of
business; provided, however, that whenever, for any reason, a vacancy occurs in
the Board of Directors, a quorum shall consist of a majority of the remaining
directors until the vacancy has been filled except that in no event may a quorum
consist of fewer than one-third of the number of directors so fixed. The act of
a majority of the directors present at a meeting at which a quorum is present
when the vote is taken shall be the act of the Board of Directors. A director of
the Corporation who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken shall be
presumed to have assented to the action taken, unless he objects at the
beginning of the meeting, or promptly upon his arrival, to holding the meeting
or transacting specific business at the meeting, or he votes against or abstains
from the action taken.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
the meeting is not lawfully called or convened.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members one or more other committees, each of which, to the extent provided in
such resolution, shall have and may exercise all of the authority of the Board
of Directors in the business and affairs of the Corporation except where the
action of the full Board of Directors is required by statute. Each committee
must have two or more members who serve at the pleasure of the Board of
Directors. The Board of Directors, by resolution adopted in accordance with this
Article Three, may designate one or more directors as alternate members of any
committee, who may act in the place and stead of any absent member or members at
any meeting of such committee. Vacancies in the membership of a committee shall
be filled by the Board of Directors at a regular or special meeting of the Board
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<PAGE> 11
of Directors. Each committee shall keep minutes and other appropriate records of
its proceedings and report the same to the Board of Directors when required. The
designation of any such committee and the delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. Directors may receive such other
compensation as may be approved by the Board of Directors.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a Chairman of the Board who shall preside at meetings of the
shareholders and of the directors. The Chairman of the Board shall have such
other powers and shall perform such other duties as shall be designated by the
Board of Directors. The Chairman of the Board shall be a member of the Board of
Directors but no other officers of the Corporation need be a director. The
Chairman of the Board shall serve until his successor is chosen and qualified,
but he may be removed at any time by the affirmative vote of a majority of the
Board of Directors.
ARTICLE FOUR
OFFICERS
Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of Directors by resolution, a Chairman of the Board. Any
two or more offices may be held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, one or more Vice Presidents, a Secretary and a Treasurer.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
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<PAGE> 12
Section 5. TERM; RESIGNATION. The officers of the Corporation shall
hold office until their successors are chosen and qualified. Any officer or
agent elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of Directors.
Any officers or agents appointed by the President of the Corporation pursuant to
Section 3 of this Article Four may also be removed from such officer positions
by the President, with or without cause. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise shall be filled by
the Board of Directors, or, in the case of an officer appointed by the President
of the Corporation, by the President or the Board of Directors. Any officer of
the Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date.
Section 6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board or in the event the Board of Directors shall not have designated a
Chairman of the Board, the President shall preside at meetings of the
shareholders and the Board of Directors.
Section 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.
Section 9. TREASURER. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all his transactions as treasurer
and of the financial condition of the Corporation
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<PAGE> 13
unless otherwise specified by the Board of Directors, the Treasurer shall be the
Corporation's Chief Financial Officer.
Section 10. OTHER OFFICERS; EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so appointing him
and such officer or officers who may from time to time be designated by the
Board of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. ISSUE OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, or registered or qualified under
applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1)
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY
APPLICABLE STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION
(SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO
THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED."
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<PAGE> 14
Section 3. FACSIMILE SIGNATURES. The signatures of the Chairman of the
Board, the President or a Vice President and the Secretary or Assistant
Secretary upon a certificate may be facsimiles, if the certificate is manually
signed by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of the issuance.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Florida.
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
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<PAGE> 15
ARTICLE SIX
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31st of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed in whole or in part, or new Bylaws may be adopted, by action of the
Board of Directors.
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<PAGE> 1
Exhibit 10.31
PEDIATRIX MEDICAL GROUP
APPOINTMENT
REGIONAL VICE PRESIDENT OF MEDICAL OPERATIONS
---------------------------------------------
APPOINTMENT, made effective as of the 1st day of June, 1997, by and
between, DOUGLAS CUNNINGHAM, M.D. ("Physician") and PEDIATRIX MEDICAL GROUP,
INC., a Florida corporation ("Company").
WHEREAS, Physician and Pediatrix Medical Group Inc., have entered into
an employment agreement as of June 1, 1996 under which the Company employed
Physician as Chief Medical Officer of the Company (the "Employment Agreement");
and
WHEREAS, Company also desires to appoint Physician, and Physician
wishes to accept such appointment, to the position of Regional Vice President of
Medical Operations ("RMO");
NOW THEREFORE, in consideration of the foregoing recitals, mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. APPOINTMENT
-----------
Company hereby appoints Physician, and Physician accepts
appointment from Company, as Regional Vice President of Medical
Operations-Pacific Region, to be based in Orange, California. Physician agrees
to devote his time and efforts to the performance of the duties of RMO in an
efficient, trustworthy and professional manner, and to undertake such duties and
responsibilities as described in Addendum 1 and such other duties as may, from
time to time, be reasonably assigned by Company's Chief Executive Officer.
Physician shall be subject to direction from the Company's Chief Executive
Officer.
2. TERM
----
This Appointment shall commence on June 1, 1997, and shall
terminate on May 31, 1998, PROVIDED THAT this Agreement shall be automatically
extended on each anniversary of the commencement date for an additional one year
term unless either party provides the other with written notice of such party's
intent not to renew at least ninety (90) days prior to the relevant anniversary
date.
3. POSITION COMPENSATION
---------------------
Physician's annual base compensation for services rendered
pursuant to this Appointment shall be One Hundred Fifty Thousand Dollars
($150,000) for the term of this Appointment. Physician shall continue to receive
all standard Company benefits and shall be entitled to four (4) weeks paid
vacation per year. On or about the inception date of this Appointment, Physician
shall receive 50,000 stock options at market price with a three year vesting
period. The terms of the Stock Option Agreement and the Company Stock Option
Plan shall control the RMO's rights and interests in said options, which shall
be in addition to any other Company stock options he may have as of the date of
this Appointment. Physician shall be entitled to receive the following as
incentive compensation:
1
<PAGE> 2
a. A commission of two percent (2%) of the initial annual "Gross
Profit" contribution from medical groups which may be acquired by
Company (or its affiliates) from within Physicians region. "Gross
Profit" is defined as net patient service revenue less direct costs of
the merged/acquired business in which revenue and costs are determined
following the customary procedures of the Company. Payment shall be
made as follows: The Physician shall receive one percent (1%) of the
PROJECTED Gross Profit for the initial fiscal year from each
consummated merger and/or acquisition in the month immediately
succeeding the closing of the merger and/or acquisition . Additionally,
at the end of the initial fiscal year of the merger and/or acquisition
upon closure of the accounting period, Physician shall receive two
percent (2%) of the ACTUAL Gross Profit for the initial fiscal year
from each consummated merger and/or acquisition, LESS amounts
previously paid as the one percent (1%) PROJECTED Gross Profit for the
initial fiscal year.
b. A commission of two and one-half percent (21/2%) of the increase (if
any) in gross profit contribution from units in Physician's region when
compared year-to-year and on a same unit combined basis. Medical groups
acquired which result in a commission payment in Section 3a. above
shall be included commencing on the three hundred sixty-sixth (366th)
day after the acquisition was consummated.
c. A commission of five percent (5%) of annual administrative fee, if
any, from hospital contracts in Physician's Region, included in the
renewal contract for each year that the contract and administrative fee
remains in force.
d. A commission of one percent (1%) of the annual base gross profit
contributions from units (on a combined basis) in Physician's Region.
This paragraph supersedes the provisions of paragraph 2, sections 2.1
and 2.2 contained in the Physician's Employment Agreement.
4. COMPANY'S MEDICAL BOARD
-----------------------
As an RMO, Physician shall belong to the Medical Board of the
Company. As a member of the Company's Medical Board, Physician shall participate
in the administration of the following activities, which may be modified by the
Company from to time:
Arbiters all medical issues which arise in his region. Sets
medical policy for prospective groups in his region.
Reviews the CPT book every year, and makes or recommends
changes in coding of bills. Reviews the ICD - 9 book every
year, and makes or recommends changes in coding of bills.
Reviews all active medical malpractice cases pending in his
region, and makes recommendations. Works with other RMO's in
reviewing issues of common interest.
5. EDUCATIONAL LEAVE & EXPENSES
----------------------------
In recognition that the appointment of RMO is critical to
ensuring the integrity and mission of the Company, Physician shall be entitled
to educational leave of 10 days annually during this Appointment without
diminution of compensation. Company shall reimburse expenses incurred by
2
<PAGE> 3
Physician while attending educational meetings and for publications, association
membership, and other materials related to medical management, in the amount of
$3,500.00 annually. Said days and expenses for educational leave are in lieu of
those provided under the coexisting Employment Agreement.
6. ACTIVITIES
----------
Physician agrees during the term of this Appointment to devote
his productive time and effort to the Company and shall not directly or
indirectly render professional services to any other person or entity for
compensation except as an employee of Company, unless Physician shall first
obtain consent from the Company's Chief Executive Officer to render other such
services. Physician further agrees that during the term of this Appointment, and
thereafter, he will not disclose, other than to employees of the Company, any
information related to Company's patients or practices without prior written
consent of Company, and that upon termination of this Appointment, Physician
shall not remove or retain, without Company's written consent, any lists,
letters, files, confidential information of any type or description, or other
property of Company.
7. TERMINATION OF APPOINTMENT
--------------------------
This Appointment may be terminated upon mutual consent of the
parties. Company may terminate this Appointment immediately, without penalty,
for "cause." For the purposes of this Appointment, the term "cause" shall mean:
a. Dishonesty in the performance as RMO.
b. Failure to perform the duties of RMO in a reasonable and
timely manner.
c. Substance abuse in a manner which materially affects the
performance of Physician's duties as RMO.
d. Conviction in a court of competent jurisdiction of any felony,
or any misdemeanor that adversely affects Physician's ability to carry
out his obligations hereunder.
e. Mental illness which interferes with the performance of
Physician's duties as RMO.
f. Termination or non-renewal of the Employment Agreement.
Either party may terminate this Appointment without cause upon
ninety (90) days notification prior to termination.
8. QUALIFICATIONS
--------------
In accepting this Appointment as an RMO, Physician confirms he
possesses the following qualifications:
* B/C Pediatrician or Obstetrician.
* Extensive physician management experience.
* MBA or equivalent (preferred).
* Unit Medical Director with the Company for at least 3 years
(preferred).
3
<PAGE> 4
THIS AGREEMENT has been executed by the parties this 1st day of June,
1997.
/s/Douglas Cunningham, M.D.
- ------------------------------------
DOUGLAS CUNNINGHAM, M.D.
/s/Lawrence M. Mullen
- ------------------------------------
LAWRENCE M. MULLEN
CHIEF FINANCIAL OFFICER
PEDIATRIX MEDICAL GROUP, INC.
4
<PAGE> 5
ADDENDUM 1
REGIONAL VICE PRESIDENT OF MEDICAL OPERATIONS
DUTIES AND RESPONSIBILITIES
1. Overall quality of care.
2. Profitable management of units.
3. Represents physician aspect of company for business development
efforts.
4. Responsible for same store growth of units in region. Encourages ideas
from unit medical directors, evaluates proposals (with home office
help) and recommends projects.
5. Responsible for coordinating integration of acquired practices (with
practice integration department) in region.
6. Coordinates timely re-negotiation of hospital contracts (with hospital
contracting department) for units in region.
7. Coordinates managed care contracting (with managed care department) for
units in region.
8. Coordinates physician scheduling of units in region (with scheduling
department).
9. Addresses complaints and concerns of hospital administrators, patients,
referring physicians and payers in region (clinical, billing, etc.).
10. Coordinates recruiting needs and efforts (with recruiting department)
for region.
11. Keeps track of Q/A and statistical outcomes for units in region.
12. Conducts peer review and performance evaluation for medical directors
in region.
13. Coordinates research and education efforts (with research and education
department) of physicians and units in region.
5
<PAGE> 6
REGIONAL VICE PRESIDENT OF MEDICAL OPERATIONS
DUTIES AND RESPONSIBILITIES (CON'T.)
14. Implements information initiatives in region (V-O, NeoData, etc.) with
information department.
15. Coordinates credentialing efforts (with credentialing department) for
physicians in region.
16. NNPs
17. Sets up regional meetings.
18. Site visits once a month.
19. Reports to CEO.
20. Charity/contribution requests.
21. Set up assistant medical director's program - identify candidates, make
recommendations for openings, review data, Ob's, etc.
6
<PAGE> 1
EXHIBIT 10.32
4/11/95
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the April 7, 1997, by and between PEDIATRIX MEDICAL GROUP, INC., a Florida
corporation (hereinafter called the "Company"), and BRUCE A. JORDAN (hereinafter
called the "Executive").
P R E L I M I N A R Y S T A T E M E N T S
A. The Company is presently engaged in the business of providing
neonatal and pediatric physician management services to hospitals (the
"Business").
B. The Executive has had many years of experience in providing legal
services.
C. The Company is desirous of employing the Executive and benefiting
from his contributions to the Company.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1. EMPLOYMENT AND TERM. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company, on the terms
and conditions set forth herein, for a period of three (3) years (the "Initial
Term") commencing on May 1, 1997 and expiring on April 30, 2000 (the "Expiration
Date") unless sooner terminated as hereinafter set forth. The Initial Term of
this Agreement, and the employment of the Executive hereunder, may be renewed
and/or extended for such period or periods as may be mutually agreed to by the
Company and the Executive in a written supplement to this Agreement signed by
the Executive and the Company. If this Agreement is not renewed and/or extended
prior to the expiration of the Initial Term, this Agreement, and the employment
of the Executive hereunder, shall automatically terminate on the Expiration
Date. (The Initial Term and any extensions shall be hereinafter referred to as
the "Employment Period").
1.2. DUTIES OF THE EXECUTIVE. During the Employment Period,
the Executive shall serve as Vice President and General Counsel of the Company.
The Executive shall report to, and shall be subject to the supervision and
direction of, the Chief Financial Officer. During the Employment Period, and
excluding any periods of vacation and sick leave to which
<PAGE> 2
the Executive is entitled, the Executive agrees to devote substantially all of
his attention and business time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder as a senior executive
officer involved with the general management of the Company, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (i) serve on corporate, civic or charitable
boards or committees; (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions; or (iii) manage personal investments and
engage in other business activities, so long as such activities do not
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the date hereof shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
1.3. PLACE OF PERFORMANCE. The Executive shall be based at the
Company's principal executive offices located in Broward County, Florida, except
for required travel relating to the Company's Business.
2. BASE COMPENSATION AND BONUS.
2.1. BASE SALARY. Commencing on the date hereof, the Executive
shall receive a base salary at the annual rate of not less than $165,000 (the
"Base Salary") during the term of this Agreement, with such Base Salary payable
in installments consistent with the Company's normal payroll schedule, subject
to required applicable withholding for taxes. The Base Salary shall be reviewed,
at least annually, for merit increases and may, by action and in the discretion
of the Company, be increased at any time or from time to time. At the sole
discretion of Company, Company may adjust Executive's Base Salary to reflect
annual changes in the cost of living.
2.2. PERFORMANCE BONUS. The Executive shall be entitled to a
performance bonus for each of the Company's fiscal years during the Employment
Period (the "Performance Bonus") of up to thirty thousand dollars ($30,000.00)
per year. The Compensation Committee of the Company's Board of Directors
("Board") shall have the exclusive right to increase or decrease the Executive's
Performance Bonus to reflect the Executive's and the Company's performance for
the year.
3. OTHER BENEFITS.
3.1. EXPENSE REIMBURSEMENT. The Company shall promptly
reimburse the Executive for all reasonable expenses actually paid or incurred by
the Executive in the course of and pursuant to the Business of the Company,
including expenses for travel and entertainment. The Executive shall account and
submit reasonably supporting documentation to the Company in connection with any
expense reimbursement hereunder in accordance with the Company's
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policies.
3.2. OTHER BENEFITS. During the Employment Period, the Company
shall continue in force all existing comprehensive major medical and
hospitalization insurance coverages, either group or individual for the
Executive and his dependents; shall continue in force all existing life
insurance for the Executive; and shall continue in force all existing disability
insurance for the Executive (collectively, the "Policies"), which Policies the
Company shall keep in effect at its sole expense throughout the term of this
Agreement. The Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all benefits under all
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
senior executive officers or other peer executives of the Company. The Executive
shall also be entitled to participate in all incentive, savings and retirement
plans, practices, policies and programs and such other perquisites as applicable
generally to senior executive officers or other peer executives of the Company.
The Executive shall be reimbursed for up to $1,500 per year for professional
dues and subscriptions in accordance with written policies and procedures of the
Company. Nothing paid to the Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
Base Salary payable to the Executive pursuant to this agreement.
3.3. WORKING FACILITIES. The Company shall furnish the
Executive with an office, a secretary and such other facilities and services
suitable to his position and adequate for the performance of his duties
hereunder.
3.4. VACATION. The Executive shall be entitled to such number
of paid vacation and leave days in each calendar year as determined by the Board
from time to time for its senior executive officers, but in no event less than
four (4) weeks of paid vacation during each calendar year. Unused vacation days
may be carried forward from year to year at the option of the Executive;
provided that the Executive notifies the Company of his intention to accrue any
unused vacation or leave time.
3.5. STOCK OPTIONS. The Executive shall be entitled to
participate in the Company's Stock Option Plan or any other similar plan adopted
by the Company that provides for the issuance of stock options to its employees.
Executive shall receive 20,000 options at market price with a three year vesting
period. The terms of the Stock Option Agreement and the Company Stock Option
Plan shall control the Employee's rights and interest in said options.
3.6 PROFESSIONAL MEETINGS AND SEMINARS AND EXPENSES. The
Executive shall be entitled to be reimbursed for up to $2,000 per year for
professional meetings and seminars in accordance with written policies and
procedures of the Company. Any time taken by the Executive for such professional
meetings and seminars shall be counted as part of (and is not in addition to)
the four (4) weeks of paid vacation provided to the Executive referenced in
Section 3.4 hereof.
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<PAGE> 4
4. TERMINATION.
4.1. TERMINATION FOR CAUSE.
(a) The Company may terminate this Agreement for
Cause. As used in this Agreement, the term "Cause" shall mean:
(i) A material willful breach committed in
bad faith by the Executive of the Executive's obligations under Section
1.2 hereof (other than as a result of incapacity due to physical or
mental illness) which is not remedied in a reasonable period of time
after receipt of written notice from the Company specifying such
breach; OR
(ii) The conviction of the Executive of a
felony based upon a violent crime or a sexual crime involving baseness,
vileness or depravity; OR
(iii) Substance abuse by the Executive in a
manner which materially affects the performance of the Executive's
obligations under Section 1.2 hereof; OR
(iv) Any act or omission of the Executive
which is materially contrary to the business interests, representations
or goodwill of the Company.
(b) The Termination Date for a termination of this
Agreement pursuant to this Section 4.1 shall be the date specified by the
Company in a written notice to the Executive of finding of Cause.
(c) Upon any termination of this Agreement pursuant
to this Section 4.1, the Executive shall be entitled to the compensation
specified in Section 5.1 hereof.
4.2. DISABILITY. The Company may terminate this Agreement upon
the Disability (as defined below) of the Employee in strict accordance with the
following procedure: Upon a good faith determination by not less than a majority
of the Board of the entire membership of the Board (excluding the Executive)
that the Executive has suffered a Disability, the Company shall give the
Executive written notice of its intention to terminate this Agreement due to
such Disability. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for six consecutive months or twelve
months whether or not consecutive as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
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<PAGE> 5
withheld unreasonably). The Termination Date for a termination of this Agreement
pursuant to this Section 4.2 shall be the date specified by the Board in the
resolution finding that the Executive has suffered a Disability, which date may
not be any earlier than 30 days after the date of Board's finding. Upon any
termination of this Agreement pursuant to this Section 4.2, the Executive shall
be entitled to the compensation specified in Section 5.2 hereof.
4.3. DEATH. This Agreement shall terminate automatically upon
the death of the Executive, without any requirement of notice by the Company to
the Executive's estate. The date of the Executive's death shall be the
Termination Date for a termination of this Agreement pursuant to this Section
4.3. Upon any termination of this Agreement pursuant to this Section 4.3, the
Executive shall be entitled to the compensation specified in Section 5.3 hereof.
4.4 TERMINATION BY THE EXECUTIVE WITHOUT CAUSE. The Company
may terminate the Executive's employment, without cause, as provided in this
Section 4.4. To terminate the Executive's employment without cause in accordance
with this Section 4.4, the Company shall give the Executive written notice of
such termination. The Termination Date shall be the date specified by the
Company in such notice. Upon any termination of this Agreement pursuant to this
Section 4.4, the Executive shall be entitled to the compensation specified in
Section 5.4 hereof.
4.5. TERMINATION BY THE EXECUTIVE UPON A CHANGE IN CONTROL OF
THE COMPANY. In the event a Change in Control (as hereafter defined) in the
Company shall occur during the Employment Period, and the Executive is (i)
assigned any position, duties or responsibilities that are significantly
diminished or changed when compared with the position, duties or
responsibilities of the Executive prior to such Change in Control, (ii) forced
to relocate to another location more than 25 miles from the Executive's location
prior to the Change in Control, or (iii) terminated, then the Executive shall be
entitled to the compensation specified in Section 5.5 hereof and any other
compensation and benefits provided in this Agreement in connection with a Change
in Control of the Company. For purposes of this Section 4.5, "Change in Control
of the Company" shall mean (i) the acquisition by a person or an entity or a
group of persons and entities, directly or indirectly, of more than fifty (50%)
percent of the Company's common stock in a single transaction or a series of
transactions (hereinafter referred to as a "50% Change in Control"); (ii) a
merger or other form of corporate reorganization resulting in an actual or DE
FACTO 50% Change in Control; or (iii) the failure of Applicable Directors
(defined below) to constitute a majority of the Board during any two (2)
consecutive year period after the date of this Agreement (the "Two-Year
Period"). "Applicable Directors" shall mean those individuals who are members of
the Board at the inception of a Two-Year Period and any new director whose
election to the Board or nomination for election to the Board was approved
(prior to any vote thereon by the shareholders) by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the Two-Year Period at issue or whose election or nomination for
election during such Two-Year Period was previously approved as provided in this
sentence. If the Executive elects to terminate his employment pursuant to the
terms of this Section 4.5, the Executive shall give the Company a written
termination notice. The Termination Date shall be the date specified in such
notice, which date may not be earlier than 30 days nor later than 90 days from
the Company's receipt of such notice.
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<PAGE> 6
4.6. TERMINATION BY THE EXECUTIVE DUE TO POOR HEALTH. The
Executive may terminate his employment under this Agreement upon written notice
to the Company if the Executive's health should become impaired to any extent
that makes the continued performance of the Executive's duties under this
Agreement hazardous to the Executive's physical or mental health or his life
(regardless of whether such condition would be deemed a Disability under any
other section of this Agreement), provided that the Executive shall have
furnished the Company with a written statement from a qualified doctor to that
effect and provided further that, at the Company's written request and expense,
the Executive shall submit to a medical examination by a qualified doctor
selected by the Company and acceptable to the Executive (which acceptance shall
not be unreasonably withheld) which doctor shall substantially concur with the
conclusions of the Executive's doctor. The Termination Date shall be the date
specified in the Executive's notice to the Company, which date may not be
earlier than 30 days nor later than 90 days from the Company's receipt of such
notice. Upon any termination of this Agreement pursuant to this Section 4.6, the
Executive shall be entitled to the compensation specified in Section 5.6 hereof.
4.7. NON-RENEWAL. In the event that this Agreement is not
renewed beyond the Initial Term as provided in Section 1.1 hereof, then this
Agreement shall terminate at the end of such Initial Term of this Agreement. The
last day of the Initial Term shall be the Termination Date for a termination
pursuant to this Section 4.7. Upon any termination of this Agreement pursuant to
this Section 4.7, the Executive shall be entitled to the compensation specified
in Section 5.7.
4.8. TERMINATION BY THE EXECUTIVE. The Executive may terminate
his employment under this Agreement for any reason whatsoever upon not less than
90 days prior written notice to the Company. The Termination Date under this
Section 4.8 shall be the date specified in the Executive's notice to the
Company, which date may not be earlier than 90 days from the Company's receipt
of such notice. Upon any termination of this Agreement pursuant to this Section
4.8, the Executive shall be entitled to the compensation specified in Section
5.7 hereof.
5. COMPENSATION AND BENEFITS UPON TERMINATION.
5.1. CAUSE. If the Executive's employment is terminated for
Cause, the Company shall pay the Executive his full Base Salary through the
Termination Date specified in Section 4.1 at the rate in effect at the
Termination Date, and the Company shall have no further obligation to the
Executive under this Agreement.
5.2. DISABILITY. During any period that the Executive is
unable to perform his duties under this Agreement as a result of incapacity due
to physical or mental illness, the Executive shall continue to receive his full
Base Salary until the Termination Date specified in Section 4.2, plus the
prorated amounts specified in Section 5.10. After such termination, the
Executive shall receive 50% of his annual Base Salary at the rate in effect at
the Termination Date, payable in six equal monthly installments, reduced by any
disability payments otherwise payable by or pursuant to plans provided by the
Company.
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5.3. DEATH. Upon the Executive's death, the Company shall pay
to the person designated by the Executive in a notice filed with the Company or,
if no person is designated, to his estate (i) any unpaid amounts of his Base
Salary and accrued vacation to the date of the Executive's death, plus the
prorated amounts specified in Section 5.10; and (ii) any payments the
Executive's spouse, beneficiaries or estate may be entitled to receive pursuant
to any pension or employee benefit plan or life insurance policy or similar plan
or policy then maintained by the Company. Upon full payment of all amounts
required to be paid under this Section 5.3, the Company shall have no further
obligation under this Agreement.
5.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. If the Company
terminates the Executive's employment without cause in accordance with and
subject to Section 4.4, then (i) the Company shall pay the Executive his full
Base Salary through the Termination Date specified in Section 4.4 at the rate in
effect at such Termination Date, plus the prorated amounts specified in Section
5.10; and (ii) in lieu of further salary payments to the Executive for periods
subsequent to the Termination Date and in consideration of the rights of the
Company under Section 8, the Company shall pay Executive an amount equal to 50%
of his annual Base Salary at the highest rate in effect during the 12 months
immediately preceding the Termination Date, payable to the Executive in six
equal monthly installments. Upon payment of the amounts specified under this
Section 5.4, the Company shall have no further obligation under this Agreement.
5.5. TERMINATION BY THE EXECUTIVE UPON A CHANGE IN CONTROL. If
the Executive terminates this Agreement upon a Change in Control of the Company
pursuant to Section 4.5, then (i) the Company shall pay the Executive his full
Base Salary through the Termination Date specified in Section 4.5, at the rate
in effect at such Termination Date, plus the prorated amounts specified in
Section 5.10; (ii) the Executive shall receive all other compensation and
benefits provided in this Agreement in connection with a termination of
employment due to a Change in Control of the Company; and (iii) in lieu of any
further salary payments to the Executive for periods subsequent to such
Termination Date (but without affecting compensation or benefits to the
Executive in accordance with the preceding clauses 5.5(i) and 5.5(ii)) and in
consideration of the rights of the Company under Section 8, the Company shall
pay as severance pay to the Executive an amount equal to 100% of the average
taxable compensation of the Executive for the five taxable years prior to such
termination (all as determined to compute the "base amount" for purposes of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")),
reduced, but not below zero, by the amount of compensation or benefits from the
Company to the Executive which would cause the severance pay payable pursuant to
this Section 5.5 to exceed the excess parachute payment limitation imposed under
Section 280G of the Code, payable to the Executive in 12 equal monthly
installments. In addition, in the event the Termination Date as a result of a
Change in Control occurs within the twelve-month period of a Change in Control,
any stock options held by the Executive on the Termination Date shall become
immediately exercisable.
5.6. TERMINATION BY THE EXECUTIVE DUE TO POOR HEALTH. If the
Executive terminates this Agreement pursuant to Section 4.6 hereof, the Company
shall pay to the Executive any unpaid amounts of his Base Salary and accrued
vacation to the Termination Date
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specified in Section 4.6, plus any disability payments otherwise payable by or
pursuant to plans provided by the Company, plus the prorated amounts specified
in Section 5.10.
5.7. NON-RENEWAL OR OTHER TERMINATION. If this Agreement
terminates pursuant to Section 4.7 or Section 4.8 hereof, the Company shall pay
to the Executive any unpaid amounts of his Base Salary and accrued vacation to
the Termination Date specified in Section 4.7 or Section 4.8, as the case may
be, plus the prorated amounts specified in Section 5.10.
5.8. HEALTH AND MEDICAL PLANS. The Executive shall be entitled
to all continuation of health, medical, hospitalization and other programs
during the period that the Executive is receiving payments under Section 5.5 of
this Agreement and, in all cases, as provided by any applicable law. The
Executive shall also be entitled to receive additional benefits as are provided
by the Company to its employees upon termination of employment with the Company.
5.9. MITIGATION. Except with respect to a termination in
accordance with Section 4.5, the Executive shall be required to mitigate the
amount of any payment provided for in this Section 5 by seeking other employment
or otherwise, any payment provided for in this Section 5 shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the Termination Date.
5.10. PERFORMANCE BONUS AND EXPENSE REIMBURSEMENT. If the
Executive's employment with the Company is terminated for any reason, other than
Cause (defined in Section 4.1(b) above), the Executive shall be paid, solely in
consideration for services rendered by the Executive prior to such termination,
a Bonus with respect to the Company's fiscal year in which the Termination Date
occurs, equal to the Performance Bonus that would have been payable to the
Executive for the fiscal year if the Executive's employment had not been
terminated, multiplied by the number of days in the fiscal year prior to and
including the date of termination and divided by 365. The Executive shall be
entitled to reimbursement for reasonable business expenses incurred prior to the
Termination Date, subject, however to the provisions of Section 3.1.
6. SUCCESSORS; BINDING AGREEMENT.
6.1. SUCCESSORS. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
acquiring a majority of the Company's voting common stock or any other successor
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as previously defined and any successor to its business and/or assets
which executes and delivers the agreement provided for in this Section 6 or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
6.2. BENEFIT. This Agreement and all rights of the Executive
under this
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Agreement shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 5, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
7. CONFLICTS WITH PRIOR EMPLOYMENT CONTRACT. Except as otherwise
provided in this Agreement, this Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof, and supersedes and
revokes any and all prior or existing agreements, written or oral, relating to
the subject matter hereof, and this Agreement shall be solely determinative of
the subject matter hereof.
8. NONCOMPETITION; UNAUTHORIZED DISCLOSURE; INJUNCTIVE RELIEF.
8.1. NO MATERIAL COMPETITION. Except with respect to services
performed under this Agreement on behalf of the Company, and subject to the
obligations of the Executive as an officer of the Company and the employment
obligations of the Executive under this Agreement, the Executive agrees that at
no time during the Employment Period or, for a period of one year immediately
following any termination of this Agreement for any reason, for himself or on
behalf of any other person, persons, firm, partnership, corporation or company:
(a) Solicit or accept business from any clients of
the Company or its affiliates, from any prospective clients whose business the
Company or any affiliate of the Company is in the process of soliciting at the
time of the Executive's termination, or from any former clients which had been
doing business with the Company within one year prior to the Executive's
termination;
(b) Solicit any employee of the Company or its
affiliates to terminate such employee's employment with the Company; or
(c) Engage in any business of the type performed by
the Company in the geographical area where the Company is actively doing
business or soliciting business.
8.2. UNAUTHORIZED DISCLOSURE. During the Employment Period and
for two years following the termination of this Agreement for any reason, the
Executive shall not, without the written consent of the Board or a person
authorized by the Board or as may otherwise be required by law or court order,
disclose to any person, other than an employee of the Company or person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company, any
material confidential information obtained by him while in the employ of the
Company with respect to any of the company's clients, physicians, creditors,
lenders, investment bankers or methods of marketing, PROVIDED, HOWEVER, that
confidential information shall not include any information generally known to
the public (other than as a result of unauthorized disclosure by the Executive)
or any information of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that conducted by the
Company.
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8.3. INJUNCTION. The Company and the Executive acknowledge
that a breach by the Executive of any of the covenants contained in this Section
8 may cause irreparable harm or damage to the Company or its subsidiaries, the
monetary amount of which may be virtually impossible to ascertain. As a result,
the Executive agrees that the Company shall be entitled to an injunction issued
by any court of competent jurisdiction enjoining and restraining all violations
of this Section 8 by the Executive or his associates, affiliates, partners or
agents, and that the right to an injunction shall be cumulative and in addition
to all other remedies the Company may possess.
8.4. CERTAIN PROVISIONS. The provisions of this Section 8
shall apply during the time the Executive is receiving Disability payments from
the Company as a result of a termination of this Agreement pursuant to Section
4.2 hereof.
9. ARBITRATION. Any dispute or controversy (except for disputes arising
under Section 8) arising under or in connection with this Agreement shall be
settled exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect (except to the extent that the procedures
outlined below differ from such rules). Within 7 days after receipt of written
notice from either party that a dispute exists and that arbitration is required,
both parties must within 7 business days agree on an acceptable arbitrator. If
the parties cannot agree on an arbitrator, then the parties shall list the "Big
Six" accounting firms (other than the Company's auditors) in alphabetical order
and the first firm that does not have a conflict of interest and is willing to
serve will be selected as the arbitrator. The parties agree to act as
expeditiously as possible to select an arbitrator and conclude the dispute. The
arbitrator must render his decision in writing within 30 days of his or its
appointment. The cost and expenses of the arbitration and of legal counsel to
the prevailing party shall be borne by the non-prevailing party, except as
otherwise provided in Section 3.7 hereof. Each party will advance one-half of
the estimated fees and expenses of the arbitrator. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of
Section 8 hereof.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its conflict
of laws principles to the extent that such principles would require the
application of laws other than the laws of the State of Florida.
11. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company: If to the Executive:
Lawrence M. Mullen Bruce A. Jordan
Pediatrix Medical Group, Inc. 2210 N.E. 204th Street
1455 Northpark Drive North Miami Beach, Florida 33180
Ft. Lauderdale, Florida 33326
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or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
12. BENEFITS: BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns. Notwithstanding the foregoing, neither party may assign its rights or
benefits hereunder without the prior written consent of the other party hereto.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
15. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other, whether such costs and fees are incurred
in a court of original jurisdiction or one or more courts of appellate
jurisdiction.
16. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of the Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement. No agreements or representations, oral or
otherwise, express or implied, have been made by either party with respect to
the subject matter of this agreement which agreements or representations are not
set forth expressly in this Agreement, and this Agreement supersedes any other
employment agreement between the Company and the Executive.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
PEDIATRIX MEDICAL GROUP, INC.
By:/s/Lawrence M. Mullen
----------------------------
THE EXECUTIVE:
/s/Bruce A. Jordan
-------------------------------
Bruce A. Jordan
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EXHIBIT 21.1
SUBSIDIARIES OF PEDIATRIX
1. PMG Acquisition Corporation
2. Pediatrix Medical Group of Delaware, Inc.
3. Pediatrix Medical Group of Florida, Inc.
Neonatal Associates of Northwest Florida, P.A.
4. Florida Regional Neonatal Associates, P.A.
5. Obstetrix Medical Group, Inc.
Obstetrix Medical Group of Florida, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Pediatrix Medical Group, Inc. on Forms S-8 (File Nos. 333-07057, 333-07061 and
333-07059) of our report dated January 26, 1998, except for Note 14, as to which
the date is March 23, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Pediatrix Medical Group, Inc. as
of December 31, 1996 and 1997, and for the years ended December 31, 1995, 1996
and 1997, which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Fort Lauderdale, Florida
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE AUDITED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,562
<SECURITIES> 27,132
<RECEIVABLES> 34,866
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82,019
<PP&E> 9,898
<DEPRECIATION> 0
<TOTAL-ASSETS> 196,812
<CURRENT-LIABILITIES> 28,111
<BONDS> 2,550
0
0
<COMMON> 151
<OTHER-SE> 163,558
<TOTAL-LIABILITY-AND-EQUITY> 196,812
<SALES> 0
<TOTAL-REVENUES> 128,850
<CGS> 0
<TOTAL-COSTS> 95,773
<OTHER-EXPENSES> (2,102)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324
<INCOME-PRETAX> 34,855
<INCOME-TAX> 13,942
<INCOME-CONTINUING> 20,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,913
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.33
<FN>AMOUNTS FOR RECEIVABLES AND PROPERTY, PLANT AND EQUIPMENT ARE NET OF ANY
ALLOWANCES AND ACCUMULATED DEPRECIATION
</FN>
</TABLE>
