1
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 MARCH 31, 1998
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 incorporation (I.R.S. Employer Identification No.)
or organization)
1455 NORTH PARK DRIVE
FT. LAUDERDALE, FLORIDA 33326
(Address of principal executive offices)
(Zip Code)
(954) 384-0175
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
At May 4, 1998, the Registrant had 15,225,455 shares of $0.01 par value common
stock outstanding.
2
PEDIATRIX MEDICAL GROUP, INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997................................................................ 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)............................................ 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (Unaudited).................................................. 5
Notes to Condensed Consolidated Financial Statements................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 9
PART II - OTHER INFORMATION............................................................ 11
SIGNATURES............................................................................. 12
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
---------------- -------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents ................... $ 2,947 $ 18,562
Investments in marketable securities ........ -- 27,132
Accounts receivable, net .................... 37,963 34,866
Prepaid expenses ............................ 701 873
Other current assets ........................ 612 586
-------- --------
Total current assets ...................... 42,223 82,019
Property and equipment, net ...................... 10,071 9,898
Other assets, net ................................ 156,225 104,895
-------- --------
Total assets .............................. $208,519 $196,812
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ....... $ 15,263 $ 16,170
Income taxes payable ........................ 2,257 1,348
Current portion of note payable ............. 200 200
Deferred income taxes ....................... 11,902 10,393
-------- --------
Total current liabilities ...... 29,622 28,111
Note payable ..................................... 2,500 2,550
Deferred income taxes ............................ 3,069 2,442
Minority interest payable ........................ 2,949 --
-------- --------
Total liabilities ......................... 38,140 33,103
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock ................................ -- --
Common stock ................................... 152 151
Additional paid-in capital ..................... 123,030 122,391
Retained earnings .............................. 47,197 41,078
Unrealized gain on investments ................. -- 89
-------- --------
Total stockholders' equity ................ 170,379 163,709
-------- --------
Total liabilities and stockholders'
equity................................... $208,519 $196,812
======== ========
The accompanying notes are an integral part of
these financial statements
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4
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1998 1997
---------------- --------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Net patient service revenue ........................ $ 37,808 $ 27,013
-------- --------
Operating expenses:
Salaries and benefits ............................ 23,560 17,609
Supplies and other operating expenses ............ 2,695 2,102
Depreciation and amortization .................... 1,688 783
-------- --------
Total operating expenses ....................... 27,943 20,494
-------- --------
Income from operations ......................... 9,865 6,519
Investment income .................................. 446 735
Interest expense ................................... (109) (74)
-------- --------
Income before income taxes ..................... 10,202 7,180
Income tax provision ............................... 4,083 2,872
-------- --------
Net income ..................................... $ 6,119 $ 4,308
======== ========
Per share data:
Net income per common and common equivalent share:
Basic .......................................... $ .40 $ .29
======== ========
Diluted ........................................ $ .39 $ .28
======== ========
Weighted average shares used in computing net income
per common and common equivalent share:
Basic .......................................... 15,159 14,887
======== ========
Diluted ........................................ 15,841 15,544
======== ========
The accompanying notes are an integral part of
these financial statements
4
5
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- --------
(IN THOUSANDS)
Cash flows provided (used) by operating activities:
Net income ......................................................... $ 6,119 $ 4,308
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................... 1,688 783
Deferred income taxes ............................................ 2,136 717
Changes in assets and liabilities:
Accounts receivable ............................................ (3,097) (4,489)
Prepaid expenses and other current assets ...................... 146 300
Income taxes payable ........................................... 909 2,010
Other assets ................................................... 51 347
Accounts payable and accrued expenses .......................... (1,267) (680)
-------- --------
Net cash provided by operating activities .................... 6,685 3,296
-------- --------
Cash flows provided (used) by investing activities:
Physician group acquisition payments ............................... (49,443) (22,026)
Purchase of investments ............................................ (9,939) (2,726)
Proceeds from sale of investments .................................. 36,983 25,371
Purchase of property and equipment ................................. (482) (606)
-------- --------
Net cash provided (used) by investing activities ............. (22,881) 13
-------- --------
Cash flows provided (used) by financing activities:
Payments on note payable ........................................... (50) (50)
Proceeds from issuance of common stock ............................. 631 617
-------- --------
Net cash provided by financing activities .................... 581 567
-------- --------
Net increase (decrease) in cash and cash equivalents .................. (15,615) 3,876
Cash and cash equivalents at beginning of period ...................... 18,562 18,435
-------- --------
Cash and cash equivalents at end of period ............................ $ 2,947 $ 22,311
======== ========
The accompanying notes are an integral part of
these financial statements
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6
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 only of normal recurring adjustments, necessary
for a fair presentation of the results of interim periods.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results of operations to be expected
for the year ended December 31, 1998. 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 31, 1998.
2. BUSINESS ACQUISITIONS:
During the first three months of 1998, the Company completed the
acquisition of eight physician group practices. Total consideration for
these acquisitions approximated $48.6 million in cash and 2,951,327
shares of stock in a subsidiary of the Company.
The 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 companies have been
included in the consolidated financial statements from the dates of
acquisition.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and the physician group practices
acquired during 1997 and 1998 as if the acquisitions had occurred on
January 1, 1997:
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1998 1997
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net patient service revenue................... $ 40,481 $ 35,641
Net income.................................... 6,299 4,690
Net income per share:
Basic....................................... .42 .32
Diluted..................................... .40 .30
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.
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PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
MARCH 31, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
Accounts payable............................... $ 3,270 $ 2,988
Accrued salaries and bonuses................... 3,961 5,340
Accrued payroll taxes and benefits............. 2,911 3,013
Accrued professional liability coverage........ 3,790 3,747
Other accrued expenses......................... 1,331 1,082
--------- ---------
$ 15,263 $ 16,170
========= =========
4. NET INCOME PER SHARE:
Basic net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted net income per share is calculated by dividing net income by
the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of the
dilutive effect of outstanding options calculated using the treasury
stock method.
5. ACCOUNTING PRONOUNCEMENTS RECENTLY ISSUED:
In the first quarter of 1998, the Company adopted the provisions of
SFAS No. 130, "Reporting Comprehensive Income," which requires that all
items required to be recognized under accounting standards as
components of comprehensive income be reported in the financial
statements. The Company's comprehensive income was as follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------ -------
Net Income ....................................... $6,119 $ 4,308
Other comprehensive income (loss), net of tax:
Unrealized holding losses arising during
the period................................... -- (39)
Reclassification adjustment for (gains) losses
included in net income ...................... (89) 30
------ -------
Comprehensive income ............................. $6,030 $ 4,299
====== =======
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PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. CONTINGENCIES:
During the ordinary course of business, the Company has become a party
to pending and threatened legal actions and proceedings, most of which
involve claims of medical malpractice and are generally covered by
insurance. The Company believes that the outcome of such legal actions
and proceedings will not have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
7. SUBSEQUENT EVENTS:
Subsequent to March 31, 1998, the Company completed the acquisitions of
two physician group practices. Total consideration for these
acquisitions approximated $13.4 million in cash and 1,185,607 shares of
stock in a subsidiary of the Company. The acquisitions will be
accounted for using the purchase method of accounting.
Subsequent to March 31, 1998, the Internal Revenue Service concluded
its examination of the Company for the tax years ended December 31,
1992, 1993 and 1994. The resolution of the examination did not have a
material effect on the Company's consolidated financial position,
results of operations or cash flows.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
The Company reported net patient service revenue of $37.8 million for
the three months ended March 31, 1998, as compared with $27.0 million for the
same period in 1997, a growth rate of 40.0%. This $10.8 million increase was
primarily attributable to new units, including units at which the Company
provides services as a result of acquisitions. Same unit patient service
revenue, exclusive of administrative fees, increased by approximately $815,000,
or 3.7% for the three months ended March 31, 1998. Same units are those units at
which the Company provided services for the entire period for which the
percentage is calculated and the entire prior comparable period.
Salaries and benefits increased approximately $6.0 million, or 33.8% to
$23.6 million for the three months ended March 31, 1998, as compared with $17.6
million for the same period in 1997. Of this $6.0 million increase, $4.2 million
was attributable to hiring new physicians, primarily to support new unit growth,
and the remaining $1.8 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 $593,000, or
28.2% to $2.7 million for the three months ended March 31, 1998, as compared
with $2.1 million for the same period in 1997, primarily as a result of new
units. Depreciation and amortization expense increased by $905,000, or 115.6% to
$1.7 million for the three months ended March 31, 1998, as compared with
$783,000 for the same period in 1997, primarily as a result of amortization of
goodwill in connection with acquisitions.
Income from operations increased approximately $3.4 million, or 51.3%,
to $9.9 million for the three months ended March 31, 1998, as compared with $6.5
million for the same period in 1997. The increase in income from operations was
primarily due to increased volume, principally from acquisitions.
The Company earned investment income of approximately $446,000 for the
three months ended March 31, 1998, as compared with $735,000 for the same period
in 1997. The decrease in investment income resulted primarily from funds used in
connection with acquisitions.
The effective income tax rate was approximately 40% for the three month
periods ended March 31, 1998 and 1997.
Net income increased 42.0% to $6.1 million for the three months ended
March 31, 1998, as compared with $4.3 million for the same period in 1997. Net
income as a percentage of net patient service revenue increased to 16.2% for the
three months ended March 31, 1998, compared to 15.9% for the same period in
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had working capital of approximately
$12.6 million, a decrease of $41.3 million from the working capital of $53.9
million available at December 31, 1997. The decrease is principally a result of
funds utilized for acquisitions during the first quarter, offset by cash
generated from operations.
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10
The Company anticipates that funds generated from operations together
with cash on hand and funds available under its credit facility, will be
sufficient to meet its working capital requirements and finance any required
capital expenditures for at least the next twelve months.
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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. The Company believes that the outcome of such
legal actions and proceedings will not have a material adverse effect
on the Company's financial condition, results of operations or
liquidity.
Subsequent to March 31, 1998, the Internal Revenue Service
concluded its examination of the Company for the tax years ended
December 31, 1992, 1993 and 1994. The resolution of the examination did
not have a material effect on the Company's consolidated financial
position, results of operation or cash flow.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEDIATRIX MEDICAL GROUP, INC.
Date: May 14, 1998 By: /s/ Roger J. Medel
--------------------------------------
Roger J. Medel, President and Chief
Executive Officer (Principal Executive
Officer)
Date: May 14, 1998 By: /s/ Lawrence M. Mullen
--------------------------------------
Lawrence M. Mullen, Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1998 1997
---------------- ---------------
(IN THOUSANDS, EXCEPT FOR PER SHARE
DATA)
Basic:
Net income applicable to common stock $ 6,119 $ 4,308
======= =======
Weighted average number of common
shares outstanding 15,159 14,887
======= =======
Basic net income per share $ 0.40 $ 0.29
======= =======
Diluted:
Net income applicable to common stock $ 6,119 $ 4,308
======= =======
Weighted average number of common
shares outstanding 15,159 14,887
Weighted average number of dilutive common
stock equivalents 682 657
------- -------
Weighted average number of common
and common equivalent shares outstanding 15,841 15,544
======= =======
Diluted net income per share $ .39 $ .28
======= =======
11.1
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
2,947
0
37,963
0
0
42,223
10,071
0
208,519
29,622
2,500
0
0
152
170,227
208,519
0
37,808
0
27,943
(446)
0
109
10,202
4,083
6,119
0
0
0
6,119
.40
.39
AMOUNTS FOR RECEIVABLES AND PROPERTY PLANT AND EQUIPMENT ARE NET OF ANY
ALLOWANCES AND ACCUMULATED DEPRECIATION.
