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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, 1996
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 NORTHPARK DRIVE
FT. LAUDERDALE, FLORIDA 33326
53901-0449
(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, 1996, the Registrant had 13,070,242 shares of $0.01 par value common
stock outstanding.
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PEDIATRIX MEDICAL GROUP, INC.
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1996 (Unaudited)
and December 31, 1995 ..................................................... 3
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1996 and 1995 (Unaudited) ....................................... 4
Condensed Consolidated Statements of Cash Flow for the Three Months Ended
March 31, 1996 and 1995 (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 ............................................... 10
SIGNATURES ................................................................ 12
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PART I - FINANCIAL INFORMATION
PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 DECEMBER 31,
(UNAUDITED) 1995
-------------- -------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 7,084 $18,499
Investments in marketable securities............. 26,552 27,718
Accounts receivable, net......................... 15,484 12,096
Prepaid expenses................................. 692 628
Other current assets............................. 596 497
Income taxes receivable.......................... 383 330
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Total current assets.......................... 50,791 59,768
Property and equipment, net......................... 5,242 4,549
Other assets........................................ 21,338 5,564
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Total assets.................................. $77,371 $69,881
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............ $ 7,539 $ 4,347
Current portion of notes payable................. 64 64
Deferred income taxes............................ 3,471 1,909
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Total current liabilities..................... 11,074 6,320
Note payable........................................ 735 751
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Total liabilities............................. 11,809 7,071
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Contingencies.......................................
Stockholders' equity:
Common stock.................................. 131 131
Additional paid-in capital.................... 55,809 55,620
Retained earnings............................. 9,657 7,045
Unrealized gain (loss) on investments......... (35) 14
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Total stockholders' equity................. 65,562 62,810
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Total liabilities and stockholders' equity. $77,371 $69,881
======= =======
The accompanying notes are an integral
part of these financial statements.
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PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1996 1995
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(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Net patient service revenue............................ $16,127 $ 8,886
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Operating expenses:
Salaries and benefits............................... 10,796 6,270
Supplies and other operating expenses............... 1,213 607
Depreciation and amortization....................... 233 74
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Total operating expenses....................... 12,242 6,951
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Income from operations......................... 3,885 1,935
Investment income...................................... 499 107
Interest expense....................................... (35) (28)
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Income before income taxes..................... 4,349 2,014
Income tax provision................................... 1,737 805
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Net income..................................... $ 2,612 $ 1,209
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Per share data (1995 pro forma):
Net income per common and common equivalent share:
Primary........................................ .19 .12
======= =======
Fully diluted.................................. .19 .10
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Weighted average shares used in computing net
income per common and common equivalent share:
Primary........................................ 13,697 7,043
======= ======
Fully diluted.................................. 13,726 11,614
======= ======
The accompanying notes are an integral
part of these financial statements.
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PEDIATRIX MEDICAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
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(IN THOUSANDS)
Cash flows provided (used) by operating activities:
Net income.............................................. $ 2,612 $1,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 233 74
Deferred income taxes................................. 1,562 (121)
Changes in assets and liabilities:
Accounts receivable................................. (3,388) 607
Prepaid expenses and other current assets........... (162) 194
Income taxes receivable............................. 108 --
Other assets........................................ (1,882) (103)
Accounts payable and accrued expenses............... 752 412
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Net cash provided (used) by operating activities... (165) 2,272
-------- ------
Cash flows provided (used) by investing activities:
Physician group acquisition payments.................... (11,584) --
Purchase of investments................................. (6,621) --
Proceeds from sale of investments....................... 7,738 --
Purchase of property and equipment...................... (794) (161)
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Net cash used by investing activities.............. (11,261) (161)
-------- ------
Cash flows provided (used) by financing activities:
Payments on notes payable............................... (16) (16)
Proceeds from issuance of common stock.................. 72 --
Payments made to retire common stock.................... (45) (13)
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Net cash provided (used) by financing activities... 11 (29)
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Net increase (decrease) in cash and cash equivalents..... (11,415) 2,082
Cash and cash equivalents at beginning of period......... 18,499 7,384
-------- ------
Cash and cash equivalents at end of period............... $ 7,084 $9,466
======== ======
The accompanying notes are an integral
part of these financial statements.
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PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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, 1996 are not necessarily
indicative of the results of operations to be expected for the year
ending December 31, 1996. 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
26, 1996.
2. BUSINESS ACQUISITIONS:
During the first quarter of 1996 the Company completed acquisitions of
three neonatology and pediatric physician group practices.
- On January 16, 1996, Pediatrix acquired the stock
of Neonatal Specialists, Ltd., an Arizona professional
corporation ("NSL"), in exchange for approximately
$6.3 million in cash.
- On January 29, 1996, Pediatrix acquired certain assets
of Pediatric and Newborn Consultants, P.C., a Colorado
professional corporation ("PNC"), in exchange for
approximately $3.7 million in cash.
- On January 29, 1996, Pediatrix completed the acquisition
of the stock of Colorado Neonatal Associates, P.C., a
Colorado professional corporation ("CNA"), in exchange
for approximately $1.6 million in cash.
The prior shareholders of PNC and CNA are also eligible to receive up to
an aggregate of $2 million in April 1997 if certain targets are achieved
at the hospitals served by the Company during the period from February 1,
1996 to January 31, 1997.
The Company has accounted for the transactions 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.
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PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. BUSINESS ACQUISITIONS: (CONTINUED)
The following unaudited pro forma information combines the consolidated
results of operations of the Company and NSL, PNC and CNA as if the
acquisitions had occurred on January 1, 1995:
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1996 1995
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(In thousands, except per share data)
Net patient service revenue............. $16,819 $10,807
Net income.............................. 2,680 1,290
Fully diluted net income per share...... .20 .11
The pro forma results do not necessarily represent results which would
have occurred if the acquisitions had taken place at the beginning of the
period, nor are they indicative of the results of future combined
operations.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
MARCH 31, 1996 DECEMBER 31, 1995
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(in thousands)
Accounts payable........................ $ 1,524 $ 786
Accrued salaries and bonuses............ 956 779
Accrued payroll taxes and benefits...... 450 726
Accrued professional liability coverage. 1,593 1,268
Other accrued expenses.................. 3,016 788
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$7,539 $ 4,347
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4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
As a result of the conversion of preferred stock, which was not
determined to be a common stock equivalent, into common stock in
connection with the initial public offering, the Company has presented
pro forma net income per common and common equivalent share for the three
months ending March 31, 1995.
Pro forma net income per common and common equivalent share is computed
based upon the weighted average number of shares of common stock and
common stock equivalents, including the number of shares of common stock
issuable upon conversion of preferred stock, outstanding during the
period. Pursuant to the requirements of the Securities and Exchange
Commission (SEC), common stock issued by the Company during the 12 months
immediately preceding the initial filing
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PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: (CONTINUED)
Of the registration statement with the SEC, plus common stock equivalents
relating to the grant of common stock options during the same period, have
been included in the calculation of pro forma weighted average number of
common stock and common stock equivalents outstanding for the three
months ending March 31, 1995, using the treasury stock method and the
initial public offering price of $20 per share.
Net income per common and common equivalent share on a historical
basis, both primary and fully diluted are as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
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(in thousands, except per share data)
Income applicable to common stock:
Net income...................................... $ 2,612 $ 1,209
Less: preferred stock dividends.............. -- (354)
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Income applicable to common stock............... 2,612 855
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Net income per share:
Primary....................................... .19 .12
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Fully diluted................................. .19 .10
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Weighted average number of common and
common equivalent shares outstanding:
Primary....................................... 13,697 7,043
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Fully diluted................................. 13,726 11,614
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Primary income per common and common equivalent share is computed by
dividing net income available to common shareholders by the weighted
average number of common stock and common stock equivalents outstanding
during the period. The voting, redeemable, cumulative, convertible
preferred stock issued in October 1992 and converted into common stock in
September 1995 was determined not to be a common stock equivalent. In
computing primary income per common share for the three months ended
March 31, 1995, the preferred stock dividend reduces net income available
to common shareholders. Fully diluted income per common share is
computed by dividing net income by the weighted average number of common
stock and common stock equivalents outstanding during the period and, for
the three months ended March 31, 1995, includes 4,571,063 shares of
common stock assumed to be issued upon the conversion of all shares of
the preferred stock.
5. SUBSEQUENT EVENT:
On May 1, 1996, the Company completed the acquisition of all of the
outstanding common stock of Rocky Mountain Neonatology, P.C. for $7.2
million in cash. The acquisition 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
The Company reported net patient service revenue of $16.1 million for the
three months ended March 31, 1996, as compared with $8.9 million for the same
period in 1995, a growth rate of 81%. Of this $7.2 million increase, $6.3
million, or 88%, was attributable to new contracts. Same unit patient service
revenue, exclusive of administrative fees, increased $559,000, or 7%, for the
three months ended March 31, 1996, compared to the same period in 1995. Same
units are those units located at hospitals that were under contract with the
Company for the entire period for which the percentage is calculated and the
entire prior comparable period. The same unit growth resulted from volume
increases as there were no general price increases during the periods.
Salaries and benefits increased $4.5 million, or 72%, to $10.8 million for
the three months ended March 31, 1996, as compared with $6.3 million for the
same period in 1995. Of this $4.5 million increase, $3.4 million, or 76%, was
attributable to hiring of new physicians, primarily to support new contract
growth, and the remaining $1.1 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
$606,000, or 100%, to $1.2 million for the three months ended March 31, 1996,
as compared with $607,000 for the same period in 1995, primarily as a result of
new contracts. Depreciation and amortization expense increased by $159,000, or
215%, to $233,000 for the three months ended March 31, 1996, as compared with
$74,000 for the same period in 1995, primarily as a result of amortization of
goodwill in connection with acquisitions.
Income from operations increased approximately $2.0 million, or 101%, to
$3.9 million for the three months ended March 31, 1996, as compared with $1.9
million for the same period in 1995, representing an increase in the operating
margin from 22% to 24%. The increase in operating margin was primarily due to
increased volume, principally from acquisitions.
The Company earned net interest income of approximately $499,000 for the
three months ended March 31, 1996, as compared with $107,000 for the same
period in 1995. The increase in net interest income resulted primarily from
additional funds available for investment due to proceeds from the initial
public offering and cash flow from operations.
The effective income tax rate was approximately 40% for both of the three
month periods ended March 31, 1996 and 1995.
Net income increased 116% to $2.6 million for the three months ended March
31, 1996, as compared with $1.2 million for the same period in 1995. Net
income as a percentage of net patient service revenue increased to 16% for the
three months ended March 31, 1996, compared to 14% for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $7.1 million at March 31, 1996 from
$18.5 million at December 31, 1995, due primarily to payments of $11.6 million
related to physician group acquisitions.
The Company believes that existing cash and cash equivalents and
marketable securities together with cash flow from operations will be
sufficient to conduct and expand its operations and to acquire additional units
as necessary to maintain its competitive position.
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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.
As of March 31, 1996, U.S. Federal Income Tax Returns for 1992 and
1993 were in the process of examination by the Internal Revenue
Service, which the Company believes will propose certain adjustments
for additional taxes and interest. The Company believes that the tax
returns are substantially correct as filed and intends to vigorously
contest any proposed adjustments. The Company believes that the
amounts provided in the financial statements are adequate and that the
ultimate resolution of the examination will have no material impact on
the Company's consolidated results of operations, financial position
or cash flows. There has been no material development with respect to
such examination during the quarter for which this Form 10-Q is filed.
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
10.1 Amended and Restated 1992 Stock Option Plan
10.24 Amendment No. 4 to 1993 Credit Agreement, dated
as of December 30, 1995, between the Company and The First
National Bank of Boston
10.25 1996 Qualified Employee Stock Purchase Plan
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10.26 1996 Non-Qualified Employee Stock Purchase Plan
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the three months ended March 31, 1996, the Company
filed the following Current Reports on Form 8-K: (i) Form 8-K,
dated January 31, 1996, relating to the acquisition of the capital
stock of NSL and certain assets of two affiliated entities,
Med-Support, L.P. and CMJ Leasing, L.P., as amended by Form 8-K/A,
dated March 25, 1996, including audited financial statements of NSL
for the year ended December 31, 1995; (ii) Form 8-K, dated February
8, 1996, relating to the acquisition of certain of the assets of
PNC, as amended by Form 8-K/A, dated March 25, 1996, including
audited financial statements of PNC for the year ended December 31,
1995; and (iii) Form 8-K, dated February 8, 1996, relating to the
acquisition of the capital stock of CNA, as amended by Form 8-K/A,
dated March 25, 1996 (no financial statements of CNA were required
to be filed).
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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, 1996 By: /s/ Roger J. Medel
-------------------------------------------
Roger J. Medel, President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 9, 1996 By: /s/ Lawrence M. Mullen
--------------------------------------------
Lawrence M. Mullen, Chief Financial Officer
(Principal Financial and Accounting Officer)
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