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 June 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 No.)
incorporation or organization)
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 August 10, 2000, the Registrant had 15,778,562 shares of $0.01 par value
common stock outstanding.
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
and December 31, 1999.........................................................................................3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 (Unaudited)............................................................................4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 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................................................................................15
ITEM 6. Exhibits and Reports on Form 8-K.................................................................15
SIGNATURES.....................................................................................................16
----------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 December 31,
(Unaudited) 1999
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 1,197 $ 825
Accounts receivable, net ........................................ 76,367 77,726
Prepaid expenses ................................................ 825 468
Income taxes receivable ......................................... 2,832 --
Other current assets ............................................ 821 962
-------- --------
Total current assets ........................................ 82,042 79,981
Property and equipment, net .......................................... 14,274 13,567
Other assets, net .................................................... 245,281 241,242
-------- --------
Total assets ................................................ $341,597 $334,790
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........................... $ 31,240 $ 29,099
Income taxes payable ............................................ -- 92
Line of credit................................................... 47,700 48,393
Current portion of note payable ................................. 200 200
Deferred income taxes ........................................... 17,888 18,549
-------- --------
Total current liabilities ................................... 97,028 96,333
Note payable ......................................................... 2,050 2,150
Deferred income taxes ................................................ 6,279 5,111
Deferred compensation ................................................ 3,339 2,309
-------- --------
Total liabilities ....................................... 108,696 105,903
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock ................................................. -- --
Common stock .................................................... 158 156
Additional paid-in capital ...................................... 134,441 133,516
Retained earnings ............................................... 98,302 95,215
-------- --------
Total stockholders' equity .................................. 232,901 228,887
-------- --------
Total liabilities and stockholders' equity .................. $341,597 $334,790
======== ========
</TABLE>
The accompanying notes are an integral part of
these financial statements
3
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Net patient service revenue ......................... $ 55,178 $ 56,767 $ 114,587 $ 110,593
Operating expenses:
Salaries and benefits ............................ 44,238 35,321 87,541 69,711
Supplies & other operating expenses .............. 6,677 5,076 12,398 9,602
Depreciation and amortization .................... 3,435 2,971 6,771 5,637
--------- --------- --------- ---------
Total operating expenses ................... 54,350 43,368 106,710 84,950
--------- --------- --------- ---------
Income from operations ..................... 828 13,399 7,877 25,643
Investment income ................................... 74 77 154 152
Interest expense .................................... (1,015) (457) (2,002) (692)
--------- --------- --------- ---------
(Loss) income before income taxes .............. (113) 13,019 6,029 25,103
Income tax provision ................................ 178 5,207 2,942 10,041
--------- --------- --------- ---------
Net (loss)income ............................... $ (291) $ 7,812 $ 3,087 $ 15,062
========= ========= ========= =========
Per share data:
Net (loss) income per common and common equivalent
share:
Basic ...................................... $ (.02) $ .50 $ .20 $ .97
========= ========= ========= =========
Diluted .................................... $ (.02) $ .50 $ .20 $ .95
========= ========= ========= =========
Weighted average shares used in
computing net (loss) income per
common and common equivalent
share:
Basic ...................................... 15,778 15,500 15,702 15,466
========= ========= ========= =========
Diluted .................................... 15,778 15,760 15,806 15,938
========= ========= ========= =========
</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>
Six Months Ended
June 30,
-----------------------------
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 3,087 $ 15,062
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................................... 6,771 5,637
Deferred income taxes ........................................................... 507 3,687
Changes in assets and liabilities:
Accounts receivable ........................................................ 1,359 (9,788)
Prepaid expenses and other current assets .................................. (216) (1,037)
Other assets ............................................................... (252) 170
Accounts payable and accrued expenses ...................................... 2,141 1,354
Income taxes ............................................................... (2,924) (5,551)
-------- --------
Net cash provided from operating activities ............................ 10,473 9,534
-------- --------
Cash flows used in investing activities:
Physician group acquisition payments ................................................ (8,088) (49,162)
Purchase of property and equipment .................................................. (2,147) (1,707)
-------- --------
Net cash used in investing activities .................................. (10,235) (50,869)
-------- --------
Cash flows from financing activities:
Borrowings on line of credit, net ................................................... (693) 34,043
Payments on note payable............................................................. (100) (100)
Proceeds from issuance of common stock .............................................. 927 1,573
Proceeds from issuance of subsidiary stock .......................................... -- 5,757
-------- --------
Net cash provided from financing activities ............................ 134 41,273
-------- --------
Net increase (decrease) in cash and cash equivalents ..................................... 372 (62)
Cash and cash equivalents at beginning of period ......................................... 825 650
-------- --------
Cash and cash equivalents at end of period ............................................... $ 1,197 $ 588
======== ========
</TABLE>
The accompanying notes are an integral part of
these financial statements
5
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 six months ended June 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 six months of 2000, the Company completed the
acquisition of three physician group practices. Total consideration for
acquisitions approximated $8.1 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:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
2000 1999
---------------- ----------------
(in thousands, except for per share data)
<S> <C> <C>
Net patient service revenue $ 114,672 $ 128,065
Net income 3,086 16,019
Net income per share:
Basic .20 1.04
Diluted .20 1.01
</TABLE>
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.
3. Allowance for Contractual Adjustments and Uncollectible Accounts:
During the three months ended June 30, 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.
6
<PAGE>
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
4. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------- --------------------
(in thousands)
<S> <C> <C>
Accounts payable............................ $ 12,151 $ 9,664
Accrued salaries and bonuses................ 3,986 4,366
Accrued payroll taxes and benefits.......... 4,035 4,258
Accrued professional liability coverage..... 6,923 7,134
Other accrued expenses...................... 4,145 3,677
-------------------- ---------------------
$ 31,240 $ 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. For the three months ended June 30, 2000, the calculation
of diluted net income per share excludes the antidilutive effect of
outstanding options on weighted average common shares.
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. The Company is preparing its written response
to be filed on a timely basis. The Company continues to believe that
the claims are without merit and intends to defend them vigorously.
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. The Company continues to
cooperate with the inquiries in Arizona and Colorado. Although the
Company believes that its billing practices are proper, as confirmed by
the results of the billing inquiry by the State of Florida, the
investigations in Arizona and Colorado are ongoing and the Company is
unable to predict at this time whether they will have a material
adverse effect on the Company's business, financial condition or
results of operations.
In August 2000, the Company was served with a subpoena requesting a
limited number of medical records for patients treated by its
physicians at a single hospital. The services provided in that state
represent an insignificant percentage of the Company's national group
practice. The Company intends to fully comply with the request.
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 June 30, 2000 as Compared to
Three Months Ended June 30, 1999
The Company reported net patient service revenue of $55.2 million for
the three months ended June 30, 2000, as compared with $56.8 million for the
same period in 1999. Net patient service revenue for the three months ended June
30, 2000 includes a charge of $6.5 million to increase the allowance for
contractual adjustments and uncollectible accounts as of June 30, 2000. This
charge is attributable to management's continuous assessment of accounts
receivable which was revised to reflect the changes occurring in the Company's
collection rates. This decline in collection rates is the result of: (i) an
increased utilization of non-critical care codes on which the Company realizes a
lower collection rate as a percentage of billed charges; (ii) continued
difficulties in the health care reimbursement environment; (iii) a significant
decline in reimbursement from non-contracted payors; (iv) continued delays in
settlement of receivables under appeal; and (v) disruption within our collection
offices due to the government investigations and the transition to a regional
collection structure. Excluding the $6.5 million charge, net patient service
revenue increased by $4.9 million for the three months ended June 30, 2000 as
compared to the same period in 1999. Of this $4.9 million net increase, $5.6
million, or 114.3%, was attributable to new units, including units at which the
Company provides services as a result of acquisitions. Same unit patient service
revenue decreased approximately $656,000, or 1.3%, for the three months ended
June 30, 2000. The decline in same unit patient service revenue is the result of
a lower acuity level of patient service billed and a lower expected collection
rate in the three months ended June 30, 2000 as compared to the same period in
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 $8.9 million, or 25.2%, to $44.2
million for the three months ended June 30, 2000, as compared with $35.3 million
for the same period in 1999. Of this $8.9 million increase, $5.4 million, or
60.7%, was attributable to hiring new physicians, primarily to support new unit
growth, and the remaining $3.5 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 $1.6
million, or 31.5%, to $6.7 million for the three months ended June 30, 2000, as
compared with $5.1 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, 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 $464,000, or
15.6%, to $3.4 million for the three months ended June 30, 2000, as compared
with $3.0 million for the same period in 1999, primarily as a result of
amortization of goodwill in connection with acquisitions.
Income from operations decreased approximately $12.6 million, or 93.8%,
to approximately $828,000 for the three months ended June 30, 2000, as compared
with $13.4 million for the same period in 1999. Excluding the $6.5 million
charge to revenue, income from operations declined $6.1 million.
The Company recorded net interest expense of approximately $941,000 for
the three months ended June 30, 2000, as compared with net interest expense of
approximately $380,000 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.
During the three months ended June 30, 2000, the Company recorded a tax
provision of $178,000 in order to reflect a significant increase in the
estimated effective tax rate for 2000 during the second quarter. The increase in
the tax rate is primarily due to the change in the Company's estimated annual
income before taxes as a result of the charge. Excluding the charge, the
effective tax rate for the three months ended June 30, 2000 would have been 46%
as compared to 40% for the same period in 1999. The increase was the result of a
growth in non-deductible amounts associated with goodwill as a percentage of
pretax income.
9
<PAGE>
The Company reported a net loss of approximately $291,000 for the three
months ended June 30, 2000. Excluding the impact of the $6.5 million charge, net
income decreased by $4.4 million, or 56.4%, to $3.4 million for the three months
ended June 30, 2000, as compared to $7.8 million for the same period in 1999.
The diluted net loss per common and common equivalent share was two cents for
the three months ended June 30, 2000. Excluding the impact of the $6.5 million
charge, diluted net income per common and common equivalent share decreased to
22 cents for the three months ended June 30, 2000, as compared to 50 cents for
the same period in 1999.
Six Months Ended June 30, 2000 as Compared to
Six Months Ended June 30, 1999
The Company reported net patient service revenue of $114.6 million for
the six months ended June 30, 2000, as compared with $110.6 million for the same
period in 1999. Net patient service revenue for the six months ended June 30,
2000 includes a charge of $6.5 million to increase the allowance for contractual
adjustments and uncollectible accounts as of June 30, 2000. Excluding the $6.5
million charge, net patient service revenue increased by $10.5 million for the
six months ended June 30, 2000. Of this $10.5 million net increase, $15.3
million, or 145.7%, was attributable to new units, including units at which the
Company provides services as a result of acquisitions. Same unit patient service
revenue decreased approximately $4.8 million, or 4.6%, for the six months ended
June 30, 2000. The decline in same unit patient service revenue is the result of
a lower acuity level of patient service billed and a lower expected collection
rate in the six months ended June 30, 2000 as compared to the same period in
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 $17.8 million, or 25.6%, to $87.5
million for the six months ended June 30, 2000, as compared with $69.7 million
for the same period in 1999. Of this $17.8 million increase, $10.4 million, or
58.4%, was attributable to hiring new physicians, primarily to support new unit
growth, and the remaining $7.4 million was primarily attributable to increased
support staff and resources added in the areas of nursing, management and
billing and reimbursement. Supplies and other operating expenses increased $2.8
million, or 29.1%, to $12.4 million for the six months ended June 30, 2000, as
compared with $9.6 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, 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 $1.2 million,
or 20.1%, to $6.8 million for the six months ended June 30, 2000, as compared
with $5.6 million for the same period in 1999, primarily as a result of
amortization of goodwill in connection with acquisitions.
Income from operations decreased approximately $17.7 million, or 69.3%,
to approximately $7.9 million for the six months ended June 30, 2000 as compared
with $25.6 million for the same period in 1999. Excluding the $6.5 million
charge to revenue, income from operations declined $11.2 million.
The Company recorded net interest expense of approximately $1.8 million
for the six months ended June 30, 2000, as compared with net interest expense of
approximately $540,000 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.
During the six months ended June 30, 2000, the Company recorded a tax
provision of approximately $2.9 million in order to reflect a significant
increase in the estimated effective tax rate for 2000. The increase in the tax
rate is primarily due to the change in the Company's estimated annual income
before taxes as a result of the charge. Excluding the charge, the effective tax
rate for the six months ended June 30, 2000 would have been 45.5% as compared to
40% for the same period in 1999.
The Company reported net income of approximately $3.1 million for the
six months ended June 30, 2000. Excluding the impact of the $6.5 million charge,
net income decreased by $8.3 million, or 55.0%, to $6.8 million for the six
months ended June 30, 2000, as compared to $15.1 million for the same period in
1999. Diluted net income per common and common equivalent share was 20 cents for
the six months ended June 30, 2000. Excluding the impact of the $6.5 million
charge, diluted net income per common and common equivalent share decreased to
43 cents for the six months ended June 30, 2000, as compared to 95 cents for the
same period in 1999.
10
<PAGE>
Liquidity and Capital Resources
As of June 30, 2000, the Company had a working capital deficit of
approximately $15 million, a decrease of $1.4 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 June 30,
2000 and December 31, 1999. Excluding the amount due under the line of credit,
working capital increased by approximately $673,000.
As of June 30, 2000, the Company had $27.3 million available under its
$75 million line of credit which matures on September 30, 2000. The Company is
currently evaluating options to obtain financing beyond the current maturity of
its line of credit. However, there can be no assurance that the Company will be
able to obtain financing in amounts and on terms substantially similar to its
existing credit facility on or prior to September 30, 2000. Provided the Company
is able to secure financing in amounts similar to those currently available
under its line of credit, it anticipates that funds generated from operations,
together with cash on hand, and funds available under such financing 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
either LIBOR plus .875% 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 $47.7 million and $2.3 million, respectively, at June 30, 2000.
The outstanding balances related to the operating leases totaled approximately
$17 million at June 30, 2000. Considering the total outstanding balances under
these instruments at June 30, 2000 of approximately $67 million, a 1% change in
interest rates would result in an impact to pre-tax earnings of approximately
$670,000 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 ("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. The Company is preparing its written
response to be filed on a timely basis. The Company continues to
believe that the claims are without merit and intends to defend them
vigorously.
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. The Company continues
to cooperate with the
13
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inquiries in Arizona and Colorado. Although the Company believes that
its billing practices are proper, as confirmed by the results of the
billing inquiry by the State of Florida, the investigations in Arizona
and Colorado are ongoing and the Company is unable to predict at this
time whether they will have a material adverse effect on the Company's
business, financial condition or results of operations.
In August 2000, the Company was served with a subpoena
requesting a limited number of medical records for patients treated by
its physicians at a single hospital. The services provided in that
state represent an insignificant percentage of the Company's national
group practice. The Company intends to fully comply with the request.
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
---------------------------------------------------
(a) The Company's Annual Meeting of Shareholders was held
on May 8, 2000.
(b) Not required.
(c) The matters voted on at the Annual Meeting of
Shareholders and the tabulation of votes on such
matters are as follows:
1. Election of Directors
Against
or Broker Non-
Name For Withheld Abstained Vote
--------------------------------------------------------------------------------
Roger J. Medel, M.D., M.B.A. 13,673,090 494,455 0 0
Michael B. Fernandez 13,673,961 493,584 0 0
M. Douglas Cunningham, M.D. 13,663,095 504,451 0 0
Cesar L. Alvarez 13,671,627 495,918 0 0
Waldemar A. Carlo, M.D. 13,996,148 171,398 0 0
G. Eric Knox, M.D. 13,995,351 172,195 0 0
14
<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.
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
3.2 Pediatrix's Amended and Restated Bylaws
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<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: August 11, 2000 By: /s/ Roger J. Medel, M.D.
-------------------------
Roger J. Medel, M.D., Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 By: /s/ Karl B. Wagner
-------------------
Karl B. Wagner, Chief Financial Officer
(Principal Financial and Accounting Officer)
16
