UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 November 4, 1998, the Registrant had 15,285,732 shares of $0.01 par value
common stock outstanding.
1
PEDIATRIX MEDICAL GROUP, INC.
INDEX
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Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997......................................................................................... 3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1998 and 1997 (Unaudited)....................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 December 31,
(Unaudited) 1997
------------------- -------------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents...................... $ 609 $ 18,562
Investments in marketable securities........... -- 27,132
Accounts receivable, net....................... 50,610 34,866
Prepaid expenses............................... 584 873
Other current assets........................... 1,170 586
------------------- -------------------
Total current assets....................... 52,973 82,019
Property and equipment, net......................... 11,648 9,898
Other assets, net................................... 188,230 104,895
------------------- -------------------
Total assets............................... $ 252,851 $ 196,812
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 20,945 $ 16,170
Income taxes payable........................... 436 1,348
Current portion of note payable................ 200 200
Deferred income taxes.......................... 16,705 10,393
------------------- -------------------
Total current liabilities.................. 38,286 28,111
Line of credit...................................... 15,275 --
Note payable........................................ 2,400 2,550
Deferred income taxes............................... 2,304 2,442
Other liabilities................................... 772 --
------------------- -------------------
Total liabilities.......................... 59,037 33,103
Minority interest................................... 5,542 --
Commitments and contingencies
Stockholders' equity:
Preferred stock................................ -- --
Common stock................................... 153 151
Additional paid-in capital..................... 126,185 122,391
Retained earnings.............................. 61,934 41,078
Unrealized gain on investments................. -- 89
------------------- -------------------
Total stockholders' equity................. 188,272 163,709
------------------- -------------------
Total liabilities and stockholders' equity. $ 252,851 $ 196,812
=================== ===================
The accompanying notes are an integral part of
these financial statements
3
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
(in thousands, except for per share data)
Net patient service revenue................ $ 49,351 $ 34,444 $ 133,303 $ 92,056
Operating expenses:
Salaries and benefits................... 30,334 21,874 82,478 59,257
Supplies & other operating expenses..... 3,575 2,467 9,663 6,927
Depreciation and amortization........... 2,372 1,278 6,185 3,069
---------------- ---------------- ---------------- ----------------
Total operating expenses.......... 36,281 25,619 98,326 69,253
---------------- ---------------- ---------------- ----------------
Income from operations............ 13,070 8,825 34,977 22,803
Investment income.......................... 38 422 529 1,720
Interest expense........................... (392) (76) (743) (225)
---------------- ---------------- ---------------- ----------------
Income before income taxes........ 12,716 9,171 34,763 24,298
Income tax provision....................... 5,086 3,668 13,907 9,719
---------------- ---------------- ---------------- ----------------
Net income............................ $ 7,630 $ 5,503 $ 20,856 $ 14,579
================ ================ ================ ================
Per share data:
Net income per common and
common equivalent share:
Basic............................. $ .50 $ .37 $ 1.37 $ .97
================ ================ ================ ================
Diluted........................... $ .48 $ .35 $ 1.31 $ .93
================ ================ ================ ================
Weighted average shares used in
computing net income per common and
common equivalent share:
Basic............................. 15,256 15,065 15,214 14,985
================ ================ ================ ================
Diluted........................... 15,971 15,853 15,904 15,692
================ ================ ================ ================
The accompanying notes are an integral part of
these financial statements
4
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------------------------
1998 1997
---------------- -----------------
(in thousands)
Cash flows provided from operating activities:
Net income...................................................... $ 20,856 $ 14,579
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization............................... 6,185 3,069
Deferred income taxes....................................... 6,174 3,225
Changes in assets and liabilities:
Accounts receivable.................................... (15,744) (9,561)
Prepaid expenses and other current assets.............. (295) (146)
Other assets........................................... 202 (218)
Accounts payable and accrued expenses.................. 4,429 2,711
Income taxes payable................................... (39) 4,495
---------------- ----------------
Net cash provided from operating activities........ 21,768 18,154
---------------- ----------------
Cash flows used in investing activities:
Physician group acquisition payments............................ (81,989) (56,163)
Purchase of investments......................................... (9,939) (10,424)
Proceeds from sale of investments............................... 36,982 40,665
Purchase of property and equipment.............................. (2,803) (1,597)
---------------- ----------------
Net cash used in investing activities ............. (57,749) (27,519)
---------------- ----------------
Cash flows from financing activities:
Borrowings on line of credit, net............................... 15,275 --
Payments on note payable........................................ (150) (150)
Proceeds from issuance of common stock.......................... 2,903 2,402
---------------- ----------------
Net cash provided from financing activities........ 18,028 2,252
---------------- ----------------
Net decrease in cash and cash equivalents............................ (17,953) (7,113)
Cash and cash equivalents at beginning of period..................... 18,562 18,435
---------------- ----------------
Cash and cash equivalents at end of period........................... $ 609 $ 11,322
================ ================
The accompanying notes are an integral part of
these financial statements
5
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 and nine months ended September
30, 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 nine months of 1998, the Company completed the
acquisition of thirteen physician group practices. Total consideration
for these acquisitions approximated $79 million in cash and 5,455,334
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 practices have been
included in the consolidated financial statements from the dates of
acquisition.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and the physician group practices
acquired during 1997 and 1998 as if the acquisitions had occurred on
January 1, 1997:
Nine Months Ended
September 30,
----------------------------------------
1998 1997
---------------- ----------------
(in thousands, except for per share data)
Net patient service revenue................ $ 142,572 $ 123,175
Net income................................. 21,152 15,714
Net income per share:
Basic.................................... 1.39 1.05
Diluted.................................. 1.33 1.00
The pro forma results do not necessarily represent results which would
have occurred if the acquisitions had taken place at the beginning of
the period, nor are they indicative of the results of future combined
operations.
6
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
3. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consists of the following:
September 30, December 31,
1998 1997
-------------------- -------------------
(in thousands)
Accounts payable............................ $ 3,168 $ 2,988
Accrued salaries and bonuses................ 7,291 5,340
Accrued payroll taxes and benefits.......... 4,319 3,013
Accrued professional liability coverage..... 4,237 3,747
Other accrued expenses...................... 1,930 1,082
-------------------- -------------------
$ 20,945 $ 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:
During 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income," which requires that all items
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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------- ------------
(in thousands)
Net income........................................... $ 7,630 $ 5,503 $ 20,856 $ 14,579
Other comprehensive income (loss) net of tax:
Unrealized holding gains arising during the
period........................................ -- 19 -- 19
Reclassification adjustment for losses (gains)
included in net income........................ -- 1 (89) 30
------------ ------------ ------------- ------------
Net losses (gains) recognized in other
comprehensive income.......................... -- 20 (89) 49
------------ ------------ ------------- ------------
Comprehensive income................................. $ 7,630 $ 5,523 $ 20,767 $ 14,628
============ ============ ============= ============
7
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
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. These lawsuits are not expected to result in judgments which
would exceed professional liability insurance coverage, and, therefore
will not have a material impact on the Company's consolidated results
of operations, financial position or liquidity, notwithstanding any
possible insurance recovery.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
Three Months Ended September 30, 1998 as Compared to Three Months Ended
September 30, 1997
The Company reported net patient service revenue of $49.4 million for
the three months ended September 30, 1998, as compared with $34.4 million for
the same period in 1997, a growth rate of 43.3%. Of this $15.0 million increase,
$12.5 million, or 83.3% was attributable to new units, including units at which
the Company provides services as a result of acquisitions. Same unit patient
service revenue increased $2.5 million, or 7.4%, for the three months ended
September 30, 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 comparable period.
Salaries and benefits increased $8.4 million, or 38.7% to $30.3 million
for the three months ended September 30, 1998, as compared with $21.9 million
for the same period in 1997. Of this $8.4 million increase, $5.7 million, or
67.9%, was attributable to hiring new physicians, primarily to support new unit
growth, and the remaining $2.7 million was primarily attributable to increased
support staff and resources added in the areas of nursing, management and
billing and reimbursement. Supplies and other operating expenses increased $1.1
million, or 44.9% to $3.6 million for the three months ended September 30, 1998,
as compared with $2.5 million for the same period in 1997, primarily as a result
of new units. Depreciation and amortization expense increased by $1.1 million,
or 85.6% to $2.4 million for the three months ended September 30, 1998, as
compared with $1.3 million for the same period in 1997, primarily as a result of
amortization of goodwill in connection with acquisitions.
Income from operations increased $4.3 million, or 48.1%, to $13.1
million for the three months ended September 30, 1998, as compared with $8.8
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 $38,000 for the
three months ended September 30, 1998, as compared with approximately $422,000
for the same period in 1997. The decrease in investment income resulted
primarily from the use of funds in connection with acquisitions.
The effective income tax rate was approximately 40% for the three month
periods ended September 30, 1998 and 1997.
Net income increased 38.7% to $7.6 million for the three months ended
September 30, 1998, as compared with $5.5 million for the same period in 1997.
Net income as a percentage of net patient service revenue decreased to 15.5% for
the three months ended September 30, 1998, compared to 16.0% for the same period
in 1997 primarily as a result of a decrease in cash and investments and an
increase in borrowings.
Nine Months Ended September 30, 1998 as Compared to Nine Months Ended
September 30, 1997
The Company reported net patient service revenue of $133.3 million for
the nine months ended September 30, 1998, as compared with $92.1 million for the
same period in 1997, a growth rate of 44.8%. Of this $41.2 million increase,
$37.3 million, or 90.5% was attributable to new units at which the Company
provides services primarily as a result of acquisitions. Same unit patient
service revenue, increased $3.9 million, or 5.5%, for the nine months ended
September 30, 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 comparable period.
9
Salaries and benefits increased $23.2 million, or 39.2% to $82.5
million for the nine months ended September 30, 1998, as compared with $59.3
million for the same period in 1997. Of this $23.2 million increase, $17.1
million, or 73.7%, was attributable to hiring new physicians, primarily to
support new unit growth, and the remaining $6.1 million was primarily
attributable to increased support staff and resources added in the areas of
nursing, management and billing and reimbursement. Supplies and other operating
expenses increased $2.8 million, or 39.5% to $9.7 million for the nine months
ended September 30, 1998, as compared with $6.9 million for the same period in
1997, primarily as a result of new units. Depreciation and amortization expense
increased by $3.1 million, or 101.5% to $6.2 million for the nine months ended
September 30, 1998, as compared with $3.1 million for the same period in 1997,
primarily as a result of amortization of goodwill in connection with
acquisitions.
Income from operations increased approximately $12.2 million, or 53.4%,
to $35.0 million for the nine months ended September 30, 1998, as compared with
$22.8 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 $529,000 for the
nine months ended September 30, 1998, as compared with $1.7 million for the same
period in 1997. The decrease in investment income resulted primarily from the
use of funds in connection with acquisitions.
The effective income tax rate was approximately 40% for the nine month
periods ended September 30, 1998 and 1997.
Net income increased 43.1% to $20.9 million for the nine months ended
September 30, 1998, as compared with $14.6 million for the same period in 1997.
Net income as a percentage of net patient service revenue decreased to 15.6% for
the nine months ended September 30, 1998, compared to 15.8% for the same period
in 1997, primarily as a result of a decrease in cash and investments and an
increase in borrowings.
Liquidity and Capital Resources
As of September 30, 1998, the Company had working capital of
approximately $14.7 million, a decrease of $39.2 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 nine
months of 1998, offset by cash generated from operations.
The Company anticipates that funds generated from operations together
with cash and funds available under its $75 million credit facility, will be
sufficient to meet its working capital requirements and finance any required
capital expenditures for at least the next twelve months.
Year 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the transition to the
year 2000 and has developed an implementation plan to resolve any related
issues. The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations. The Company presently believes that, by
modifying and upgrading its existing software, the transition to the year 2000
will not pose significant operational problems. The Company has not had any
discussions with its payors to determine the status of their systems. However,
if the Company or its vendors or payors do not make the modifications and
conversions required on a timely basis it could have a material adverse effect
on the Company's financial condition and results of operations.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
During the ordinary course of business, the Company has become a
party to pending and threatened legal actions and proceedings, most
of which involve claims of medical malpractice and are generally
covered by insurance. These lawsuits are not expected to result in
judgments which would exceed professional liability insurance
coverage, and, therefore will not have a material impact on the
Company's consolidated results of operations, financial position or
liquidity, notwithstanding any possible insurance recovery.
During 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 or results of
operations.
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
-----------------
Rule 14a-4, adopted June 29, 1998, included certain changes with
respect to a company's use of its discretionary proxy voting
authority for proposals to be considered at annual meetings of
shareholders. Pursuant to the Rule, if a proposal by a shareholder is
not received at least 45 days prior to the month and day of mailing
of a company's prior year's proxy statement (or by an earlier or
later date established by an overriding advance notice provision in
the company's charter or bylaws), then management proxies will be
allowed to use their discretionary voting authority when the proposal
is raised at the annual meeting, without discussion of the matter.
The proxy statement for the Company's 1998 Annual Meeting of the
Shareholders held on May 18, 1998, was mailed to its shareholders on
or about April 6, 1998.
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.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEDIATRIX MEDICAL GROUP, INC.
Date: November 13, 1998 By: /s/ Roger J. Medel
----------------------------------------------------
Roger J. Medel, President and Chief Executive
Officer (Principal Executive Officer)
Date: November 13, 1998 By: /s/ Karl B. Wagner
----------------------------------------------------
Karl B. Wagner, Chief Financial Officer (Principal
Financial and Accounting Officer)
12
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- -----------------------------------
1998 1997 1998 1997
---------------------------------- -----------------------------------
(in thousands, except for per share data)
Basic:
Net income applicable to common
stock $ 7,630 $ 5,503 $ 20,856 $ 14,579
============== =============== =============== ===============
Weighted average number of
common shares outstanding 15,256 15,065 15,214 14,985
============== =============== =============== ===============
Basic net income per share $ .50 $ .37 $ 1.37 $ .97
============== =============== =============== ===============
Diluted:
Net income applicable to common
stock $ 7,630 $ 5,503 $ 20,856 $ 14,579
============== =============== =============== ===============
Weighted average number of
common shares outstanding 15,256 15,065 15,214 14,985
Weighted average number of
dilutive common stock equivalents 715 788 690 707
-------------- --------------- --------------- ---------------
Weighted average number of
common and common equivalent
shares outstanding 15,971 15,853 15,904 15,692
============== =============== =============== ===============
Diluted net income per share $ .48 $ .35 $ 1.31 $ .93
============== =============== =============== ===============
5
0000893949
PEDIATRIX MEDICAL GROUP, INC.
1000
9-MOS
DEC-31-1998
SEP-30-1998
609
0
50,610
0
0
52,973
11,648
0
252,851
38,286
2,400
0
0
153
188,119
252,851
0
133,303
0
98,326
(529)
0
743
34,763
13,907
20,856
0
0
0
20,856
1.37
1.31
AMOUNTS FOR RECEIVABLES AND PROPERTY, PLANT AND EQUIPMENT ARE NET OF ANY
ALLOWANCES AND ACCUMULATED DEPRECIATION.
