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, 2000
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)
Florida 65-0271219
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1301 Concord Terrace
Sunrise, Florida 33323
(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 6, 2000, the Registrant had 15,852,481 shares of $0.01 par value
common stock outstanding.
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999.........................................................................................3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2000 and 1999 (Unaudited).......................................................................4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (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............................................................................14
ITEM 3. Defaults Upon Senior Securities..................................................................14
ITEM 4. Submission of Matters to a Vote of Security-Holders..............................................14
ITEM 5. Other Information................................................................................14
ITEM 6. Exhibits and Reports on Form 8-K.................................................................14
SIGNATURES.....................................................................................................15
----------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
----------------- ------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 1,897 $ 825
Accounts receivable, net....................... 73,883 77,726
Prepaid expenses............................... 818 468
Income taxes receivable........................ 744 --
Other current assets........................... 1,012 962
----------------- ------------------
Total current assets....................... 78,354 79,981
Property and equipment, net......................... 14,263 13,567
Other assets, net................................... 243,451 241,242
----------------- ------------------
Total assets............................... $ 336,068 $ 334,790
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 30,574 $ 29,099
Income taxes payable........................... -- 92
Line of credit................................. 38,800 48,393
Current portion of note payable................ 200 200
Deferred income taxes.......................... 17,497 18,549
----------------- ------------------
Total current liabilities.................. 87,071 96,333
Note payable........................................ 2,000 2,150
Deferred income taxes............................... 6,543 5,111
Deferred compensation............................... 3,642 2,309
----------------- ------------------
Total liabilities...................... 99,256 105,903
----------------- ------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock................................ -- --
Common stock................................... 158 156
Additional paid-in capital..................... 134,523 133,516
Retained earnings.............................. 102,131 95,215
----------------- ------------------
Total stockholders' equity................. 236,812 228,887
----------------- ------------------
Total liabilities and stockholders' equity. $ 336,068 $ 334,790
================= ==================
</TABLE>
The accompanying notes are an integral part of
these financial statements
3
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Net patient service revenue ............... $ 64,272 $ 57,921 $ 178,859 $ 168,514
Operating expenses:
Salaries and benefits .................. 45,420 39,329 132,961 109,040
Supplies & other operating expenses..... 7,002 5,774 19,400 15,376
Depreciation and amortization........... 3,478 3,168 10,249 8,805
--------------- --------------- --------------- ---------------
Total operating expenses ......... 55,900 48,271 162,610 133,221
--------------- --------------- --------------- ---------------
Income from operations ........... 8,372 9,650 16,249 35,293
Investment income.......................... 58 59 212 211
Interest expense........................... (951) (964) (2,953) (1,656)
--------------- --------------- --------------- ---------------
Income before income taxes............. 7,479 8,745 13,508 33,848
Income tax provision ...................... 3,650 3,760 6,592 13,801
--------------- --------------- --------------- ---------------
Net income............................. $ 3,829 $ 4,985 $ 6,916 $ 20,047
=============== =============== =============== ===============
Per share data:
Net income per common and
common equivalent share:
Basic............................ $ .24 $ .32 $ .44 $ 1.30
=============== =============== =============== ===============
Diluted........................... $ .24 $ .32 $ .43 $ 1.27
=============== =============== =============== ===============
Weighted average shares used in
computing net income per
common and common equivalent
share:
Basic............................. 15,779 15,502 15,727 15,438
=============== =============== =============== ===============
Diluted........................... 16,187 15,724 15,926 15,846
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of
these financial statements
4
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------
2000 1999
--------------- ---------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 6,916 $ 20,047
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 10,249 8,805
Deferred income taxes..................................... 380 5,135
Changes in assets and liabilities:
Accounts receivable.................................... 3,843 (16,224)
Prepaid expenses and other current assets ............. (400) (234)
Other assets........................................... (453) (10)
Accounts payable and accrued expenses.................. 1,475 3,598
Income taxes .......................................... (754) (6,877)
--------------- ---------------
Net cash provided from operating activities ........... 21,256 14,240
--------------- ---------------
Cash flows used in investing activities:
Physician group acquisition payments......................... (8,426) (50,629)
Purchase of subsidiary stock................................. -- (17,151)
Purchase of property and equipment........................... (2,942) (2,813)
--------------- ---------------
Net cash used in investing activities ................. (11,368) (70,593)
--------------- ---------------
Cash flows from (used in) financing activities:
(Payments) borrowings on line of credit, net................. (9,593) 48,943
Payments on note payable..................................... (150) (150)
Proceeds from issuance of common stock....................... 927 1,595
Proceeds from issuance of subsidiary stock................... -- 5,757
--------------- ---------------
Net cash (used in)provided from financing activities... (8,816) 56,145
--------------- ---------------
Net increase (decrease) in cash and cash equivalents ............. 1,072 (208)
Cash and cash equivalents at beginning of period ................. 825 650
--------------- ---------------
Cash and cash equivalents at end of period........................ $ 1,897 $ 442
============== ===============
</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, 2000
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
of Pediatrix Medical Group, Inc. (the "Company" or "Pediatrix")
presented herein 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 of normal recurring adjustments and the
adjustment to the contractual allowance which is further described in
Note 3, necessary for a fair presentation of the results of interim
periods.
The results of operations for the three and nine months ended September
30, 2000 are not necessarily indicative of the results of operations to
be expected for the year ended December 31, 2000. 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 27, 2000.
2. Business Acquisitions:
During the first nine months of 2000, the Company completed the
acquisition of four physician group practices. Total consideration for
acquisitions approximated $8.4 million in cash.
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 1999 and 2000 as if the acquisitions had occurred on
January 1, 1999:
Nine Months Ended
September 30,
------------------------------------
2000 1999
-------------- --------------
(in thousands, except for per share data)
Net patient service revenue $ 179,357 $ 180,977
Net income 6,940 20,963
Net income per share:
Basic .44 1.36
Diluted .44 1.32
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.
6
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
3. Allowance for Contractual Adjustments and Uncollectible Accounts:
During the second quarter of 2000, the Company recorded a change in its
estimate of the allowance for contractual adjustments and uncollectible
accounts. As a result of the change, the Company increased its reserve
by $6.5 million. Such amount has been recorded as a reduction of
revenue.
4. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ --------------------
(in thousands)
<S> <C> <C>
Accounts payable............................ $ 11,036 $ 9,664
Accrued salaries and bonuses................ 5,395 4,366
Accrued payroll taxes and benefits.......... 5,269 4,258
Accrued professional liability coverage..... 4,903 7,134
Other accrued expenses...................... 3,971 3,677
------------------- --------------------
$ 30,574 $ 29,099
=================== ====================
</TABLE>
5. 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.
6. Contingencies:
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 ("District Court"). The 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 Plaintiffs 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 with respect to the capitalization
of certain payments and the inquiries by state investigators. On June
24, 1999, the Judge of the District Court entered an Order of
Consolidation consolidating into one case the several federal
securities law class action lawsuits. On August 20, 1999, 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 Class Action Complaint. On October 7, 1999, the
Company filed a Motion to Dismiss the Consolidated Amended Class Action
Complaint.
7
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
6. Contingencies, Continued:
On January 19, 2000, the Judge granted defendants' Motion to Dismiss
based on deficiencies in the allegations which rendered the pleading
insufficient as a matter of law. The Judge provided that the Plaintiffs
could file an Amended Complaint on or before February 3, 2000. The
Plaintiffs filed a Second Amended Complaint on February 3, 2000. On
March 10, 2000, the Company filed a Motion to Dismiss the Second
Amended Consolidated Class Action Complaint. The Plaintiffs answering
memorandum was filed on April 3, 2000, and the Company's reply
memorandum was filed on April 19, 2000. On June 6, 2000, the Judge
entered an Order holding that the allegations in the Plaintiff's Second
Amended Complaint satisfied the requirements to maintain a cause of
action and thus denied the Company's Motion to Dismiss. On July 5,
2000, the Company was served with Plaintiff's First Request for
Production of Documents, to which the Company has responded. Discovery
is continuing. On September 11, 2000, the Judge entered an Order for
Pre-Trial Conference scheduled for May 25, 2001, and an Order of
Referral to Mediation. The Company continues to believe that the claims
are without merit and intends to vigorously defend against them.
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. On May 25, 2000, a
Settlement Agreement was entered into between the Company and the
Office of the Attorney General for the State of Florida ("OAG"). The
Company paid the OAG $40,000 to settle any possible overpayments by the
Florida Medicaid program from January 7, 1997 to the present time. The
Agreement settles all aspects of the billing inquiry in the State of
Florida. The Agreement states that the OAG investigation, together with
an independent audit performed by Ernst & Young, LLP, revealed that no
fraud was committed and the possible overpayment was due to lack of
clarity in the relevant billing codes. On August 28, 2000, a Settlement
Agreement was entered into between the Company and the State of
Arizona's Medicaid Agency. The Company paid the State $220,000 for
potential overpayments for neonatal and pediatric services provided
over a ten-year period, from January 1, 1990 to the effective date of
the Agreement. Additionally, the Company reimbursed the State of
Arizona for costs related to the investigation. The Agreement stated
that the State's investigation revealed a potential overpayment, but no
intentional fraud, and that any overpayment was due to a lack of
clarity in the relevant billing codes. The Company continues to
cooperate with the inquiry in Colorado. Although the Company believes
that its billing practices are proper, as confirmed by the results of
the billing inquiries by the States of Florida and Arizona, the
investigation in Colorado is ongoing and the Company is unable to
predict at this time whether it will have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company believes that billing audits, inquiries and investigations
from government agencies, such as the one received by the Company in
August 2000, now occur in the ordinary course of business in the
healthcare services industry in general. As such, the Company believes
that, from time to time, it may be subject to additional billing
audits, inquiries and/or investigations by government and other payors.
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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
Three Months Ended September 30, 2000 as Compared to Three Months Ended
September 30, 1999
The Company reported net patient service revenue of $64.3 million for
the three months ended September 30, 2000, as compared with $57.9 million for
the same period in 1999, a growth rate of 11.0%. Of this $6.4 million increase,
$2.9 million, or 45.3%, 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 $3.5 million, or 6.2%, for the three
months ended September 30, 2000. 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 $6.1 million, or 15.5%, to $45.4
million for the three months ended September 30, 2000, as compared with $39.3
million for the same period in 1999. Of this $6.1 million increase, $2.9
million, or 47.5%, was attributable to hiring new physicians, primarily to
support new unit growth, and the remaining $3.2 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 $1.2 million, or 21.3%, to $7.0 million for the three months
ended September 30, 2000, as compared with $5.8 million for the same period in
1999. The increase was primarily the result of additional rent expense related
to the Company's corporate and regional offices and increased costs related to
the development of regional collection offices. Depreciation and amortization
expense increased by approximately $310,000, or 9.8%, to $3.5 million for the
three months ended September 30, 2000, as compared with $3.2 million for the
same period in 1999, primarily as a result of depreciation on fixed asset
additions.
Income from operations decreased approximately $1.3 million, or 13.2%,
to approximately $8.4 million for the three months ended September 30, 2000, as
compared with $9.7 million for the same period in 1999.
The Company recorded net interest expense of approximately $893,000 for
the three months ended September 30, 2000, as compared with net interest expense
of approximately $905,000 for the same period in 1999. The decrease in interest
expense in 2000 is primarily due to the reduction of the Company's line of
credit.
The effective income tax rate was approximately 48.8% and 43.0% for the
three month periods ended September 30, 2000 and 1999, respectively. The
increase in the tax rate is due to the growth of non-deductible amounts
associated with goodwill as a percentage of pretax income combined with the
decline in the Company's estimated annual pretax income as a result of the $6.5
million charge recorded in the second quarter of 2000.
Net income decreased 23.2% to $3.8 million for the three months ended
September 30, 2000 as compared to $5.0 million for the same period in 1999.
Diluted net income per common and common equivalent share decreased to 24 cents
for the three months ended September 30, 2000, compared to 32 cents for the same
period in 1999.
9
<PAGE>
Nine Months Ended September 30, 2000 as Compared to Nine Months Ended
September 30, 1999
The Company reported net patient service revenue of $178.9 million for
the nine months ended September 30, 2000, as compared with $168.5 million for
the same period in 1999. Net patient service revenue for the nine months ended
September 30, 2000 includes a charge of $6.5 million, which was recorded during
the quarter ended June 30, 2000, to increase the allowance for contractual
adjustments and uncollectible accounts. Excluding the $6.5 million charge, net
patient service revenue increased by $16.9 million for the nine months ended
September 30, 2000. Of this $16.9 million increase, $7.4 million, or 43.8%, 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 $9.5 million, or 5.7%, for the nine months ended
September 30, 2000. 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 $24.0 million, or 21.9%, to $133.0
million for the nine months ended September 30, 2000, as compared with $109.0
million for the same period in 1999. Of this $24.0 million increase, $13.4
million, or 55.8%, was attributable to hiring new physicians, primarily to
support new unit growth, and the remaining $10.6 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 $4.0 million, or 26.2%, to $19.4 million for the nine months
ended September 30, 2000, as compared with $15.4 million for the same period in
1999. The increase was primarily the result of additional rent expense related
to the Company's corporate and regional offices, increased legal fees related to
government investigations, increased costs related to regional collection
offices, 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 $1.4 million, or 16.4%, to $10.2
million for the nine months ended September 30, 2000, as compared with $8.8
million for the same period in 1999, primarily as a result of depreciation on
fixed asset additions and amortization of goodwill in connection with
acquisitions.
Income from operations decreased approximately $19.1 million, or 54.0%,
to approximately $16.2 million for the nine months ended September 30, 2000, as
compared with $35.3 million for the same period in 1999. Excluding the $6.5
million charge to revenue, income from operations declined $12.6 million.
The Company recorded net interest expense of approximately $2.7 million
for the nine months ended September 30, 2000, as compared with net interest
expense of approximately $1.4 million for the same period in 1999. The increase
in interest expense in 2000 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 48.8% and 40.8% for the
nine-month periods ended September 30, 2000 and 1999, respectively. The increase
in the tax rate is due to the growth of non-deductible amounts associated with
goodwill as a percentage of pretax income combined with the decline in the
Company's estimated annual pretax income as a result of the $6.5 million charge.
Net income decreased 65.5% to $6.9 million for the nine months ended
September 30, 2000, as compared to $20.0 million for the same period in 1999.
Diluted net income per common and common equivalent share decreased to 43 cents
for the nine months ended September 30, 2000, compared to $1.27 for the same
period in 1999.
10
<PAGE>
Liquidity and Capital Resources
As of September 30, 2000, the Company had a working capital deficit of
approximately $8.7 million, a decrease of $7.7 million from the working capital
deficit of $16.4 million at December 31, 1999. The working capital deficit is
due to the classification of the Company's line of credit as current at
September 30, 2000 and December 31, 1999. Excluding the line of credit, the
Company had working capital of approximately $30.1 million at Steptember 30,
2000.
The Company refinanced its $75 million line of credit which matured on
September 30, 2000. The total amount of the refinanced line of credit is $75
million. At the Company's option, the line of credit bears interest at LIBOR
plus 2.0% or prime. The line of credit is secured by substantially all the
assets of the Company, its subsidiaries and its affiliated practices, and
matures on September 30, 2001.
As of September 30, 2000, the Company had $36.2 million available under
its $75 million line of credit. The Company anticipates that funds generated
from operations, together with cash on hand, and funds available under its line
of credit will be sufficient to meet its working capital requirements and
finance required capital expenditures for at least the next twelve months.
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
LIBOR plus 2.0% or prime. The mortgage note payable bears interest at prime and
the leases bear interest at LIBOR based variable rates. The outstanding
principal balances on the credit facility and note payable were approximately
$38.8 million and $2.2 million, respectively, at September 30, 2000. The
outstanding balances related to the operating leases totaled approximately $16.9
million at September 30, 2000. Considering the total outstanding balances under
these instruments at September 30, 2000 of approximately $57.9 million, a 1.0%
change in interest rates would result in an impact to pretax earnings of
approximately $579,000 per year.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
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 ("District Court"). The 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 Plaintiffs 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 with respect to
the capitalization of certain payments and the inquiries by state
investigators. On June 24, 1999, the Judge of the District Court
entered an Order of Consolidation consolidating into one case the
several federal securities law class action lawsuits. On August 20,
1999, 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 Class Action
Complaint. On October 7, 1999, the Company filed a Motion to Dismiss
the Consolidated Amended Class Action Complaint.
On January 19, 2000, the Judge granted defendants' Motion to
Dismiss based on deficiencies in the allegations which rendered the
pleading insufficient as a matter of law. The Judge provided that the
Plaintiffs could file an Amended Complaint on or before February 3,
2000. The Plaintiffs filed a Second Amended Complaint on February 3,
2000. On March 10, 2000, the Company filed a Motion to Dismiss the
Second Amended Consolidated Class Action Complaint. The Plaintiffs
answering memorandum was filed on April 3, 2000, and the Company's
reply memorandum was filed on April 19, 2000. On June 6, 2000, the
Judge entered an Order holding that the allegations in the Plaintiff's
Second Amended Complaint satisfied the requirements to maintain a
cause of action and thus denied the Company's Motion to Dismiss. On
July 5, 2000, the Company was served with Plaintiff's First Request
for Production of Documents, to which the Company has responded.
Discovery is continuing. On September 11, 2000, the Judge entered an
Order for Pre-Trial Conference scheduled for May 25, 2001, and an
Order of Referral to Mediation. The Company continues to believe that
the claims are without merit and intends to vigorously defend against
them.
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. On May 25, 2000, a
Settlement Agreement was entered into between the Company and the
Office of the Attorney General for the State of Florida ("OAG"). The
Company paid the OAG $40,000 to settle any possible overpayments by
the Florida Medicaid program from January 7, 1997 to the present time.
The Agreement settles all aspects of the billing inquiry in the State
of Florida. The Agreement states that the OAG investigation, together
with an independent audit performed by Ernst & Young, LLP, revealed
that no fraud was committed and the possible overpayment was due to
lack of clarity in the relevant billing codes. On August 28, 2000, a
Settlement Agreement was entered into between the Company and the
State of Arizona's Medicaid Agency. The Company paid the State
$220,000 for potential overpayments for neonatal and pediatric
services provided over a ten-year period, from January 1, 1990 to the
effective date of the Agreement. Additionally, the Company reimbursed
the State of Arizona for costs related to the investigation. The
Agreement stated that the State's investigation revealed a potential
overpayment, but no intentional fraud, and that any overpayment was
due to a lack of clarity in the relevant billing codes. The Company
continues to cooperate with the inquiry in Colorado. Although the
Company believes that its billing practices are proper, as confirmed
by the results of the billing inquiries by the States of Florida and
Arizona, the investigation in Colorado is ongoing and the Company is
unable to predict at this time whether it will have a material adverse
effect on the Company's business, financial condition or results of
operations.
13
<PAGE>
The Company believes that billing audits, inquiries and
investigations from government agencies, such as the one received by
the Company in August 2000, now occur in the ordinary course of
business in the healthcare services industry in general. As such, the
Company believes that, from time to time, it may be subject to
additional billing audits, inquiries and/or investigations by
government and other payors.
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.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
Not applicable
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.
The Company's shareholders should also be aware that while the
Company does, at various times, communicate with securities analysts,
it is against the Company's policies to disclose to such analysts any
material non-public information or other confidential information.
Accordingly, our shareholders should not assume that the Company
agrees with all statements or reports issued by such analysts. To the
extent statements or reports issued by analysts contain certain
projections, forecasts or opinions about our Company, such reports and
statements are not the responsibility of the Company.
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
10.39 Employment Agreement between Pediatrix and Kristen Bratberg
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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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 13, 2000 By: /s/ Roger J. Medel, M.D.
-----------------------------------------
Roger J. Medel, M.D., Chief Executive
Officer (Principal Executive Officer)
Date: November 13, 2000 By: /s/ Karl B. Wagner
-----------------------------------------
Karl B. Wagner, Chief Financial Officer
(Principal Financial and Accounting Officer)
15
