UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-26762
PEDIATRIX MEDICAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Florida 65-0271219
<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
1455 North Park Drive
Ft. Lauderdale, Florida 33326
(Address of principal executive offices)
(Zip Code)
(954) 384-0175
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and fiscal year, if changed since last report)
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 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 __
At November 7, 1999, the Registrant had 15,575,185 shares of $0.01 par value
common stock outstanding.
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<TABLE>
<CAPTION>
PEDIATRIX MEDICAL GROUP, INC.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998.........................................................................................3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1999 and 1998 (Unaudited).......................................................................4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited).......................................................................5
Notes to Condensed Consolidated Financial Statements............................................................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................................................9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......................................12
PART II - OTHER INFORMATION....................................................................................13
- ---------------------------
ITEM 1. Legal Proceedings................................................................................13
ITEM 2. Changes in Securities and Use of Proceeds........................................................13
ITEM 3. Defaults Upon Senior Securities..................................................................13
ITEM 4. Submission of Matters to a Vote of Security-Holders..............................................13
ITEM 5. Other Information................................................................................14
ITEM 6. Exhibits and Reports on Form 8-K.................................................................14
SIGNATURE......................................................................................................15
- ---------
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2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
1999 December 31,
(Unaudited) 1998
------------------ -------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 442 $ 650
Accounts receivable, net....................... 77,823 61,599
Prepaid expenses............................... 639 682
Income taxes receivable........................ 3,577 --
Other current assets........................... 984 769
------------------ -------------------
Total current assets....................... 83,465 63,700
Property and equipment, net......................... 13,405 11,942
Other assets, net................................... 242,819 195,016
------------------ -------------------
Total assets............................... $ 339,689 $ 270,658
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 32,211 $ 30,043
Income taxes payable........................... -- 3,938
Line of credit................................. 56,793 --
Current portion of note payable................ 200 200
Deferred income taxes.......................... 19,042 14,604
------------------ -------------------
Total current liabilities.................. 108,246 48,785
Line of credit...................................... -- 7,850
Note payable........................................ 2,200 2,350
Deferred income taxes............................... 4,024 3,327
Deferred compensation............................... 2,137 953
------------------ -------------------
Total liabilities...................... 116,607 63,265
Minority interest................................... -- 6,342
Commitments and contingencies
Stockholders' equity:
Preferred stock................................ -- --
Common stock................................... 155 154
Additional paid-in capital..................... 132,703 130,720
Retained earnings.............................. 90,224 70,177
------------------ -------------------
Total stockholders' equity................. 223,082 201,051
------------------ -------------------
Total liabilities and stockholders' equity. $ 339,689 $ 270,658
================== ===================
</TABLE>
The accompanying notes are an integral part of
these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
1999 1998 1999 1998
---------------- --------------- --------------- ----------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Net patient service revenue ........... $ 57,921 $ 49,351 $ 168,514 $ 133,303
Operating expenses:
Salaries and benefits .............. 39,329 30,334 109,040 82,478
Supplies & other operating expenses 5,774 3,575 15,376 9,663
Depreciation and amortization ...... 3,168 2,372 8,805 6,185
--------- --------- --------- ---------
Total operating expenses ..... 48,271 36,281 133,221 98,326
--------- --------- --------- ---------
Income from operations ....... 9,650 13,070 35,293 34,977
Investment income ..................... 59 38 211 529
Interest expense ...................... (964) (392) (1,656) (743)
--------- --------- --------- ---------
Income before income taxes ... 8,745 12,716 33,848 34,763
Income tax provision .................. 3,760 5,086 13,801 13,907
--------- --------- --------- ---------
Net income ....................... $ 4,985 $ 7,630 $ 20,047 $ 20,856
========= ========= ========= =========
Per share data:
Net income per common and
common equivalent share:
Basic ......................... $ .32 $ .50 $ 1.30 $ 1.37
========= ========= ========= =========
Diluted ....................... $ .32 $ .48 $ 1.27 $ 1.31
========= ========= ========= =========
Weighted average shares used in
computing net income per
common and common
equivalent share:
Basic ........................ 15,502 15,256 15,438 15,214
========= ========= ========= =========
Diluted ...................... 15,724 15,971 15,846 15,904
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------------------------
1999 1998
----------------- -----------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 20,047 $ 20,856
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization ........................................ 8,805 6,185
Deferred income taxes ................................................ 5,135 6,174
Changes in assets and liabilities:
Accounts receivable ............................................. (16,224) (18,731)
Prepaid expenses and other current assets ....................... (234) (295)
Other assets .................................................... (10) 202
Accounts payable and accrued expenses ........................... 3,598 7,416
Income taxes .................................................... (6,877) (39)
-------- --------
Net cash provided from operating activities ................. 14,240 21,768
-------- --------
Cash flows used in investing activities:
Physician group acquisition payments ..................................... (50,629) (81,989)
Purchase of investments .................................................. -- (9,939)
Proceeds from sale of investments ........................................ -- 36,982
Purchase of subsidiary stock ............................................. (17,151) --
Purchase of property and equipment ....................................... (2,813) (2,803)
-------- --------
Net cash used in investing activities ....................... (70,593) (57,749)
-------- --------
Cash flows from financing activities:
Borrowings on line of credit, net ........................................ 48,943 15,275
Payments on note payable.................................................. (150) (150)
Proceeds from issuance of common stock ................................... 1,595 2,903
Proceeds from issuance of subsidiary stock ............................... 5,757 --
-------- --------
Net cash provided from financing activities .......... 56,145 18,028
-------- --------
Net decrease in cash and cash equivalents ..................................... (208) (17,953)
Cash and cash equivalents at beginning of period .............................. 650 18,562
-------- --------
Cash and cash equivalents at end of period .................................... $ 442 $ 609
======== ========
</TABLE>
The accompanying notes are an integral part of
these financial statements
5
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
of Pediatrix Medical Group, Inc. (the "Company" or "Pediatrix")
presented herein have been prepared in accordance with interim
financial reporting instructions to Form 10-Q and Article 10 of
Regulation S-X, and accordingly, do not include all disclosures
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of
interim periods.
The results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results of operations to
be expected for the year ended December 31, 1999. The interim condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 24, 1999.
Certain prior year amounts have been reclassified to conform to the
1999 presentation.
2. Business Acquisitions:
During the first nine months of 1999, the Company completed the
acquisition of ten physician group practices. Total consideration for
acquisitions approximated $50.6 million in cash and 1,000,000 shares of
stock in a subsidiary of the Company.
The Company has accounted for the acquisitions 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 practices 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 physician group practices
acquired during 1998 and 1999 as if the acquisitions had occurred on
January 1, 1998:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1999 1998
---------------- ----------------
(in thousands, except for per share data)
<S> <C> <C>
Net patient service revenue $ 177,214 $ 166,366
Net income 20,361 22,159
Net income per share:
Basic 1.32 1.46
Diluted 1.28 1.39
</TABLE>
6
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
2. Business Acquisitions, Continued:
The pro forma results do not necessarily represent results which would
have occurred if the acquisitions had taken place at the beginning of
the period, nor are they indicative of the results of future combined
operations.
Historically, the Company has capitalized certain incremental internal
costs directly related to completed acquisitions. Effective January 1,
1999, the Company expensed these costs as incurred. For the three and
nine months ended September 30, 1999, such costs totaled approximately
$35,000 and $682,000, respectively.
3. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------- --------------------
(in thousands)
<S> <C> <C>
Accounts payable............................ $ 12,974 $ 10,373
Accrued salaries and bonuses................ 4,167 6,433
Accrued payroll taxes and benefits.......... 5,108 4,465
Accrued professional liability coverage..... 6,850 6,866
Other accrued expenses...................... 3,112 1,906
-------------------- ---------------------
$ 32,211 $ 30,043
==================== =====================
</TABLE>
4. Net Income Per Share:
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.
5. Comprehensive Income:
For the quarters ended September 30, 1999 and 1998, comprehensive
income was $5.0 million and $7.6 million, respectively. For the nine
months ended September 30, 1999 and 1998, comprehensive income was
$20.0 million and $20.8 million, respectively.
7
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
6. 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.
In February 1999, the first of several federal securities law class
actions was commenced against the Company and three of its principal
officers in United States District Court for the Southern District of
Florida. Plaintiffs are shareholders purporting to represent a class of
all open market purchasers of the Company's common stock between April
28, 1998, and various dates through and including April 1, 1999. They
claim that during that period the Company violated the antifraud
provisions of the federal securities laws by issuing false and
misleading statements concerning its accounting practices and financial
results, focusing in particular on the capitalization of certain
payments made to employees in connection with acquisitions and revenue
recognition in light of recent inquiries initiated by state
investigators into the Company's billing practices. The complaints seek
damages in an undetermined amount based on the alleged decline in the
value of the common stock after the Company disclosed the
capitalization issue and the inquiries by state investigators. On June
24, 1999, the Judge in the United States District Court for the
Southern District of Florida entered an Order of Consolidation
consolidating into one case the several federal securities law class
action lawsuits. Therefore, the Judge entered two Orders in the case.
The first Order granted the motion made by the three public pension
funds to be appointed as lead plaintiffs and to have their counsel
appointed as lead plaintiffs' counsel. The second Order set the
administrative mechanism for handling the consolidated cases, including
the time limitations for the filing of a Consolidated Amended Complaint
by plaintiffs and a responsive pleading by defendants. Plaintiffs filed
a Consolidated Amended Class Action Complaint on August 20, 1999. On
October 7, 1999, the Company filed a Motion to Dismiss the Consolidated
Amended Complaint. Plaintiffs filed an answering memorandum on November
5, 1999, and the Company's reply memorandum is due on November 22,
1999. The Company continues to believe that the claims are without
merit and intends to defend them vigorously at the appropriate time.
In April 1999, the Company received requests, and in one case a
subpoena, from investigators in Arizona, Colorado and Florida for
information related to its billing practices. The Company is fully
cooperating with these inquiries. Although the Company believes that
its billing practices are proper, the investigations are ongoing and
the Company is unable to predict at this time whether they will have
any material adverse effect on the Company's business, financial
condition or results of operations.
7. Subsidiary Stock Purchase:
In July 1999, the Company purchased shares of common stock in a
subsidiary company for approximately $17.7 million. The minority shares
purchased were held by certain officers and employees of the Company
and represented approximately 23.5% of all outstanding shares of the
subsidiary. The Company has accounted for the transaction using the
purchase method of accounting and the excess of cost over the book
value of the shares acquired of $3.6 million is being amortized on a
straight-line basis over 25 years. As a result of the purchase, the
subsidiary is wholly-owned by the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
Three Months Ended September 30, 1999 as Compared to Three Months Ended
September 30, 1998
The Company reported net patient service revenue of $57.9 million for
the three months ended September 30, 1999, as compared with $49.4 million for
the same period in 1998, a growth rate of 17.4%. This growth is attributable to
new units at which the Company provides services as a result of acquisitions.
Same unit patient service revenue decreased $3.5 million, or 7.1%, for the three
months ended September 30, 1999. The decline in same unit patient service
revenue is primarily the result of a lower acuity level of patient service
billed in the three months ended September 30, 1999 as compared to the same
period in 1998. Same units are those units at which the Company provided
services for the entire current period and the entire comparable period.
Salaries and benefits increased $9.0 million, or 29.7% to $39.3 million
for the three months ended September 30, 1999, as compared with $30.3 million
for the same period in 1998. Of this $9.0 million increase, $5.3 million, or
58.9%, was attributable to hiring new physicians, primarily to support new unit
growth, and the remaining $3.7 million was primarily attributable to increased
support staff and resources added in the areas of nursing, management and
billing and reimbursement and certain internal costs directly related to
completed acquisitions that had historically been capitalized. Supplies and
other operating expenses increased $2.2 million, or 61.5% to $5.8 million for
the three months ended September 30, 1999, as compared with $3.6 million for the
same period in 1998, primarily as a result of increased legal fees related to
government investigations (see Legal Proceedings), new units and the addition of
new outpatient offices. Outpatient services require a higher level of office
supplies than do inpatient services. Depreciation and amortization expense
increased by approximately $796,000, or 33.6%, to $3.2 million for the three
months ended September 30, 1999, as compared with $2.4 million for the same
period in 1998, primarily as a result of amortization of goodwill in connection
with acquisitions.
Income from operations decreased approximately $3.4 million, or 26.2%,
to $9.7 million for the three months ended September 30, 1999, as compared with
$13.1 million for the same period in 1998.
The Company recorded net interest expense of approximately $905,000 for
the three months ended September 30, 1999, as compared with net interest expense
of approximately $354,000 for the same period in 1998. The increase in interest
expense in 1999 is primarily the result of funds used for the acquisition of
physician practices and the use of the Company's line of credit for such
purposes.
The effective income tax rate was approximately 43.0% and 40.0% for the
three month periods ended September 30, 1999 and 1998, respectively. The
increase was the result of lower operating income with a constant level of
non-deductible goodwill.
Net income decreased 34.7% to $5.0 million for the three months ended
September 30, 1999, as compared with $7.6 million for the same period in 1998.
Diluted net income per common and common equivalent share decreased to 32 cents
for the three months ended September 30, 1999, compared to 48 cents for the same
period in 1998.
9
<PAGE>
Nine Months Ended September 30, 1999 as Compared to Nine Months Ended
September 30, 1998
The Company reported net patient service revenue of $168.5 million for
the nine months ended September 30, 1999, as compared with $133.3 million for
the same period in 1998, a growth rate of 26.4%. This growth is attributable to
new units at which the Company provides services as a result of acquisitions.
Same unit patient service revenue decreased $4.1 million, or 3.7%, for the nine
months ended September 30, 1999. Same units are those units at which the Company
provided services for the entire current period and the entire comparable
period.
Salaries and benefits increased $26.5 million, or 32.2% to $109.0
million for the nine months ended September 30, 1999, as compared with $82.5
million for the same period in 1998. Of this $26.5 million increase, $15.7
million, or 59.2%, was attributable to hiring new physicians, primarily to
support new unit growth, and the remaining $10.8 million was primarily
attributable to increased support staff and resources added in the areas of
nursing, management and billing and reimbursement and certain internal costs
directly related to completed acquisitions that had historically been
capitalized. Supplies and other operating expenses increased $5.7 million, or
59.1% to $15.4 million for the nine months ended September 30, 1999, as compared
with $9.7 million for the same period in 1998, primarily as a result of: (i)
increased legal fees related to government investigations (see Legal
Proceedings); (ii) additional audit fees related to the Company's 1998
concurrent audit; (iii) new units; and (iv) the addition of new outpatient
offices. Outpatient services require a higher level of office supplies than do
inpatient services. Depreciation and amortization expense increased by $2.6
million, or 42.4% to $8.8 million for the nine months ended September 30, 1999,
as compared with $6.2 million for the same period in 1998, primarily as a result
of amortization of goodwill in connection with acquisitions.
Income from operations increased approximately $316,000, or .9%, to
$35.3 million for the nine months ended September 30, 1999, as compared with
$35.0 million for the same period in 1998. The increase in income from
operations was primarily due to increased volume, principally from acquisitions.
The Company recorded net interest expense of approximately $1.4 million
for the nine months ended September 30, 1999, as compared with net interest
expense of approximately $214,000 for the same period in 1998. The increase in
interest expense in 1999 is primarily the result of funds used for the
acquisition of physician practices and the use of the Company's line of credit
for such purposes.
The effective income tax rate was approximately 40.8% and 40.0% for the
nine month periods ended September 30, 1999 and 1998, respectively.
Net income decreased 3.9% to $20.0 million for the nine months ended
September 30, 1999, as compared with $20.9 million for the same period in 1998.
Diluted net income per common and common equivalent share decreased to $1.27 for
the nine months ended September 30, 1999, compared to $1.31 for the same period
in 1998.
Liquidity and Capital Resources
As of September 30, 1999, the Company had a working capital deficit of
approximately $24.8 million, a decrease of $39.7 million from the working
capital of $14.9 million available at December 31, 1998. This decline is the
result of the Company's line of credit being classified as a current liability
as of September 30,1999.
As of September 30, 1999, the Company had $18.2 million available under
its $75 million line of credit. The Company is currently evaluating its options
to secure long-term financing.
10
<PAGE>
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. The
Company has completed testing and implementation of all of its critical systems,
which include its clinical, billing, general ledger, and accounts payable
systems. In addition, the Company has completed an inventory and certain tests
of its information technology assets as well as critical non-information
technology related assets and services, including embedded microprocessors in,
for example, ultrasound machines. The Company has not set a limit on the
financial resources that may be applied to complete this project, although,
based upon the information that is currently available, it is expected that the
total cost, both capitalized and expensed will not exceed $500,000.
In preparing for the year 2000, the Company has requested certain
information from its payors, vendors, financial institutions and hospital
customers in order to evaluate their compliance plans and state of readiness.
The Company will continually update this information throughout 1999 in order to
determine what impact, if any these third parties may have on its business.
Pediatrix is in the process of finalizing its contingency plan to ensure that it
will be able to continue to provide services to its customers on and after
January 1, 2000. This plan includes education of physicians to ensure that they
are up to date on the provision of emergency services in instances where they
may experience equipment failure. In addition, the Company is instituting a
mechanism to verify that the payors are not experiencing problems processing
payments. However, if a substantial number of payors, vendors and hospital
customers do not make 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.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's unsecured revolving credit facility, mortgage note
payable and certain operating lease agreements are subject to market risk and
interest rate changes. The total amount available under the credit facility is
$75 million. At the Company's option, the credit facility bears interest at
either LIBOR plus .875% or the prime rate. The mortgage note payable bears
interest at the prime rate and the leases bear interest at LIBOR based variable
rates. The outstanding principal balances on the credit facility and note
payable were approximately $56.8 million and $2.4 million, respectively, at
September 30, 1999. The outstanding balances related to the operating leases
totaled approximately $13.6 million at September 30, 1999. Considering the total
outstanding balances under these instruments at September 30, 1999 of
approximately $72.8 million, a 1% change in interest rates would result in an
impact to pre-tax earnings of approximately $728,000 per year.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. 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. 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.
In February 1999, the first of several federal securities law
class actions was commenced against the Company and three of its
principal officers in United States District Court for the Southern
District of Florida. Plaintiffs are shareholders purporting to
represent a class of all open market purchasers of the Company's common
stock between April 28, 1998, and various dates through and including
April 1, 1999. They claim that during that period the Company violated
the antifraud provisions of the federal securities laws by issuing
false and misleading statements concerning its accounting practices and
financial results, focusing in particular on the capitalization of
certain payments made to employees in connection with acquisitions and
revenue recognition in light of recent inquiries initiated by state
investigators into the Company's billing practices. The complaints seek
damages in an undetermined amount based on the alleged decline in the
value of the common stock after the Company disclosed the
capitalization issue and the inquiries by state investigators. On June
24, 1999, the Judge of the United States District Court for the
Southern District of Florida entered an Order of Consolidation
consolidating into one case the several federal securities law class
action lawsuits. Therefore, the Judge recently entered two Orders in
the case. The first Order granted the motion made by the three public
pension funds to be appointed as lead plaintiffs and to have their
counsel appointed as lead plaintiffs' counsel. The second Order set the
administrative mechanism for handling the consolidated cases, including
the time limitations for the filing of a Consolidated Amended Complaint
by plaintiffs and a responsive pleading by defendants. Plaintiffs filed
a Consolidated Amended Class Action Complaint on August 20, 1999. On
October 7, 1999, the Company filed a Motion to Dismiss the Consolidated
Amended Complaint. Plaintiffs filed an answering memorandum on November
5, 1999, and the Company's reply memorandum is due on November 22,
1999. The Company continues to believe that the claims are without
merit and intends to defend them vigorously at the appropriate time.
In April 1999, the Company received requests, and in one case
a subpoena, from investigators in Arizona, Colorado and Florida for
information related to its billing practices. The Company is fully
cooperating with these inquiries. Although the Company believes that
its billing practices are proper, the investigations are ongoing and
the Company is unable to predict at this time whether they will have
any material adverse effect on the Company's business, financial
condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
Not applicable.
13
<PAGE>
Item 5. Other Information
-----------------
This quarterly report contains statements which, to the extent
they are not historical fact, constitute "forward looking statements"
under the securities laws. All forward looking statements involve
risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ
materially from those expressed or implied by or in such forward
looking statements. The forward looking statements in this document are
intended to be subject to the safe harbor protection provided under the
securities laws.
For additional information identifying certain other important
factors which may affect the Company's operations and could cause
actual results to vary materially from those anticipated in the forward
looking statements, see the Company's Securities and Exchange
Commission filings, including but not limited to, the discussion
included in the Business section of the Company's Form 10-K under the
heading "Factors to be Considered".
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.38 Employment Agreement between Pediatrix and Karl B.
Wagner
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements 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: November 12, 1999 By: /s/ Roger J. Medel, M.D.
-----------------------------------------------
Roger J. Medel, M.D., President and Chief
Executive Officer (Principal Executive Officer)
Date: November 12, 1999 By: /s/ Karl B. Wagner
------------------------------------------------
Karl B. Wagner, Chief Financial Officer
(Principal Financial and Accounting Officer)
15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into by and
between PEDIATRIX MEDICAL GROUP, INC., a Florida corporation (hereinafter called
the "Company"), and KARL B. WAGNER (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 several years of experience in financial
operations in the health care business.
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 an "Initial Term" effective on January 1,
1999 and expiring on December 31, 2001 (the "Expiration Date") unless sooner
terminated as hereinafter set forth. The Initial Term of this Agreement, and the
employment of the Executive hereunder, shall be automatically renewed for one
(1) year periods thereafter until terminated in accordance hereunder. (The
Initial Term and any automatic renewals shall be hereinafter referred to as the
"Employment Period").
1.2. Duties of the Executive. During the Employment Period,
the Executive shall serve as Chief Financial Officer of the Company. The
Executive shall report to, and shall be subject to the supervision and direction
of, the Vice President and Chief Operating Officer. During the Employment
Period, and excluding any periods of vacation and sick leave to which the
1
<PAGE>
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.
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 One Hundred
Fifty Thousand Dollars ($150,000) (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.
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 Fifty Thousand Dollars ($50,000) per
year. The Performance Bonus shall be based upon incentives or milestones to be
agreed upon by Executive and the Chief Operating Officer.
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 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
2
<PAGE>
plans, practices, policies and programs and such other perquisites as applicable
generally to senior executive officers or other peer executives 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 such 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.
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.
3
<PAGE>
(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
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 Company 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 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 elects to terminate his
employment with Company because 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, or (ii) forced to relocate to another location more than 25
4
<PAGE>
miles from the Executive's location prior to the Change in Control, or (iii)
Executive is terminated by Company, 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.
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. 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 4.7 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
4.7, the Executive shall be entitled to the compensation specified in Section
5.7 hereof.
5
<PAGE>
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.
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 Upon a Change in Control. If the Executive or
Company 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 Executive's
Base Salary herein plus Performance Bonus for the preceding twelve months prior
to the Termination Date, reduced, but not below zero, by the amount of
6
<PAGE>
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 Internal Revenue
Code of 1986, as amended (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 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. Termination by the Executive. If this Agreement
terminates pursuant to Section 4.7 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, 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 this Agreement
and, in all cases, as provided by any applicable law. The Executive shall also
be entitled to receive those benefits as are provided by the Company to its
employees upon termination of employment with the Company.
5.9. This clause left blank intentionally.
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(a) above), the Executive shall be paid, solely in
consideration for services rendered by the Executive prior to such termination,
a pro rata amount 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
7
<PAGE>
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 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 neonatology or perinatology-related
business of the types performed by the Company in the geographical area where
the Company is actively doing business or soliciting business, including, but
not limited to, employment or association with Sheridan Healthcare, Inc., its
subsidiaries, affiliates or successors-in-interest, and Magella Healthcare
Corporation, its subsidiaries, affiliates or successors-in-interest.
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
8
<PAGE>
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.
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
Five" 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. 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
9
<PAGE>
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 Karl B. Wagner
Pediatrix Medical Group, Inc. 567 Stonemont Drive
1455 Northpark Drive Weston, FL 33326
Ft. Lauderdale, Florida 33326
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.
10
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the 20th day of April, 1999.
PEDIATRIX MEDICAL GROUP, INC. THE EXECUTIVE:
/s/ Lawrence M. Mullen /s/ Karl B. Wagner
- -------------------------------------------- ----------------------------
Lawrence M. Mullen Karl B. Wagner
Vice President and Chief Operating Officer
11
<TABLE>
<CAPTION>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- ---- -------------- -------------- ---- --------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Basic:
Net income applicable to common
stock $ 4,985 $ 7,630 $ 20,047 $ 20,856
============== ============== ============== ==============
Weighted average number of
common shares outstanding 15,502 15,256 15,438 15,214
============== ============== ============== ==============
Basic net income per share $ .32 $ .50 $ 1.30 $ 1.37
============== ============== ============== ==============
Diluted:
Net income applicable to common
stock $ 4,985 $ 7,630 $ 20,047 $ 20,856
============== ============== ============== ==============
Weighted average number of
common shares outstanding 15,502 15,256 15,438 15,214
Additional dilutive shares related
to stock options 222 715 408 690
-------------- -------------- -------------- --------------
Weighted average number of
common and common equivalent
shares outstanding 15,724 15,971 15,846 15,904
============== ============== ============== ==============
Diluted net income per share $ .32 $ .48 $ 1.27 $ 1.31
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 893949
<NAME> PEDIATRIX MEDICAL GROUP, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 442
<SECURITIES> 0
<RECEIVABLES> 77823<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83465
<PP&E> 13405<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 339689
<CURRENT-LIABILITIES> 51453
<BONDS> 2200
0
0
<COMMON> 155
<OTHER-SE> 222927
<TOTAL-LIABILITY-AND-EQUITY> 339689
<SALES> 0
<TOTAL-REVENUES> 168514
<CGS> 0
<TOTAL-COSTS> 133221
<OTHER-EXPENSES> (211)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1656
<INCOME-PRETAX> 33848
<INCOME-TAX> 13801
<INCOME-CONTINUING> 20047
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20047
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.27
<FN>
<F1> AMOUNTS FOR RECEIVABLES AND PROPERTY, PLANT AND EQUIPMENT ARE NET OF ANY
ALLOWANCES AND ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
