UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2003
OR
o 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.
Florida (State or other jurisdiction of incorporation or organization) |
65-0271219 (I.R.S. Employer Identification No.) |
1301 Concord Terrace
Sunrise, Florida 33323
(Address of principal executive offices)
(Zip Code)
(954) 384-0175
(Registrants 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date:
Shares of Common Stock outstanding as of November 3, 2003: 23,520,130
PEDIATRIX MEDICAL GROUP, INC.
INDEX
Page | ||||||
PART I FINANCIAL INFORMATION | ||||||
ITEM 1. | Financial Statements | 3 | ||||
Condensed Consolidated Balance Sheets as of September 30, 2003 (Unaudited) and December 31, 2002 | 3 | |||||
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited) | 4 | |||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (Unaudited) | 5 | |||||
Notes to Condensed Consolidated Financial Statements | 6 | |||||
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 | ||||
ITEM 4. | Disclosure Controls and Procedures | 14 | ||||
PART II OTHER INFORMATION | ||||||
ITEM 1. | Legal Proceedings | 15 | ||||
ITEM 6. | Exhibits and Reports on Form 8-K | 16 | ||||
SIGNATURES | 17 | |||||
EXHIBIT INDEX | 18 |
2
PART I FINANCIAL INFORMATION
September 30, | December 31, | |||||||||||||
2003 | 2002 | |||||||||||||
(in thousands) | ||||||||||||||
ASSETS |
||||||||||||||
Current assets: |
||||||||||||||
Cash and cash equivalents |
$ | 10,410 | $ | 73,195 | ||||||||||
Accounts receivable, net |
89,869 | 75,356 | ||||||||||||
Prepaid expenses |
2,199 | 6,083 | ||||||||||||
Deferred income taxes |
15,024 | 5,515 | ||||||||||||
Other assets |
1,236 | 1,206 | ||||||||||||
Total current assets |
118,738 | 161,355 | ||||||||||||
Property and equipment, net |
26,823 | 16,820 | ||||||||||||
Goodwill |
516,144 | 463,032 | ||||||||||||
Other assets, net |
16,570 | 7,472 | ||||||||||||
Total assets |
$ | 678,275 | $ | 648,679 | ||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||
Current liabilities: |
||||||||||||||
Line of credit |
$ | 14,500 | $ | | ||||||||||
Accounts payable and accrued expenses |
96,976 | 76,400 | ||||||||||||
Current portion of long-term debt and
capital lease obligations |
595 | 504 | ||||||||||||
Income taxes payable |
6,052 | 4,896 | ||||||||||||
Total current liabilities |
118,123 | 81,800 | ||||||||||||
Long-term debt and capital lease obligations |
2,042 | 1,985 | ||||||||||||
Deferred income taxes |
16,482 | 13,290 | ||||||||||||
Deferred compensation |
5,118 | 3,606 | ||||||||||||
Total liabilities |
141,765 | 100,681 | ||||||||||||
Commitments and contingencies |
||||||||||||||
Shareholders equity: |
||||||||||||||
Preferred stock; par value $.01 per share;
1,000 shares authorized; none issued |
| | ||||||||||||
Common stock; par value $.01 per share;
50,000 shares authorized; 28,067 and
27,005 shares issued, respectively |
281 | 270 | ||||||||||||
Additional paid-in capital |
420,467 | 392,321 | ||||||||||||
Treasury stock, at cost, 4,665 shares and
1,692 shares, respectively |
(150,000 | ) | (49,998 | ) | ||||||||||
Retained earnings |
265,762 | 205,405 | ||||||||||||
Total shareholders equity |
536,510 | 547,998 | ||||||||||||
Total liabilities and shareholders equity |
$ | 678,275 | $ | 648,679 | ||||||||||
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
PEDIATRIX MEDICAL GROUP, INC.
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||||
(in thousands, except for per share data) | ||||||||||||||||||||
Net patient service revenue |
$ | 145,514 | $ | 122,502 | $ | 405,415 | $ | 346,008 | ||||||||||||
Operating expenses: |
||||||||||||||||||||
Practice salaries and benefits |
80,196 | 68,232 | 230,460 | 195,950 | ||||||||||||||||
Practice supplies and other
operating expenses |
4,778 | 3,997 | 13,561 | 11,440 | ||||||||||||||||
General and administrative expenses |
19,843 | 17,483 | 57,150 | 52,796 | ||||||||||||||||
Depreciation and amortization |
2,495 | 1,520 | 6,048 | 4,447 | ||||||||||||||||
Total operating expenses |
107,312 | 91,232 | 307,219 | 264,633 | ||||||||||||||||
Income from operations |
38,202 | 31,270 | 98,196 | 81,375 | ||||||||||||||||
Investment income |
76 | 221 | 296 | 595 | ||||||||||||||||
Interest expense |
(417 | ) | (288 | ) | (1,142 | ) | (857 | ) | ||||||||||||
Income before income taxes |
37,861 | 31,203 | 97,350 | 81,113 | ||||||||||||||||
Income tax provision |
14,388 | 11,857 | 36,993 | 31,324 | ||||||||||||||||
Net income |
$ | 23,473 | $ | 19,346 | $ | 60,357 | $ | 49,789 | ||||||||||||
Per share data: |
||||||||||||||||||||
Net income per common and
common equivalent share: |
||||||||||||||||||||
Basic |
$ | 1.01 | $ | .75 | $ | 2.54 | $ | 1.93 | ||||||||||||
Diluted |
$ | .97 | $ | .73 | $ | 2.46 | $ | 1.86 | ||||||||||||
Weighted average shares used in
computing net income per common
and common equivalent share: |
||||||||||||||||||||
Basic |
23,290 | 25,677 | 23,788 | 25,760 | ||||||||||||||||
Diluted |
24,196 | 26,363 | 24,521 | 26,794 | ||||||||||||||||
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
PEDIATRIX MEDICAL GROUP, INC.
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2003 | 2002 | |||||||||||
(in thousands) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 60,357 | $ | 49,789 | ||||||||
Adjustments to reconcile net income to net cash provided from
operating activities: |
||||||||||||
Depreciation and amortization |
6,048 | 4,447 | ||||||||||
Deferred income taxes |
(6,317 | ) | 5,157 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(13,024 | ) | (11,793 | ) | ||||||||
Prepaid expenses and other assets |
4,177 | 718 | ||||||||||
Other assets |
(495 | ) | 1,335 | |||||||||
Accounts payable and accrued expenses |
20,167 | 6,830 | ||||||||||
Income taxes |
8,888 | 10,725 | ||||||||||
Net cash provided from operating activities |
79,801 | 67,208 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Acquisition payments, net of cash acquired |
(63,309 | ) | (25,809 | ) | ||||||||
Purchase of property and equipment |
(13,743 | ) | (5,187 | ) | ||||||||
Net cash used in investing activities |
(77,052 | ) | (30,996 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Borrowings on line of credit, net |
14,500 | | ||||||||||
Payments on long-term debt and capital lease obligations |
(459 | ) | (599 | ) | ||||||||
Proceeds from issuance of common stock |
20,427 | 28,223 | ||||||||||
Purchase of treasury stock |
(100,002 | ) | (49,998 | ) | ||||||||
Net cash used in financing activities |
(65,534 | ) | (22,374 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
(62,785 | ) | 13,838 | |||||||||
Cash and cash equivalents at beginning of period |
73,195 | 27,557 | ||||||||||
Cash and cash equivalents at end of period |
$ | 10,410 | $ | 41,395 | ||||||||
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
PEDIATRIX MEDICAL GROUP, INC.
September 30, 2003
(Unaudited)
1. | Basis of Presentation: | |
The accompanying unaudited condensed consolidated financial statements of Pediatrix Medical Group, Inc. and the notes thereto presented in this Quarterly Report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements, and do not include all disclosures required by accounting principles generally accepted in the United States of America 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 financial statements include all the accounts of Pediatrix Medical Group, Inc., and its subsidiaries combined with the accounts of the professional associations, corporations and partnerships (the PA Contractors) with which Pediatrix Medical Group, Inc. or one of its subsidiaries currently has specific management arrangements. The terms Pediatrix and the Company refer collectively to Pediatrix Medical Group, Inc., its subsidiaries and the PA Contractors. | ||
The consolidated results of operations for the interim periods presented in this Quarterly Report are not necessarily indicative of the results to be experienced for the entire fiscal year. The accompanying unaudited condensed consolidated financial statements and the notes thereto should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission. | ||
2. | Summary of Significant Accounting Policies: | |
Stock Options | ||
The Company accounts for stock-based compensation to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation expense for stock options issued to employees is reflected in the condensed consolidated statements of income because the market value of the Companys stock on the day options are granted equals the exercise price specified in the options. | ||
If compensation expense had been determined based on the fair value accounting provisions of Statement of Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock-Based Compensation, the Companys net income and net income per share would have been reduced to the pro forma amounts below: |
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Net income, as reported |
$ | 23,473 | $ | 19,346 | $ | 60,357 | $ | 49,789 | |||||||||
Deduct: Total stock-based employee
compensation expense determined
under fair value accounting rules,
net of related tax effect |
(3,361 | ) | (3,191 | ) | (8,039 | ) | (6,062 | ) | |||||||||
Pro forma net income |
$ | 20,112 | $ | 16,155 | $ | 52,318 | $ | 43,727 | |||||||||
Net income per share: |
|||||||||||||||||
As reported: |
|||||||||||||||||
Basic |
$ | 1.01 | $ | .75 | $ | 2.54 | $ | 1.93 | |||||||||
Diluted |
$ | .97 | $ | .73 | $ | 2.46 | $ | 1.86 | |||||||||
Pro forma: |
|||||||||||||||||
Basic |
$ | .83 | $ | .61 | $ | 2.16 | $ | 1.63 | |||||||||
Diluted |
$ | .80 | $ | .60 | $ | 2.14 | $ | 1.60 |
6
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. | Summary of Significant Accounting Policies, Continued: | |
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for options granted in the three months ended September 30, 2003 and 2002: dividend yield of 0% for all years and expected volatility of 62% and 60%, respectively. A 3.4% risk-free interest rate assumption is used for options with expected lives of five years (officers and physicians of the Company) granted in the three months ended September 30, 2002. No options with expected lives of five years were granted in the three months ended September 30, 2003. Risk-free interest rates of 1.9% and 2.4% were used for options with expected lives of three years (all other employees of the Company) granted in the three months ended September 30, 2003 and 2002, respectively. Weighted average assumptions used for options granted in the nine months ended September 30, 2003 and 2002 are: dividend yield of 0% for all years; expected volatility of 62% and 60%, respectively, and risk-free interest rates of 2.9% and 3.6%, respectively, for options with expected lives of five years (officers and physicians of the Company) and 2.1% and 3.7%, respectively, for options with expected lives of three years (all other employees of the Company). | ||
Accounting Pronouncements | ||
In November 2002, FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34, was issued. This statement elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for interim and annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material impact on the Companys financial position or results of operations for the three and nine months ended September 30, 2003. | ||
In January 2003, FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities an Interpretation of ARB No. 51, was issued. FIN 46 addresses consolidation by business enterprises of variable interest entities. The provisions of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. On October 9, 2003, FASB Staff Position No. 46-6 was issued which deferred the effective date of the provisions of FIN 46 for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003 until the end of the first interim or annual period ending after December 15, 2003. The Company has a lease arrangement with an entity that may be considered a variable interest entity under FIN 46. The Company is currently evaluating whether this or any other entity will be subject to consolidation under the provisions of FIN 46. | ||
3. | Business Acquisitions: | |
The Company completed the acquisition of an independent laboratory specializing in newborn metabolic screening and five physician group practices during the nine months ended September 30, 2003. Total consideration for the acquisitions, net of cash acquired, was approximately $63.0 million in cash. In connection with the acquisitions, the Company recorded goodwill of approximately $53.1 million, other assets of approximately $10.8 million and liabilities of approximately $927,000. The results of operations of the acquired practices have been included in the Companys consolidated financial statements from the respective dates of acquisition. |
7
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. | Business Acquisitions, Continued: | |
The following unaudited pro forma information combines the consolidated results of operations of the Company and the Companys 2002 and 2003 acquisitions, as if the transactions had occurred on January 1, 2002: |
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
(in thousands, except for per share data) | (in thousands, except for per share data) | ||||||||||||||||
Net patient service revenue |
$ | 146,223 | $ | 128,164 | $ | 414,810 | $ | 366,399 | |||||||||
Net income |
23,493 | 19,882 | 61,350 | 51,380 | |||||||||||||
Net income per share: |
|||||||||||||||||
Basic |
1.01 | 0.77 | 2.58 | 1.99 | |||||||||||||
Diluted |
0.97 | 0.75 | 2.50 | 1.92 |
4. | Accounts Payable and Accrued Expenses: | |
Accounts payable and accrued expenses consist of the following: |
September 30, | December 31, | |||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
Accounts payable |
$ | 11,230 | $ | 10,131 | ||||
Accrued salaries and bonuses |
40,888 | 35,377 | ||||||
Accrued payroll taxes and benefits |
12,564 | 10,364 | ||||||
Accrued professional liability coverage |
20,653 | 14,607 | ||||||
Other accrued expenses |
11,641 | 5,921 | ||||||
$ | 96,976 | $ | 76,400 | |||||
5. | Line of Credit: | |
The Company currently has a line of credit in the amount of $100 million (the Line of Credit) which bears interest at either the prime rate or the Eurodollar rate plus an applicable margin rate ranging from 2% to 2.75% at the Companys option. The Line of Credit is collateralized by substantially all of the Companys assets. The Company is subject to certain financial covenants and restrictions specified in its Line of Credit, including covenants that require the Company to maintain a minimum level of net worth and earnings and a restriction on the payment of dividends and certain other distributions, as specified therein. At September 30, 2003, to its knowledge, the Company was in compliance with such financial covenants and restrictions. The outstanding balance under the Line of Credit at September 30, 2003 was $14.5 million. We had no balance outstanding under our Line of Credit at December 31, 2002. The Line of Credit matures on August 14, 2004, and accordingly, has been classified as a current liability. The Company is currently evaluating a proposal from one of its lenders with respect to a new revolving credit facility. However, there can be no assurance that we will be able to obtain a new credit facility in the amount and on terms substantially similar to the Line of Credit. | ||
8
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. | Shareholders Equity: | |
The Companys changes in shareholders equity for the nine months ended September 30, 2003 are as follows (in thousands): |
Common Stock | ||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||
Number of | Paid in | Treasury | Retained | Shareholders' | ||||||||||||||||||||
Shares | Amount | Capital | Stock | Earnings | Equity | |||||||||||||||||||
Balance at December 31, 2002 |
27,005 | $ | 270 | $ | 392,321 | $ | (49,998 | ) | $ | 205,405 | $ | 547,998 | ||||||||||||
Net income |
| | | | 60,357 | 60,357 | ||||||||||||||||||
Common stock issued under
employee stock option and
stock purchase plans |
1,062 | 11 | 20,416 | | | 20,427 | ||||||||||||||||||
Treasury stock |
| | | (100,002 | ) | | (100,002 | ) | ||||||||||||||||
Tax benefit related to
employee stock options and
stock purchase plans |
| | 7,730 | | | 7,730 | ||||||||||||||||||
Balance at September 30, 2003 |
28,067 | $ | 281 | $ | 420,467 | $ | (150,000 | ) | $ | 265,762 | $ | 536,510 | ||||||||||||
7. | 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 applicable 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 applicable period. Potential common shares consist of the dilutive effect of convertible notes calculated using the if-converted method and outstanding options calculated using the treasury stock method. The calculation of diluted net income per share excludes the after-tax impact of interest expense related to convertible subordinated notes. | ||
The calculation of basic and diluted net income per share for the three and nine months ended September 30, 2003 and 2002 are as follows: |
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
(in thousands, except for per share data) | |||||||||||||||||
Basic: |
|||||||||||||||||
Net income applicable to common stock |
$ | 23,473 | $ | 19,346 | $ | 60,357 | $ | 49,789 | |||||||||
Weighted average number of
common shares outstanding |
23,290 | 25,677 | 23,788 | 25,760 | |||||||||||||
Basic net income per share |
$ | 1.01 | $ | .75 | $ | 2.54 | $ | 1.93 | |||||||||
Diluted: |
|||||||||||||||||
Net income |
$ | 23,473 | $ | 19,346 | $ | 60,357 | $ | 49,789 | |||||||||
Interest expense on convertible
subordinated debt, net of tax |
7 | 7 | 20 | 23 | |||||||||||||
Net income applicable to common stock |
$ | 23,480 | $ | 19,353 | $ | 60,377 | $ | 49,812 | |||||||||
Weighted average number of
common shares outstanding |
23,290 | 25,677 | 23,788 | 25,760 | |||||||||||||
Weighted average number of
dilutive common stock equivalents |
876 | 655 | 703 | 1,002 | |||||||||||||
Dilutive effect of convertible
subordinated debt |
30 | 31 | 30 | 32 | |||||||||||||
Weighted average number of
common and common equivalent
shares outstanding |
24,196 | 26,363 | 24,521 | 26,794 | |||||||||||||
Diluted net income per share |
$ | .97 | $ | .73 | $ | 2.46 | $ | 1.86 | |||||||||
9
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. | Common Stock Repurchase Program: | |
Since July 2002, the Company bought approximately 4.7 millions shares of its common stock at a cost of approximately $150 million under repurchase programs approved by its Board of Directors. During 2002, the Company completed its first repurchase program buying approximately 1.7 million shares of its common stock at a cost of approximately $50 million. During 2003, the Company completed two additional $50 million repurchase programs buying approximately 3.0 million shares of its common stock at a cost of approximately $100 million. All repurchases were made in the open market, subject to market conditions and trading restrictions. | ||
9. | Contingencies: | |
On October 30, 2003, the Company announced that five purported federal securities law class action cases commenced in June and July 2003 against the Company, two of the Companys principal officers and the Companys Chairman of the Board in the United States District Court for the Southern District of Florida, were voluntarily dismissed without predjudice. | ||
On June 6, 2002, the Company received a written request from the Federal Trade Commission (FTC) to submit information on a voluntary basis in connection with an investigation of issues of competition related to the 2001 acquisition of Magella Healthcare Corporation and its business practices generally. On February 5, 2003, the Company received additional information requests from the FTC in the form of a Subpoena and Civil Investigative Demand. Pursuant to these requests, the FTC has requested and the Company has produced documents and information relating to the acquisition and the Companys business practices in certain markets. The investigation is active and ongoing. The Company has continued to cooperate fully with the FTC by providing additional information and testimony on issues related to the investigation. At this time, the Company is unable to predict the outcome of this investigation and whether it will have a material adverse effect on the Companys business, financial condition, results of operations or the trading price of the Companys shares. | ||
In April 1999, the Company received requests from federal investigators for information related to its billing practices for services reimbursed by the TRICARE program for military dependents. In June 2003, the Company was advised by a U.S. Attorneys Office that it is conducting a similar civil investigation with respect to the Companys Medicaid billing practices nationwide. These investigations are now being coordinated together and are active and ongoing. The Company is cooperating fully with federal investigators and state Medicaid representatives in these matters. The Company believes that additional audits, inquiries and investigations from government agencies will continue to occur in the ordinary course of its business. The Company cannot predict whether any such pending or future audits, inquiries or investigations will have a material adverse effect on the Companys business, financial condition, results of operations or the trading price of the Companys shares. | ||
During the ordinary course of its business, the Company has become a party to pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice. Although these actions and proceedings are generally expected to be covered by insurance, there can be no assurance that the Companys medical malpractice insurance coverage will be adequate to cover liabilities arising out of medical malpractice claims if the outcomes of such claims are unfavorable to the Company. The Company believes, based upon its review of these pending matters, that the expected resolutions of such legal actions and proceedings will not have a material adverse effect on its business, financial condition, results of operations or the trading price of the Companys shares. |
10
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion highlights the principal factors affecting our financial condition and results of operations, as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements as of September 30, 2003, and for the three and nine months ended September 30, 2003 and 2002, and the notes thereto, presented in this Quarterly Report, and Managements Discussion and Analysis of Financial Condition and Results of Operations (including the discussion of our critical accounting policies) and our consolidated financial statements and the notes thereto contained in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. The consolidated results of operations for the interim periods reported are not necessarily indicative of the results to be experienced for the entire fiscal year. As used herein, us, we and our refer to Pediatrix Medical Group, Inc. and its subsidiaries and the professional associations, corporations and partnerships (the PA Contractors) with which Pediatrix Medical Group, Inc. or one of its subsidiaries has specific management arrangements.
The matters discussed in Managements Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts are forward-looking and are based on estimates, forecasts and assumptions involving risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. See Caution Concerning Forward-Looking Statements below.
During the nine months ended September 30, 2003, we completed the acquisition of a metabolic screening laboratory and five physician practice groups. Our results of operations for the three and nine month periods ended September 30, 2003 and 2002 include the results of operations for the metabolic screening laboratory and the physician practice groups from the respective dates of acquisition, and therefore are not comparable and are not indicative of the results which would have occurred had the acquisitions been completed at the beginning of the periods presented.
Results of Operations
Three Months Ended September 30, 2003 as Compared to Three Months Ended September 30, 2002
Our net patient service revenue increased $23.0 million, or 18.8%, to $145.5 million for the three months ended September 30, 2003, as compared to $122.5 million for the same period in 2002. Of this $23.0 million increase, $7.9 million, or 34.3%, was primarily attributable to revenue generated from physician practice groups and a metabolic screening laboratory which were acquired in 2003. Same unit patient service revenue increased $15.1 million, or 12.5%, for the three months ended September 30, 2003. The increase in same unit net patient service revenue was primarily the result of: (i) increased reimbursement for our services due to the changes in billing codes introduced by the American Medical Association in early 2003; (ii) an increase in neonatal intensive care patient days of 3.6%; (iii) modest price increases implemented on January 1, 2003; (iv) increased revenue from volume growth in perinatal services and other services including hearing screens and newborn nursery services provided at existing practices; and (v) improved managed care contracting. Same units are those units at which we provided services for the entire current period and the entire comparable prior period.
Practice salaries and benefits increased $12.0 million, or 17.5%, to $80.2 million for the three months ended September 30, 2003, as compared to $68.2 million for the same period in 2002. The increase was attributable to: (i) an increase in incentive compensation as a result of same unit growth and operational improvements at the physician practice level; (ii) costs associated with new physicians and other staff to support acquisition-related growth and volume growth at existing units; and (iii) an increase in professional liability and group health insurance costs.
Practice supplies and other operating expenses increased $781,000, or 19.5%, to $4.8 million for the three months ended September 30, 2003, as compared to $4.0 million for the same period in 2002. The increase was primarily attributable to supply and other operating costs related to our recent acquisition of a metabolic screening laboratory.
General and administrative expenses include all salaries, benefits, supplies and other operating expenses not specifically related to the day-to-day operations of our physician group practices, including billing and collection functions. General and administrative expenses increased $2.3 million, or 13.5%, to $19.8 million for the three months ended September 30, 2003, as compared to $17.5 million for the same period in 2002. This $2.3 million increase was attributable to: (i) salaries and benefits as a result of the continued growth of the Company; (ii) increased legal costs primarily related to the ongoing investigation by the Federal Trade Commission (see Note 9 of Notes to Condensed Consolidated Financial Statements); and (iii) increased group health and other insurance costs.
Depreciation and amortization expense increased by $975,000, or 64.1%, to $2.5 million for the three months ended September 30, 2003, as compared to $1.5 million for the same period in 2002. This $975,000 increase is attributable to: (i) amortization of identifiable intangible assets related to our acquisitions, and (ii) the
11
purchase of computer hardware and software, furniture, equipment and improvements at our corporate headquarters and regional offices.
Income from operations increased $6.9 million, or 22.2%, to $38.2 million for the three months ended September 30, 2003, as compared to $31.3 million for the same period in 2002. Our operating margin increased 0.8 percentage points to 26.3% for the three months ended September 30, 2003, as compared to 25.5% for the same period in 2002. The increase in operating margin is primarily attributable to a reduction in general and administrative expenses as a percent of revenue.
We recorded net interest expense (investment income less interest expense) of $341,000 for the three months ended September 30, 2003, as compared to net interest expense of $67,000 for the same period in 2002. The increase in net interest expense is primarily due to the use of cash on hand and borrowings under our line of credit to fund acquisitions and repurchase shares of our common stock.
Our effective income tax rate was 38.0% for the three months ended September 30, 2003 and 2002.
Net income increased to $23.5 million for the three months ended September 30, 2003, as compared to $19.3 million for the same period in 2002.
Diluted net income per common and common equivalent share was $0.97 on weighted average shares of 24.2 million for the three months ended September 30, 2003, as compared to $0.73 on weighted average shares of 26.4 million for the same period in 2002. The net decrease in weighted average shares outstanding was due to the weighted average impact of approximately 4.7 million shares purchased under our repurchase program, offset in part by an increase in outstanding shares due to stock option exercises and shares issued under our employee stock purchase plans.
Nine Months Ended September 30, 2003 as Compared to Nine Months Ended September 30, 2002
Our net patient service revenue increased $59.4 million, or 17.2%, to $405.4 million for the nine months ended September 30, 2003, as compared to $346.0 million for the same period in 2002. Of this $59.4 million increase, $18.2 million, or 30.6%, was primarily attributable to revenue generated from physician practice groups and a metabolic screening laboratory which were acquired in 2003. Same unit patient service revenue increased $41.2 million, or 12.3%, for the nine months ended September 30, 2003. The increase in same unit net patient service revenue was primarily the result of: (i) increased reimbursement for our services due to the changes in billing codes introduced by the American Medical Association in early 2003; (ii) an increase in neonatal intensive care patient days of 5.2%; (iii) modest price increases implemented on January 1, 2003, (iv) increased revenue from volume growth in perinatal services and other services including hearing screens and newborn nursery services provided at existing practices; and (v) improved managed care contracting. Same units are those units at which we provided services for the entire current period and the entire comparable prior period.
Practice salaries and benefits increased $34.5 million, or 17.6%, to $230.5 million for the nine months ended September 30, 2003, as compared to $196.0 million for the same period in 2002. The increase was attributable to: (i) costs associated with new physicians and other staff to support acquisition-related growth and volume growth at existing units; (ii) an increase in incentive compensation as a result of same unit growth and operational improvements at the physician practice level; and (iii) an increase in professional liability and group health insurance costs.
Practice supplies and other operating expenses increased $2.2 million, or 18.5%, to $13.6 million for the nine months ended September 30, 2003, as compared with $11.4 million for the same period in 2002. The increase was attributable to supply and other operating costs related to new units at which we provide services as a result of acquisitions and our recent acquisition of a metabolic screening laboratory.
General and administrative expenses include all salaries, benefits, supplies and other operating expenses not specifically related to the day-to-day operations of our physician group practices, including billing and collection functions. General and administrative expenses increased $4.4 million, or 8.2%, to $57.2 million for the nine months ended September 30, 2003, as compared to $52.8 million for the same period in 2002. This $4.4 million increase was primarily due to salaries and benefits as a result of the continued growth of the Company and increased group health and other insurance costs. General and administrative expenses for the nine months ended September 30, 2002 include settlement costs of $1.3 million related to a Colorado Medicaid investigation.
Depreciation and amortization expense increased by $1.6 million, or 36.0%, to $6.0 million for the nine months ended September 30, 2003, as compared to $4.4 million for the same period in 2002. This $1.6 million increase is attributable to: (i) amortization of identifiable intangible assets related to our acquisitions, and (ii) the purchase of computer hardware and software, furniture, equipment and improvements at our corporate headquarters and regional offices.
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Income from operations increased $16.8 million, or 20.7%, to $98.2 million for the nine months ended September 30, 2003, as compared with $81.4 million for the same period in 2002. Our operating margin increased 0.7 percentage points to 24.2% for the nine months ended September 30, 2003, as compared to 23.5% for the same period in 2002. The increase in operating margin is directly attributable to a reduction in general and administrative expenses as a percent of revenue.
We recorded net interest expense (investment income less interest expense) of $846,000 for the nine months ended September 30, 2003, as compared with net interest expense of $262,000 for the same period in 2002. The increase in net interest expense is primarily due to the use of cash on hand and borrowings under our line of credit to fund acquisitions and repurchase shares of our common stock.
Our effective income tax rates were 38.0% and 38.6% for the nine months ended September 30, 2003 and 2002, respectively.
Net income increased to $60.4 million for the nine months ended September 30, 2003, as compared to $49.8 million for the same period in 2002.
Diluted net income per common and common equivalent share was $2.46 on weighted average shares of 24.5 million for the nine months ended September 30, 2003, as compared to $1.86 on weighted average shares of 26.8 million for the same period in 2002. The net decrease in weighted average shares outstanding was due to the weighted average impact of approximately 4.7 million shares purchased under our repurchase program, offset in part by an increase in outstanding shares due to stock option exercises and shares issued under our employee stock purchase plans.
Liquidity and Capital Resources
As of September 30, 2003, we had approximately $10.4 million of cash and cash equivalents on hand as compared to $73.2 million at December 31, 2002. For the nine months ended September 30, 2003, the Company generated cash flow from operations of $79.8 million. Additionally, we had working capital (current assets less current liabilities) of approximately $615,000 at September 30, 2003, a decrease of $78.9 million from working capital of $79.6 million at December 31, 2002. The decrease in working capital is primarily due to the use of cash on hand and our line of credit to repurchase shares of our common stock (as more fully discussed below) and fund the acquisition of physician group practices and a metabolic screening laboratory.
Since July 2002, we bought approximately 4.7 million shares of our common stock at a cost of approximately $150 million under repurchase programs approved by our Board of Directors. During 2002, we completed our first repurchase program buying approximately 1.7 million shares of our common stock at a cost of approximately $50 million. During 2003, we completed two additional $50 million repurchase programs buying approximately 3.0 million shares of our common stock at a cost of approximately $100 million. All repurchases were made in the open market, subject to market conditions and trading restrictions.
The Company currently has a revolving line of credit in the amount of $100 million that matures August 14, 2004 (the Line of Credit). At our option, the Line of Credit bears interest at either the prime rate or the Eurodollar rate plus an applicable margin rate ranging from 2% to 2.75%. The Line of Credit is collateralized by substantially all of our assets. We are subject to certain financial covenants and restrictions specified in our Line of Credit, including covenants that require us to maintain a minimum level of net worth and earnings and a restriction on the payment of dividends and certain other distributions, as specified therein. At September 30, 2003, to our knowledge, we were in compliance with such financial covenants and restrictions. The outstanding balance under our Line of Credit at September 30, 2003 was $14.5 million. As of November 3, 2003, we had no balance outstanding under our Line of Credit. We also had no balance outstanding under our Line of Credit at December 31, 2002.
We are currently evaluating a proposal from one of our lenders with respect to a new revolving credit facility. However, there can be no assurance that we will be able to obtain a new credit facility in the amount and on terms substantially similar to the Line of Credit.
In September 2003, we purchased our corporate office building for approximately $10.1 million in cash pursuant to a lease purchase option. The building was previously leased under an operating lease agreement with a LIBOR-based variable interest rate. Our other capital expenditures have typically been for computer hardware and software, furniture, equipment and improvements at our corporate headquarters and regional offices. During the nine months ended September 30, 2003, capital expenditures amounted to approximately $13.7 million.
We anticipate that funds generated from operations, together with cash on hand, and funds available under our Line of Credit, will be sufficient to meet our working capital requirements, finance our required capital expenditures and meet our contractual obligations for at least the next 12 months.
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Caution Concerning Forward-Looking Statements
Certain information included or incorporated by reference in this Quarterly Report may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward looking statements. Such statements are often characterized by terminology such as believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, project, positioned, strategy and similar expressions. These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements in this Quarterly Report are made as of the date hereof. We disclaim any duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements.
Some of the factors that may cause actual results, developments and business decisions to differ materially from those projected or anticipated by such forward-looking statements, as more fully discussed under the section entitled Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, include pending and future investigations by federal and state government authorities of our billing or other practices (including the previously disclosed investigations regarding our Medicaid billing practices nationwide and an investigation by the Federal Trade Commission); unfavorable regulatory or other changes or conditions in geographic areas where our operations are concentrated; determinations that we failed to comply with applicable health care laws and regulations; limitations, reductions or retroactive adjustments to reimbursement amounts or rates by government-sponsored health care programs; audits by third party payors with respect to our billings for services; failure of physicians affiliated with us to appropriately record and document the services that they provide; our failure to find suitable acquisition candidates or successfully integrate any future or recent acquisitions; our failure to successfully implement our strategy of diversifying our operations; impairment of long-lived assets, such as goodwill; federal and state health care reform, including changes in the interpretation of government-sponsored health care programs; our failure to successfully recruit additional and retain existing qualified physicians; pending and future malpractice and other lawsuits (including the previously disclosed shareholder class action lawsuits); our failure to manage growth effectively and to maintain effective and efficient information systems; our failure to collect reimbursements from third party payors in a timely manner; cancellation or non-renewal of our arrangements with hospitals, or renewal of such arrangements on less favorable terms; loss of our affiliated physicians privileges or ability to provide services in hospitals, or hospitals entering into arrangements with physicians not affiliated with us; and increased competition in the health care industry.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our Line of Credit and an aircraft operating lease agreement are subject to market risk and interest rate changes. The total amount available under our Line of Credit is $100 million. At our option, the Line of Credit bears interest at either the prime rate or the Eurodollar rate plus an applicable margin rate ranging from 2% to 2.75%. The lease bears interest at a LIBOR-based variable rate. The outstanding principal balance on the Line of Credit was $14.5 million at September 30, 2003. The outstanding balance related to the aircraft operating lease totaled approximately $5.7 million at September 30, 2003. Considering the total outstanding balances under these instruments at September 30, 2003 of approximately $20.2 million, a 1% change in interest rates would result in an impact to pre-tax earnings of approximately $202,000 per year.
Item 4. Disclosure Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of September 30, 2003. There have been no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On October 30, 2003, we announced that five purported federal securities law class action cases commenced in June and July 2003 against us, two of our principal officers and the Chairman of the Board in the United States District Court for the Southern District of Florida, were voluntarily dismissed without predjudice. |
On June 6, 2002, we received a written request from the Federal Trade Commission (FTC) to submit information on a voluntary basis in connection with an investigation of issues of competition related to the 2001 acquisition of Magella Healthcare Corporation and our business practices generally. On February 5, 2003, we received additional information requests from the FTC in the form of a Subpoena and Civil Investigative Demand. Pursuant to these requests, the FTC has requested and we have produced documents and information relating to the acquisition and our business practices in certain markets. The investigation is active and ongoing. We have continued to cooperate fully with the FTC by providing additional information and testimony on issues related to the investigation. At this time, we are unable to predict the outcome of this investigation and whether it will have a material adverse effect on our business, financial condition, results of operations or the trading price of our shares. |
In April 1999, we received requests from federal investigators for information related to our billing practices for services reimbursed by the TRICARE program for military dependents. In June 2003, we were advised by a U.S. Attorneys Office that it is conducting a similar civil investigation with respect to our Medicaid billing practices nationwide. These investigations are now being coordinated together and are active and ongoing. We are cooperating fully with federal investigators and state Medicaid representatives in these matters. We believe that additional audits, inquiries and investigations from government agencies will continue to occur in the ordinary course of our business. We cannot predict whether any such pending or future audits, inquiries or investigations will have a material adverse effect on our business, financial condition, results of operations or the trading price of our shares. |
During the ordinary course of our business, we have become a party to pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice. Although these actions and proceedings are generally expected to be covered by insurance, there can be no assurance that our medical malpractice insurance coverage will be adequate to cover liabilities arising out of medical malpractice claims if the outcomes of such claims are unfavorable to us. We believe, based upon our review of these pending matters, that the expected resolutions of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of operations or the trading price of our shares. |
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PEDIATRIX MEDICAL GROUP, INC.
PART II OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K.
(a) | Exhibits | |
See Exhibit Index. | ||
(b) | Reports on Form 8-K | |
Form 8-K, filed July 22, 2003 and dated June 24, 2003, reporting Item 5 (Other Events) related to a U.S. Attorneys Office civil investigation of the Companys Medicaid billing practices nationwide and the Companys intent to vigorously defend shareholder lawsuits. | ||
Form 8-K, filed and dated August 6, 2003, reporting Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 9 (Regulation FD Disclosure of Results of Operations and Financial Condition) related to a press release reporting results of operations for the fiscal quarter ended June 30, 2003. |
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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 5, 2003 | By: /s/ Roger J. Medel, M.D. | |
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Roger J. Medel, M.D., President and Chief Executive Officer (principal executive officer) |
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Date: November 5, 2003 | By: /s/ Karl B. Wagner | |
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Karl B. Wagner, Chief Financial Officer (principal financial officer) |
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EXHIBIT INDEX
Exhibit No. |
Description | |
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3.1 | Amended and Restated Articles of Incorporation of Pediatrix Medical Group, Inc., (incorporated by reference to Exhibit 3.1 to Pediatrixs Registration Statement on Form S-1 (Registration No. 33-95086)). | |
3.2 | Amendment and Restated Bylaws of Pediatrix Medical Group, Inc., (incorporated by reference to Exhibit 3.2 to Pediatrixs Quarterly Report on Form 10-Q for the period ended June 30, 2000). | |
3.3 | Articles of Designation of Series A Junior Participating Preferred Stock of Pediatrix Medical Group, Inc. (incorporated by reference to Exhibit 3.1 to Pediatrixs current report on Form 8-K dated March 31, 1999). | |
4.1 | Rights Agreement, dated as of March 31, 1999, between Pediatrix Medical Group, Inc., and BankBoston, N.A., as rights agent including the form of Articles of Designations of Series A Junior Participating Preferred Stock and the form of Rights Certificate (incorporated by reference to Exhibit 4.1 to Pediatrixs current report on Form 8-K dated March 31, 1999). | |
10.1+ | Amendment No. 6 to Amended and Restated Credit Agreement, dated as of September 23, 2003, among Pediatrix Medical Group, Inc., certain professional contractors, Fleet National Bank, U.S. Bank National Association, and HSBC Bank USA. | |
31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
+ | Filed herewith. |
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Exhibit 10.1
PEDIATRIX MEDICAL GROUP
AMENDED AND RESTATED CREDIT AGREEMENT
Originally Dated as of June 27, 1996
As Amended and Restated as of November 1, 2000
As Amended and Restated as of August 14, 2001
Amendment No. 6
Dated as of September 23, 2003
FLEET NATIONAL BANK, AGENT AND LENDER
U.S. BANK NATIONAL ASSOCIATION, SYNDICATION AGENT AND LENDER
HSBC BANK USA, DOCUMENTATION AGENT AND LENDER
AMENDMENT NO. 6
TO AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of September 23, 2003
This agreement, dated as of September 23, 2003 (this Amendment), is among Pediatrix Medical Group, Inc., a Florida corporation, the Material Related Entities of Pediatrix Medical Group, Inc. from time to time party hereto, and the Lenders from time to time party hereto, including Fleet National Bank, both in its capacity as a Lender and in its capacity as an Agent, U.S. Bank National Association, formerly known as Firstar Bank N.A., both in its capacity as a Lender and in its capacity as Syndication Agent, and HSBC Bank USA, both in its capacity as a Lender and in its capacity as Documentation Agent. The parties hereto agree as follows:
1. Credit Agreement; Definitions. This Amendment amends the Credit Agreement originally dated as of June 27, 1996, as amended and restated as of November 1, 2000 and as further amended and restated as of August 14, 2001 among the parties hereto (as in effect prior to giving effect to this Amendment, the Credit Agreement). Terms used in this Amendment but not defined herein are used as defined in the Credit Agreement.
2. Amendment of Credit Agreement. Effective upon the date hereof, the Credit Agreement is amended as follows:
2.1. Amendment of Section 6.11. Section 6.11 of the Credit Agreement is amended to read in its entirety as follows: |
6.11 Capital Expenditures. The Borrowers will not make aggregate Capital Expenditures exceeding $10,000,000 in any fiscal year, except that in fiscal year 2003, the Borrowers may make aggregate Capital Expenditures of $10,000,000 plus up to $11,000,000 for the purchase of the property at 1301 Concord Terrace in Sunrise, Florida that serves as the Borrowers corporate headquarters. |
3. Representation and Warranty. In order to induce the Agent and the Lenders to enter into this Amendment, each of the Obligors jointly and severally represents and warrants that, after giving effect to this Amendment, no Default exists.
4. Payment of Agents Legal Expenses. Upon or prior to the effectiveness of this Amendment, each of the Borrowers jointly and severally agrees to pay the reasonable legal fees and expenses of the Agent with respect to this Amendment and the transactions contemplated hereby.
5. Miscellaneous. The Credit Agreement as amended by this Amendment (the Amended Credit Agreement) and all of the Credit Documents are each confirmed as being in full force and effect. This Amendment, the Amended Credit Agreement and the other Credit Documents referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral. Each of this Amendment and the Amended Credit Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors and assigns, including as such successors and assigns all holders of any Credit Obligation. This Amendment shall be governed by and construed in accordance with the laws (other than the conflict of law rules) of The Commonwealth of Massachusetts.
[The remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, each of the undersigned has duly executed this Amendment (or caused this Amendment to be executed on its behalf by its officer or representative thereunto duly authorized) under seal as of the date first written above.
PEDIATRIX MEDICAL GROUP, INC. (Florida) | ||
By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Chief Financial Officer | ||
FOOTHILL MEDICAL GROUP, INC. MAGELLA MEDICAL ASSOCIATES MIDWEST, P.C. MAGELLA MEDICAL GROUP, INC. (d/b/a MAGELLA MEDICAL GROUP, A MEDICAL CORPORATION) MAGELLA NEVADA, LLC MICHAEL POKROY, M.D. PROF. CORP. d/b/a OBSTETRIX MEDICAL GROUP OF NEVADA, LTD. NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC. OBSTETRIX MEDICAL GROUP OF CALIFORNIA, A PROFESSIONAL CORPORATION OBSTETRIX MEDICAL GROUP OF COLORADO, P.C. OBSTETRIX MEDICAL GROUP OF KANSAS AND MISSOURI, P.A. PEDIATRIX MEDICAL GROUP OF ARKANSAS, P.A. PEDIATRIX MEDICAL GROUP OF CALIFORNIA, A PROFESSIONAL CORPORATION PEDIATRIX MEDICAL GROUP OF COLORADO, P.C. PEDIATRIX MEDICAL GROUP OF ILLINOIS, P.C. PEDIATRIX MEDICAL GROUP OF KANSAS, P.A. PEDIATRIX MEDICAL GROUP OF KENTUCKY, PSC PEDIATRIX MEDICAL GROUP OF MICHIGAN, P.C. PEDIATRIX MEDICAL GROUP OF MISSOURI, P.C. PEDIATRIX MEDICAL GROUP OF NORTH CAROLINA, P.C. PEDIATRIX MEDICAL GROUP OF OHIO CORP. PEDIATRIX MEDICAL GROUP OF OKLAHOMA, P.C. PEDIATRIX MEDICAL GROUP OF PENNSYLVANIA, P.C. PEDIATRIX MEDICAL GROUP OF PUERTO RICO, P.S.C. PEDIATRIX MEDICAL GROUP NEONATOLOGY AND PEDIATRIC INTENSIVE CARE SPECIALISTS OF NEW YORK, P.C. PEDIATRIX MEDICAL GROUP |
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By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Attorney-in-Fact |
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PEDIATRIX MEDICAL GROUP, S.P. PERINATAL PEDIATRICS, P.A. POKROY MEDICAL GROUP OF NEVADA, LTD. d/b/a PEDIATRIX MEDICAL GROUP OF NEVADA |
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By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Attorney-in-Fact | ||
ALASKA NEONATOLOGY ASSOCIATES, INC. ASSOCIATES IN NEONATOLOGY, INC. AUGUSTA NEONATOLOGY ASSOCIATES, P.C. BNA ACQUISITION COMPANY, INC. CENTRAL OKLAHOMA NEONATOLOGY ASSOCIATES, INC. CNA ACQUISITION CORP. DES MOINES PERINATAL CENTER, INC. FLORIDA REGIONAL NEONATAL ASSOCIATES, P.A. FORT WORTH NEONATAL ASSOCIATES BILLING, INC. GNPA ACQUISITION COMPANY, INC. KNA, INC. MAGELLA HEALTHCARE CORPORATION MAGELLA HEALTHCARE GROUP, L.P. MAGELLA MEDICAL ASSOCIATES BILLING, INC. MAGELLA MEDICAL ASSOCIATES OF GEORGIA, P.C. MAGELLA TEXAS, LLC MERCY NEONATOLOGY, INC. MNPC ACQUISITION COMPANY, INC. MOUNTAIN STATES NEONATOLOGY, INC. NACF ACQUISITION COMPANY, INC. NEONATAL SPECIALISTS, LTD. NEONATOLOGY ASSOCIATES BILLING, INC. NEONATOLOGY-CARDIOLOGY ASSOCIATES, P.A. NSPA ACQUISITION COMPANY, INC. OBSTETRIX MEDICAL GROUP OF ARIZONA, P.C. OBSTETRIX MEDICAL GROUP OF DELAWARE, INC. OBSTETRIX MEDICAL GROUP OF PENNSYLVANIA, P.C. OBSTETRIX MEDICAL GROUP OF PHOENIX, P.C. OBSTETRIX MEDICAL GROUP OF TEXAS BILLING, INC. OBSTETRIX MEDICAL GROUP OF WASHINGTON, INC., P.S. |
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By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Treasurer |
4
OBSTETRIX MEDICAL GROUP, INC. OZARK NEONATAL ASSOCIATES, INC. PALM BEACH NEO ACQUISITIONS, INC. PASCV ACQUISITION COMPANY, INC. PEDIATRIX MEDICAL GROUP OF DELAWARE, INC. PEDIATRIX MEDICAL GROUP OF FLORIDA, INC. PEDIATRIX MEDICAL GROUP OF GEORGIA, P.C. PEDIATRIX MEDICAL GROUP OF INDIANA, P.C. PEDIATRIX MEDICAL GROUP OF NEW MEXICO, P.C. PEDIATRIX MEDICAL GROUP OF SOUTH CAROLINA, P.A. PEDIATRIX MEDICAL GROUP OF TENNESSEE, P.C. PEDIATRIX MEDICAL GROUP OF TEXAS BILLING, INC. PEDIATRIX MEDICAL GROUP OF WASHINGTON, INC., P.S. PEDIATRIX MEDICAL GROUP, INC. (Utah) PEDIATRIX MEDICAL GROUP, P.A. PEDIATRIX MEDICAL GROUP, P.C. (Virginia) PEDIATRIX MEDICAL GROUP, P.C. (West Virginia) PEDIATRIX OF MARYLAND, P.A. PEDIATRIX SCREENING, INC. PMG ACQUISITION CORP. PNA ACQUISITION CO., INC. RPNA ACQUISITION COMPANY, INC. SCPMC ACQUISITION CO. SNCA ACQUISITION COMPANY, INC. ST. JOSEPH NEONATOLOGY CONSULTANTS, INC. TEXAS MATERNAL FETAL MEDICINE BILLING, INC. |
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By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Treasurer | ||
PEDIATRIX FLORIDA, LLC PEDIATRIX MEDICAL GROUP (INTERNATIONAL), INC. PEDIATRIX MEDICAL MANAGEMENT, L.P. PEDIATRIX MEDICAL MANAGEMENT GROUP, INC. PEDIATRIX MEDICAL SERVICES, INC. PEDIATRIX TEXAS I, LLC PMGSC, P.A. |
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By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Treasurer |
5
FLEET NATIONAL BANK | ||
By: /s/ Virginia C. Stolzenthaler, Managing Director | ||
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Virginia C. Stolzenthaler, Managing Director |
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U.S. BANK NATIONAL ASSOCIATION | ||
By: /s/ S. Walker Choppin | ||
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S. Walker Choppin, Senior Vice President |
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HSBC BANK USA | ||
By: /s/ Gregory G. Roll | ||
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Gregory G. Roll, First Vice President |
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UBS AG, STAMFORD BRANCH | ||
By: /s/ Wilfred V. Saint | ||
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Wilfred V. Saint, Associate Director Banking Products Services, US |
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By: /s/ Jennifer L. Poccia | ||
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Jennifer L. Poccia, Associate Director Banking Products Services, US |
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THE INTERNATIONAL BANK OF MIAMI, N.A. | ||
By: /s/ Eduardo Hornero | ||
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Eduardo Hornero, Vice President | ||
By: /s/ Jorge Maklouf | ||
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Jorge Maklouf, Senior Vice President |
10
Exhibit 31.1
CERTIFICATIONS
I, Roger J. Medel, M.D., certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Pediatrix Medical Group, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
(c) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 5, 2003 | ||
By: /s/ Roger J. Medel, M.D. | ||
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Roger J. Medel, M.D., President and Chief Executive Officer (principal executive officer) |
Exhibit 31.2
CERTIFICATIONS
I, Karl B. Wagner, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Pediatrix Medical Group, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
(c) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 5, 2003 | ||
By: By: /s/ Karl B. Wagner | ||
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Karl B. Wagner, Chief Financial Officer (principal financial officer) |
Exhibit 32
Certification Pursuant to 18 U.S.C Section 1350,
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Pediatrix Medical Group, Inc. on Form 10-Q for the period ended September 30, 2003 (the Report), each of the undersigned hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Pediatrix Medical Group, Inc. A signed original of this written statement required by Section 906 has been provided to Pediatrix Medical Group, Inc. and will be retained by Pediatrix Medical Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
November 5, 2003 | ||
By: /s/ Roger J. Medel, M.D.
Roger J. Medel, M.D., President and Chief Executive Officer (principal executive officer) |
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By: /s/ Karl B. Wagner
Karl B. Wagner, Chief Financial Officer (principal financial officer) |