Exhibit 99.1
Pediatrix Medical Group, Inc. Announces Results Of Stock Option Review
FORT LAUDERDALE, Fla.--(BUSINESS WIRE)--July 26, 2007--Pediatrix
Medical Group, Inc. (NYSE:PDX), the nation's leading provider of
neonatal, maternal-fetal and pediatric subspecialty physician
services, announced today that the Audit Committee of its Board of
Directors has completed an independent comprehensive review of
Pediatrix's stock option practices and reported the findings to the
Board of Directors. Based upon the Audit Committee's findings, the
Company has determined that it will have to record non-cash pre-tax
compensation expense for the period from January 1, 1995 to March 31,
2006 currently estimated at approximately $33 million.
Audit Committee Findings
On August 3, 2006, the Company announced that the Audit Committee
was reviewing the Company's practices relating to stock option grants.
The Audit Committee engaged independent counsel, which engaged
forensic accountants and other experts to assist the Audit Committee
with the review. The review covered all stock options granted from the
date of the Company's initial public offering in September 1995
through June 2006.
The Audit Committee reviewed the facts and circumstances
surrounding options to purchase approximately 20 million shares of
common stock, as well as approximately 700,000 shares of restricted
stock, granted pursuant to more than 1,300 grants on 114 dates. More
than 32 million physical and electronic documents were searched and 35
interviews with more than a dozen current and former directors,
officers and employees were conducted.
Following are the key findings based on the evidence reviewed:
-- The Audit Committee identified 56 grants made on seven dates
between April 1997 and August 2000 which appear to have been
backdated. No instances of backdating were identified after
August 2000. The Audit Committee used the term "backdating" to
connote deliberate selection of grant measurement dates to
obtain an option exercise price that was lower than would
otherwise be the case. The Audit Committee used this term to
describe grants which apparently involved deliberate,
opportunistic use of market prices.
-- The Audit Committee did not find intentional misconduct by any
of the Company's current executive officers.
-- The Audit Committee believes that it received full cooperation
from all of the Company's current executive officers.
-- The Audit Committee did not find evidence establishing that
the Board, any committee of the Board, or any non-executive
director participated in backdating or was aware of backdating
during the time that it occurred.
-- During the time period from April 1997 to August 2000 when
backdating occurred, the administration and processing of
option grants was directed by a former officer who later
became a director of the Company. This individual continued to
direct the Company's options program after resigning as an
officer in May 2000, while remaining with the Company to work
on special projects. During this time period, this individual
appears to have been responsible for selecting favorable dates
for option grants in all but one instance where a record was
located regarding favorable date selection. The Audit
Committee concluded that this individual knew or should have
known the accounting implications of his actions. Further, the
Audit Committee identified three occasions on which this
individual was able to benefit by affecting the measurement
date of options that were granted to him. The Audit Committee
found that this individual realized approximately $12,000 from
the backdating of these options based on the revised
measurement dates assigned to them.
-- The Audit Committee identified numerous instances in which
applicable accounting principles were misapplied and/or
process deficiencies or administrative errors occurred
resulting in the application of inappropriate measurement
dates to option grants. The Audit Committee also identified
inadequate record keeping, documentation, disclosure and
systems with respect to the stock option grant process,
including records of meetings, which in some cases, could not
be corroborated in support of option grants on measurement
dates that corresponded to periodic low points in the
Company's stock price.
-- The Audit Committee determined that, although they did not
engage in intentional misconduct, current senior management
did not adequately ensure that these processes and systems
were proper, including the Company's current President and
Chief Operating Officer and Chief Financial Officer, who were
also found to have played a role in the granting of stock
options to others that involved errors and process
deficiencies.
-- With respect to the Company's current executive officers, the
Audit Committee found that senior management should not have
permitted the individual described above to continue to manage
the options program after his resignation as a Company officer
in May 2000. The Audit Committee found that, during the period
in which backdating occurred, Roger J. Medel, M.D., the
Company's CEO, was actively involved in determining grant
recipients and amounts and was also party to e-mail
correspondence concerning the selection of favorable dates for
option grants; however, Dr. Medel was not the recipient of any
of the grants found to be backdated. In addition, the Audit
Committee found that on one occasion in 1997, Dr. Medel
directed the selection of a favorable grant date for a group
of regional medical officers, one of whom was his spouse, a
founding physician of the Company and full-time employee at
the time of the grant. Based on its review, however, the Audit
Committee believes that Dr. Medel was not aware of the
accounting implications of such grants. Further, based on its
review, the Audit Committee believes that Dr. Medel reasonably
relied upon senior Company executives as to the administration
of the Company's equity compensation plans and the accounting
for awards. The Audit Committee found, however, that Dr. Medel
bore overall responsibility for assuring that management's
implementation of its compensation programs was appropriate
but that he did not adequately assure such appropriate
implementation.
-- In light of the evidence reviewed, the Audit Committee found
that 640 grants in total required revised measurement dates,
variable accounting or the recognition of compensation
expense.
Audit Committee Recommendations
Although the Company has taken steps since 2003 to improve its
option grant procedures, the Audit Committee also recommended the
formal adoption of a number of additional actions be taken. These
actions have been reviewed and approved by the Board. These improved
procedures include, among others:
-- Eliminating all delegated authority of management (suspended
by management following commencement of the investigation) to
make equity awards and requiring all grants to be approved by
the Compensation Committee or the full Board of Directors.
-- Requiring that the effective date of any grant of any equity
award must be not earlier than the meeting at which such grant
is approved or the date that the last signature necessary for
a written consent approving a grant is received by the
Company's general counsel.
-- Although the Compensation Committee or the Board may approve
grants of equity awards at any time, such grants to then
existing employees may be effective only on a date within a
"trading window" as defined by the Company's Policy Statement
on Inside Information and Insider Trading (effective February
2004), as amended from time to time.
-- Requiring, in the case of equity grants to newly hired
employees that the effective date of the equity grant may not
be earlier than the date of employment is effective for
payroll purposes.
The Audit Committee also recommended a number of measures to
further support the Company's enhanced processes related to stock
option granting and administration, to provide for ongoing monitoring
and assessment thereof, as well as continued cooperation with
regulatory and governmental authorities.
In addition, the Audit Committee found that Joseph M. Calabro, the
Company's President and Chief Operating Officer, and Karl B. Wagner,
the Company's Chief Financial Officer, were included as recipients of
options granted in 1998 and 1999 on which backdating was identified
(although they were not found to have played a role in the backdating
of such options). Messrs. Calabro and Wagner, along with Dr. Medel's
spouse, have offered to pay the Company the difference between the
proceeds they received upon exercise of the backdated options and the
proceeds they would have received had the exercise price for these
grants been based upon the revised measurement dates. The Audit
Committee has recommended that the Company accept these offers. These
offers will result in the payment of $144,950, $154,975 and $519,000
from Messrs. Calabro, Wagner and Dr. Medel's spouse, respectively. No
other current executive officer, including Dr. Medel, or director
received options in any of the grants which the Audit Committee found
to have been backdated.
Pediatrix's Chairman of the Board, Cesar L. Alvarez, said, "Our
Audit Committee has conducted a very thorough independent review and
we have implemented its recommendations. We deeply regret the issues
that were identified by the independent review; however, we are
pleased that it did not find any intentional misconduct by any of our
present officers and directors. Our Board of Directors continues to
have full confidence in the Pediatrix management team."
As previously announced, based upon the Audit Committee's review,
certain previously filed financial statements of the Company will be
restated. The Company is working to complete its Quarterly Reports on
Form 10-Q for the quarters ended June 30, and September 30, 2006, and
March 31, 2007 and its Annual Report on Form 10-K for the year ended
December 31, 2006 (which will contain the restated financial
statements) as soon as practicable.
The Company voluntarily contacted the SEC regarding the Audit
Committee's review and is cooperating with the SEC's now formal
investigation. The Company has also had discussions with the U.S.
Attorney's office for the Southern District of Florida regarding the
Audit Committee's review. The Company intends to continue full
cooperation with the U.S. Attorney's office and the SEC.
The Company also announced that the Board had implemented the
previously disclosed program intended to protect employees from
certain adverse tax consequences resulting from their options having
been granted originally at prices lower than the revised prices.
About Pediatrix
Pediatrix Medical Group, Inc. is the nation's leading provider of
neonatal, maternal-fetal and pediatric physician subspecialty
services. Pediatrix physicians and advanced practitioners are
reshaping the delivery of care within the maternal-fetal, neonatal
intensive care and pediatric cardiology subspecialties, using
evidence-based tools, continuous quality initiatives and clinical
research to enhance patient outcomes and provide high-quality,
cost-effective care. Founded in 1979, its neonatal physicians provide
services at more than 240 neonatal intensive care units, and in many
markets they collaborate with affiliated maternal-fetal medicine,
pediatric cardiology physician subspecialists and pediatric
intensivists to provide a clinical care continuum. Combined, Pediatrix
and its affiliated professional corporations employ more than 950
physicians in 32 states and Puerto Rico. Pediatrix is also the
nation's largest provider of newborn hearing screens and newborn
metabolic screening. Additional information is available at
www.pediatrix.com.
Certain statements and information in this press release may be
deemed to be "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995.
Forward-looking statements may include, but are not limited to,
statements relating to our objectives, plans and strategies, and all
statements (other than statements of historical facts) that address
activities, events or developments that we intend, expect, project,
believe or anticipate will or may occur in the future are
forward-looking statements. These statements are often characterized
by terminology such as "believe", "hope", "may", "anticipate",
"should", "intend", "plan", "will", "expect", "estimate", "project",
"positioned", "strategy" and similar expressions, and are based on
assumptions and assessments made by Pediatrix's management in light of
their experience and their perception of historical trends, current
conditions, expected future developments and other factors they
believe to be appropriate. Any forward-looking statements in this
press release are made as of the date hereof, and Pediatrix undertakes
no duty to update or revise any such statements, whether as a result
of new information, future events or otherwise. Forward-looking
statements are not guarantees of future performance and are subject to
risks and uncertainties. Important factors that could cause actual
results, developments, and business decisions to differ materially
from forward-looking statements are described in Pediatrix's most
recent Annual Report on Form 10-K, including the section entitled
"Risk Factors". Additional factors include, but are not limited to,
uncertainties related to: the pending restatement of Pediatrix's
financial statements; the financial reporting impact of improperly
dated stock options or stock options requiring revised accounting
treatment; the tax effects of improperly dated stock options;
discovery of additional facts beyond those reviewed by the Audit
Committee; possible litigation related to the matters investigated by
the Pediatrix's Audit Committee or the restatements to Pediatrix's
financial statements and other historical disclosures; and any
regulatory actions of the SEC or the U.S. Attorney related to such
matters.
CONTACT: Pediatrix Medical Group, Inc., Fort Lauderdale
Bob Kneeley, Director, Investor Relations
954-384-0175, x-5300
bob_kneeley@pediatrix.com