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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26762
PEDIATRIX MEDICAL GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0271219
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 1, 1997, the Registrant had 14,915,758 shares of $0.01 par value common
stock outstanding.
Page 1 of 12 pages
2
PEDIATRIX MEDICAL GROUP, INC.
INDEX
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PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1997 (Unaudited)
and December 31, 1996......................................................................................... 3
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)........................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (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 31,1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 22,311 $ 18,435
Investments in marketable securities .............. 34,564 57,218
Accounts receivable, net .......................... 27,885 23,396
Prepaid expenses .................................. 870 1,283
Other current assets .............................. 488 375
Income taxes receivable ........................... -- 202
--------- ---------
Total current assets .......................... 86,118 100,909
Property and equipment, net ............................ 9,071 8,676
Other assets, net ...................................... 70,548 49,441
--------- ---------
Total assets .................................. $ 165,737 $ 159,026
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............. $ 12,743 $ 13,423
Income taxes payable .............................. 1,329 --
Current portion of note payable ................... 200 200
Deferred income taxes ............................. 6,592 6,099
--------- ---------
Total current liabilities ..................... 20,864 19,722
Note payable ........................................... 2,700 2,750
Deferred income taxes .................................. 457 233
--------- ---------
Total liabilities ............................. 24,021 22,705
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock ................................... -- --
Common stock ...................................... 149 149
Additional paid-in capital ........................ 117,133 116,037
Retained earnings ................................. 24,473 20,165
Unrealized loss on investments .................... (39) (30)
--------- ---------
Total stockholders' equity .................... 141,716 136,321
--------- ---------
Total liabilities and stockholders' equity .... $ 165,737 $ 159,026
========= =========
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,
------------------
1997 1996
---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Net patient service revenue .................. $ 27,013 $ 16,127
-------- --------
Operating expenses:
Salaries and benefits ..................... 17,609 10,796
Supplies and other operating expenses ..... 2,102 1,213
Depreciation and amortization ............. 783 233
-------- --------
Total operating expenses ................ 20,494 12,242
-------- --------
Income from operations .................. 6,519 3,885
Investment income ............................ 735 499
Interest expense ............................. (74) (35)
-------- --------
Income before income taxes .............. 7,180 4,349
Income tax provision ......................... 2,872 1,737
-------- --------
Net income ............................. $ 4,308 $ 2,612
======== ========
Per share data:
Net income per common and common
equivalent share:
Primary .................................. $ .28 $ .19
======== ========
Fully diluted ............................ $ .28 $ .19
======== ========
Weighted average shares used in computing
net income per common and common
equivalent share:
Primary .................................. 15,544 13,697
======== ========
Fully diluted ............................ 15,544 13,726
======== ========
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,
--------------------
1997 1996
---- ----
(IN THOUSANDS)
Cash flows provided (used) by operating activities:
Net income .................................................................. $ 4,308 $ 2,612
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................. 783 233
Deferred income taxes ..................................................... 717 1,562
Changes in assets and liabilities:
Accounts receivable ..................................................... (4,489) (3,388)
Prepaid expenses and other current assets ............................... 300 (162)
Income taxes receivable/payable ......................................... 2,010 108
Other assets ............................................................ 347 (1,882)
Accounts payable and accrued expenses ................................... (680) 752
-------- --------
Net cash provided (used) by operating activities ...................... 3,296 (165)
-------- --------
Cash flows provided (used) by investing activities:
Physician group acquisition payments ........................................ (22,026) (11,584)
Purchase of investments ..................................................... (2,726) (6,621)
Proceeds from sale of investments ........................................... 25,371 7,738
Purchase of property and equipment .......................................... (606) (794)
-------- --------
Net cash provided (used) by investing activities ...................... 13 (11,261)
-------- --------
Cash flows provided (used) by financing activities:
Payments on note payable .................................................... (50) (16)
Proceeds from issuance of common stock ...................................... 617 72
Payments made to retire common stock ........................................ -- (45)
-------- --------
Net cash provided by financing activities ............................. 567 11
-------- --------
Net increase (decrease) in cash and cash equivalents ........................... 3,876 (11,415)
Cash and cash equivalents at beginning of period ............................... 18,435 18,499
-------- --------
Cash and cash equivalents at end of period ..................................... $ 22,311 $ 7,084
======== ========
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, 1997
(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, 1997 are
not necessarily indicative of the results of operations to be expected
for the year ended December 31, 1997. 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, 1997.
2. BUSINESS ACQUISITIONS:
During the first quarter of 1997, the Company completed the acquisition
of four physician group practices in Dallas, Albuquerque, Tacoma and
South Bend. Additionally, 3 neonatal intensive care units (NICUs) were
added through the Company's internal marketing activities. Total cash
paid for these units approximated $21 million, adding a total of 11
NICUs.
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 1996 and 1997 as if the acquisitions had occurred on
January 1, 1996:
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
1997 1996
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net patient service revenue................... $ 28,101 $ 24,502
Net income.................................... 4,357 3,111
Net income per share:
Primary..................................... .28 .23
Fully diluted............................... .28 .23
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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7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
MARCH 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
(IN THOUSANDS)
Accounts payable.............................. $ 2,461 $ 2,489
Accrued salaries and bonuses.................. 2,760 3,508
Accrued payroll taxes and benefits............ 1,608 2,009
Accrued professional liability coverage....... 2,696 2,413
Other accrued expenses........................ 3,218 3,004
------------ -----------
$ 12,743 $ 13,423
============ ===========
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Primary and fully diluted net income per share is calculated by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent
shares consist of the dilutive effect of outstanding options calculated
using the treasury stock method.
5. 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.
The Company is currently under examination by the Internal Revenue
Service for the tax years ended December 31, 1992, 1993, and 1994. The
IRS has challenged certain deductions that, if disallowed, would result
in additional taxes of approximately $4.5 million, plus interest. The
Company has reviewed the IRS matters under consideration and believes
that the tax returns are substantially correct as filed. The Company
intends to vigorously contest the proposed adjustments and believes it
has adequately provided for any liability that may result from this
examination. The Company and its tax advisors believe that the ultimate
resolution of the examination will not have a material effect on the
Company's consolidated financial position or results of operations and
cash flows.
The Company has been notified by a hospital customer of a dispute
regarding the interpretation of the customer's contract with the
Company. The customer believes that the Company should refund
approximately $7.5 million of payments made to the Company over the
last five years. The Company disagrees with the customer's
interpretation of the contract and believes that the matter will be
resolved amicably. In the unlikely event that the Company cannot
resolve this matter amicably, the Company intends to vigorously
litigate the matter and assert all its legal defenses. The Company
believes that resolution of the matter will have no material effect on
the Company's consolidated financial position, results of operations or
cash flows.
7
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
6. CHANGES TO ACCOUNTING PRONOUNCEMENTS:
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," must be implemented by the Company in 1997. This statement
is designed to improve the earnings per share ("EPS") information
provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international basis. The
Company has not yet determined the impact, if any, the adoption of the
provisions of SFAS No. 128 will have on the Company's financial
statements.
7. SUBSEQUENT EVENTS:
Subsequent to March 31, 1997, the Company completed the acquisition of
two physician group practices. Total cash paid for these acquisitions
approximated $5.3 million. The acquisitions will be accounted for using
the purchase method of accounting.
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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, 1997 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
The Company reported net patient service revenue of $27.0 million for
the three months ended March 31, 1997, as compared with $16.1 million for the
same period in 1996, a growth rate of 67.5%. This $10.9 million increase was
entirely attributable to new units. Patient service revenue from same units,
exclusive of administrative fees decreased by approximately $300,000, or 2.2%
for the three months ended March 31, 1997. Such a decrease at existing units is
consistent with the Company's historical experience of quarterly fluctuations.
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 $6.8 million, or 63.1% to $17.6 million
for the three months ended March 31, 1997, as compared with $10.8 million for
the same period in 1996. Of this $6.8 million increase, $5.1 million, or 75.0%,
was attributable to hiring new physicians, primarily to support new unit growth,
and the remaining $1.7 million was primarily attributable to increased support
staff and resources added in the areas of nursing, executive management and
billing and reimbursement. Supplies and other operating expenses increased
$889,000, or 73.3% to $2.1 million for the three months ended March 31, 1997, as
compared with $1.2 million for the same period in 1996, primarily as a result of
new units. Depreciation and amortization expense increased by $550,000, or
236.1% to $783,000 for the three months ended March 31, 1997, as compared with
$233,000 for the same period in 1996, primarily as a result of amortization of
goodwill in connection with acquisitions.
Income from operations increased approximately $2.6 million, or 67.8%,
to $6.5 million for the three months ended March 31, 1997, as compared with $3.9
million for the same period in 1996. The increase in income from operations was
primarily due to increased volume, principally from acquisitions.
The Company earned investment income of approximately $735,000 for the
three months ended March 31, 1997, as compared with $499,000 for the same period
in 1996. The increase in investment income resulted primarily from additional
funds available for investment due to proceeds from the secondary public
offering as well as cash flow from operations.
The effective income tax rate was approximately 40% for the three month
periods ended March 31, 1997 and 1996.
Net income increased 64.9% to $4.3 million for the three months ended
March 31, 1997, as compared with $2.6 million for the same period in 1996. Net
income as a percentage of net patient service revenue decreased to 15.9% for the
three months ended March 31, 1997, compared to 16.2% for the same period in
1996, primarily as a result of amortization of goodwill in connection with
acquisitions.
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10
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had working capital of approximately
$65.3 million, a decrease of $15.9 million from the working capital of $81.2
million available at December 31, 1996. The decrease is principally a result of
funds utilized for acquisitions during the first quarter, offset by cash
generated from operations.
During the three months ended March 31, 1997, capital expenditures
amounted to approximately $606,000 principally for computer hardware and
software and furniture and fixtures. For the remainder of 1997, the Company
anticipates capital expenditures of approximately $1.5 million, principally for
computer hardware and software.
The Company anticipates that funds generated from operations together
with cash and marketable securities 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.
10
11
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.
The Company is currently under examination by the Internal
Revenue Service for the tax years ended December 31, 1992, 1993, and
1994. The IRS has challenged certain deductions that, if disallowed,
would result in additional taxes of approximately $4.5 million, plus
interest. The Company has reviewed the IRS matters under consideration
and believes that the tax returns are substantially correct as filed.
The Company intends to vigorously contest the proposed adjustments and
believes it has adequately provided for any liability that may result
from this examination. The Company and its tax advisors believe that
the ultimate resolution of the examination will not have a material
effect on the Company's consolidated financial position or results of
operations and cash flows.
The Company has been notified by a hospital customer of a
dispute regarding the interpretation of the customer's contract with
the Company. The customer believes that the Company should refund
approximately $7.5 million of payments made to the Company over the
last five years. The Company disagrees with the customer's
interpretation of the contract and believes that the matter will be
resolved amicably. In the unlikely event that the Company cannot
resolve this matter amicably, the Company intends to vigorously
litigate the matter and assert all its legal defenses. The Company
believes that resolution of the matter will have no material effect on
the Company's consolidated financial position, results of operations or
cash flows.
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
(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 9, 1997 By: /s/ Roger J. Medel
----------------------------------
Roger J. Medel, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 1997 By: /s/ Lawrence M. Mullen
----------------------------------
Lawrence M. Mullen, Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income applicable to common stock ..................... $ 4,308 $ 2,612
Weighted average number of common and common
equivalent shares:
Primary:
Weighted average number of common shares
outstanding ..................................... 14,887 13,057
Weighted average number of dilutive common
stock equivalents ............................... 657 640
------- -------
Weighted average number of common and common
equivalent shares outstanding for primary
earnings per share ............................... 15,544 13,697
======= =======
Fully diluted:
Weighted average number of common shares
outstanding ..................................... 14,887 13,057
Weighted average number of dilutive common
stock equivalents ............................... 657 669
------- -------
Weighted average number of common and common
equivalent shares outstanding for fully
diluted earnings per share ....................... 15,544 13,726
======= =======
Income per share:
Primary ............................................. $ .28 $ .19
======= =======
Fully diluted ....................................... $ .28 $ .19
======= =======
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
22,311
34,564
27,885
0
0
86,118
9,071
0
165,737
20,864
2,700
0
0
149
141,567
165,737
0
27,013
0
20,494
(735)
0
74
7,180
2,872
4,308
0
0
0
4,308
.28
.28
AMOUNTS FOR RECEIVABLES AND PROPERTY, PLANT AND EQUIPMENT ARE NET OF ANY
ALLOWANCES AND ACCUMULATED DEPRECIATION.
