UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
--------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER
Form
10-K/A
Amendment No. 1
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ___________
COMMISSION FILE NUMBER 0-26762
--------------
PEDIATRIX MEDICAL GROUP,2019
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file number
001-12111
MEDNAX, INC.
------------------------------------------------------
(Exact
(Exact name of registrant as specified in its charter)
FLORIDA 65-0271219
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 CONCORD TERRACE, SUNRISE, FLORIDA 33323
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(954) 384-0175
------------------------------------------------------
(Registrant's
FLORIDA | 26-3667538 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1301 Concord Terrace, Sunrise, Florida | 33323 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code)
code (954)
384-0175
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value New York Stock Exchange
$.01 per share
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Common Stock, par value $.01 per share | MD | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None.
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Exchange Act. Yes
☐
No ☒
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 for 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 ☐
Indicate by check mark if disclosure of delinquent filerswhether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to ItemRule 405 of Regulation S-K (ss.229.405is not contained herein,
and will not be contained,during the preceding 12 months (or for such shorter period that the registrant was required to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
submit such files). Yes
S-T
(§232.405 of this chapter) ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act.Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Securitiesby RuleAct Rule 12b-2)Act). Yes [X][ ]
☒
12b-2
of the Exchange ☐
No The aggregate market value of shares of Common Stock of the registrant held by2002,2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately
$527,064,000$2,051,190,371 based on a $25.00$25.23 closing price per share as reported on the New York Stock Exchange composite transactions list on such date.
non-affiliates
of the registrant on June 28, The number of shares of Common Stock of the registrant outstanding on March 20, 2003,April 15, 2020 was 23,768,342.
85,412,375.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
EXPLANATORY NOTE
On February 20, 2020, MEDNAX, Inc., a Florida corporation (the “Company”), filed its Annual Report on Formregistrant's definitive proxy statementCompany is filing this Amendment No. 1 on Formbe filedinclude the information required by Items 10 through 14 for Formpursuant (the “SEC”). This FormRegulation 14A,include information previously omitted from the Original Form
10-K
for the fiscal year ended December 31, 2019 (the “Original Form10-K”).
The 10-K/A
(the “Form10-K/A”)
in order to 10-K.
This information was previously omitted from the Original Form10-K
consistent with General Instruction G(3) to Form10-K.
The Company is filing the Form10-K/A
to provide the information required in Part III of Form10-K
for purposes of incorporating that information by reference into other filings with the Securities and Exchange Commission 10-K/A
amends and restates in its entirety Part III, Items 10 through 14 of the Original Form10-K,
to 10-K
consistent with General Instruction G(3) to Form10-K.
The reference on the cover page of the Original Form10-K
to the incorporation by reference of portions of the Company’s definitive proxy statement into Part III of the Original Form10-K
is hereby deleted. In this Form10-K/A,
the terms “MEDNAX,” the “Company,” “we,” “us” and “our” refer to the parent company, MEDNAX, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “MDX”), together with MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of MDX have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico.In addition, as required by Rule2003 annual
meetingcertifications have been omitted. We are not including the certifications under Section 906 of shareholders, is incorporated by reference in Part IIIthe Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Form
10-K
12b-15
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits to this Form10-K/A
under Item 15 of Part IV hereof. Because no financial statements have been included in this Form10-K/A
and this Form10-K/A
does not contain or amend any disclosure with respect to Items 307 and 308 of RegulationS-K,
paragraphs 3, 4 and 5 of the 10-K/A.
Except as described above, this Formextent stated herein. ExceptOriginal Formrespect to information
specifically incorporated by reference in thisthe Original Form
10-K/A
does not modify or update disclosure in, or exhibits to, the 10-K.
Furthermore, this Form10-K/A
does not change any previously reported financial results, nor does it reflect events occurring after the date of the Original Form10-K.
Information not affected by this Form10-K/A
remains unchanged and reflects the disclosures made at the time the Original Form10-K
was filed. Accordingly, this Form10-K/A
should be read in conjunction with 10-K each document
incorporated by reference herein is deemed not to be filed as a part hereof.
================================================================================
INDEX TO ITEMS
and our other filings with the SEC.2
TABLE OF CONTENTS
Item 10. | 1 | |||||
Item 11. | 11 | |||||
Item 12. | 36 | |||||
Item 13. | 38 | |||||
Item 14. | 39 | |||||
Item 15. | 41 | |||||
Item 16. | 45 |
PART I
ITEM 1. BUSINESS
In this Annual Report on Form 10-K,III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
GOVERNANCE AND RELATED MATTERS
Our business, property and affairs are managed under the terms "Pediatrix", "PMG", "the
Company", "we", "us"direction of our Board of Directors, except with respect to those matters reserved for our shareholders. Our Board of Directors establishes our overall corporate policies, reviews the performance of our senior management in executing our business strategy and "our" refermanaging ourPediatrix Medical Group, Inc., a Florida
corporation, togetherour senior management. Our Board of Directors’ mission is to further the long-term interests of our shareholders. Members of the Board of Directors are kept informed of MEDNAX’s business through discussions with its subsidiariesMEDNAX’s management, primarily at meetings of the Board of Directors and its affiliated professional
associations, corporationscommittees, and partnerships (the "PA Contractors"). through reports and analyses presented to them. Significant communications between our Directors and senior management occur apart from such meetings.
day-to-day
operations and acts as an advisor to Questions and Answers About Our Corporate Governance Practices
What Committees Have Our Board of Directors Established?
The PA
Contractorsstanding committees of MEDNAX’s Board of Directors are separate legal entities that contract with Pediatrixthe Executive Committee, the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Medical Group, Inc. to provide physician services in certain statesScience and Puerto Rico.
BUSINESS OVERVIEW
Pediatrix is the nation's largest physician group focused on
maternal-fetal-newborn medicine. Pediatrix and its affiliated professional
companies employ 622 physicians, including more than 500 neonatologists who
staff and manage the clinical care at more than 200 hospital-based neonatal
intensive care units ("NICUs") across the country, caring for babies born
prematurely or with medical complications. In several of our markets, we also
employ maternal-fetal physician specialists, or perinatologists, who care for
expectant mothers with complicated pregnancies. In addition, we employ other
pediatric subspecialists, including pediatric intensivists who staff
hospital-based pediatric intensive care units, pediatric hospitalists and
pediatric cardiologists.
Our principal mission is the clinical care of premature newborns, babies
born with complications and patients with high-risk pregnancies. We staff and
manage the clinical activities within specific units in hospitals, primarily
NICUs, and we are an important componentTechnology Committee. Copies of the comprehensive labor and delivery
and pediatric services that the hospitals provide to their communities. We
employ physicians and advanced practitioners, who provide patient care, and we
also provide professional and administrative support that includes contracting
with third-party payors, billing and collections, risk management services,
physician recruiting and credentialing and clinical outcomes data management.
Our modelcharters for hospital-based coverage provides 24-hour physician
availability through either an on-site or on-call physician presence. We believe
that our 24-hour coverage has enhanced our hospital relationships, making it
possible for our physicians to provide patient care throughout the hospital,
including the emergency room, nursery and other areas of the obstetrics and
pediatrics departments where access to specialized care may be critical.
Our maternal-fetal medicine ("MFM") practices include a combination of
outpatient and inpatient care. We employ perinatal physicians and other clinical
professionals, as needed, including nurse mid-wives, ultrasonographers and
genetic counselors. We also employ and manage administrative support staff and
furnish the required medical equipment at our outpatient offices. All of our MFM
practices are based in markets where our physicians also practice neonatal
medicine. This allows us to improve patient care by using an integrated
continuum of care model that directs treatment to the mother and developing
fetus during the pregnancy, and to the baby upon delivery. As a result of these collaborations, we have entered into contractual arrangements with hospitals and
third-party payors in certain markets that encompass the entire high risk
maternal-fetal-newborn experience.
We monitor clinical outcomes, employ best demonstrated processes, and
conduct clinical research to find new methods of care that result in better
outcomes at a reduced overall cost. We make extensive physician continuing
medical education resources available to our physicians to ensure that they have
knowledge of current treatment methodologies.
We focus on best demonstrated processes, data collection and reporting to
administrators and referring physicians. Our physicians work with the entire
medical staff in hospitals to promote each hospital's strategic goals.
Obstetrics is an important source of admissions for a hospital. We believe that
our physicians' ability to manage patient outcomes has a direct impact on a
hospital's reputation among referring physicians within its communities.
We generate value to our physicians by providing needed resources -
clinical and administrative - that allow them to focus on patient care. For
example, our Research Data System captures clinical information from daily
progress notes in a centralized database that is used for outcomes reporting,
retrospective clinical analysis, clinical quality initiatives and as a basis for
prospective clinical trials.
3
In essence, our model removes many of the burdens that are associated with
the management of a physician group practice and allows physicians to
concentrate on patient care, adding value to patients, payors, hospital
administrators and referring physicians through better clinical care.
DEMAND FOR OUR SERVICES
The demand for our services - physicians caring for patients - is
determined in part by local market dynamics for health services and in part by
national market dynamics for physicians. We have built our leading presence in
neonatal and maternal-fetal medicine by advancing a comprehensive care model
that addresses the needs of our various constituents, including patients and
third-party payors, hospital administrators, referring physicians and our
employed physicians who practice as part of our national group. There are
approximately 4 million births in the U.S. annually, and we estimate that
between 10 to 15 percent of all births require neonatal intensive care unit
admissions. Babies admitted to NICUs are typically born prematurely, or have an
illness or condition that requires the care of a neonatal physician
subspecialist. Today, neonatal physicians generally practice in a traditional
group practice setting, contracting with hospitals within a community to provide
specified coverage in the NICU. Neonatologists are board-certified pediatricians
who obtain additional training in neonatal medicine. Premature and low
birthweight infants are at increased risk for medical complications and may
require neonatal intensive care services. Approximately 11 percent of babies
born in the U.S. are born "prematurely", before the 37th week of pregnancy.
Approximately 8 percent of all babies are born weighing less than 2,500 grams,
or five pounds, eight ounces, according to the U.S. Center for Health
Statistics.
There is no known cause for babies born prematurely. While research is
being conducted by numerous institutions to identify the potential cause of
premature birth, some common factors that may contribute to prematurity of birth
are lack of prenatal care, complications during pregnancy, smoking or poor
nutritional habits during pregnancy. Because most neonatal admissions are the
result of premature labor and delivery or other unanticipated complications,
they are not planned events.
Across the United States, NICUs are concentrated primarily among hospitals
with a higher volume of births. NICUs are important to hospitals since
obstetrics departments generate one of the highest volumes of admissions, and
obstetricians generally prefer to perform deliveries at hospitals with NICUs.
Hospitals must maintain cost-effective care and service in these units to
enhance the hospital's desirability to the community, physicians and managed
care payors.
Pediatrix physicians work with our hospital partners to market
comprehensive labor and delivery services to referring physicians, principally
obstetricians, and also to general and family practice physicians within a
particular community and its surrounding areas.
These referring physicians feel most comfortable delivering babies at
hospitals that provide a full-service labor and delivery setting, which today
includes a NICU staffed by board-certified/board-eligible neonatal physicians.
Like most physician subspecialties, neonatal medicine was started at
academic centers. During the past three decades, neonatal physician services
have migrated from academic centers to community hospitals in reaction to demand
from obstetricians seeking additional resources to provide patient care in the
labor and delivery area.
Hospital administrators responded to the demands of community-based
obstetricians, an important source of hospital admissions, by building neonatal
intensive care units and entering into contracts with independent physician
group practices to staff and manage those units. Pediatrix is modeled around
that traditional group practice structure, but because of our size we have
non-clinical professional management that has proven abilities to achieve
significant operating efficiencies in interacting with the hospitals, managing
information systems and technologies and complying with government regulations.
In many of our markets, our neonatologists practice with physicians who are
MFM subspecialists, or perinatologists, to provide integrated care for women
with complicated pregnancies whose babies are often admitted to the NICU upon
delivery. Perinatologists are board-certified obstetricians who obtain
additional training in high-risk pregnancies to become eligible for perinatal
board certification. Since many maternal-fetal cases result in an admission to a
NICU, early involvement by the neonatologist helps to improve outcomes for both
4
mother and child. In addition, we believe that improved perinatal care has a
positive impact on neonatal outcomes. Our data on neonatal outcomes demonstrates
that, in general, the longer the baby remains in the womb, the greater
likelihood of decreased mortality and morbidity. Perinatologists are focused on
extending the pregnancy to improve the viability of the fetus. We believe that
our integrated care model, which includes maternal-fetal medicine, has improved
the clinical outcomes of our patients and strengthened our relationships with
patients, hospitals and payors.
PHYSICIAN SERVICES OVERVIEW
Within the healthcare services sector, the physician services sector
remains largely fragmented. Today, administrative pressures on physicians make
it increasingly difficult for them to simultaneously manage patient care, stay
current on the latest procedures, and efficiently administer non-clinical
activities.
The healthcare services sector is also under considerable cost containment
pressures from a number of sources, principally third-party payors, including
commercial and government payors.
Hospitals have entered into contractual relationships with physician groups
and organizations to provide specialized care, including neonatal patient care
in hospital-based units. Management of these units presents significant
operational challenges for hospitals, including complex billing procedures,
variable admissions rates, and difficulties in recruiting and retaining
qualified physicians. Hospitals outsource with physician subspecialists in an
effort to improve outcomes, contain costs, improve utilization management and
reduce administrative burdens. Physician organizations assume responsibilities
to provide professional management of staff, including recruiting, staffing and
scheduling of physicians. Traditionally, hospitals have staffed these vital
units through affiliations with small, local physician groups or with
independent practitioners. Hospitals are increasingly seeking to contract with
physician groups that have the clinical quality initiatives, information and
reimbursement systems and management expertise that are required in the current
health care environment.
OUR STRATEGY
Physicians remain receptive to joining or affiliating with a larger
organization that provides value-added services and reduces administrative
burdens. We believe these trends continue to present opportunities for us. We
believe that hospitals will continue to outsource certain units, such as NICUs,
on a contract management basis.
Our objective is to enhance our position as the nation's leading provider
of neonatal and perinatal physician services by adding new practices and
increasing same-unit growth. A central aspect of our strategy is to attract
physicians to our national group by acquiring their practice and integrating it
into our existing practice structure. We also continue to market our services to
hospitals to obtain new contracts. The key elements of our strategy are as
follows:
FOCUS ON NEONATAL, PERINATAL AND PEDIATRIC PATIENT CARE. Since our
founding in 1979, we have focused primarily on neonatology and pediatric
subspecialties. As a result of this focus, we believe that we have
developed (i) significant expertise in the complexities of billing and
reimbursement for neonatal physician services, (ii) a competitive advantage
in recruiting and retaining neonatologists seeking to join a group practice
and (iii) a clinical approach that includes research, education and
clinical quality initiatives that help to advance the care provided to
patients. In 1998, we expanded our business into perinatology, or MFM. We
are continuing to focus our efforts in MFM and are dedicated to developing
the same level of expertise in MFM that we have developed in neonatology
over the course of more than two decades. We believe that our continued
focus will allow us to enhance our position as the nation's leading
provider of neonatal and maternal-fetal physician services.
INCREASE SAME UNIT GROWTH. We seek to provide our services to hospitals
where we can benefit from increased admissions, and we intend to increase
revenues at existing units by providing support to areas of the hospital
outside the NICU and pediatric intensive care unit ("PICU"), particularly in
the obstetrics and pediatrics departments where immediate accessibility to
specialized care may be critical. These services generate incremental
revenue for us, contribute to our overall profitability, enhance the
hospital's profitability, strengthen our relationship with the hospital, and
assist the hospital in attracting more admissions by enhancing the
hospital's reputation in the community as a full-service critical care
provider.
5
ACQUIRE NEONATAL AND PERINATAL PHYSICIAN GROUP PRACTICES. We intend to
further increase the number of locations at which we provide physician
services by acquiring established neonatal and MFM physician group
practices. We completed our first acquisition of a neonatal physician
group practice in July 1995 and since then we have completed numerous
acquisitions of established physician group practices. We intend to continue
actively pursuing acquisitions, attracting neonatal and perinatal physician
group practices to our comprehensive model for patient care. However, we may
not be able to identify future acquisition candidates or consummate any
future acquisitions. See "Risk Factors - Our failure to find suitable
acquisition candidates or successfully integrate any future or recent
acquisitions could harm our business and results of operations."
DEVELOP REGIONAL NETWORKS. We intend to develop regional and statewide
networks of NICUs and perinatal practices in geographic areas with high
concentrations of births. We operate combined regional networks of NICUs and
perinatal practices in the Austin, Dallas-Fort Worth, Denver-Colorado
Springs, Des Moines, Kansas City, Las Vegas, Phoenix-Tucson, San Antonio,
San Jose, Seattle-Tacoma and Southern California metropolitan areas. In
addition, we intend to continue to acquire and develop perinatal practices
in markets where we currently provide NICU services. We believe that the
development of regional and statewide networks has generated clinical
efficiencies, including best demonstrated processes, and operating
efficiencies that have a pronounced positive effect on quality of care,
length of stay and the overall cost of care.
ASSIST HOSPITALS TO CONTROL COSTS. Our comprehensive care model, which
promotes early intervention by perinatologists and neonatologists in
emergency situations, as well as the retention of qualified perinatologists
and neonatologists, improves the overall cost effectiveness of care. We
believe that our ability to assist hospitals to control costs will allow us
to continue to be successful in adding new units at which we provide
physician services.
ADDRESS CHALLENGES OF MANAGED CARE ENVIRONMENT. We intend to continue to
develop new methods of doing business with managed care and third party
payors that will allow us to strengthen our relationships with payors and
hospitals. We are prepared to enter into flexible arrangements with third
party payors. As the nation's leading provider of neonatal and perinatal
physician services, we believe that we are well-positioned to address the
needs of managed care organizations and other third party payors, which seek
to contract with cost-effective quality providers of medical services.
EXPAND INTO ADDITIONAL HEALTHCARE SERVICES. We intend to use our
expertise in maternal-fetal-newborn care, and managing hospital-based
physician subspecialists, to expand and diversify our services. For example,
we believe that our expertise running the "back-office" functions of
hospital-based physician subspecialties can be applied to other areas of the
hospital and other medical specialties. In addition, we believe there are
opportunities to expand beyond care of high-risk pregnancies and premature
and sick newborns. However, we may not be able to identify suitable
opportunities. See "Risk Factors - We may be unable to successfully
implement our strategy of diversifying our operations."
OUR PHYSICIAN SERVICES
We manage the physician services at NICUs and other hospital-based units.
Our services include the following:
UNIT MANAGEMENT. We staff each NICU, MFM practice and other subspecialty
area that we manage with a medical director who reports to one of our
Regional Presidents ("RP"). The RPs and all medical directors at these units
are board-certified or board-eligible physicians. In addition to providing
medical care and physician management in the unit, the medical director is
responsible for (i) overall management of the unit, including quality of
care, professional discipline, utilization review and coordinating physician
recruitment, staffing and scheduling, (ii) serving as a liaison to the
hospital administration, (iii) maintaining professional and public relations
in the hospital and the community, and (iv) monitoring our financial success
within the unit.
RECRUITING, STAFFING AND SCHEDULING. We are responsible for recruiting,
staffing and scheduling of physicians and advanced registered nurse
practitioners ("ARNPs") within the NICUs and other practices and units that
we manage. Our recruiting department maintains an extensive recruiting
6
database of neonatologists, perinatologists and pediatricians nationwide. We
pre-screen all candidates and check their credentials, licensure and
references. The RPs and the medical directors play a key role in the
recruiting and interviewing process before candidates are introduced to
hospital administrators. The NICUs and PICUs that we manage are staffed by
at least one neonatologist or pediatrician on site or available on call.
These physicians are board-certified or board-eligible in neonatology,
perinatology, pediatrics, pediatric critical care or pediatric cardiology,
as appropriate. We also employ or contract with ARNPs, who assist our
physicians in operating the NICUs and other units. All ARNPs have either a
certificate as a neonatal nurse practitioner or pediatric nurse practitioner
or a masters degree in nursing, and have previous neonatal or pediatric
experience. We assume responsibility for salaries, benefits and physician
malpractice insurance for the physicians who are employed by or under
contract with us. See "Contractual Relationships."
SUPPORT TO OTHER HOSPITAL DEPARTMENTS. As part of our comprehensive care
model, physicians provide support services in other areas of hospitals,
particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care may be critical. We believe that
this support (i) improves our relations with hospital staff and referring
physicians, (ii) enhances the hospital's reputation in the community as a
full-service critical care provider, (iii) increases admissions from
referring obstetricians and pediatricians, (iv) integrates the physicians
into a hospital's medical community, (v) generates incremental revenue that
contributes to our overall profitability, and (vi) increases the likelihood
of our renewing existing and adding new hospital contracts.
BILLING AND REIMBURSEMENT. We assume responsibility for all aspects of
billing, reimbursement and collections related to physician services. Third
party payors and/or patients receive a bill from us for physician services.
The hospital bills and collects separately for services it provides. To
address the increasingly complex and time-consuming process of obtaining
reimbursement for medical services, we have invested in both the technical
and human resources necessary to create an efficient billing and
reimbursement process, including specific claims forms and software systems.
We begin this process by providing our physicians with a thorough training
curriculum that emphasizes detailed documentation of and proper coding
protocol for all procedures performed and services provided to achieve
appropriate collection of revenues for physician services. Our billing and
collection operations are conducted from our corporate offices,committees, as well as our regional business offices located across the U.S. and in Puerto Rico.
See "Risk Factors - From time to time wecorporate governance principles, are subject to billing
investigations by federal and state government authorities which could have
an adverse effectavailable on our business and results of operations and the trading
price of our shares."
RISK MANAGEMENT SERVICES. The practice of medicine entails an inherent
risk of claims of professional liability. We maintain professional liability
insurance on a claims-made basis in accordance with standard industry
practice. We are able to negotiate with malpractice insurance carriers on
behalf of our national group of practitioners. In addition to the advantages
of group purchasing for this coverage, we are able to relieve our
practitioners of the burden of securing malpractice insurance in a market of
increasing insurance premiums. In addition to managing medical risk with
insurance, we take proactive steps to provide education and access to best
demonstrated processes to our practitioners.
MARKETING AND DEVELOPMENT ACTIVITIES
Since 1996, Pediatrix has grown largely through acquisition activities that
have successfully attracted seasoned neonatal and maternal-fetal specialists to
our model for clinical care. Our business development group maintains
relationships with many independent physician group practices within our
subspecialties. Our marketing program to neonatal and perinatal physician groups
consists of (i) market research to identify established physician groups, (ii)
telemarketing to identify and contact acquisition candidates, as well as
hospitals with high demand for perinatal and NICU services, and (iii) on-site
visits conducted by business development personnel together with senior
management.
Physicians practicing as part of Pediatrix also market their practices
within their community and surrounding referral areas. Patient volume is based
on referrals from other physicians, particularly obstetricians. Consequently,
our physicians concentrate their marketing efforts on establishing and
maintaining professional relationships with physicians based in those
communities where they practice.
7
MANAGEMENT INFORMATION SYSTEMS
We maintain several systems to support our day-to-day operations, business
development and ongoing clinical and business analysis, including (i) a clinical
information system designed to reduce physicians' paperwork requirements while
consolidating clinical information used to support our education, research and
quality assurance programs, (ii) a coding algorithm to help our physicians in
selecting the appropriate billing codes for services provided, (iii) a website (Natal U(TM)) that disseminates clinical research and education materials to
physicians and patients, (iv) electronic interchange with payors using
electronic benefits verification, claims submission and remittance advice, and
(v) a database used by the business development and recruiting departments in
recruiting physicians and identifying potential physician group acquisition
candidates, which is updated through telemarketing activities, personal
contacts, professional journals and mail solicitation. Ongoing systems
development will provide even greater streamlining of information from the
clinical systems through the reimbursement process, thereby expediting the
overall process.
Our management information system is an integral component of the billing
and reimbursement process. Our system enables us to track numerous and diverse
third party payor relationships and payment methods and provides for electronic
interchange in support of insurance benefits verification and claims processing
to payors accepting electronic submission. Our system was designed to meet our
requirements by providing maximum flexibility as payor groups upgrade their
payment and reimbursement systems. See "Risk Factors - If we do not maintain
effective and efficient information systems, our operations may be adversely
affected."
CONTRACTUAL RELATIONSHIPS
HOSPITAL RELATIONSHIPS. Many of our contracts with hospitals grant us the
exclusive right and responsibility to manage the provision of physician services
to the NICUs and other hospital-based units. The contracts typically have terms
of one to three years and renew automatically for additional terms of one to
three years unless earlier terminated. The contracts typically provide that
either party may terminate the agreement upon 90 days' written notice. We
typically bill patients and third-party payors for physicians' services on a
fee-for-service basis separately from other charges billed by the hospital to
the same payors. Certain hospitals that do not generate sufficient patient
volume agree to pay us administrative fees to assure a minimum revenue level.
Administrative fees include guaranteed payments to us, as well as fees paid to
us by certain hospitals for administrative services performed by our medical
directors at such hospitals. Administrative fees accounted for 7%, 6% and 5% of
our net patient service revenue during 2000, 2001 and 2002, respectively. The
hospital contracts typically require that we and the physicians performing
services maintain minimum levels of professional and general liability
insurance. We negotiate those policies, contract and pay the premiums for such
insurance on behalf of the physicians. See "Professional Liability and
Insurance."
PAYOR RELATIONSHIPS. Substantially all of our contracts with third party
payors are discounted fee-for-service contracts. We have a minor number of small
capitated arrangements with certain payors. Under capitated arrangements, we are
paid a flat monthly fee based on the number of individuals covered by a
particular insurance plan. If we enter into relationships with third party
payors with respect to regional and statewide networks, such relationships may
be on a capitated basis.
PA CONTRACTOR RELATIONSHIPS. Pediatrix Medical Group, Inc. ("PMG") has
entered into management agreements ("PA Management Agreements") with
professional corporations or associations ("PA Contractors") in most of the
states in which it operates. Each PA Contractor is owned by a licensed physician
affiliated with PMG through employment or other contractual relationships. In
accordance with applicable state laws, under the PA Management Agreements, the
PA Contractors delegate to PMG only the administrative, management and support
functions that the PA Contractors have agreed to provide to the hospital. PMG
does not perform any functions that would constitute the practice of medicine.
In consideration of services provided, each PA Contractor pays PMG either a
percentage of the PA Contractor's gross revenue, but never greater than the net
profits of such PA Contractor, or a flat fee. PMG has the discretion to
8
determine whether the fee shall be paid on a monthly, quarterly or annual basis.
The management fee may be adjusted from time to time to reflect industry
standards and the range of services provided by the PA Contractor. The PA
Management Agreements are long-term in nature, and in most cases permanent,
subject only to termination by PMG, except in the case of gross negligence,
fraud or illegal acts of PMG. Also, the PA Management Agreements provide that
PMG has the right, but not the obligation to purchase, or to designate a person
or persons to purchase, the stock of the PA Contractor for a nominal amount.
Separately, in its sole discretion, PMG has the right to assign its interest in
the PA Management Agreements. See Note 2 to our Consolidated Financial
Statements and "Risk Factors - Regulatory authorities or other parties may
assert that our arrangements with our affiliated professional contractors
constitute fee-splitting or the corporate practice of medicine which could
result in civil or criminal penalties or invalidation of our contracts, which in
turn could have an adverse effect on our financial condition and results of
operations."
PHYSICIAN RELATIONSHIPS. Our physician employment agreements typically have
terms of three to five years and can be terminated by either party at any time
upon 90 days' prior written notice. Each physician generally receives a base
salary and is eligible for an incentive bonus. Each physician is required to
hold a valid license to practice medicine in the appropriate state in which the
physician provides patient care and to become a member of the medical staff,
with appropriate privileges, at each hospital at which he or she practices. We
are responsible for billing patients and third party payors for services
rendered by the physician, and we have the exclusive right to establish the
schedule of fees to be charged for such services. Substantially all the
physicians employed by PMG or the PA Contractors have agreed not to compete with
PMG or the PA Contractor within a specified geographic area for a certain period
after termination of employment.
ACQUISITIONS. We structure acquisitions of physician practice groups as
asset purchases, stock purchases or mergers. Generally, these structures provide
for (i) the assignment to us or a PA Contractor of the contracts between the
physician practice group and the hospital at which the physician practice group
provides medical services, (ii) the procurement of "tail insurance" coverage
that covers malpractice claims filed after the date of acquisition that are
based on events that occurred prior to the acquisition, and (iii) the
indemnification to us by the previous owners of the practice group for breaches
of their representations and warranties contained in the purchase agreement.
Generally, in acquisitions structured as asset purchases, we do not acquire the
physician practice group's receivables or liabilities, including malpractice
claims, arising from the physician practice group's activities prior to the date
of the acquisition. Generally, in acquisitions structured as stock purchases or
mergers, the physician practice group's receivables (net of any liabilities
accruing prior to the acquisition and permitted indemnification claims) are
assigned to the former owners of the physician practice group.
GOVERNMENT REGULATION
Our operations and relationships are subject to extensive and complex
governmental and regulatory requirements relating to the practice of medicine
and billing for services rendered to patients. We are also subject to laws and
regulations that relate to business corporations in general. We exercise care in
an effort to structure our practices and arrangements with hospitals and
physicians to comply with applicable federal, state and local laws and
regulations and we believe that such practices and arrangements comply in all
material respects with all such existing applicable laws and regulations.
Approximately 23% of our net patient service revenue in 2002, exclusive of
administrative fees, was derived from payments made by government-sponsored
health care programs, principally Medicaid. These programs are subject to
substantial regulation by the federal and state governments. Any change in
reimbursement regulations, policies, practices, interpretations or statutes that
places material limitations on reimbursement amounts or practices could
adversely affect our operations. In addition, funds received under these
programs are subject to audit with respect to the proper billing for physician
and ancillary services and, accordingly, retroactive adjustments of revenue from
these programs may occur. See "Risk Factors - Limitations of, reductions in or
retroactive adjustments to reimbursement amounts or rates by
government-sponsored health care programs could adversely affect our financial
condition and results of operations."
For more information about the various regulatory requirements to which we
are subject, see "Risk Factors - The health care industry is highly regulated
and our failure to comply with laws or regulations, or a determination that in
the past we have failed to comply with laws or regulations, could have an
adverse effect on our financial condition and results of operations", "Risk
9
Factors - If we are found to have violated anti-kickback or self-referral laws,
we could be subject to monetary fines, civil and criminal penalties and
exclusion from participation in government-sponsored health care programs, which
would have an adverse effect on our business and results of operations", "Risk
Factors - Regulatory authorities or other parties may assert that our
arrangements with our affiliated professional contractors constitute
fee-splitting or the corporate practice of medicine which could result in civil
or criminal penalties or invalidation of our contracts, which in turn could have
an adverse effect on our financial condition and results of operations", "Risk
Factors - Federal and state laws that protect the privacy of patient health
information may increase our costs and limit our ability to collect and use that
information", and "Risk Factors - Federal and state health care reform, or
changes in the interpretation of government-sponsored health care programs, may
have an adverse effect on our financial condition and results of operations."
GOVERNMENT INVESTIGATIONS
On June 6, 2002, we received a written request from the Federal Trade
Commission ("FTC") to submit information on a voluntary basis in connection with
an investigation of issues of competition related to our May 2001 acquisition of
Magella Healthcare Corporation ("Magella") and our business practices generally.
On February 5, 2003, we received additional information requests from the FTC in
the form of a Subpoena and Civil Investigative Demand. Pursuant to these
requests, the FTC has requested documents and information relating to the
acquisition and our business practices in certain markets. We are cooperating
fully with the FTC. We cannot predict the outcome of the investigation and
whether it, or any similar future investigation or claim by the FTC or other
parties, will have a material adverse effect on our business, financial
condition, results of operations or the trading price of our shares. See "Risk
Factors - The Federal Trade Commission or other parties may assert that our 2001
acquisition of Magella or our business practices violate antitrust laws, which
could have an adverse effect on us."
In April 2002, we entered into a settlement agreement with the Colorado
Department of Health Care Policy and Financing resolving the State of Colorado's
Medicaid investigation of the Company. We had received requests in April 1999,
and in one case a subpoena, from state and federal investigators in Arizona,
Florida and Colorado for information related to our billing practices for
services reimbursed by the Medicaid programs in those states and by the TRICARE
program for military dependents. The Arizona and Florida Medicaid investigations
were closed in 2000 after we entered into settlement agreements with those
states. The TRICARE investigation is active and ongoing. These previously
disclosed investigations have prompted inquiries by Medicaid officials in other
states. We believe that additional audits, inquiries and investigations from
government agencies will continue to occur in the ordinary course of our
business. We cannot predict whether any such audits, inquiries or investigations
will have a material adverse effect on our business, financial condition,
results of operations or the trading price of our shares.
OTHER LEGAL PROCEEDINGS
On May 3, 2002, the United States District Court for the Southern District
of Florida entered an Order and Final Judgment approving the settlement of the
class action litigation filed against us and certain of our officers in February
1999 relating to alleged violations of securities laws. Under the terms of the
settlement, the plaintiffs' claim was dismissed with prejudice in exchange for a
cash payment of $12.0 million, which was covered by insurance policies.
During the ordinary course of business, we have become a party to pending
and threatened legal actions and proceedings, most of which involve claims of
medical malpractice. Although these actions and proceedings are generally
expected to be covered by insurance, there can be no assurance that our medical
malpractice insurance coverage will be adequate to cover all potential
liabilities. We believe, based upon our review of these pending matters, that
the outcome of such legal actions and proceedings will not have a material
adverse effect on our business, financial condition, results of operations or
the trading price of our shares. See "Item 3. Legal Proceedings."
PROFESSIONAL LIABILITY AND INSURANCE
The practice of medicine entails an inherent risk of claims of professional
liability. We maintain professional liability insurance and general liability
insurance on a claims-made basis in accordance with standard industry practice.
We believe that our coverage is appropriate based upon our claims experience and
the nature and risks of our business. There can be no assurance that a pending
or future claim or claims will not be successful or if successful will not
exceed the limits of available insurance coverage. See "Item 3. Legal
Proceedings" and "Risk Factors - We may be subject to malpractice and other
lawsuits, some of which we may not be fully insured against."
10
In order to maintain hospital privileges, the physicians who are employed
by or under contract with us are required to maintain professional liability
insurance coverage. We contract and pay the premiums for such insurance for the
physicians. Our current professional liability insurance policy expires May 1,
2003, and we are currently reviewing our coverage options, which may include a
higher self-insured retention. There can be no assurance that we can obtain
substantially similar coverage upon expiration or that such coverage will
continue to be available at acceptable costs and on favorable terms. Based upon
current conditions in the insurance markets, we expect that our professional
liability insurance premiums will increase over prior periods.
COMPETITION
The health care industry is highly competitive and has been subject to
continual changes in the method in which health care services are provided and
the manner in which health care providers are selected and compensated. We
believe that private and public reforms in the health care industry emphasizing
cost containment and accountability will serve as a catalyst for neonatal and
perinatal care to shift from highly fragmented, individual or small practice
providers to larger physician groups. Companies in other health care industry
segments, such as managers of other hospital-based specialties or large
physician group practices, some of which have financial and other resources
greater than ours, may become competitors in providing perinatal, neonatal and
pediatric intensive care physician services to patients. Competition in our
business is generally based upon reputation and experience, and our physicians'
ability to provide cost-effective, quality care. See "Risk Factors - Our
industry is already competitive and increased competition could adversely affect
our revenues."
SERVICE MARKS
We have registered the service marks "Pediatrix Medical Group" and
"Obstetrix Medical Group" and their design as well as the baby design logo with
the United States Patent and Trademark Office. In addition, we have pending
applications to register the trademark "NatalU" and service mark "NatalU - A
University Without Walls".
EMPLOYEES AND PROFESSIONALS UNDER CONTRACT; GEOGRAPHIC COVERAGE
In addition to the 622 practicing physicians employed by or under contract
with us as of December 31, 2002, Pediatrix employed or contracted with 402 other
clinical professionals and 1,267 other full-time and part-time employees. None
of our employees are subject to a collective bargaining agreement.
We provide services in Alaska, Arizona, Arkansas, California, Colorado,
Florida, Georgia, Idaho, Indiana, Illinois, Iowa, Kansas, Kentucky, Maryland,
Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio,
Oklahoma, Pennsylvania, Puerto Rico, South Carolina, Tennessee, Texas, Utah,
Virginia, Washington and West Virginia. During 2002, approximately 62% of our
net patient service revenue was generated by operations in our five largest
states. See "Risk Factors - We may be adversely affected by unfavorable
regulatory or other changes or conditions in geographic areas where our
operations are concentrated."
INFORMATION AVAILABLE ON OUR WEBSITE
Our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available
through our Internet website www.pediatrix.com, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission ("SEC"). Our Internet website and the information contained therein, other than material expressly referred to in this Form
www.mednax.com
10-K/
A, or connected thereto, are not incorporated into this Form10-K/A.
A copy of our committee charters and corporate governance principles are also available upon request from MEDNAX’s Secretary at 1301 Concord Terrace, Sunrise, Florida 33323.How Many Times Did Our Board of Directors Meet During 2019?
During 2019, MEDNAX’s Board of Directors held eight meetings. Committees of the Board of Directors held a combined total of 18 meetings and also took various actions by unanimous written consent. Each Director attended at least 75% of the total number of meetings of MEDNAX’s Board of Directors and its committees held during 2019 during the period he or she was a member thereof. Although MEDNAX has no formal policy with respect to its Directors’ attendance at MEDNAX’s Annual ReportShareholders’ Meetings, in 2019 all of our Directors attended the Annual Shareholders’ Meeting.
Are a Majority of Our Directors Independent?
Our Board of Directors has reviewed information about each of ourForm 10-K.
11
RISK FACTORS
THE FEDERAL TRADE COMMISSION OR OTHER PARTIES MAY ASSERT THAT OUR 2001
ACQUISITION OF MAGELLA OR OUR BUSINESS PRACTICES VIOLATE ANTITRUST LAWS, WHICH
COULD HAVE AN ADVERSE EFFECT ON US.our Board of Directors are independent. In arriving at this conclusion, our Board of Directors made the affirmative determination that each of Drs. Waldemar A. Carlo, Pascal J. Goldschmidt and Enrique J. Sosa, Ms. Karey D. Barker and Messrs. Cesar L. Alvarez, Michael B. Fernandez, Paul G. Gabos, Manuel Kadre, Carlos A. Migoya and Michael A. Rucker meet the Board of Directors’ previously adopted categorical standards for determining independence in accordance with the New York Stock Exchange’s corporate governance rules. In making this determination, the Board of Directors considered transactions and relationships between each Director or any member of his or her immediate family and MEDNAX and its subsidiaries and affiliates. These transactions consisted of those transactions reported below under “Certain Relationships and Related Person Transactions — Transactions with Related Persons.” Our Board of Directors determined that each of these transactions and relationships was within the New York Stock Exchange standards and our categorical standards and that none of the transactions or relationships affected the independence of the Director involved. Our adopted categorical standards for determining independence in accordance with the New York Stock Exchange’s corporate governance rules are contained in our corporate governance principles, a copy of which is available on our website at .
non-employee
Directors and made the determination that all of the non-employee
Directors on www.mednax.com
1
Who Are the “Chairman of the Board” and “Lead Independent Director”?
To assist the Board of Directors in fulfilling its obligations, following each annual meeting of shareholders, MEDNAX’s Board of Directors designates a
non-management
Director as “Chairman of the Board.” In addition, the Board of Directors, by a majority vote of the non-management
Directors, may also designate a non-management
Director as “Lead Independent Director.”MEDNAX separates the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The health care industryChief Executive Officer is highly regulatedresponsible for antitrust purposes.determining the long-term strategic direction for the Company. The principal responsibility of the Chairman of the Board is to serve as chief administrative liaison between independent Directors and MEDNAX management and to monitor implementation of Board of Directors’ directives and actions. The principal responsibility of the Lead Independent Director, if designated, is to work collaboratively with the Chairman of the Board and the Chief Executive Officer with respect to Board of Directors governance and process. The Lead Independent Director has additional responsibilities and authorities set out in our corporate governance principles. We believe that our industry will continue to be subject to increasing regulation
and enforcement action. In recent years,this balance of shared leadership between the Federal Trade Commission (the
"FTC"),two positions is a strength for the Department of Justice, and state Attorneys General have taken
increasing steps to review and, in some cases, take enforcement action against,
acquisitions and business conduct inCompany.
At least once a year, the health care industry. On June 6, 2002,
we received a written request from the FTC to submit information on a voluntary
basis in connection with an investigation of issues of competition related to
our May 2001 acquisition of Magella and our business practices generally. On
February 5, 2003, we received additional information requests from the FTC in
the form of a Subpoena and Civil Investigative Demand. Pursuant to these
requests, the FTC has requested documents and information relating to the
acquisition and our business practices in certain markets. We intend to continue
to cooperate fully with the information requests but at this time cannot predict
the outcomeChairman of the investigation and whether it,Board or any similar future
investigation or claim by other parties, will have a material adverse effect on
our business, financial condition, results of operations or the trading priceLead Independent Director also presides over meetings of our shares.
FROM TIME TO TIME WE ARE SUBJECT TO BILLING INVESTIGATIONS BY FEDERAL AND STATE
GOVERNMENT AUTHORITIES WHICH COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS AND
RESULTS OF OPERATIONS AND THE TRADING PRICE OF OUR SHARES.
State and federal statutes impose substantial penalties, including civil and
criminal fines, exclusion from participation in government health care programs
and imprisonment, on entities or individuals (including any individual corporate
officers or physicians deemed responsible) that fraudulently or wrongfully bill
governmental or other third party payors for health care services. In addition,
federal laws allow a private personindependent Directors. Following our 2019 annual meeting of shareholders, our Board of Directors appointed Mr. Alvarez to bring a civil action in the nameserve as Chairman of the United States governmentBoard and Mr. Kadre to serve as Lead Independent Director.
The Board believes that its current leadership structure provides the most effective leadership model for false billing violations. In April 1999, we
received requests, and in one case a subpoena, from investigators in Arizona,
Colorado and Florida for information relatedour Company, as it promotes balance between the Board’s independent authority to our billing practices for
services reimbursed by the Medicaid programs in these states and by the TRICARE
program for military dependents. Our disclosure of the investigations caused our
share price to substantially decrease.
The TRICARE investigation is active and ongoing, and this matter, along with
the Arizona, Colorado and Florida matters, has prompted inquiries by Medicaid
officials in other states. We cannot predict whether the TRICARE investigation
or any other inquiries will have a material adverse effect on our business,
financial condition or results of operations or on the trading prices of our
shares. We believe that additional billing audits, inquiries and investigations
by government agencies will continue to occur in the ordinary course ofoversee our business and the Chief Executive Officer and his management team, which manage the business on a
day-to-day
basis.What Role Does the Board of Directors Serve in Risk Oversight for the Company?
Our Board evaluates its leadership structure and role in risk oversight on an ongoing basis. The Board of Directors provides oversight of the Company’s risk exposure by receiving periodic reports from senior management regarding matters relating to financial, operational, regulatory, legal and strategic risks and mitigation strategies for such risks. In addition, as reflected in the health careAudit Committee Charter, the Board of Directors has delegated to the Audit Committee responsibility to oversee, discuss and evaluate the Company’s policies and guidelines with respect to risk assessment and risk management, including internal control over financial reporting. As appropriate, the Audit Committee provides reports to and receives direction from the full Board of Directors regarding the Company’s risk management policies and guidelines, as well as the Audit Committee’s risk oversight activities. This division of responsibilities is the most effective approach for addressing the risks facing the Company, and the Company’s board leadership structure supports this approach.
How Can Shareholders Communicate with the Board of Directors?
Anyone who has a concern about MEDNAX’s conduct, including accounting, internal controls or audit matters, may communicate directly with our Chairman of the Board of Directors, Lead Independent Director, ourindustryemployment or contributions; and surveys. Any excluded communication will be made available to any director upon his or her request. Such communications may be confidential or anonymous, and may be submitted in generalwriting to the Chief Compliance Officer, MEDNAX, Inc., 1301 Concord Terrace, Sunrise, Florida 33323, or reported by phone attimeretaliating or taking any adverse action against anyone for raising or helping to time.
WE MAY BE ADVERSELY AFFECTED BY UNFAVORABLE REGULATORY OR OTHER CHANGES OR
CONDITIONS IN GEOGRAPHIC AREAS WHERE OUR OPERATIONS ARE CONCENTRATED.
During 2000, 2001resolve an integrity concern.
non-management
Directors, the Chairman of the Audit Committee or the Audit Committee. In addition, at the request of the Board, communications that do not directly relate to our Board’s duties and responsibilities as directors will be excluded from distribution. Such excluded items include, among others, “spam;” advertisements, mass mailings, form letters, and email campaigns that involve unduly large numbers of similar communications; solicitations for goods, services, 877-835-5764.
Any such concerns will be forwarded to the appropriate Directors for their review, and will be simultaneously reviewed and addressed by the Company’s General Counsel or Chief Compliance Officer in the same way that other concerns are addressed by us. MEDNAX’s Code of Conduct, which is discussed below, prohibits any employee from 2
Has MEDNAX Adopted a Code of Conduct?
MEDNAX has adopted a Code of Conduct that applies to all Directors, officers, employees and 2002, approximately 55%, 59%independent contractors of MEDNAX and 62%, respectively,its affiliated professionals. MEDNAX intends to disclose any amendments to, or waivers from, any provision of the Code of Conduct that applies to any of MEDNAX’s executive officers or Directors by posting such information on its website at .
www.mednax.com
MEDNAX has also adopted a Code of Professional Conduct — Finance that applies to all employees with access to, and responsibility for, matters of finance and financial management, including MEDNAX’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. MEDNAX intends to disclose any amendments to, or waivers from, any provision of the Code of Professional Conduct — Finance that applies to any of MEDNAX’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or persons performing similar functions by posting such information on its website at .
www.mednax.com
Copies of our net patient service revenue was generated by operations in our five
largest states. Over those same periods, our operations in Texas accounted for
approximately 18%, 29%Code of Conduct and 33%the Code of our net patient service revenue. Adverse
changes or conditions affecting these markets, such as health care reforms,
changes in laws and regulations, reduced Medicaid reimbursements, reductions in
the supply of trained physicians and government investigations, may have an
adverse effectProfessional Conduct — Finance are available on our operations. We continuewebsite at and upon request from MEDNAX’s Secretary at 1301 Concord Terrace, Sunrise, Florida 33323.
www.mednax.com
Has MEDNAX Adopted a Clawback Policy?
MEDNAX has adopted a Clawback Policy that permits the Company to seek to diversifyrecover certain amounts of incentive compensation, including both cash and equity, paid to any executive officer (as defined in the geographic scopeSecurities Exchange Act of our operations, primarily through acquisitions1934, as amended (the “Exchange Act”)) on or after January 1, 2014, if payment of physician
group practices. We may not be able to implement successfully or realizesuch compensation was based on the expected benefitsachievement of any of these initiatives. Our failure to so diversify our
operations geographically could have a material adverse effect on our business,
financial condition, results of operations or the trading price of our shares.
12
THE HEALTH CARE INDUSTRY IS HIGHLY REGULATED AND OUR FAILURE TO COMPLY WITH LAWS
OR REGULATIONS, OR A DETERMINATION THAT IN THE PAST WE HAVE FAILED TO COMPLY
WITH LAWS OR REGULATIONS, COULD HAVE AN ADVERSE EFFECT ON OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The health care industry and physicians' medical practices are highly
regulated. We believe that this industry will continue to be subject to
increasing regulation, the scope and effect of which we cannot predict.
Neonatal, perinatal and other health care services that we and our affiliated
professional contractors provide are subject to extensive and complex federal,
state and local laws and regulations governing various matters such as the
licensing and certification of our facilities and personnel, the conduct of our
operations, our billing and coding policies and practices, our policies and
practices with regard to patient privacy and confidentiality, and prohibitions
on payments for the referral of business and self-referrals. As a result of our
desire to assure compliance with the increasingly complex regulatory environment
for the health care industry, we maintain a company-wide compliance program.
Nevertheless, we may becomewere subsequently the subject of additional regulatorya restatement of its financial statements due to misconduct, and if the executive engaged in improper conduct that materially contributed to the need for restatement, and a lower amount of incentive compensation would have been earned based on the restated financial results.
Does MEDNAX Require its Executive Officers and Board of Directors to Retain a Certain Amount of MEDNAX Common Stock?
MEDNAX has adopted a Stock Ownership and Retention Policy which requires that each named executive officer and each
non-management
Director retain MEDNAX common stock worth a certain multiple of annual base salary, or cash retainer, respectively. Details of the policy and the required ownership levels are described in further detail in the “Executive Compensation” section of this Form10-K/A.
Has MEDNAX Adopted an Anti-Hedging and Anti-Pledging Policy?
MEDNAX has adopted a policy prohibiting its directors, management, financial and other investigationsinsiders from engaging in transactions in MEDNAX securities or proceedings,derivatives of MEDNAX securities that might be considered hedging, or from holding MEDNAX securities in margin accounts or pledging MEDNAX securities as collateral for a loan, unless such person clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities.
Does MEDNAX Have a Director Retirement Age Policy?
MEDNAX has adopted a Director Retirement Age Policy which provides that a Director must retire and our interpretations of applicable laws and
regulationsmay not stand forchallenged. The defense of any such challenge could result in
substantial costnominated to us and a diversion of management's time and attention. Thus,
any such challenge could have a material adverse effect on our business,
regardless of whether it ultimately is successful. If we fail to comply with
these laws,new term if he or a determination is made that in the past we have failed to comply
with these laws, our financial condition and results of operations could be
adversely affected. In addition, changes in health care laws or regulations may
restrict our existing operations, limit the expansion of our business or impose
additional compliance requirements. These changes, if enacted, could reduce our
opportunities for continued growth and impose additional compliance costs on us
that we may not recover through price increases.
LIMITATIONS OF, REDUCTIONS IN OR RETROACTIVE ADJUSTMENTS TO REIMBURSEMENT
AMOUNTS OR RATES BY GOVERNMENT-SPONSORED HEALTH CARE PROGRAMS COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Approximately 23% of our net patient service revenue in 2002, exclusive of
administrative fees, was derived from payments made by government-sponsored
health care programs, principally Medicaid. These government programs, as well
as private insurers, have taken and may continue to take steps to control the
cost, use and delivery of health care services. There can be no assurance that
payments from government or private payors will remain at levels comparable to
present levels. Our business could be adversely affected by reductions in or
limitations of reimbursement amounts or rates under these programs, reductions
in funding of these programs or elimination of coverage for certain individuals
or treatments under these programs, which may be implemented as a result of:
o increasing budgetary and cost containment pressures on the health care
industry generally;
o new federal or state legislation reducing state Medicaid funding and
reimbursements or increasing state discretionary funding;
o new state legislation encouraging or mandating state Medicaid managed
care;
o state Medicaid waiver requests grantedshe would attain age 80 by the federal government,
increasing discretion with respect to, or reducing coverage or funding
for, certain individuals or treatments under Medicaid, in the absence of
new federal legislation;
o increasing state discretion in Medicaid expenditures which may result in
decreased reimbursement for, or other limitations on, the services that
we provide; or
o other changes in reimbursement regulations, policies or interpretations
that place material limitations on reimbursement amounts or practices
for services that we provide.
In addition, these government-sponsored health care programs generally
provide for reimbursements on a fee schedule basis rather than on a
charge-related basis. Therefore, we generally cannot increase our revenues by
increasing the amount we charge for our services. To the extent our costs
increase, we may not be able to recover our increased costs from these
government programs. In states where Medicaid managed care is encouraged and may
13
become mandated, Medicaid reimbursement payments to us could be reduced as
managed care organizations bargain for reimbursement with competing providers
and contract with these states to provide benefits to Medicaid enrollees.
Moreover, cost containment measures and market changes in non-governmental
insurance plans have generally restricted our ability to recover, or shift to
non-governmental payors, these increased costs.
In attempts to limit federal spending, there have been, and we expect that
there will continue to be, a number of proposals to limit Medicare and Medicaid
reimbursement for various services. For example, the Balanced Budget Act of 1997
has made it easier for states to reduce their Medicaid reimbursement levels.
Some states have enacted or are considering enacting measures that are designed
to reduce their Medicaid expenditures. This Act also mandated that the Centers
for Medicare and Medicaid Services, or CMS (formerly known as Health Care
Financing Administration, or HCFA), conduct competitive bidding demonstrations
for certain Medicare services. These competitive bidding demonstrations could
provide CMS and Congress with a model for implementing competitive pricing in
other federal health care programs. If, for example, such a competitive bidding
system were implemented for Medicaid services, it could result in lower
reimbursement rates, exclude certain services from coverage or impose limits on
increases in reimbursement rates. Our business may be significantly and
adversely affected by any such changes in reimbursement policies and other
legislative initiatives aimed at reducing health care costs associated with
Medicare and Medicaid.
In addition, funds we receive from third party payors, including government
programs, are subject to audit with respect to the proper billing for physician
and ancillary services and, accordingly, our revenue from these programs may be
adjusted retroactively.
IF OUR PHYSICIANS DO NOT APPROPRIATELY RECORD AND DOCUMENT THE SERVICES THAT
THEY PROVIDE, OUR REVENUES COULD BE ADVERSELY AFFECTED.
Physicians employed or under contract with our affiliated professional
contractors are responsible for assigning reimbursement codes and maintaining
sufficient supporting documentation in respectend of the services that they
provide. We use this information to seek reimbursement for their services from
third party payors. If our physicians do not appropriately code or document
their services, our revenues could be adversely affected. For instance, in
response to billing investigations or other governmental inquiries, our
affiliated physicians could take an unduly conservative approach to coding for
their services. As a result, we could receive lower reimbursements from third
party payors which could have a material adverse effect on our revenues and
results of operations.
OUR FAILURE TO FIND SUITABLE ACQUISITION CANDIDATES OR SUCCESSFULLY INTEGRATE
ANY FUTURE OR RECENT ACQUISITIONS COULD HARM OUR BUSINESS AND RESULTS OF
OPERATIONS.
We have expanded and intend to continue to expand our geographic and market
penetration primarily through acquisitions of physician group practices.
However, we may not be able to implement our acquisition strategy, and our
strategy may not be successful. In implementing our acquisition strategy, we
compete with other potential acquirers, some of which may have greater financial
or operational resources than we do. Competition for acquisitions may intensify
due to the ongoing consolidation in the health care industry, which may increase
the costs of capitalizing on such opportunities. In addition, completion of
acquisitions could result in us incurring or assuming indebtedness and issuing
equity. The issuance of shares of our common stock for an acquisition may result
in dilution to our existing shareholders.
Although we conduct due diligence reviews of potential acquisition
candidates, including with respect to financial matters and compliance with
applicable laws, we cannot be certain that the acquired business will continue
to maintain its pre-acquisition revenues and growth rates following the
acquisition, nor can we be certain as to the absence or extent of any unknown or
contingent liabilities, including liabilities for failure to comply with
applicable laws. While we generally seek indemnification from the prior owners
of acquired businesses covering these matters (although we have no
indemnification in our Magella acquisition), we may incur material liabilities
for past activities of acquired businesses. Moreover, integrating acquisitions
into our existing operations involves numerous additional short and long-term
risks, including:
14
o diversion of our management's attention;
o failure to retain key personnel;
o long-term value of acquired intangible assets; and
o one-time acquisition expenses.
We cannot assure you that we will complete or integrate acquisitions in new
states; but if we do, we will be required to comply with the laws and
regulations of those states, which may differ from those of the states in which
our operations are currently conducted. Many of our acquisition-related expenses
may have a negative effect on our results of operations until, if ever, these
expenses are offset by increased revenues. We cannot assure you that we will
identify suitable acquisition candidates in the future or that we will complete
future acquisitions or, if completed, that any acquisition, including our recent
acquisitions, will be integrated successfully into our operations or that we
will be successful in achieving our objectives.
WE MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT OUR STRATEGY OF DIVERSIFYING OUR
OPERATIONS.
We are beginning to explore potential strategic initiatives to diversify
our operations. Such initiatives would likely be either clinically related to
our current core business or in areas within healthcare that would allow us to
leverage our current business expertise. We may not be able to identify
appropriate diversification opportunities. If we are able to identify potential
diversification opportunities, we may not be able to implement successfully or
realize the expected benefits of such opportunities.
REGULATORY AUTHORITIES OR OTHER PARTIES MAY ASSERT THAT OUR ARRANGEMENTS WITH
OUR AFFILIATED PROFESSIONAL CONTRACTORS CONSTITUTE FEE-SPLITTING OR THE
CORPORATE PRACTICE OF MEDICINE WHICH COULD RESULT IN CIVIL OR CRIMINAL PENALTIES
OR INVALIDATION OF OUR CONTRACTS, WHICH IN TURN COULD HAVE AN ADVERSE EFFECT ON
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Many states have laws that prohibit business corporations, such as PMG, from
practicing medicine, exercising control over medical judgments or decisions of
physicians, or engaging in certain arrangements, such as fee-splitting, with
physicians. In these states, we maintain long-term management contracts with
professional associations and partnerships that are owned by licensed
physicians, and these affiliated professional contractors in turn employ or
contract with physicians to provide physician services. In states where we are
not permitted to practice medicine, we perform only non-medical administrative
services, do not represent that we offer medical services and do not exercise
influence or control over the practice of medicine by the physicians employed by
our affiliated professional contractors. In states where fee-splitting is
prohibited, the fees that we receive from our affiliated professional
contractors have been established on a basis that we believe complies with the
applicable states' laws. Although we believe that we are in compliance with
applicable state laws in relation to the corporate practice of medicine and
fee-splitting, we cannot assure you of this. Regulatory authorities or other
parties, including our affiliated physicians, may assert that, despite these
arrangements, we are engaged in the corporate practice of medicine or that our
contractual arrangements with our affiliated professional contractors constitute
fee-splitting or the corporate practice of medicine, in which case we could be
subject to civil and criminal penalties, our contracts could be found legally
invalid and unenforceable (in whole or in part) or we could be required to
restructure our contractual arrangements with our affiliated professional
contractors. We cannot assure you that this will not occur or, if it does, that
we would be able to restructure our contractual arrangements on terms that are
similar or at least as favorable to us. If we were unable to so restructure our
contractual arrangements, our financial condition and results of operations
could suffer.
IF WE ARE FOUND TO HAVE VIOLATED ANTI-KICKBACK OR SELF-REFERRAL LAWS, WE COULD
BE SUBJECT TO MONETARY FINES, CIVIL AND CRIMINAL PENALTIES AND EXCLUSION FROM
PARTICIPATION IN GOVERNMENT-SPONSORED HEALTH CARE PROGRAMS, WHICH WOULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.
Our business is subject to extensive federal and state regulation with
respect to financial relationships and "kickbacks" among health care providers,
physician self-referral arrangements and other fraud and abuse issues. Federal
15
anti-kickback laws and regulations prohibit certain offers, payments or receipts
of remuneration in return for (i) referring Medicaid or other
government-sponsored health care program patients or patient care opportunities
or (ii) purchasing, leasing, ordering or arranging for or recommending any
service or item for which payment may be made by a government-sponsored health
care program. In addition, federal physician self-referral legislation, known as
the Stark law, prohibits a physician from ordering certain services reimbursable
by Medicare or Medicaid from any entity with which the physician has a financial
relationship. These laws are broadly worded and, in the case of the
anti-kickback law, have been broadly interpreted by federal courts, and
potentially subject many business arrangements to government investigation and
prosecution, which can be costly and time consuming. Violations of these laws
are punishable by monetary fines, civil and criminal penalties, exclusion from
participation in government-sponsored health care programs and forfeiture of
amounts collected in violation of such laws, which could have an adverse effect
on our business and results of operations. Certain states in which we do
business also have similar anti-kickback and self-referral laws, imposing
substantial penalties for violations. The relationships, including fee
arrangements, among our affiliated professional contractors, hospital clients
and physicians have not been examined by federal or state authorities under
these anti-kickback and self-referral laws and regulations.
FEDERAL AND STATE LAWS THAT PROTECT THE PRIVACY OF PATIENT HEALTH INFORMATION
MAY INCREASE OUR COSTS AND LIMIT OUR ABILITY TO COLLECT AND USE THAT
INFORMATION.
Numerous federal and state laws and regulations govern the collection,
dissemination, use and confidentiality of patient-identifiable health
information, including the federal Health Insurance Portability and
Accountability Act of 1996 and related rules, or HIPAA. As part of our medical
record keeping, third party billing, research and other services, we collect and
maintain patient-identifiable health information. New health information
standards, whether implemented pursuant to HIPAA, congressional action or
otherwise, could have a significant effect on the manner in which we handle
health care related data and communicate with payors, and the cost of complying
with these standards could be significant. If we do not comply with existing or
new laws and regulations related to patient health information we could be
subject to criminal or civil sanctions.
FEDERAL AND STATE HEALTH CARE REFORM, OR CHANGES IN THE INTERPRETATION OF
GOVERNMENT-SPONSORED HEALTH CARE PROGRAMS, MAY HAVE AN ADVERSE EFFECT ON OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Federal and state governments have recently focused significant attention on
health care reform. In recent years, many legislative proposals have been
introduced or proposed in Congress and some state legislatures that would effect
major changes in the health care system. Among the proposals which are being or
have been considered are cost controls on hospitals, insurance reforms and the
creation of a single government health plan that would cover all citizens. Some
proposals under consideration, or others which may be introduced, could, if
adopted, have a material adverse effect on our financial condition and results
of operations. We cannot predict which, if any, proposal that has been or will
be considered will be adopted or what effect any future legislation will have on
us.
WE MAY NOT BE ABLE TO SUCCESSFULLY RECRUIT ADDITIONAL AND RETAIN EXISTING
QUALIFIED PHYSICIANS TO SERVE AS OUR INDEPENDENT CONTRACTORS OR EMPLOYEES.
Our business strategy is dependent upon our ability to recruit and retain
qualified neonatologists and perinatologists. We compete with many types of
health care providers, including teaching, research and government institutions,
for the services of qualified physicians. In addition, upon the expiration of
the employment contracts of our affiliated physicians, which typically have
terms of three to five years, we generally seek the renewal of such contracts.
We may not be able to continue to recruit and retain, through renewal of
existing contracts or otherwise, a sufficient number of qualified neonatologists
and perinatologists who provide services in markets served by us on terms
similar to our current arrangements. Our inability to recruit additional or
retain our current physicians on terms that are similar to our current
arrangements (or that are otherwise acceptable to us) could adversely affect our
ability to service existing or new units at hospitals or expand our business,
which could have a material adverse effect on our business, financial condition,
results of operations or the trading price of our shares.
WE MAY BE SUBJECT TO MALPRACTICE AND OTHER LAWSUITS, SOME OF WHICH WE MAY NOT BE
FULLY INSURED AGAINST.
Our business entails an inherent risk of claims of medical malpractice
against our physicians and us. We periodically become involved as a defendant in
medical malpractice lawsuits, some of which are currently ongoing, and are
subject to the attendant risk of substantial damage awards. A significant source
16
of potential liability is negligence or alleged negligence by physicians
employed or contracted by us or our affiliated professional contractors. To the
extent these physicians are our employees, or are regarded as our agents, we
could be held liable. In addition, our contracts with hospitals generally
require us to indemnify them and their affiliates for losses resulting from the
negligence of physicians who are associated with us. We maintain professional
liability insurance on a claims-made basis in accordance with standard industry
practice. We believe that our coverage is appropriate based upon our claims
experience and the nature and risks of our business. There can be no assurance
that a pending or future claim or claims will not be successful or if successful
will not exceed the limits of available insurance coverage. Our current
professional liability insurance policy expires May 1, 2003, and we are
currently reviewing our coverage options, which may include a higher
self-insured retention. There can be no assurance that we can obtain
substantially similar coverage upon expiration or that such coverage will
continue to be available at acceptable costs and on favorable terms. Based upon
current insurance markets, we expect that our professional liability insurance
premiums will increase over prior periods.
From time to time we have been subject to other lawsuits. We recently
settled a class action lawsuit brought by a class of open market purchasers of
our common stock. The class action lawsuit alleged that we had violated federal
securities laws. We may be subject to lawsuits in the future which may involve
large claims and significant defense costs. Although we currently maintain
liability insurance intended to cover such claims, the coverage limits of such
insurance policies may prove to be inadequate or all such claims may not be
covered by the insurance. In addition, our commercial insurance policies must be
renewed annually. We cannot assure you that pending or future lawsuits will not
be successful or, if successful, will not exceed the limits of our available
insurance coverage or that this coverage will continue to be available at
acceptable costs and on favorable terms. Liabilities in excess of our insurance
coverage could have a material adverse effect on our financial condition and
results of operations. In addition, claims, regardless of their merit or
eventual outcome, also may have a material adverse effect on our business,
financial condition, results of operations or the trading price of our shares.
WE MAY WRITE-OFF INTANGIBLE ASSETS, SUCH AS GOODWILL.
Our intangible assets, which consist primarily of goodwill, are subject to
annual impairment testing. Under current accounting standards, goodwill is
tested for impairment at an operating segment level, known as a reporting unit,
on an annual basis using a two-step test. The first step compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the
carrying amount of a reporting unit exceeds its fair value, a second step is
performed to determine the amount of any impairment loss. As circumstances after
an acquisition can change, our reporting units may be subject to impairment
losses. If we record an impairment loss related to our goodwill, it could have
an adverse effect on our results of operations for thecalendar year in which the impairmentelection is recorded.
FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD HARM OUR BUSINESS AND RESULTS OF
OPERATIONS.
We have experienced rapid growth in our business and numberheld.
re-election
during the calendar year in which he or she attains age 80. Additionally, no Director may be 3
Report of operations could be materially
adversely affected if we are unable to do so effectively.
IF WE DO NOT MAINTAIN EFFECTIVE AND EFFICIENT INFORMATION SYSTEMS, OUR
OPERATIONS MAY BE ADVERSELY AFFECTED.
Our operations are dependent on the continued and uninterrupted performanceAudit Committee
The following report of our information systems. Failure to maintain reliable information systems or
disruptions in our information systems could cause disruptions in our business
operations, including: disruptions in billing and collections; loss of existing
patients; difficulty in satisfying requirements of contractual obligations with
hospitals; disputes with patients and payors; problems maintaining patient
privacy and confidentiality, patient records, research and other databases;
regulatory problems; decreased intra-company communications; increased
administrative expenses; or other adverse consequences, any or all of which
could have a material adverse effect on our operations.
17
OUR QUARTERLY RESULTS WILL LIKELY FLUCTUATE, WHICH COULD CAUSE THE VALUE OF OUR
COMMON STOCK TO DECLINE.
We have recently experienced and expect to continue to experience quarterly
fluctuations in our net patient service revenue and associated net income
primarily due to volume and cost fluctuations. We have significant fixed
operating costs, including physician costs, and, as a result, are highly
dependent on patient volume and capacity utilization of our affiliated
professional contractors to sustain profitability. Our results of operations for
any quarter are not necessarily indicative of results of operations for any
future period or full year. As a result, our results of operations may vary
significantly from period to period. In addition, there recently has been
significant volatility in the market price of securities of health care
companies that in many cases we believe has been unrelated to the operating
performance of these companies. We believe that certain factors, such as
legislative and regulatory developments, quarterly fluctuations in our actual or
anticipated results of operations, lower revenues or earnings than those
anticipated by securities analysts, and general economic and financial market
conditions, could cause the price of our common stock to fluctuate
substantially.
IF WE ARE UNABLE TO COLLECT REIMBURSEMENTS FROM THIRD PARTY PAYORS IN A TIMELY
MANNER FOR OUR SERVICES, OUR REVENUES COULD BE ADVERSELY AFFECTED.
A significant portion of our revenue is derived from reimbursements from
various third party payors, including government-sponsored health care plans,
private insurance plans and managed care plans, for services provided by our
affiliated professional contractors. In addition to being responsible for
submitting reimbursement requests to third party payors, we are also responsible
for the collection of reimbursements and assume the financial risks relating to
uncollectible and delayed reimbursements by third party payors. In the current
health care reimbursement environment, we may continue to experience
difficulties in collecting reimbursements to which we are entitled for services
that we have provided from third party payors, including Medicaid programs and
managed care payors. As part of their efforts to manage costs in an increasingly
competitive environment, third party payors may seek to reduce, by appeal or
otherwise, or delay reimbursements to which we are entitled for services that we
have provided. If we are not reimbursed in a timely manner for the services that
we provide, our revenues could be adversely affected.
IF OUR PHYSICIANS LOSE THE ABILITY TO PROVIDE SERVICES IN ANY HOSPITALS OR
ADMINISTRATIVE FEES PAID TO US BY HOSPITALS ARE REDUCED, OUR REVENUES COULD BE
ADVERSELY AFFECTED.
Our net patient service revenue is derived primarily from fee-for-service
billings for patient care provided by our physicians and from administrative
fees. Our arrangements with certain hospitals provide that if the hospitalAudit Committee does not generate sufficient patient volume it will pay us administrative fees in
order to guarantee that we receive a specified minimum revenue level. We also
receive administrative fees from hospitals for administrative services performed
by physicians providing medical director services at the hospital.
Administrative fees accounted for 7%, 6%constitute soliciting material and 5% of our net patient service
revenue during 2000, 2001 and 2002, respectively. Our contractual arrangements
with hospitals generally are for periods of one to three years and may be
terminated by us or the hospital upon 90 days written notice. While we have in
most cases been able to renew these arrangements, hospitals may cancel or not
renew our arrangements, or may not pay us administrative fees in the future. To
the extent that our arrangements with hospitals are canceled, or are not renewed
or replaced with other arrangements with at least as favorable terms, our
financial condition and results of operations could be adversely affected. In
addition, to the extent our physicians lose their privileges in hospitals or
hospitals enter into arrangements with other physicians, our revenues could be
adversely affected.
OUR INDUSTRY IS ALREADY COMPETITIVE AND INCREASED COMPETITION COULD ADVERSELY
AFFECT OUR REVENUES.
The health care industry is competitive and subject to continual changes in
the method in which services are provided and the manner in which health care
providers are selected and compensated. We believe that private and public
reforms in the health care industry emphasizing cost containment and
accountability will result in an increasing shift of neonatal and perinatal care
from highly fragmented, individual or small practice providers to larger
physician groups. Companies in other health care industry segments, such as
managers of other hospital-based specialties or currently expanding large
18
physician group practices, some of which have greater financial and other
resources than we do, may become competitors in providing neonatal, perinatal
and pediatric intensive care physician services to hospitals. We mayshould not be able
to continue to compete effectively in this industry, additional competitors may
enter our markets, and this increased competition may have an adverse effect on
our revenues.
WE ARE DEPENDENT UPON OUR KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS.
Our success depends to a significant extent on the continued contributions
of our key management, business development, sales and marketing personnel,
including our Chief Executive Officer and co-founder, Dr. Roger Medel, for our
management and implementation of our growth strategy. The loss of Dr. Medel or
other key personnel could have a material adverse effect on our financial
condition, results of operations and plans for future development.
THE SUBSTANTIAL NUMBER OF OUR SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO FALL.
As of December 31, 2002, there were 25,313,371 shares of our common stock
outstanding, all of which are freely tradable without restriction, except that
45,769 shares, which are owned by certain of our officers, directors and
affiliates, may be sold publicly at any time subject to the volume and other
restrictions under Rule 144 of the Securities Act of 1933.
As of December 31, 2002, there were also:
o 5,363,664 shares of our common stock reserved for issuance under options
issued pursuant to our amended and restated stock option plan, of which
options for an aggregate of 4,240,869 shares of common stock were issued
and outstanding and options for an aggregate of 2,304,027 shares of
common stock were exercisable;
o 228,363 shares of our common stock reserved for issuance under presently
exercisable stock options issued by Magella, which options were
exercisable into shares of our common stock at the time of our
acquisition of Magella;
o 373,169 shares of our common stock reserved for issuance under our
employee stock purchase plans; and
o 30,449 shares of our common stock reserved for issuance under
convertible notes issued by Magella which were convertible into shares
of our common stock at the time of our acquisition of Magella.
All shares of common stock issued upon the exercise of stock options or
under our employee stock purchase plans will be freely tradable, subject to the
volume trading limitations under Rule 144 of the Securities Act of 1933 in
respect of shares acquired by our affiliates. Our stock options entitle holders
to purchase shares of our common stock at prices which may be less than the
current market price per share of our common stock. Holders of these options
will usually exercise or convert them at a time when the market price of our
common stock is greater than their exercise price. Accordingly, the exercise of
these options and subsequent sale of our common stock could reduce the market
price for our common stock and result in dilution to our then shareholders.
IF WE ENTER INTO A SIGNIFICANT NUMBER OF SHARED-RISK CAPITATED ARRANGEMENTS WITH
CERTAIN PAYORS, SUCH ARRANGEMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The evolving managed care environment has created substantial cost
containment pressures for the health care industry. Our contracts with payors
and managed care organizations traditionally have been fee-for-service
arrangements. At December 31, 2002, we had relatively few "capitated" and "case
rate" arrangements with payors. Under capitated payment arrangements, we receive
a flat monthly fee based on the number of individuals covered by that particular
insurance plan regardless of the number of patients or types of treatment we
provide, and under a case rate payment arrangement, we receive a fixed dollar
amount per patient. If we enter into similar arrangements in the future, our
financial condition and results of operations may be adversely affected if we
are unable to manage our risks under these arrangements.
19
OUR CURRENTLY OUTSTANDING PREFERRED STOCK PURCHASE RIGHTS AND OUR ABILITY TO
ISSUE SHARES OF PREFERRED STOCK COULD DETER TAKEOVER ATTEMPTS.
We have adopted a preferred share purchase rights plan. Under this plan,
each outstanding share of Pediatrix common stock includes a preferred stock
purchase right that entitles the registered holder, subject to the terms of our
rights agreement, to purchase from Pediatrix a one-thousandth of a share of our
series A junior participating preferred stock at an exercise price of $150 per
right for each share of common stock held by the holder. In addition, if a
person or group of persons acquires beneficial ownership of 15% or more of the
outstanding shares of Pediatrix common stock, each right will permit its holder
to purchase $300 worth of Pediatrix common stock for $150. The rights are
attached to all certificates representing outstanding shares of Pediatrix common
stock, and no separate rights certificates have been distributed. Some
provisions contained in the rights agreement may have the effect of discouraging
a third party from making an acquisition proposal for Pediatrix and may thereby
inhibit a change in control. For example, such provisions may deter tender
offers for shares of common stock which offers may be attractive to
shareholders, or deter purchases of large blocks of common stock, thereby
limiting the opportunity for shareholders to receive a premium for their shares
of common stock or exchangeable shares over the then-prevailing market prices.
In addition, our amended and restated articles of incorporation authorize our
board of directors to issue up to 1,000,000 shares of undesignated preferred
stock and to determine the powers, preferences and rights of these shares,
without shareholder approval. This preferred stock could be issued with voting,
liquidation, dividend and other rights superior to those of the holders of
common stock. The issuance of preferred stock under some circumstances could
have the effect of delaying, deferring or preventing a change in control.
PROVISIONS OF OUR BYLAWS COULD DETER TAKEOVER ATTEMPTS WHICH MAY RESULT IN A
LOWER MARKET PRICE FOR OUR COMMON STOCK.
Provisions in our amended and restated bylaws, including those relating to
calling shareholder meetings, taking action by written consent and other
matters, could render it more difficult or discourage an attempt to obtain
control of Pediatrix through a proxy contest or consent solicitation. These
provisions could limit the price that some investors might be willing to pay in
the future for our shares of common stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.
Certain information includeddeemed filed or incorporated by reference in this Annual
Report on Form 10-K may be deemed to be "forward-looking statements" within the
meaninginto any of Section 27A ofMEDNAX’s filings under the Securities Act of 1933, as amended and Section
21E of(the “Securities Act”), or the Securities Exchange Act, except to the extent that we specifically incorporate such report by reference.
We act under a written charter that has been adopted by MEDNAX’s Board of 1934, as amended. All statements, other
than statements of historical facts,Directors. While we have the responsibilities set forth in this charter, it is not our duty to plan or conduct audits or to determine that address activities, events or
developments that Pediatrix intends, expects, projects, believes or anticipates
will or may occur in the future are forward-looking statements. SuchMEDNAX’s financial statements are characterized by terminology such as "believe", "hope", "may", "anticipate",
"should", "intend", "plan", "will", "expect", "estimate", "project",
"positioned", "strategy" and similar expressions. These statements are based on
assumptions and assessments made by Pediatrix's managementcomplete, accurate or in light of their
experience and their perception of historical trends, current conditions,
expected future developments and other factors they believe to be appropriate.
Forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results, developments
and business decisions to differ materially from those contemplated or expressed
by such forward-looking statements. Forward-looking statements speak only as of
the date the statements were made. We assume no duty to update any
forward-looking statements. Some of the factors that may cause actual results,
developments and business decisions to differ materially from those contemplated
by such forward-looking statements include but may not be limited to the risk
factors discussed above.
ITEM 2. PROPERTIES
We lease our corporate office locatedcompliance with accounting principles generally accepted in Sunrise, Florida (approximately
80,000 square feet). During 2002, we leased space in other facilities in various
states for our business and medical offices, storage space, and temporary
housing of medical staff, with aggregate annual rents of approximately
$6,097,000. See Note 9 to our Consolidated Financial Statements.
20
ITEM 3. LEGAL PROCEEDINGS
On June 6, 2002, we received a written request from the Federal Trade
Commission ("FTC") to submit information on a voluntary basis in connection with
an investigation of issues of competition related to our May 2001 acquisition of
Magella and our business practices generally. On February 5, 2003, we received
additional information requests from the FTC in the form of a Subpoena and Civil
Investigative Demand. Pursuant to these requests, the FTC has requested
documents and information relating to the acquisition and our business practices
in certain markets. We are cooperating fully with the FTC, but at this time
cannot predict the outcome of the investigation and whether it will have a
material adverse effect on our business, financial condition, results of
operations or the trading price of our shares.
In April 2002, we entered into a settlement agreement with the Colorado
Department of Health Care Policy and Financing resolving the State of Colorado's
Medicaid investigation of the Company. We had received requests in April 1999,
and in one case a subpoena, from state and federal investigators in Arizona,
Florida and Colorado for information related to our billing practices for
services reimbursed by the Medicaid programs in those states and by the TRICARE
program for military dependents. The Arizona and Florida Medicaid investigations
were closed in 2000 after we entered into settlement agreements with those
states. The TRICARE investigation is active and ongoing and this matter, along
with the Florida, Arizona and Colorado matters, has prompted inquiries by
Medicaid officials in other states. We believe that additional audits, inquiries
and investigations from government agencies will continue to occur in the
ordinary course of our business. We cannot predict whether any such audits,
inquiries or investigations will have a material adverse effect on our business,
financial condition, results of operations or the trading price of our shares.
On May 3, 2002, the United States District Court for(“GAAP”). This is the Southern Districtresponsibility of Florida entered an OrderMEDNAX’s management and Final Judgment approving the settlement of the
class action litigation filed against us and certain of our officers in February
1999 relatingindependent auditors.
Our primary function is to alleged violations of securities laws. Under the terms of the
settlement, the plaintiffs' claim was dismissed with prejudice in exchange for a
cash payment of $12.0 million, which was covered by insurance policies.
During the ordinary course of business, we have become a party to pending
and threatened legal actions and proceedings, most of which involve claims of
medical malpractice. Although these actions and proceedings are generally
expected to be covered by insurance, there can be no assurance that our medical
malpractice insurance coverage will be adequate to cover liabilities arising out
of medical malpractice claims where the outcomes of such claims are unfavorable
to us. We believe, based upon our review of these pending matters, that the
outcome of such legal actions and proceedings will not have a material adverse
effect on our business, financial condition, results of operations or the
trading price of our shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal
quarter ended December 31, 2002.
21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Pediatrix common stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "PDX". The following table sets forth, for the periods
indicated, the high and low sales prices for the common stock as reported on the
NYSE.
HIGH LOW
----------- -----------
2001
First Quarter $ 25.82 $ 18.98
Second Quarter 33.20 21.30
Third Quarter 41.15 30.56
Fourth Quarter 43.17 24.00
2002
First Quarter $ 42.44 $ 33.00
Second Quarter 48.60 22.74
Third Quarter 34.75 21.70
Fourth Quarter 42.00 31.25
As of March 20, 2003, there were approximately 106 holders of record of the
23,768,342 outstanding shares of Pediatrix common stock. This share figure
reflects the repurchase of approximately 1.6 million shares of Pediatrix common
stock during the first quarter of 2003 under the Company's previously announced
share repurchase program. The closing sales price for Pediatrix common stock on
March 20, 2003 was $28.85 per share.
We did not declare or pay any cash dividends on our common stock in 2001 or
2002, nor do we currently intend to declare or pay any cash dividends in the
future, but instead we intend to retain all earnings for the operation and
expansion of our business. The payment of any future dividends will be at the
discretion ofassist the Board of Directors in their evaluation and will depend upon, among other things,
future earnings, resultsoversight of operations, capital requirements, our generalthe integrity of MEDNAX’s financial condition, general business conditionsstatements and contractual restrictions on
paymentinternal control over financial reporting, the qualifications and independence of dividends, if any, as well as such other factors asMEDNAX’s independent auditors and the performance of MEDNAX’s audit functions. In addition, while we are also responsible for assisting the Board of Directors may deem relevant. See "Management'sin their evaluation and oversight of MEDNAX’s compliance with applicable laws and regulations, it is not our duty to assure compliance with such laws and regulations or MEDNAX’s Compliance Plan and related policies. We are also responsible for overseeing, discussing and evaluating MEDNAX’s guidelines, policies and processes with respect to risk assessment and risk management and the steps management has taken to monitor and control risk exposure, and we advise the Board of Directors with respect to such matters, as appropriate.
We also oversee MEDNAX’s auditing, accounting and financial reporting processes generally. Management is responsible for MEDNAX’s financial statements and the financial reporting process, including the system of internal controls. We also review the preparation by management of MEDNAX’s quarterly and annual financial statements. MEDNAX’s independent auditors, who are accountable to us, are responsible for expressing an opinion as to whether the consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of MEDNAX in conformity with GAAP. MEDNAX’s independent auditors are also responsible for auditing and reporting on the effective operation of MEDNAX’s internal control over financial reporting. We are responsible for retaining MEDNAX’s independent auditors and maintain sole responsibility for their compensation, oversight and termination. We are also responsible for
pre-approving
all non-audit
services to be provided by the independent auditors, and on an annual basis discussing with the independent auditors all significant relationships they have with MEDNAX to determine their independence.In fulfilling our oversight role, we met and held discussions with MEDNAX’s management and independent auditors. Management advised us that MEDNAX’s consolidated financial statements were prepared in accordance with GAAP, and we reviewed and discussed with management the consolidated financial statements for the fiscal year ended December 31, 2019. In addition, we reviewed and discussed the Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquiditysection of MEDNAX’s periodic reports, key accounting and Capital
Resources."
22
ITEM 6. SELECTED FINANCIAL DATA
reporting issues and the scope, adequacy and assessments of MEDNAX’s internal controls and disclosure controls and procedures with management and MEDNAX’s independent auditors. We discussed privately with the independent auditors matters deemed significant by the independent auditors, including those matters required to be discussed pursuant to the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC.
The selectedindependent auditors also provided us with the written disclosures and the letter required by applicable requirements of the PCAOB, regarding the independent accountant’s communications with the Audit Committee concerning independence, and we discussed with the independent auditors matters relating to their independence. We also reviewed a report by the independent auditors describing the firm’s internal quality-control procedures and any material issues raised in the most recent internal-quality control review or external peer review or inspection performed by the PCAOB.
Based on our review with management and the independent auditors of MEDNAX’s audited consolidated financial data set forth asstatements and internal controls over financial reporting and the independent auditors’ report on such financial statements and their evaluation of MEDNAX’s internal controls over financial reporting, and based on the discussions and written disclosures described above and our business judgment, we recommended to the Board of Directors that the Company’s audited consolidated financial statements for each of the five years in the periodfiscal year ended December 31, 2002, have been derived from the
Consolidated Financial Statements, which statements have been audited. The
following data should2019 be readincluded in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Consolidated
Financial Statements and the notes thereto included elsewhere herein.
23
ITEM 6. SELECTED FINANCIAL DATA, CONTINUED
(1) The Company adds new physician practices as a result of acquisitions and
internal marketing activities. The increase in net patient service revenue
related to acquisitions (including our acquisition of Magella) and internal
marketing activities was approximately $50.0 million, $49.5 million, $13.9
million, $86.6 million and $69.8 million for the years ended December 31,
1998, 1999, 2000, 2001 and 2002, respectively.
(2) Net patient service revenueMEDNAX’s Annual Report on Form
10-K
for the year ended December 31, 2019, for filing with the SEC.4
Submitted by the Audit Committee of the Board of Directors.
Paul G. Gabos
Karey D. Barker
Manuel Kadre
Michael A. Rucker
5
DIRECTORS AND EXECUTIVE OFFICERS
MEDNAX’s Directors and Executive Officers
MEDNAX’s Directors and Executive Officers are as follows:
Name | Age | Position with MEDNAX | ||||
Roger J. Medel, M.D. (1)(5) | 73 | Chief Executive Officer and Director | ||||
Cesar L. Alvarez (1) | 72 | Chairman of the Board of Directors | ||||
Manuel Kadre (1)(2)(4) | 54 | Lead Independent Director | ||||
Karey D. Barker (2)(4) | 52 | Director | ||||
Waldemar A. Carlo, M.D. (4)(5) | 67 | Director | ||||
Michael B. Fernandez (3) | 67 | Director | ||||
Paul G. Gabos (1)(2) | 55 | Director | ||||
Pascal J. Goldschmidt, M.D. (5) | 66 | Director | ||||
Carlos A. Migoya (3) | 69 | Director | ||||
Michael A. Rucker (2)(5) | 50 | Director | ||||
Enrique J. Sosa, Ph.D. (3) | 80 | Director | ||||
Stephen D. Farber | 50 | Executive Vice President and Chief Financial Officer | ||||
Dominic J. Andreano | 51 | Executive Vice President, General Counsel and Secretary | ||||
Nikos Nikolopoulos | 52 | Executive Vice President, Chief Strategy and Growth Officer | ||||
John C. Pepia | 57 | Senior Vice President, Chief Accounting Officer | ||||
| (1) | Member of the Executive Committee. |
| (2) | Member of the Audit Committee. |
| (3) | Member of the Compensation Committee. |
| (4) | Member of the Nominating and Corporate Governance Committee. |
| (5) | Member of the Medical Science and Technology Committee. |
Roger J. Medel, M.D.,
co-founded
it in 1979. Dr. Medel served as the Company’s President until May 2000 Cesar L. Alvarez
15-year
tenure as Chief Executive Officer and Executive Chairman, Mr. Alvarez led the Manuel Kadre
Tri-State
Luxury Collection, a group of luxury automotive dealerships. From July 2009 until 2013, Mr. Kadre was the Chief Executive Officer of Gold Coast Caribbean Importers, LLC. Mr. Kadre has served on the Board of Directors of Republic Services, Inc. since June 2014 and was appointed as Chairman of the Board of Directors of Republic Services, Inc. in February 2017. Mr. Kadre has also served on the Board of Directors for The Home Depot, Inc. since October 2018. Mr. Kadre also serves on the Board of Trustees of the University of Miami and on the Board of Governors of University of Miami Hospital. The Board of Directors has concluded that Mr. Kadre’s qualifications to serve on the Board include his experience in acquiring and managing businesses, including those in regulated industries and in government relations, his financial 6
Karey D. Barker
Waldemar A. Carlo, M.D.,
Michael B. Fernandez
Paul G. Gabos
Pascal J. Goldschmidt, M.D.
COVID-19
for its employees. Dr. Goldschmidt is also Director, President and Chief Executive Officer of American Healthcare System Ltd., a UK company that that specializes in advising, managing and operating hospitals and health systems around the world. Dr. Goldschmidt previously served as a Director and Chief Executive Officer of European Care Global QHCI, Ltd., which focuses on the provision of hospital services in the 7
Carlos A. Migoya
Michael A. Rucker
Enrique J. Sosa, Ph.D.
Stephen D. Farber
Executive-in-Residence
with Warburg Pincus LLC, a global private equity firm, from 2006 to 2009 as Chairman and Chief Executive Officer of Connance, Inc., a predictive analytics provider to healthcare companies, and from 2002 to 2005 as Chief Financial Officer of Tenet Healthcare Corporation.Dominic J. Andreano
Nikos Nikolopoulos
8
business turnaround and transformation, and corporate, telecom and intellectual property law. Prior to joining the Company, Mr. Nikolopoulos served as Senior Vice President of Corporate Development, Strategy and Marketing at Avaya, Inc., a multinational technology company, from 2017 to 2019 and as Chief Restructuring Officer and Vice President of Business Operations from 2013 to 2015. Prior thereto, he served in various executive-level business and corporate development and strategy roles at Office Depot, Inc., an office supply retailing company, from 2007 to 2012 and in various senior-level business development roles at Tyco Electronics Ltd., a company that designs and manufactures connectivity and sensor products, from 2001 to 2007.
John C. Pepia
Committees of the Board of Directors
Audit Committee
MEDNAX’s Audit Committee held seven meetings in 2019. Messrs. Gabos and Kadre and Ms. Barker were members of the committee throughout 2019, with Mr. Rucker replacing Dr. Sosa as a member of the Audit Committee in May 2019. Mr. Gabos acted as chair of the committee throughout 2019. MEDNAX’s Board of Directors has determined that each of Messrs. Gabos, Kadre and Rucker and Ms. Barker qualify as “audit committee financial experts” as defined by the rules and regulations of the SEC and that each of Messrs. Gabos, Kadre and Rucker and Ms. Barker meet the independence requirements under such rules and regulations and for claims incurred but not reported baseda New York Stock Exchange listed company, and that Dr. Sosa also met such requirements.
MEDNAX’s Board of Directors has adopted a written charter for the Audit Committee setting out the functions that it is to perform. A copy of the Audit Committee Charter is available on an
actuarial valuationour website at .
www.mednax.com
Please refer to the Report of the Audit Committee, which is based on historical loss patterns. An inherent
assumption in such estimates is that historical loss patterns can be usedset forth above, for a further description of our Audit Committee’s responsibilities and its recommendation with respect to predict future patterns with reasonable accuracy. Because many factors can
affect past and future loss patterns, the effect of changes in such factors on
our estimates must be carefully evaluated. The evaluation of these factors
involves complex, subjective judgments. Insurance liabilities are necessarily
based on estimates including claim frequency and severity as well as health care
inflation, and actual results may vary significantly from such estimates.
Liabilities for claims incurred but not reported are not discounted.
Goodwill
We record acquired assets and liabilities at their respective fair values
under the purchase method of accounting, recording to goodwill the excess of
cost over the fair value of the net assets acquired, including identifiable
intangible assets. Goodwill related to acquisitions completed prior to July 1,
2001 was amortized through the year ended December 31, 2001 on a straight-line
basis over 25 years. In accordance with the provisions of Statement of Financial
Accounting Standards, No. 142 ("FAS 142"), "Goodwill and Other Intangible
Assets," no goodwill amortization was recordedaudited consolidated financial statements for the year ended December 31, 2002. See Note 22019.
Compensation Committee
MEDNAX’s Compensation Committee held five meetings in 2019, and took various other actions via unanimous written consent. Mr. Fernandez was a member of the Compensation Committee throughout 2019, with Mr. Migoya and Dr. Sosa replacing Mr. Kadre and Dr. Carlo as members of the Compensation Committee in May 2019. Mr. Kadre acted as chair of the Compensation Committee until May 2019, with Dr. Sosa replacing Mr. Kadre as chair upon his appointment. MEDNAX’s Board of Directors has determined that each of Messrs. Fernandez and Migoya and Dr. Sosa meet the independence requirements for a New York Stock Exchange listed company, and Mr. Kadre and Dr. Carlo also met such requirements.
MEDNAX’s Board of Directors has adopted a written charter for the Compensation Committee setting out the functions that it is to perform. A copy of the Compensation Committee Charter is available on our Consolidated Financial Statements.
Under current accounting standards, goodwillwebsite at .
www.mednax.com
The primary purpose of MEDNAX’s Compensation Committee is testedto assist MEDNAX’s Board of Directors in the discharge of the Board of Directors’ responsibilities relating to compensation of executive officers. The scope of authority of MEDNAX’s Compensation Committee includes the following:
Evaluating the performance of and setting the compensation for impairment at an
operating segment level, known as a reporting unit, onMEDNAX’s Chief Executive Officer and other executive officers;
Supervising and making recommendations to MEDNAX’s Board of Directors with respect to incentive compensation plans and equity-based plans for executive officers;
Overseeing the review of the Company’s incentive compensation arrangements to determine whether they encourage excessive risk-taking, including discussing at least annually the relationship between risk management policies and practices and compensation and considering, as appropriate, compensation policies and practices that could mitigate any such risk;
9
Evaluating whether or not to engage, retain, or terminate an outside consulting firm for the review and evaluation of MEDNAX’s compensation plans and approving such outside consulting firm’s fees and other retention terms; and
Conducting an annual basis
usingself-assessment of the Compensation Committee.
Upon a two-step test. The first step comparesdetermination of MEDNAX’s full Compensation Committee membership, matters may be delegated to a subcommittee for evaluation and recommendation back to the fair valuefull committee. For a description of a reporting
unit with its carrying amount, including goodwill. If the carrying amount of a
reporting unit exceeds its fair value, a second step isrole performed to determineby executive officers and compensation consultants in determining or recommending the amount or form of any impairment loss. We use incomeexecutive and market-based valuation
approachesDirector compensation, see “Item 11: Section III — How Pay Decisions are Made.”
Nominating and Corporate Governance Committee
MEDNAX’s Nominating and Corporate Governance Committee held five meetings in 2019, and took various other actions via unanimous written consent. Dr. Carlo was a member of the Nominating and Corporate Governance Committee throughout 2019, with Ms. Barker and Mr. Kadre replacing Dr. Sosa and Mr. Fernandez as members in May 2019. Dr. Carlo served as chair of the committee until May 2019 when he was replaced by Mr. Kadre. MEDNAX’s Board of Directors has determined that each of Drs. Carlo, Ms. Barker and Mr. Kadre meet the independence requirements for a New York Stock Exchange listed company, and Dr. Sosa and Mr. Fernandez also met such requirements.
MEDNAX’s Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee setting out the functions that it is to determineperform. A copy of the fair valueNominating and Corporate Governance Committee Charter is available on our website at.
www.mednax.com
The Nominating and Corporate Governance Committee assists the Board of Directors with respect to nominating new Directors and committee members and taking a leadership role in shaping the corporate governance of MEDNAX. To fulfill its responsibilities and duties, the committee, among other things, reviews the qualifications and independence of existing Directors and new candidates; assesses the contributions of current Directors; identifies and recommends individuals qualified to be appointed to committees of the Board of Directors; considers rotation of committee members; reviews the charters of the committees and makes recommendations to the full Board of Directors with respect thereto; develops and recommends to the Board of Directors corporate governance principles, including a code of business conduct; and evaluates and recommends succession plans for MEDNAX’s Chief Executive Officer and other senior executives.
Although the Nominating and Corporate Governance Committee does not solicit director nominations, the committee will consider candidates suggested by shareholders in written submissions to MEDNAX’s Secretary in accordance with the procedures described below in the section entitled “Information Concerning Shareholder Proposals.” In evaluating nominees for Director, the committee does not differentiate between nominees recommended by shareholders and others. In identifying and evaluating candidates to be nominated for Director, the committee reviews the desired experience, mix of skills and other qualities required for appropriate Board composition, taking into account the current Board members and the specific needs of MEDNAX and its Board of Directors. Although the committee does not have a formal policy with regard to the consideration of diversity in identifying Director nominees, the committee’s review process is designed so that the Board of Directors includes members with diverse backgrounds, skills and experience, and represents appropriate financial, clinical and other expertise relevant to the business of MEDNAX. At a minimum, Director candidates must meet the following qualifications: high personal and professional ethics, integrity and values and a commitment to the representation of the long-term interests of our reporting units.shareholders.
Information Concerning Shareholder Proposals
As more specifically provided in our Articles of Incorporation, no business may be brought before an annual meeting unless it is specified in the notice of the meeting or is otherwise properly brought before the meeting by or at the direction of our Board of Directors or by a shareholder entitled to vote who has delivered proper notice to us, together with the information required by our Articles of Incorporation, not less than 120 days nor more than 180 days prior to the first anniversary of the preceding year’s notice of annual meeting. A copy of the provision of MEDNAX’s Articles of Incorporation relating to shareholder nominations is available upon request from MEDNAX’s Secretary at 1301 Concord Terrace, Sunrise, Florida 33323. These approaches
focus on discounted cash flows and market multiplesrequirements are separate from the SEC’s requirements that a shareholder must meet in order to derive the fair value ofhave a reporting unit. We also consider the economic outlookshareholder proposal included in our Proxy Statement for the healthcare
services industry2020 Annual Meeting of Shareholders.
Shareholders who wish to have a proposal considered for inclusion in our proxy materials for the 2020 Annual Shareholders’ Meeting pursuant to Rulevarious other factors duringsend notice of its proxy materials. Any such proposal must also meet the testing process,
including hospital and physician contract changes, local market developments,
changes in third-party payments, and other publicly-available information.
Other Matters
Other significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are nevertheless important
to an understanding of our Consolidated Financial Statements. For example, our
Consolidated Financial Statements are presented on a consolidated basis with our
affiliated professional associations, corporations and partnerships (the "PA
Contractors") because we or one of our subsidiaries have entered into management
agreements with our PA Contractors meeting the criteriarequirements set forth in the Emerging Issues Task Force Issue 97-2 for a "controlling financial interest".
Our management agreements are further described in Note 2 to our Consolidated
Financial Statements. Such policies often require difficult judgments on complex
matters that are often subject to multiple sources of authoritative guidance and
such matters are among topics currently under reexamination by accounting
standards setters and regulators. Although no specific conclusions reached by
these standard setters appear likely to cause a material change in our
accounting policies, outcomes cannot be predicted with confidence.
GEOGRAPHIC COVERAGE AND PAYOR MIX
During 2000, 2001 and 2002, approximately 55%, 59% and 62%, respectively,
of our net patient service revenue was generated by operations in our five
largest states. Over those same periods, our operations in Texas accounted for
approximately 18%, 29% and 33% of our net patient service revenue. Adverse
changes or conditions affecting these markets, such as health care reforms,
26
changes in lawsrules and regulations reduced Medicaid reimbursements, reductionsof the SEC in order to be eligible for inclusion in the supply of trained physicians and government investigations, may have an
adverse effect on our operations. We continue to seek to diversify the
geographic scope of our operations, primarily through acquisitions of physician
group practices.
We bill payors for services provided by physicians based upon ratesproxy materials for the specific services provided. The rates are substantially the same for all
patients2020 Annual Meeting of Shareholders.
14a-8
under the Exchange Act must ensure that such proposal is received by the Company’s Secretary at MEDNAX, Inc., 1301 Concord Terrace, Sunrise, Florida 33323, on or prior to May 1, 2020, which the Company has determined to be a reasonable time before it expects to begin to print and 10
Risk Considerations in a particular geographic area regardless of the party responsible for
paying the bill. We determine our net patient service revenue based upon the
difference between our gross fees for services and our ultimate collections from
payors. Net patient service revenue differs from gross fees due to (i) Medicaid
reimbursements at government-established rates, (ii) managed care payments at
contracted rates, (iii) various reimbursement plans and negotiated
reimbursements from other third parties, and (iv) discounted and uncollectible
accounts of private pay patients.
Our payor mix is comprised of government (principally Medicaid), contracted
managed care, other third parties and private pay patients. We benefit from the
fact that most of the medical services provided at the NICU or PICU are
classified as emergency services, a category typically classified as a covered
service by managed care payors. In addition, we benefit when patients are
covered by Medicaid, despite Medicaid's lower reimbursement rates as compared
with other payors, because typically these patients would not otherwise be able
to pay for services due to lack of insurance coverage. However, a significant
increase in the government, managed care or capitated components of our payor
mix at the expense of other third party payors, as we have experienced in the
last few years, could result in reduced reimbursement rates and, in the absence
of increased patient volume, could have a material adverse effect on our
financial condition and results of operations. The following is a summary of our
payor mix, expressed as a percentage of net patient service revenue, exclusive
of administrative fees, for the periods indicated.
YEARS ENDED DECEMBER 31,
--------------------------------------
2000 2001 2002
------------- ------------ -----------
Government 21% 23% 23%
Contracted managed care 48% 49% 55%
Other third parties 30% 27% 21%
Private pay patients 1% 1% 1%
------------- ------------ -----------
100% 100% 100%
============= ============ ===========
The payor mix shown above is not necessarily representative of the amount
of services provided to patients covered under these plans. For example,
services provided to patients covered under government programs represented
approximately 46% of our total gross patient service revenue but only 23% of our
net patient service revenue during 2002.
27
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
information related to our operations expressed as a percentage of our net
patient service revenue (patient billings net of contractual adjustments and
uncollectibles, and including administrative fees):
YEAR ENDED DECEMBER 31, 2002 AS COMPARED TO YEAR ENDED DECEMBER 31, 2001
Our net patient service revenue increased $110.9 million, or 31.3%, to
$465.5 million for the year ended December 31, 2002, as compared with $354.6
million for the same period in 2001. Of this $110.9 million increase, $69.8
million, or 62.9%, was attributable to new units at which we provide services as
a result of acquisitions, including units that were obtained in the Merger. Same
unit patient service revenue increased $41.1 million, or 15.6%, for the year
ended December 31, 2002. The increase in same unit net patient service revenue
was primarily the result of: (i) price increases implemented on June 1, 2001;
(ii) improved collection rates; (iii) an increase in patient days of 5.5%; (iv)
improved managed care contracting; and (v) increased revenue from new services
provided in existing practices. Same units are those units at which we provided
services for the entire current period and the entire comparable period.
Practice salaries and benefits increased $65.6 million, or 33.2%, to $263.2
million for the year ended December 31, 2002, as compared with $197.6 million
for the same period in 2001. The increase was attributable to: (i) costs
associated with new physicians and other clinical staff as a result of the
Merger and to support new unit growth and volume growth at existing units; (ii)
an increase in incentive compensation as a result of same unit growth and
operational improvements at the physician practice level; and (iii) an increase
in professional liability insurance costs.
Practice supplies and other operating expenses increased $1.5 million, or
10.5%, to $15.8 million for the year ended December 31, 2002, as compared with
$14.3 million for the same period in 2001. The increase was attributable to new
units at which we provide services as a result of acquisitions, including units
that were obtained in the Merger.
General and administrative expenses include all salaries, benefits,
supplies and other operating expenses not specifically related to the day-to-day
operations of our physician group practices, including billing and collection
functions. General and administrative expenses increased $5.5 million, or 8.7%,
to $68.3 million for the year ended December 31, 2002, as compared to $62.8
million for the same period in 2001. This $5.5 million increase was primarily
due to: (i) increased costs for services provided to the practices acquired in
the Merger; (ii) settlement costs of $1.3 million related to the Colorado
Medicaid investigation; (iii) salaries and benefits incurred as we continued our
efforts to regionalize our operations; (iv) information services for the
development and support of clinical and operational systems; (v) legal fees
related to the Colorado Medicaid investigation, which was concluded in April
2002, and the Federal Trade Commission investigation initiated in June 2002; and
(vi) increased insurance costs.
Earnings before interest expense, investment income, income tax provision,
and depreciation and amortization ("EBITDA") increased by $38.3 million, or
48.0%, to $118.2 million for the year ended December 31, 2002, as compared with
$79.9 million for the same period in 2001. EBITDA margin increased by 2.9
percentage points to 25.4%, as compared with 22.5% for the same period in 2001.
The EBITDA margin improvement was primarily due to the decline in general and
administrative expenses as a percentage of net patient service revenue.
28
EBITDA and EBITDA margin are non-GAAP measures of profitability and
operating efficiency widely used by investors to evaluate and compare operating
performance among different companies excluding the impact of certain non-cash
charges (depreciation and amortization). Depending on capital investments,
depreciation and amortization can vary significantly among different companies
and industries. We believe that EBITDA and EBITDA margin provide investors with
valuable measures to compare our operating performance with the operating
performance of other companies. EBITDA and EBITDA margin for the years ended
December 31, 2002 and 2001 can be reconciled to income from operations and
operating margin as shown below. Margins are expressed as a percentage of net
patient service revenue (amounts in thousands):
Depreciation and amortization expense decreased by $15.3 million, or 71.4%,
to $6.1 million for the year ended December 31, 2002, as compared with $21.4
million for the same period in 2001, primarily as a result of the adoption of
the nonamortization provisions of FAS 142 as discussed in Note 2 of the
Consolidated Financial Statements. Excluding the impact of goodwill amortization
for the year ended December 31, 2001, depreciation and amortization increased
$1.3 million, primarily due to fixed assets acquired in the Merger.
Income from operations increased $53.7 million, or 91.8%, to $112.1 million
for the year ended December 31, 2002, as compared with $58.4 million for the
same period in 2001. Our operating margin increased 7.6 percentage points to
24.1% for the year ended December 31, 2002, as compared to 16.5% for the same
period in 2001. Excluding the impact of goodwill amortization for the year ended
December 31, 2001, income from operations increased $37.1 million and operating
margin increased by 2.9 percentage points.
We recorded net interest expense of $338,000 for the year ended December
31, 2002, as compared with net interest expense of $2.2 million for the same
period in 2001. The decrease in interest expense in 2002 was primarily the
result of having no outstanding balance under our line of credit during the year
ended December 31, 2002. Interest expense for the year ended December 31, 2002
consisted primarily of commitment fees and amortized deferred debt costs
associated with our line of credit.
Our effective income tax rates were 38.4% and 45.9% for the years ended
December 31, 2002 and 2001, respectively. The decrease in the tax rate for the
year ended December 31, 2002 was primarily due to the elimination of
non-deductible goodwill amortization as required under the provisions of FAS
142. See Note 2 of the Consolidated Financial Statements.
Net income increased to $68.8 million for the year ended December 31, 2002,
as compared to $30.4 million for the same period in 2001. Excluding the impact
of goodwill amortization expense for the year ended December 31, 2001, net
income increased by $24.4 million.
Diluted net income per common and common equivalent share was $2.58 on
weighted average shares of 26.6 million for the year ended December 31, 2002, as
compared to $1.36 on the weighted average shares of 22.5 million for same period
in 2001. Excluding the impact of goodwill amortization expense, diluted net
income per common and common equivalent share would have been $1.98 for the year
ended December 31, 2001. The significant net increase in weighted average shares
outstanding was due to: (i) the shares issued in connection with the Merger
which were outstanding from May 15, 2001; (ii) the dilutive effect of
convertible subordinated notes and stock options assumed in the Merger; and
(iii) an increase in outstanding shares due to stock option exercises and shares
issued under our employee stock purchase plans, offset by a decrease in shares
due to the weighted average impact of approximately 1.7 million shares purchased
in 2002 under the Company's common stock repurchase program.
YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO YEAR ENDED DECEMBER 31, 2000
Our net patient service revenue increased $111.5 million, or 45.9%, to
$354.6 million for the year ended December 31, 2001, as compared with $243.1
million for the same period in 2000. Net patient service revenue for the year
ended December 31, 2000 included a charge of $6.5 million, which was recorded
during the quarter ended June 30, 2000, to increase the allowance for
contractual adjustments and uncollectible accounts. Of this $111.5 million
29
increase, approximately $86.5 million, or 77.6%, was attributable to new units
at which we provide services as a result of acquisitions, including units that
were obtained in the Merger. Same unit patient service revenue increased
approximately $25.0 million, or 10.6%, for the year ended December 31, 2001. The
increase in same unit net patient service revenue was primarily the result of:
(i) improved collection performance due to process changes implemented in the
last 18 months including the regionalization of billing and collection
functions; (ii) improved managed care contracting; (iii) price increases
implemented after the completion of the Merger; (iv) higher acuity level of
patient services billed; and (v) volume increases. Same units are those units at
which we provided services for all of 2001 and 2000.
Practice salaries and benefits increased $49.1 million, or 33.1%, to $197.6
million for the year ended December 31, 2001, as compared with $148.5 million
for the same period in 2000. The increase was attributable to new physicians and
other clinical staff as a result of the Merger and to support new unit growth
and volume growth at existing units.
Practice supplies and other operating expenses increased $3.3 million, or
29.7%, to $14.3 million for the year ended December 31, 2001, as compared with
$11.0 million for the same period in 2000. Of this $3.3 million increase,
approximately $1.6 million was attributable to increased costs related to the
Merger. The remaining approximately $1.7 million was primarily attributable to:
(i) increases in rent for medical equipment and medical office space; and (ii)
an increase in medical supplies related to the growth in our national hearing
screen program.
General and administrative expenses include all salaries and benefits and
supplies and other operating expenses not specifically related to the day-to-day
operations of our physician group practices. General and administrative expenses
increased $17.9 million, or 40.0%, to $62.8 million for the year ended December
31, 2001, as compared to $44.9 million for the same period in 2000. Of this
$17.9 million increase, approximately $8.2 million, or 45.8%, was attributable
to increased costs for services provided to the practices acquired in the
Merger. Approximately $9.7 million, or 54.2%, was primarily due to an increase
in costs for: (i) salaries and benefits for billing and collections personnel as
we continued our regionalization of billing and collection functions; (ii) legal
fees related to government investigations and our class action lawsuit; (iii)
rent and other operating expenses related to the expansion of our regional
billing and collection offices; and (iv) information services for the
development and support of clinical and operational systems.
EBITDA increased by $41.2 million, or 106.5%, to $79.9 million for the year
ended December 31, 2001, as compared with $38.7 million for the same period in
2000. EBITDA margin increased by 6.6 percentage points to 22.5%, as compared
with 15.9% for the same period in 2000. The EBITDA margin improvement was
primarily due to the decline in practice salaries and benefits as a percentage
of net patient service revenue.
EBITDA and EBITDA margin are non-GAAP measures of profitability and
operating efficiency widely used by investors to evaluate and compare operating
performance among different companies excluding the impact of non-cash charges
(depreciation and amortization). Depending on capital investments, depreciation
and amortization can vary significantly among different companies and
industries. We believe that EBITDA and EBITDA margin provide investors with
valuable measures to compare our operating performance with the operating
performance of other companies. EBITDA and EBITDA margin for the years ended
December 31, 2001 and 2000 can be reconciled to income from operations and
operating margin as shown below. Margins are expressed as a percentage of net
patient service revenue (amounts in thousands):
Depreciation and amortization expense increased by approximately $7.6
million, or 55.2%, to $21.4 million for the year ended December 31, 2001, as
compared with $13.8 million for the same period in 2000, primarily as a result
of depreciation on fixed asset additions and amortization of goodwill in
connection with the Merger and other acquisitions.
30
Income from operations increased approximately $33.5 million, or 135.0%, to
approximately $58.4 million for the year ended December 31, 2001, as compared
with $24.9 million for the same period in 2000. Our operating margin increased
6.3 percentage points to 16.5% for the year ended December 31, 2001, as compared
to 10.2% for the same period in 2000.
We recorded net interest expense of approximately $2.2 million for the year
ended December 31, 2001, as compared with net interest expense of approximately
$3.4 million for the same period in 2000. The decrease in interest expense in
2001 was primarily the result of a net reduction in the average balance
outstanding under our line of credit.
Our effective income tax rate was approximately 45.9% and 48.8% for the
years ended December 31, 2001 and 2000, respectively. The decrease in the tax
rate for the year ended December 31, 2001 was primarily due to the reduction of
non-deductible amounts associated with goodwill as a percentage of our pretax
income.
Net income increased to approximately $30.4 million for the year ended
December 31, 2001, as compared to $11.0 million for the same period in 2000.
Diluted net income per common and common equivalent share was $1.36 on
weighted average shares of 22.5 million for the year ended December 31, 2001, as
compared to $0.68 on the weighted average shares of 16.1 million for the year
ended December 31, 2000. The significant increase in the weighted average shares
outstanding is due to: (i) the shares issued in the Merger which were
outstanding from May 15, 2001; (ii) the dilutive effect of convertible notes and
stock options assumed in the Merger; and (iii) an increase in our stock price.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial data for
each of the quarters in the years ended December 31, 2001 and 2002. This
information has been prepared on the same basis as the Consolidated Financial
Statements appearing elsewhere in this Annual Report on Form 10-K and includes,
in our opinion, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the quarterly results when read in
conjunction with the Consolidated Financial Statements and the notes thereto. We
have historically experienced and expect to continue to experience quarterly
fluctuations in net patient service revenue and net income. These fluctuations
are primarily due to the following factors:
o A significant number of employees, including physicians, at Pediatrix
exceed the level of taxable wages for social security during the first
and second quarter of the year. As a result, we incur a significantly
higher payroll tax burden during those quarters.
o A lower number of calendar days are present in the first and second
quarters of the year as compared to the remainder of the year. Since we
provide services in the NICU on a 24 hour basis, 365 days a year, any
reduction in service days will have a corresponding reduction in net
patient service revenue.
31
Additionally, the quarterly results may be impacted by the timing of
acquisitions and any fluctuation in patient volume. As a result, the operating
results for any quarter are not necessarily indicative of results for any future
period or for the full year.
The significant increase in net patient service revenue beginning in the
second quarter of 2001 is primarily related to the Merger which was completed on
May 15, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002, we had approximately $73.2 million of cash and
cash equivalents on hand as compared to $27.6 million at December 31, 2001.
Additionally, we had working capital of approximately $79.6 million at December
31, 2002, an increase of $45.2 million from working capital of $34.4 million at
December 31, 2001.
We generated cash flow from operating activities of $36.1 million, $90.3
million and $97.8 million for the years ended December 31, 2000, 2001 and 2002,
respectively. In 2001, we realized a significant increase in cash provided from
operating activities as compared to 2000. This increase was due to a reduction
in days' revenue outstanding combined with the impact of the Merger on cash
provided from operating activities. We continued to realize an increase in cash
provided from operating activities in 2002 as compared to 2001 due to improved
year over year operating results.
In July 2002, our Board of Directors approved a common stock repurchase
program (the "Repurchase Program"). Under this Repurchase Program, we were
authorized to repurchase up to $50 million of our common stock in the open
market, subject to market conditions and trading restrictions. In November 2002,
our Board of Directors authorized the repurchase of an additional $50 million of
common stock. In 2002, we repurchased approximately 1.7 million shares at a cost
of approximately $50 million. Subsequent to December 31, 2002 and through March
20, 2003, the Company purchased an additional 1.6 million shares of its common
stock at a cost of approximately $50 million.
We generated proceeds from the exercise of stock options and the issuance
of common stock under our stock purchase plans of approximately $1.6 million,
$15.8 million and $32.1 million for the years ended December 31, 2000, 2001 and
2002, respectively.
During 2002, we completed the acquisition of six physician practices, using
approximately $25.4 million in cash. These acquisitions were funded principally
by cash generated from operations.
32
The Company currently has a line of credit in the amount of $100 million
which matures August 14, 2004 (the "Line of Credit"). At our option, the Line of
Credit bears interest at either the prime rate or the Eurodollar rate plus an
applicable margin rate ranging from 2% to 2.75%. The Line of Credit is
collateralized by substantially all of our assets. We are subject to certain
covenants and restrictions specified in our Line of Credit, including covenants
that require us to maintain a minimum level of net worth and earnings and a
restriction on the payment of dividends and certain other distributions, as
specified therein. At December 31, 2002, we are in compliance with such
financial covenants. We had no outstanding balance under our Line of Credit at
December 31, 2001 and 2002.
We maintain professional liability coverage that indemnifies us and our
health care professionals on a claims-made basis for losses incurred related to
medical malpractice litigation with a portion of self insurance retention. We
record a liability for self-insured deductibles and an estimated liability for
malpractice claims incurred but not reported based on an actuarial valuation.
Our current professional liability insurance policy expires May 1, 2003, and we
are currently reviewing our coverage options, which may include a higher
self-insured retention and an increase in premium costs. There can be no
assurance that we will be able to obtain substantially similar coverage for
professional liability insurance upon expiration or that such coverage will be
available at acceptable costs or on favorable terms.
The health care services industry is highly regulated. We believe that
billing audits, inquiries and investigations by government agencies will
continue to occur in the ordinary course of our business and in the health care
services industry in general. In response to such billing audits, inquiries and
investigations, our affiliated physicians could take an unduly conservative
approach to coding for their services by, for example, increasing the use of
non-critical care codes, for which our reimbursement is lower than critical care
codes, as they may have in the past. If they were to do this, we could receive
lower reimbursements from third party payors which could have a material adverse
effect on our liquidity and capital resources.
Our annual capital expenditures have typically been for computer hardware
and software and for furniture, equipment and improvements at the corporate
headquarters and our regional offices. During the year ended December 31, 2002,
capital expenditures amounted to approximately $8.0 million.
We anticipate that funds generated from operations, together with cash on
hand, and funds available under our Line of Credit, will be sufficient to meet
our working capital requirements, finance our required capital expenditures and
meet our contractual obligations for at least the next 12 months.
CONTRACTUAL OBLIGATIONS
At December 31, 2002, we had certain obligations and commitments under
promissory notes, capital leases and operating leases totaling approximately
$29.7 million as follows:
We have lease arrangements with two entities that may be considered
variable interest entities under Financial Accounting Standards Board
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities -
an interpretation of ARB No. 51," which was issued in January 2003. We are
currently evaluating whether these two entites will be subject to consolidation
under the provisions of FIN 46. As of December 31, 2002, property and equipment
related to these entities was approximately $16.2 million with associated
liabilities of the same amount.
33
ACCOUNTING MATTERS
In June 2001, the Financial Accounting Standards Board (the "Board") issued
Statements of Financial Accounting Standards No. 141 ("FAS 141"), "Business
Combinations," and No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets."
FAS 141 (i) requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001; (ii) establishes specific
criteria for the initial recognition and measurement of intangible assets
separately from goodwill; and (iii) requires unallocated negative goodwill be
written off immediately. FAS 142 supersedes APB 17, "Intangible Assets," and is
effective for fiscal years beginning after December 15, 2001. FAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
initial recognition. FAS 142 (i) prohibits the amortization of goodwill and
indefinite-lived intangible assets, (ii) requires that goodwill and
indefinite-lived intangible assets be tested annually for impairment, (iii)
requires that reporting units be identified for the purpose of assessing
potential future impairments of goodwill, and (iv) removes the forty-year
limitation on the amortization period of intangible assets that have finite
lives.
Effective July 1, 2001, we adopted the provisions of FAS 141 and the
nonamortization provisions of FAS 142 pertaining to goodwill recorded in
connection with acquisitions consummated subsequent to June 30, 2001.
Effective January 1, 2002, the remaining provisions of FAS 142 were fully
adopted, which require the nonamortization of all goodwill and that goodwill be
tested annually for impairment using a two-step process. We completed our
testing for 2002 and did not identify any goodwill impairment as a result of the
adoption of FAS 142.
Excluding the impact of amortization expense, net of tax, for the years
ended December 31, 2000, 2001 and 2002, pro forma net income and net income per
share is as follows:
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 144 ("FAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." FAS 144 supersedes Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," and addresses (i) the recognition and measurement of the
impairment of long-lived assets to be held and used, and (ii) the measurement of
long-lived assets to be disposed of by sale. The adoption of FAS 144 did not
have a material impact on our financial position or results of operations.
In 2002, we adopted Statement of Financial Accounting Standards No. 145
("FAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." This Statement eliminates the FAS
No. 4 requirement that gains and losses from extinguishments of debt be
classified as an extraordinary item, and requires that such gains and losses be
evaluated for extraordinary classification under the criteria of APB Opinion No.
30, "Reporting Results of Operations." This statement also amends FAS No. 13 to
require that certain lease modifications that have economic effects that are
similar to sale-leaseback transactions be accounted for in the same manner as
34
sale-leaseback transactions. FAS 145 also makes various other technical
corrections to existing pronouncements. The adoption of FAS 145 did not have a
material effect on our financial position or results of operations.
In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34," was issued. This statement
elaborates on the disclosures to be made by a guarantor about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of the interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002 and the disclosure requirements are effective for financial
statements ending after December 15, 2002. We are currently assessing the
impact, if any, of the adoption of the initial recognition and initial
measurement provisions.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("FAS 148"), "Accounting for Stock-Based Compensation -
Transition and Disclosure." This Statement amends Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
compensation. It also amends the disclosure provisions of FAS 123 to require
prominent disclosure about the effects on reported net income of an entity's
accounting policy decisions with respect to stock-based employee compensation.
Finally, FAS 148 amends APB Opinion No. 28, "Interim Financial Reporting," to
require disclosure about those effects in interim financial information. As of
December 31, 2002, we have adopted the disclosure provisions of FAS 148, but
have not voluntarily changed to the fair value based method of accounting for
stock based compensation.
In January 2003, FIN 46, "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," was issued. FIN 46 addresses consolidation by
business enterprises of variable interest entities. The provisions of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. We have lease
arrangements with two entities that may be considered variable interest entities
under FIN 46. We are currently evaluating whether these two entities will be
subject to consolidation under the provisions of FIN 46. As of December 31,
2002, property and equipment related to these entities was approximately $16.2
million with associated liabilities of the same amount. See "Contractual
Obligations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Line of Credit and certain operating lease agreements are subject to
market risk and interest rate changes. The total amount available under our Line
of Credit is $100 million. At our option, the Line of Credit bears interest at
either the prime rate or the Eurodollar rate plus an applicable margin rate
ranging from 2% to 2.75%. The leases bear interest at LIBOR-based variable
rates. There was no outstanding principal balance on the Line of Credit at
December 31, 2002. The outstanding balances related to the operating leases
totaled approximately $16.2 million at December 31, 2002. Considering the total
outstanding balances under these instruments at December 31, 2002 of
approximately $16.2 million, a 1% change in interest rates would result in an
impact to pre-tax earnings of approximately $162,000 per year.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company are included
in this Annual Report on Form 10-K on the pages set forth below:
PAGE
----
Report of Independent Certified Public Accountants ...... 37
Consolidated Balance Sheets at December 31, 2001 and 2002 38
Consolidated Statements of Income for the Years Ended
December 31, 2000, 2001 and 2002 .............. 39
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 2001 and 2002 .. 40
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 2001 and 2002 .............. 41
Notes to Consolidated Financial Statements .............. 42
36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Pediatrix Medical Group, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page 36 present fairly, in all material respects, the
financial position of Pediatrix Medical Group, Inc. and subsidiaries (the
"Company") at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule appearing under Item 15(a)(2) on page 60 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," effective January 1, 2002.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 5, 2003
37
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
38
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
39
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
40
PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
41
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The principal business activity of Pediatrix Medical Group, Inc.
("Pediatrix" or the "Company") is to provide neonatal and perinatal
physician services. The Company provides services in 30 states and
Puerto Rico. Contractual arrangements with hospitals include: a)
fee-for-service contracts whereby hospitals agree, in exchange for the
Company's services, to authorize the Company and its health care
professionals to bill and collect the charges for medical services
rendered by the Company's health care professionals; and b)
administrative fees whereby the Company is assured a minimum revenue
level.
On May 15, 2001, the Company acquired Magella Healthcare Corporation
("Magella") pursuant to a merger transaction (the "Merger"). The total
purchase price was approximately $173.6 million, which the Company paid
for in shares of its common stock, plus assumed liabilities of
approximately $59.2 million. The Company also completed six
acquisitions and added three neonatal intensive care units ("NICUs")
through internal marketing activities during 2002. Programs
The Company has accounted forreviewed its compensation structures and policies as they pertain to risk and has determined that its compensation programs do not create or encourage the Merger and the acquisitions using the purchase methodtaking of accounting. The results of operations of Magella and the acquired
practices have been included in the Consolidated Financial Statements
from the dates of acquisition. See also Note 5.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF PRESENTATION
The financial statements include all the accounts of the Company and
its subsidiaries combined with the accounts of the professional
associations (the "PA Contractors") with which the Company currently
has specific management arrangements. The financial statements of the
PA Contractors are consolidated with the Company because the Company
has established a controlling financial interest in the operations of
the PA Contractors, as defined in Emerging Issues Task Force Issue
97-2, through contractual management arrangements. The PA Contractors'
agreements with the Company provide that the term of the arrangements
are permanent, subject only to termination by the Company, except in
the case of gross negligence, fraud or bankruptcy of the Company. The
Company has the right to receive income, both as ongoing fees and as
proceeds from the sale of its interest in the PA Contractors, in an
amount that fluctuates based on the performance of the PA Contractors
and the change in the fair value thereof. The Company has exclusive
responsibility for the provision of all non-medical services required
for the day-to-day operation and management of the PA Contractors and
establishes the guidelines for the employment and compensation of the
physicians. In addition, the agreements provide that the Company has
the right, but not the obligation, to purchase, or to designate a
person(s) to purchase, the stock of the PA Contractors for a nominal
amount. Separately, in its sole discretion, the Company has the right
to assign its interest in the agreements. All significant intercompany
and interaffiliate accounts and transactions have been eliminated.
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the "Board")
issued Statements of Financial Accounting Standards No. 141 ("FAS
141"), "Business Combinations," and No. 142 ("FAS 142"), "Goodwill and
Other Intangible Assets." FAS 141 (i) requires that the purchase method
of accounting be used for all business combinations initiated after
June 30, 2001; (ii) establishes specific criteria for the initial
recognition and measurement of intangible assets separately from
goodwill; and (iii) requires unallocated negative goodwill be written
off immediately. FAS 142 supersedes APB 17, "Intangible Assets," and is
effective for fiscal years beginning after December 15, 2001. FAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. FAS 142 (i) prohibits the
amortization of goodwill and indefinite-lived intangible assets, (ii)
requires that goodwill and indefinite-lived intangible assets be tested
at least annually for impairment, (iii) requires that reporting units
be identified for the purpose of assessing potential future impairments
of goodwill, and (iv) removes the forty-year limitation on the
amortization period of intangible assets that have finite lives.
42
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Effective July 1, 2001, the Company adopted the provisions of FAS 141
and the nonamortization provisions of FAS 142 pertaining to goodwill
recorded in connection with acquisitions consummated subsequent to June
30, 2001.
Effective January 1, 2002, the remaining provisions of FAS 142 were
fully adopted, which require the nonamortization of all goodwill and
that goodwill be tested annually for impairment using a two-step
process. The Company completed its testing for 2002 and did not
identify any goodwill impairment as a result of the adoption of FAS
142.
Excluding the impact of amortization expense, net of tax, for the years
ended December 31, 2000, 2001 and 2002, pro forma net income and net
income per share is as follows:
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144 ("FAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets." FAS 144 supersedes
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and
addresses (i) the recognition and measurement of the impairment of
long-lived assets to be held and used, and (ii) the measurement of
long-lived assets to be disposed of by sale. The adoption of FAS 144
did not have a material impact on the Company's financial position or
results of operations.
In 2002, the Company adopted Statement of Financial Accounting
Standards No. 145 ("FAS 145"), "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement eliminates the FAS No. 4 requirement that gains and
losses from extinguishments of debt be classified as an extraordinary
item, and requires that such gains and losses be evaluated for
extraordinary classification under the criteria of APB Opinion No. 30,
"Reporting Results of Operations." This statement also amends FAS No.
13 to require that certain lease modifications that have economic
effectsrisks that are similarreasonably likely to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions. FAS 145 also
makes various other technical corrections to existing pronouncements.
The adoption of FAS 145 did not have a material effect on the Company's
financial position or results of operations.
In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No.
34," was issued. This statement elaborates on the disclosures to be
made by a guarantor about its obligations under certain guarantees that
it has issued.
43
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of the interpretation are applicable
on a prospective basis to guarantees issued or modified after December
31, 2002 and the disclosure requirements are effective for financial
statements ending after December 15, 2002. The Company is currently
assessing the impact, if any, of the adoption of the initial
recognition and initial measurement provisions.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("FAS 148"), "Accounting for Stock-Based Compensation
- Transition and Disclosure." This Statement amends Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation," to provide alternative methods of transition
for an entity that voluntarily changes to the fair value based method
of accounting for stock-based compensation. It also amends the
disclosure provisions of FAS 123 to require prominent disclosure about
the effects on reported net income of an entity's accounting policy
decisions with respect to stock-based employee compensation. Finally,
FAS 148 amends APB Opinion No. 28, "Interim Financial Reporting," to
require disclosure about those effects in interim financial
information. As of December 31, 2002, the Company has adopted the
disclosure provisions of FAS 148, but has not changed to the fair value
based method of accounting for stock based compensation.
In January 2003, FASB Interpretation No. 46 ("FIN 46"), "Consolidation
of Variable Interest Entities - an interpretation of ARB No. 51," was
issued. FIN 46 addresses consolidation by business enterprises of
variable interest entities. The provisions of FIN 46 apply immediately
to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before
February 1, 2003. The Company has lease arrangements with two entities
that may be considered variable interest entities under FIN 46. The
Company is currently evaluating whether these two entities will be
subject to consolidation under the provisions of FIN 46. As of December
31, 2002, property and equipment related to these entities was
approximately $16.2 million with associated liabilities of the same
amount.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Significant
estimates include the estimated allowance for contractual adjustments
and uncollectibles on accounts receivable, and the estimated
liabilities for claims incurred but not reported related to the
Company's professional liability insurance. Actual results could differ
from those estimates.
SEGMENT REPORTING
The Company operates in a single operating segment for purposes of
presenting financial information and evaluating performance. As such,
the accompanying Consolidated Financial Statements present financial
information in a format that is consistent with the financial
information used by management for internal use.
REVENUE RECOGNITION
Patient service revenue is recognized at the time services are provided
by the Company's employed physicians. Patient service revenue is
presented net of an estimated provision for contractual adjustments
44
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
and uncollectibles which is charged to operations based on the
Company's evaluation of expected collections resulting from an analysis
of current and past due accounts, past collection experience in
relation to amounts billed and other relevant information. Contractual
adjustments result from the difference between the physician rates for
services performed and reimbursements by government-sponsored health
care programs and insurance companies for such services.
Accounts receivable are primarily amounts due under fee-for-service
contracts from third party payors, such as insurance companies,
self-insured employers and patients and government-sponsored health
care programs geographically dispersed throughout the United States and
its territories. Concentration of credit risk relating to accounts
receivable is limited by number, diversity and geographic dispersion of
the business units managed by the Company, as well as by the large
number of patients and payors, including the various governmental
agencies in the states in which the Company provides services.
Receivables from government agencies made up approximately 22% and 19%
of net accounts receivable at December 31, 2001 and 2002, respectively.
CASH EQUIVALENTS
Cash equivalents are defined as all highly liquid financial instruments
with maturities of 90 days or less from the date of purchase. The
Company's cash equivalents consist principally of demand deposits,
amounts on deposit in money market accounts, mutual funds, and funds
invested in overnight repurchase agreements. The Company holds a
majority of its cash equivalents with one financial institution.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original purchase cost.
Depreciation of property and equipment is computed on the straight-line
method over the estimated useful lives. Estimated useful lives are
generally 40 years for buildings; three to seven years for medical
equipment, computer equipment, software and furniture; and the lease
period for leasehold improvements and capital leases. Upon sale or
retirement of property and equipment, the cost and related accumulated
depreciation are eliminated from the respective accounts and the
resulting gain or loss is included in earnings.
GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company fully adopted the provisions of
FAS 142. In accordance with FAS 142, the Company records acquired
assets and liabilities at their respective fair values under the
purchase method of accounting. Goodwill represents the excess of cost
over the fair value of the net assets acquired. Intangible assets with
finite lives, physician and hospital agreements, are recognized apart
from goodwill at the time of acquisition based on the contractual-legal
and separability criteria established in FAS 141.
Goodwill is tested for impairment at an operating segment level, known
as a reporting unit, on an annual basis using a two-step test. The
first step compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the carrying amount of a
reporting unit exceeds its fair value, a second step is performed to
determine the amount of any impairment loss. The Company completed its
initial impairment analysis of goodwill as of January 1, 2002 and its
annual impairment test in the third quarter of 2002 and determined that
goodwill was not impaired. Goodwill related to acquisitions completed
prior to July 1, 2001 was amortized through the year ended December 31,
2001 on a straight-line basis over 25 years. No goodwill amortization
was recorded for the year ended December 31, 2002. Intangible assets
with finite lives are amortized over a period of 5 to 20 years.
45
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
LONG-LIVED ASSETS
The Company evaluates long-lived assets, including intangible assets
subject to amortization, at least annually and records an impairment
whenever events or changes in circumstances indicate that the carrying
value of the assets may not be fully recoverable. The recoverability of
such assets is measured by a comparison of the carrying value of the
assets to the future undiscounted cash flows before interest charges to
be generated by the assets. If long-lived assets are impaired, the
impairment to be recognized is measured as the excess of the carrying
value over the fair value. Long-lived assets to be disposed of are
reported at the lower of the carrying value or fair value less disposal
costs. The Company does not believe there are any indicators that would
require an adjustment to such assets or their estimated periods of
recovery at December 31, 2002 pursuant to the current accounting
standards.
TREASURY STOCK
Effective with the beginning of the third quarter of 2002, the Company
began repurchasing and holding shares of its common stock as treasury
stock. The Company records its common stock repurchases at
reacquisition cost using the cost method of accounting for treasury
stock. Treasury stock is reported as a reduction in shareholders'
equity.
PROFESSIONAL LIABILITY COVERAGE
The Company maintains professional liability coverage, which
indemnifies the Company and its health care professionals on a
claims-made basis with a portion of self insurance deductible. The
Company records a liability for self-insured deductibles and an
estimate of its liabilities for claims incurred but not reported based
on an actuarial valuation. Liabilities for claims incurred but not
reported are not discounted.
INCOME TAXES
The Company records deferred income taxes using the liability method,
whereby deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
STOCK OPTIONS
The Company accounts for stock-based compensation to employees using
the intrinsic value method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense for stock options
issued to employees is reflected in the consolidated statements of
income, because the market value of the Company's stock equals the
exercise price on the day options are granted. To the extent the
Company realizes an income tax benefit from the exercise or early
disposition of certain stock options, this benefit results in a
decrease in current income taxes payable and an increase in additional
paid-in capital.
Had compensation expense been determined based on the fair value
accounting provisions of FAS 123, "Accounting for Stock-Based
Compensation," the Company's net income and net income per share would
have been reduced to the pro forma amounts below:
46
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
The fair value of each option or share to be issued is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 2000, 2001
and 2002: dividend yield of 0% for all years; expected volatility of
82%, 71% and 58%, respectively, and risk-free interest rates of 6.4%,
4.6% and 3.6%, respectively, for options with expected lives of five
years (officers and physicians of the Company) and 6.3%, 3.9% and 3.1%,
respectively, for options with expected lives of three years (all other
employees of the Company).
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 convertible notes calculated using the if-converted
method and outstanding options calculated using the treasury stock
method. The calculation of diluted net income per share excludes the
after-tax impact of interest expense related to convertible
subordinated notes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable and accrued expenses approximate fair value due to
the short maturities of these items. The carrying value of long-term
debt and capital lease obligations approximates fair value.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
47
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE:
Accounts receivable consists of the following:
Net patient service revenue consists of the following:
During the second quarter of 2000, the Company recorded a charge of
$6.5 million to increase the allowance for contractual adjustments and
uncollectible accounts. This charge was attributable to management's
assessment of accounts receivable, which was revised to reflect the
changes occurring in the Company's collection rates that became known
by the Company as a result of trends noted during the second quarter of
2000 and an increase in average aged accounts receivable. This decline
in collection rates was the result of (i) an increased utilization of
non-critical care codes on which the Company realizes a lower
collection rate as a percentage of billed charges, (ii) a significant
decline in the reimbursement from non-contracted payors, (iii)
continued difficulties in the health care reimbursement environment,
primarily with managed care payors, and (iv) disruption within our
collection offices due to the billing inquiries and the transition to a
regional collection structure.
During the second quarter of 2001, the Company increased prices for its
patient services. As a result of the price increase, contractual
adjustments and uncollectibles increased as a percentage of gross
patient service revenue from 2000 to 2001. This increase is primarily
due to government-sponsored health care programs, like Medicaid, that
generally provide for reimbursements on a fee schedule basis rather
than on a gross charge basis. Since the Company bills
government-sponsored health care programs, like other payors, on a
gross charge basis, the Company must increase the provision for
contractual adjustments and uncollectibles by the amount of any price
increase, resulting in a higher contractual adjustment percentage.
During 2002, the Company realized a decrease in contractual adjustments
and uncollectibles as a percentage of gross revenue due to (i) the
realization of improved reimbursement from non-contracted payors
related to the 2001 price increase, (ii) improved contracting with
managed care payors, and (iii) improved collections as a result of the
Company's regional collection structure.
48
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
-----------------------
2001 2002
-------- --------
(IN THOUSANDS)
Building ............... $ 33 $ 33
Equipment and furniture 27,013 34,442
-------- --------
27,046 34,475
Accumulated depreciation (12,210) (17,655)
-------- --------
$ 14,836 $ 16,820
======== ========
At December 31, 2002, property and equipment includes medical equipment
held under capital leases of approximately $1.3 million and related
accumulated depreciation of approximately $1.0 million. The Company
recorded depreciation expense of approximately $3,131,000, $4,857,000
and $6,009,000 for the years ended December 31, 2000, 2001 and 2002,
respectively.
5. GOODWILL AND OTHER ASSETS:
Other assets consists of the following:
DECEMBER 31,
----------------------
2001 2002
-------- --------
(IN THOUSANDS)
Other intangible assets $ -- $ 996
Other assets .......... 6,611 6,476
-------- --------
$ 6,611 $ 7,472
======== ========
At December 31, 2002, other intangible assets consist of amortizable
physician and hospital agreements with a gross carrying amount of
approximately $1.1 million, less accumulated amortization of
approximately $120,000. Amortization expense related to these
agreements for the year ended December 31, 2002 was approximately
$120,000. Amortization expense on these agreements for the years 2003
through 2006 is expected to be approximately $161,000, $145,000,
$105,000, $94,000 and $78,000, respectively. The remaining weighted
average amortization period of other intangible assets is 19 years.
On May 15, 2001, the Company acquired Magella pursuant to a merger
transaction. The total purchase price for Magella was allocated as
follows (in thousands):
In connection with the Merger, the Company recorded assets totaling
approximately $232.8 million, including approximately $206.5 million in
goodwill, and assumed liabilities of approximately $59.2 million.
49
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. GOODWILL AND OTHER ASSETS, CONTINUED:
In addition to the Merger, the Company completed the acquisition of six
physician group practices during 2001. Total consideration and related
costs for the acquisitions approximated $19.8 million in cash and $1.8
million in notes payable. In connection with these transactions, the
Company recorded goodwill in the amount of approximately $21.6 million.
During 2002, the Company completed the acquisition of six physician
practices. Total consideration and related costs for these acquisitions
approximated $25.4 million. In connection with these transactions, the
Company recorded goodwill of approximately $24.3 million and other
intangible assets consisting of physician and hospital agreements of
approximately $1.1 million. The goodwill of approximately $24.3 million
related to these acquisitions represents the only change in the
carrying amount of goodwill for the year ended December 31, 2002.
The Company has accounted for the Merger and the other acquisitions
completed during 2001 and 2002 using the purchase method of accounting.
The results of operations of Magella and 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, Magella and the physician group
practices acquired during 2001 and 2002 as if the transactions had
occurred on January 1, 2001:
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. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
50
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES, CONTINUED:
In connection with the accrued liability for the settlement of the
class action securities litigation at December 31, 2001, as noted
above, the Company recorded a receivable from the Company's insurance
carrier in the amount of $12 million. Such amount is included in other
current assets at December 31, 2001.
7. LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
During 2001, the Company refinanced its $75 million line of credit,
which matured on September 30, 2001, with an amended and restated
credit agreement (the "Line of Credit") in the amount of $100 million.
At the Company's option, the Line of Credit, which matures on August
14, 2004, bears interest at either the prime rate or the Eurodollar
rate plus an applicable margin rate ranging from 2% to 2.75%. The Line
of Credit is collateralized by substantially all the Company's assets.
The Company is subject to certain covenants and restrictions under the
Line of Credit, including covenants that require the Company to
maintain a minimum level of net worth and earnings and a restriction on
the payment of dividends and certain other distributions, as specified
therein. At December 31, 2002, the Company was in compliance with such
financial covenants. The Company had no outstanding balance under the
Line of Credit at December 31, 2001 and 2002.
During 2001, the Company issued a $1.8 million promissory note in
connection with an acquisition. The promissory note accrues interest at
5.5%, requires principle payments in five equal installments of
$350,000, and matures on September 7, 2006.
In connection with the Merger, the Company assumed certain convertible
subordinated notes issued by Magella which, as a result of the Merger
became exercisable into our common stock ("Convertible Notes"). During
2001 and 2002, approximately $11.9 million and $128,000 of Convertible
Notes were converted into approximately 537,000 and 5,000 shares,
respectively, of the Company's common stock at the option of the
holders. At December 31, 2002, the total outstanding principal on the
Convertible Notes is approximately $792,000. The remaining outstanding
Convertible Notes are convertible into approximately 30,000 shares of
the Company's common stock at the option of the holder at a price of
$26.00 per share, bear interest at rates ranging from 5% to 6%, require
varying periodic interest payments and are due at various dates ranging
from January 2005 through January 2006. The Company has the right to
force the holders of the Convertible Notes to convert the notes into
Pediatrix common stock when the share price of the Company's common
stock trades at a specified price ranging from $32.50 to $39.00 over a
90 day trading period.
Long-term debt, including capital lease obligations, consists of the
following:
DECEMBER 31,
2002
--------------------
(IN THOUSANDS)
Convertible Notes ................ $ 792
Promissory note in connection with
acquisition..................... 1,400
Capital lease obligations ........ 297
-------
Total .......................... 2,489
Current portion .................. (504)
-------
Long-term debt and capital lease
obligations .................... $ 1,985
=======
The amounts due under the terms of the Company's long-term debt,
including capital lease obligations, at December 31, 2002 are as
follows: 2003 - $504,000; 2004 - $443,000; 2005 - $762,000; and 2006 -
$780,000.
51
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES:
The components of the income tax provision (benefit) are as follows:
DECEMBER 31,
---------------------------------------------
2000 2001 2002
-------- -------- -------
(IN THOUSANDS)
Federal:
Current $ 11,463 $ 29,970 $35,924
Deferred (1,265) (4,709) 3,192
-------- -------- -------
10,198 25,261 39,116
-------- -------- -------
State:
Current 350 1,083 3,593
Deferred (75) (562) 252
-------- -------- -------
275 521 3,845
-------- -------- -------
Total $ 10,473 $ 25,782 $42,961
======== ======== =======
The Company files its tax return on a consolidated basis with its
subsidiaries. The remaining PA Contractors file tax returns on an
individual basis.
The effective tax rate on income was 48.8%, 45.9% and 38.4% for the
years ended December 31, 2000, 2001 and 2002, respectively. The
decrease in the tax rate for the year ended December 31, 2002 was
primarily due to the elimination of non-deductible goodwill
amortization as required under current accounting standards. The
differences between the effective rate and the U.S. federal income tax
statutory rate are as follows:
DECEMBER 31,
---------------------------------------
2000 2001 2002
------- ------- -------
(IN THOUSANDS)
Tax at statutory rate $ 7,511 $19,674 $39,108
State income tax, net
of federal benefit 179 865 2,499
Amortization ........ 2,347 3,939 237
Other, net .......... 436 1,304 1,117
------- ------- -------
Income tax provision $10,473 $25,782 $42,961
======= ======= =======
52
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES, CONTINUED:
The significant components of deferred income tax assets and
liabilities are as follows:
The income tax benefit related to the exercise of stock options and the
purchase of shares under the Company's non-qualified employee stock
purchase plan reduces taxes currently payable and is credited to
additional paid-in capital. Such amounts totaled approximately
$442,000, $7,397,000 and $18,129,000 for the years ended December 31,
2000, 2001, and 2002, respectively.
The Company has net operating loss carryforwards for federal and state
tax purposes totaling approximately $6,668,000, $7,175,000 and
$8,697,000 at December 31, 2000, 2001 and 2002, respectively, expiring
at various times commencing in 2009.
9. COMMITMENTS AND CONTINGENCIES:
On June 6, 2002, the Company received a written request from the
Federal Trade Commission ("FTC") to submit information on a voluntary
basis in connection with an investigation of issues of competition
related to the 2001 acquisition of Magella and our business practices
generally. On February 5, 2003, the Company received additional
information requests from the FTC in the form of a Subpoena and Civil
Investigative Demand. Pursuant to these requests, the FTC has requested
documents and information relating to the acquisition and the Company's
business practices in certain markets. The Company is cooperating fully
with the FTC, but at this time cannot predict the outcome of the
investigation and whether it will have a material adverse effect on the Company'sCompany.
Compensation Committee Report
Please see “Item 11 — Executive Compensation” below for the Compensation Committee Report.
| ITEM 11. | EXECUTIVE COMPENSATION |
COMPENSATION DISCUSSION AND ANALYSIS
seCTION I: COMPENSATION committee REPORT
The Compensation Committee determines the compensation for our CEO and other NEOs and oversees the administration of our executive compensation program. The Compensation Committee is composed entirely of independent Directors and is advised as necessary by independent consultants and legal counsel. Our CEO provides advice and recommendations to the Compensation Committee with respect to the compensation of other senior executive officers. Under the rules of the Securities and Exchange Commission, our NEOs for 2019 are:
Roger J. Medel, M.D., Chief Executive Officer
Stephen D. Farber, Executive Vice President and Chief Financial Officer
Joseph M. Calabro, Former President (January – June only)
David A. Clark, Former Chief Operating Officer
Dominic J. Andreano, Executive Vice President, General Counsel and Secretary
John C. Pepia, Senior Vice President, Chief Accounting Officer
In fulfilling our role, we met and held discussions with the Company’s management and reviewed and discussed this CD&A. Based on our review and such discussions, we recommended to the Board of Directors that the CD&A be included in this Form
10-K/
A.Submitted by the Compensation Committee of the Board of Directors:
Enrique J. Sosa, Ph.D.
Carlos A. Migoya
Michael B. Fernandez
This Compensation Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of MEDNAX’s filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate such report by reference.
11
SECTION II: EXECUTIVE SUMMARY
2019 Business Highlights
Stability and building long-term value are at the core of everything we do. We are a leading provider of physician services with a wide national network of affiliated physicians who specialize in fields such as newborn and maternal care, anesthesia, radiology and pediatric specialty care, among others. Our unique healthcare model has been in place for more than 40 years, allowing us to focus on what is most important in our industry—taking great care of our patients and improving patient outcomes. In 2019, we continued to position ourselves for the future of healthcare by concentrating on our long-term growth strategy. We remained disciplined in our spending, highly-selective in our acquisitions and responsive to the changing healthcare landscape.
During 2019, we continued to face challenges across our organization, including reduced patient volumes, changing payor mix and continued cost pressures of clinical compensation and medical malpractice expense. In response to these challenges, we developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. We broadly classified these workstreams in four broad categories including practice operations, revenue cycle management, information technology and human resources and expected these activities to continue through at least 2020. In addition, in October 2019, we completed the divestiture of our management services organization, which operated as MedData, to allow us to focus on our core physician services business.
As part of the operational infrastructure changes, in June 2019, the Company eliminated Mr. Calabro’s position as President. At the end of 2019, the Company also eliminated Mr. Clark’s position as Chief Operating Officer. Both executives’ terminations were by the Company without Cause, as that term was defined in each of Messrs. Calabro’s and Clark’s employment agreements. More information regarding the terms of Messrs. Calabro’s and Clark’s separation and the termination benefits paid to each executive can be found in Item 11: Section IV in the Section entitled “Potential Payments Upon Termination or Change in Control”.
As a result of the coronavirus
(COVID-19)
pandemic, beginning in March 2020, we implemented a number of actions to preserve our financial flexibility and partially mitigate the significant anticipated impact ofCOVID-19
on our company. These steps included a suspension of most activities related to our transformational and restructuring programs, limiting these expenditures to those that provide essential support for our response to theCOVID-19
pandemic. In addition, (i) we temporarily reduced executive and key management base salaries, including 50% reductions in salaries for our named executive officers; (ii) our Board of Directors agreed to forego their annual cash retainer and cash meeting payments, until further notice; (iii) we enacted a combination of salary reductions and furloughs fornon-clinical
employees; and (iv) we enacted significant operational and practice-specific expense reduction plans across our clinical operations.We have implemented a variety of solutions across specialties to support clinicians and patients during this pandemic, including
Clinician Shortage Support
Anesthesiologists and anesthesia clinicians are assisting with critical care needs while
non-emergent
and elective surgical procedures are on hold, and pediatric clinicians are lending their expertise to help fulfill the need for added adult care.Strengthening of Supply Chain
MEDNAX is helping to address the shortage of personal protective equipment (PPE) by partnering with vendors across industries to source high filtration respirators, surgical masks and other forms of PPE for protective use.
Expanded Virtual Care Offerings
Utilizing VSee, an internationally-recognized telehealth platform, MEDNAX has deployed a national multi-specialty virtual clinic to expand its telehealth offerings and make virtual care available to its clinical workforce, enabling continued patient consults and clinician collaboration while minimizing
COVID-19
exposure.Early Virus Detection Using Cutting-Edge Imaging Diagnostic Tools
12
MEDNAX Radiology Solutions is leading early detection efforts through chest imaging. vRad, a MEDNAX company, diagnosed one of the first
COVID-19
patients in the United States via chest computed tomography (CT), which showed findings consistent with a severe acute respiratory viral infection. In the absence of laboratory testing kits, chest CT can serve as a diagnostic tool. In addition, MEDNAX Radiology Solutions is refining natural language processing (NLP) to identify the incidence of viral pneumonia and typical findings of theCOVID-19
virus in the lungs via chest CT across the proprietary MEDNAX Imaging Platform and inference engine, which is connected to more than 2,000 partner facilities across the country. The NLP is run retrospectively to monitor the amount and rate of increase of suspected chest CT findings forCOVID-19
and viral pneumonia, supporting faster treatment. If successful, this cutting-edge diagnostic tool could serve as an effective tracker of the disease’s progression throughout the country and provide new insights for imaging findings forCOVID-19
patients.Virtual Forum to Provide Clinician Support
To support frontline clinicians while abiding by social distancing recommendations, MEDNAX has created a virtual doctors’ lounge for clinicians across specialties to connect and socialize in the absence of typical
in-person
lounges, helping to boost morale and preserve a sense of normalcy.At this time, we cannot anticipate what the ultimate effect oforcash flows and the trading price of our securities.
COVID-19
will be on our business, financial condition, results of operations, 2019 Financial Information
Key financial results for the Company's shares.
In April 2002,last three fiscal years, including the Company entered into a settlement agreement with the
Colorado Department of Health Care Policy and Financing resolving the
State of Colorado's Medicaid investigationimpact of the Company. The Company
had received requestschallenges we faced in April 1999, and in one case a subpoena, from
state and federal investigators in Arizona, Florida and Colorado for
information related to its billing practices for services reimbursed by
the Medicaid programs in those states and by the TRICARE program for
military dependents. The Arizona and Florida Medicaid investigations
were closed in 2000 after the Company entered into settlement
agreements with those states. The TRICARE investigation is active and
ongoing, and this matter, along with the Florida, Arizona and Colorado
matters, has prompted inquiries by Medicaid officials in other states.
The Company believes that additional audits, inquiries and
investigations from government agencies will continue to occur2019, are highlighted in the ordinary course of its business.tables below. Results presented below are on a continuing operations basis. The Company cannot predict whether any
such audits, inquiries or investigations will have a material adverse
effect on the
53
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Company's business, financial condition,operating results of MedData were reported as discontinued operations orin our consolidated statements of income for the trading priceyear ended December 31, 2019.
Adjusted earnings before interest, taxes and depreciation and amortization (“Adjusted EBITDA”) is aCompany's shares.
On May 3, 2002,rationale for our presentation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the United States District Court for the Southern
District of Florida entered an Order and Final Judgment approving the
settlement of the class action litigation filed against the Company and
certain of its officers in February 1999 relating to alleged violations
of securities laws. Under the terms of the settlement, the plaintiffs'
claim was dismissed with prejudice in exchange for a cash payment of
$12.0 million, which was covered by insurance policies.
During the ordinary course of its business, the Company has become a
party to pending and threatened legal actions and proceedings, most of
which involve claims of medical malpractice. Although these actions and
proceedings are generally expected to be covered by insurance, there
can be no assurance that the Company's medical malpractice insurance
coverage will be adequate to cover liabilities arising out of medical
malpractice claims where the outcomes of such claims are unfavorable to
the Company. The Company believes, based upon its review of these
pending matters, that the outcome of such legal actions and proceedings
will not have a material adverse effect on its business, financial
condition, results of operations or the trading price of the Company's
shares.
The Company maintains a lease agreement for its corporate office in
Sunrise, Florida. The Company is required to maintain certain financial
covenants pursuant to the corporate office lease agreement, including a
requirement that the Company maintain a minimum level of net worth. At
December 31, 2002, the Company was in compliance with such financial
covenants. In addition, the Company leases space for its regional
offices and medical offices, storage space, temporary housing of
medical staff, and an aircraft. The corporate office lease and the
aircraft lease both bear interest at LIBOR-based variable rates. Rent
expensedirectly comparable GAAP measure, for the years ended December 31, 2000, 20012019, 2018 and 20022017, please see the disclosure under the caption
non-GAAP
financial measure. For a description of the “Non-GAAP
Measures” beginning on page 64 of the Original Form10-K
.Response to
Say-on-Pay
Vote and Shareholder OutreachEach year, we provide our shareholders with the opportunity to approve, or vote against, the compensation of our NEOs
(“say-on-pay”).
We are committed to ensuring that our investors fully understand our executive compensation program, including how it aligns the interests of our executives with our shareholders and how it rewards the achievement of our strategic objectives. We believe that the continued delivery of sustainable long-term value to our shareholders requires regular dialogue. To this end, we regularly make efforts to engage in discussions with our shareholders in order to obtain a deeper understanding of our13
investors’ views regarding our compensation program and other important topics, including company performance and operations, strategic direction, risk and operational oversight and leadership, among other matters. Following our 2019 Annual Meeting of Shareholders in May, we refreshed our Compensation Committee membership, appointing Mr. Migoya, a newly elected Director, to the Compensation Committee and Dr. Sosa as the new Chair. With Dr. Sosa’s upcoming retirement from the Board, the Company plans to make additional changes to the Committee Composition in 2020. At our 2019 Annual Meeting of Shareholders, the compensation of our NEOs was not approved by our shareholders. During 2019, we met regularly with active shareholders throughout the year during industry conferences, in meetings at our offices or at the offices of our shareholders and through conference telephone calls. The Company’s shareholder base experienced significant turnover during 2019. Of the Company’s top 25 shareholders at December 31, 2019, only thirteen were top 25 shareholders at December 31, 2018, and, by ownership, more than half of the shares owned by the Company’s top 25 shareholders changed hands from December 31, 2018 to December 31, 2019. The Company has engaged in dialogue with shareholders representing 63% of its top 25 share holdings as of December 31, 2019. Outside of formal engagement efforts, we interact throughout the year with our shareholders and make ourselves available to them at their request. The Company plans to further engage with its shareholders in connection with its 2020 Annual Meeting of Shareholders in August 2020. CEO Pay At-A-Glance Our CEO’s target direct compensation (sum of base salary, target bonus and grant value of stock awards, including performance shares at target) is almost entirely variable (approximately 94%) and linked to financial performance results. In light of the results of the 2019 shareholders’ vote on the compensation of our named executive officers, in July 2019, Dr. Medel, our CEO, elected to reduce his salary to $1.00 on a net basis, after applicable withholding and employment taxes with respect to taxable perquisites or employer-provided group health and welfare benefit contributions, for the remainder of his employment period, as defined in his employment agreement. Prior thereto, in February 2019, the Compensation Committee decreased the grant value of Dr. Medel’s 2019 equity award to $6,150,000, an amount consistent with his awards prior to 2018. The charts below reflect the elements of target and actual CEO total direct compensation awarded to Dr. Medel for 2017, 2018 and 2019 performance, including the decrease in base salary for the latter half of 2019. The charts demonstrate the alignment of CEO pay to the Company’s performance and shareholder value, as Dr. Medel has not realized target levels of compensation for the past three years and has not received a target bonus payment in the past four years. For more information on Dr. Medel’s performance share awards and restricted stock awards for 2019, please see the section below entitled 2019 Equity-Based Awards. | Measuring Pay-for-Performance at MEDNAXIn the healthcare services industry, company stock prices at any point in time can be significantly affected by changes (actual or anticipated) in the regulatory or payor environment. Additionally, regulatory changes affect different healthcare companies in varying ways. For MEDNAX specifically, factors such as timing, size and type of acquisitions, effects of the diversification of our services, effects of same-unit volume and reimbursement-related factors, including payor mix shifts, are often unpredictable. For these reasons, we do not use relative total shareholder return as a key performance metric in our program. Instead, our performance goals are focused on internal key financial metrics that drive For many of these same reasons, we do not incorporate financial goals over a multi-year period (such as cumulative earnings over three years) into our officer compensation program. Our long-term strategy emphasizes continued growth through a disciplined approach in acquiring established physician practices in our specialties, and any multi-year goals would necessarily need to reflect assumptions and projections about both the level and type of acquisitions made during the measurement period. We believe, however, that the multi-year vesting of our equity awards effectively encourages long-term growth and performance. The Compensation Committee believes that this approach is in the best interests of all of MEDNAX’s constituents. Of course, we will continue to refine our approach as the healthcare landscape continues to evolve. |
14
The CEO Realized Pay at a Glance chart above reflects the value of restricted stock awards and performance share awards previously awarded that vested during the year, calculated based on the number of shares acquired at vesting multiplied by the closing price of a share of our common stock on the New York Stock Exchange on the vesting dates.
Despite the Company’s continued growth, from 2011 until$4,386,000, $6,149,000117% of base salary (assuming his salary had remained at $1 million for all of 2019) or 78% of his target bonus. Dr. Medel’s bonus exceeded 170% of his base salary in only one out of those 10 years, and $6,898,000,his bonus has been below target in each of the last four years. An updated peer analysis found that the median peer target bonus for chief executive officers was 127% of base salary, and that the actual peer CEO bonus over the 2011-2018 period was 128% of base salary at the median and 171% of base salary at the 75th percentile.
mid-2019,
Dr. Medel’s base salary has been $1,000,000 and his target bonus opportunity has remained 150% of his base salary. His base salary was reduced to net $1.00 in July 2019. His average bonus paid over the last ten years has been approximately 15
SECTION III: OVERViEW OF THE EXECUTIVE COMPENSATION PROGRAM
The Guiding Principles of Our Pay Philosophy
The Compensation Committee has designed our executive compensation program with the following guiding principles in mind:
Quality of Personnel and Competitiveness.
Alignment of Interests.
(at-risk)
pay to support these objectives, by giving our executives a substantial equity stake in the business and rewarding them for performance that drives shareholder value over the long term.Compliance with Regulatory Guidelines and Sensible Standards of Corporate Governance.
Elements of Pay
Our pay philosophy is supported by the following pay elements in our executive compensation program for 2019:
Element | Form | Description | ||
Base Salary | Cash (Fixed) | Provides a competitive level of pay that reflects the executive’s experience, role and responsibilities and performance. | ||
Annual Bonus | Cash (Variable) | Based 100% on annual income from operations performance. | ||
Long-Term Incentives | Equity (Variable) | Comprised of 50% restricted stock that vests over three years and 50% performance shares tied to the achievement of net revenue and Adjusted EBITDA targets, which vest over three years if the performance goals are achieved. |
Pay Mix
The charts below show that most of our NEOs’ total direct compensation is variable (94% for the CEO and an average of 81% for our other NEOs) based upon actual 2019 compensation:
(1) | Other NEOs includes those NEOs employed as of the date of this Form 10-K/A (Messrs. Farber, Andreano and Pepia) and represents actual paid base salary, annual bonus and stock awards per the summary compensation table. |
How Pay Decisions Are Made
The Compensation Committee, composed solely of independent Directors, is responsible for making pay decisions for the NEOs. The Compensation Committee works very closely with its independent consultant, which for 2019 was Willis Towers Watson & Co. (“Willis Towers Watson”), and management to examine pay and performance matters throughout the year. The Compensation Committee held five meetings over the course of 2019, and took various other actions via unanimous written consent. The Compensation Committee’s written charter can be accessed on the MEDNAX website at.
www.mednax.com
16
The Role of the Compensation Committee and Management
The primary role of the Compensation Committee is to assist MEDNAX’s Board of Directors in the discharge of the Board’s responsibilities related to executive compensation matters. The Compensation Committee’s responsibilities include:
Evaluating the performance of and setting pay for the CEO and other NEOs;
Supervising and making recommendations to the Board of Directors about changes to the executive compensation program;
Overseeing the annual review of the Company’s incentive compensation elements to determine whether they encourage excessive risk taking, including discussing the relationship between risk management policies and practices and pay;
Evaluating whether or not to engage, retain, or terminate an outside consulting firm for the review and evaluation of MEDNAX’s executive compensation program and approving such outside consulting firm’s fees and other retention terms; and
Conducting an annual self-assessment of the Compensation Committee’s performance.
The CEO does not play any role in the Compensation Committee’s determination of his own pay; however, the Compensation Committee solicits input from the CEO concerning the performance and compensation of the other NEOs. The CEO bases his recommendations on his assessment of each individual’s performance, tenure and experience in the role, external market pay practices, retention risk and MEDNAX’s overall pay philosophy.
The Role of Independent Consultants
The Compensation Committee continually reviews executive compensation to ensure that it reflects our pay philosophy and, as necessary, retains the services of an independent consultant to assist in such review. During 2019, the Compensation Committee retained Willis Towers Watson to provide data and analysis with respect to the compensation paid to our NEOs. The Compensation Committee has assessed the independence of Willis Towers Watson pursuant to applicable SEC rules, New York Stock Exchange listing standards and its own committee charter and concluded that no conflict of interest exists that would prevent Willis Towers Watson from independently advising the Compensation Committee.
Assessing External Market Practice
As part of our pay philosophy, our executive compensation program is designed to attract, motivate and retain our executives in an increasingly competitive and complex talent market. To this end, we regularly evaluate industry-specific and general market compensation practices and trends to ensure that our program features and NEO pay opportunities remain appropriately competitive. The Compensation Committee considers publicly available data, provided by its independent compensation consultant, for informational purposes when making its pay decisions. However, market data are not the sole determinants of the Company’s practices or executive pay levels. When determining salaries, target bonus opportunities and annual equity grants for NEOs, the Compensation Committee also considers the performance of the Company and the individual, the nature of an individual’s role within the Company, internal comparisons to the compensation of other Company officers, tenure with the Company and experience in the officer’s current role.
During 2017, the Compensation Committee reviewed CEO compensation information from a group of publicly traded healthcare services companies. The companies included in the analysis were recommended by the Compensation Committee’s consultant and approved by the Compensation Committee. During the fall of 2018, the consultant updated the peer analysis for the CEO position as well as for the Company’s other NEOs. The companies currently included in our peer group were as follows:
• Acadia Healthcare Company, Inc. | • Encompass Health(f/k/a HealthSouth) | • Magellan Health Services, Inc. | |||
• Amedisys, Inc. | • Envision Healthcare Corporation* | • Premier, Inc.** | |||
• Brookdale Senior Living Inc. | • Kindred Healthcare, Inc.* | • Quest Diagnostics** | |||
• Chemed Corporation | • Laboratory Corporation of America Holdings | • Select Medical Corporation | |||
• DaVita Inc. | • LifePoint Hospitals, Inc.* | • Tenet Healthcare Corporation | |||
• Universal Health Services, Inc. | |||||
| * | Envision, Kindred Healthcare and LifePoint Hospitals were taken private in 2018. |
| ** | Premier, Inc. and Quest Diagnostics were included in the 2018 study, but not in the 2017 study. |
In determining the peer group for the studies, the Compensation Committee considered a variety of factors including revenue, income from operations, net income, market capitalization and enterprise value. Based on the advice of its consultant, the Compensation Committee established that top executive pay levels at publicly-traded companies in the healthcare services industry were more closely correlated to factors other than revenue. As such, the peer group was determined with an objective of placing MEDNAX near the median for both income from operations and enterprise value. Given MEDNAX’s profitability, this meant that MEDNAX would rank in the lower quartile of its peers in terms of revenue and in the upper quartile of its peers in terms of net income and market capitalization.
17
An updated analysis of the remaining peer companies showed that as ofFuture minimum lease paymentsData from the updated peer analysis are summarized in the tables below:
year-end
2018, MEDNAX ranked at the peer 38th
percentile in terms of revenue, at the peer 54th
percentile in terms of operating income, at the peer 69th
percentile in terms of net income, at the peer 46th
percentile in terms of market capitalization and at the peer 23rd
percentile in terms of enterprise value. MEDNAX also ranked at the peer 46th
percentile, 8th
percentile and 25th
percentile for three-year growth rates in revenues, income from operations and net income, respectively, and at the 15th
percentile and 23rd
percentile for annualized total shareholder return over the past three and five year periods, respectively. Revenue | Income From Operations | Net Income | Market Capitalization(1) | Enterprise Value(2) | ||||||||||||||||
75th Percentile | $ | 9,962.0 | $ | 1,225.2 | $ | 286.4 | $ | 8,823.9 | $ | 16,154.7 | ||||||||||
Median | $ | 4,679.3 | $ | 433.0 | $ | 175.2 | $ | 3,655.7 | $ | 5,856.1 | ||||||||||
25th Percentile | $ | 3,139.6 | $ | 276.4 | $ | 113.1 | $ | 2,177.6 | $ | 5,013.3 | ||||||||||
MEDNAX, Inc. | $ | 3,647.1 | $ | 445.8 | $ | 268.6 | $ | 3,086.7 | $ | 5,002.5 | ||||||||||
MEDNAX, Inc. Percentile Rank | 38 | % | 54 | % | 69 | % | 46 | % | 23 | % | ||||||||||
| (1) | Market capitalization calculated as of February 2019. |
| (2) | Enterprise value is equal to market capitalization value plus net debt as reported for year-end 2018. |
3-Year Compound Annual Growth Rates | Annualized Total Shareholder Return | |||||||||||||||||||
Revenue | Income From Operations | NetIncome(1) | 3-year | 5-year | ||||||||||||||||
75th Percentile | 11.3 | % | 10.1 | % | 16.9 | % | 8.5 | % | 10.6 | % | ||||||||||
Median | 9.5 | % | 6.0 | % | 1.8 | % | 0.1 | % | 3.4 | % | ||||||||||
25th Percentile | 1.4 | % | -0.5 | % | -7.2 | % | -15.4 | % | -7.9 | % | ||||||||||
MEDNAX, Inc. | 9.5 | % | -7.2 | % | -7.2 | % | -22.8 | % | -9.2 | % | ||||||||||
MEDNAX, Inc. Percentile Rank | 46 | % | 8 | % | 25 | % | 15 | % | 23 | % | ||||||||||
| (1) | Peer companies with an operating loss or net loss in either the base year or the most current year were assumed to rank at the bottom. |
The Compensation Committee reviews a variety of other areas including key incentive design features, equity grant programs, historical CEO bonus payout levels, stock ownership policies, Board of Directors compensation and other policies relating to officer and Board member compensation from time to time relative to MEDNAX’s peers. In addition, the Compensation Committee periodically reviews information relating to NEO compensation practices as developed from companies considered to be MEDNAX peers by proxy advisory firms. However, since some of these advisory firms determine peers based primarily on comparable revenue, the Compensation Committee has not used information from these companies in evaluating NEO salaries, bonus opportunities and annual equity-based award values. The Compensation Committee believes that information from the peer group it has selected is more relevant.
18
SECTION IV: THE EXECUTIVE COMPENSATION PROGRAM IN DETAIL
Base Salary
The Compensation Committee reviews and approves base salary levels at the beginning of each year. Base salary decisions generally reflect the Compensation Committee’s consideration of the external market practices of our peer group for comparable positions, published survey data and subjective factors including the individual’s experience, role, responsibilities and performance. Dr. Medel elected to reduce his salary to a net amount of $1.00 effective July 2019.
2019 Base Salary Decisions
The 2019 base salaries for the NEOs were as follows:
NEO | 2019 Base Salary | |||
Roger J. Medel, M.D. | $1,000,000 (January – June) $1 (July – December) | |||
Stephen D. Farber | $550,000 | |||
Joseph M. Calabro | $600,000 (January – June only) | |||
David A. Clark | $525,000 | |||
Dominic J. Andreano | $475,000 | |||
John C. Pepia | $375,000 (January – May) $425,000 (June – December) | |||
In April 2020, our then-current NEOs, including Messrs. Farber, Andreano and Pepia, agreed to temporary reduce their base salaries by 50% for the period April 1, 2020 through June 30, 2020.
Annual Bonuses
The Company’s NEOs participate in an annual bonus program, which is administered under noncancelable operating leasesthe shareholder-approved MEDNAX, Inc. Amended and Restated 2008 Incentive Compensation Plan. The annual bonus is designed to recognize performance achievements primarily focused on our Company’s results of operations during its fiscal year.
The Compensation Committee uses guidelines and may apply either positive or negative discretion to adjust the bonuses based on the actual level of income from operations achieved, as well as other performance goals established for individual NEOs. In addition, the Compensation Committee uses a performance range at the target bonus level to minimize the variability of potential payouts. The bonus adjustment guidelines established for 2019 were as follows:
Adjusted Income From Operations: Performance Goals* | % of Target Bonus Payout | |||
Less than $376,946,000 | 0 | % | ||
$376,946,000 | 25 | % | ||
$383,729,000 | 50 | % | ||
$390,429,000 | 75 | % | ||
$397,129,000 | 90 | % | ||
$403,829,000 - $433,829,000 | 100 | % | ||
$440,336,000 | 125 | % | ||
$446,941,000 | 150 | % | ||
$453,646,000 | 175 | % | ||
$460,712,000 | 200 | % | ||
Adjusted Income From Operations was $408,495,000. | ||||
Why We Use Adjusted Income From Operations
The Compensation Committee uses income from operations as its primary performance measure for annual bonuses and has for several years. This measure is used to encourage our NEOs to focus on efficiently managing our business and to execute on our acquisition growth strategy. We strive to set financial targets that are both challenging and realistic. This approach was first implemented over 15 years ago, and actual bonus payouts for NEOs reflected our IFO performance results. For the period 2004-2015, our average annual IFO growth of 12% exceeded our industry peers and our NEO bonus payouts averaged 107% of target. Over the last four years, our average annual IFO growth rate has been negative and our NEO bonus payouts have averaged 32% of target.
The Adjusted Income From Operations goal and maximum bonus award opportunities are also designed to satisfy the requirements of §162(m) of the Internal Revenue Code (the “Code”) for grandfathered agreements.
Actual target bonus payout percentages increase proportionately between each percentage amount based on the actual Income From Operations achieved by the Company.
| * | Adjusted Income From Operations is defined as Income From Operations as determined in accordance with GAAP, adjusted to exclude MedData results, transformational and restructuring related expenses and for the closure or sale of other assets, businesses or other such activities, including any costs and noncash charges associated with the divestiture of MedData and any other such closures, sales or other such activities. Actual Adjusted Income From Operations represents Income From Operations from continuing operations, adjusted for transformational and restructuring related expenses and goodwill impairment. |
19
2019 Annual Bonus Decisions
The Compensation Committee establishes each NEO’s maximum annual bonus opportunity as a percentage of base salary in effect at the end of the year. The target bonus opportunity for each NEO is equal to 50% of the NEO’s maximum bonus opportunity. In March 2019, the Compensation Committee established the adjusted income from operations performance goals set forth in the table above. The Company’s 2019 adjusted income from operations corresponded to a payment of 100% of the target bonus opportunity under the guidelines. However, in light of the Company’s shareholder return during 2019, the Company’s stock price and overall performance, the Compensation Committee exercised its negative discretion and determined that Dr. Medel and each of Messrs. Calabro, Farber, Clark and Andreano would receive a payment of 75% of his target bonus opportunity. The Compensation Committee delegated to Dr. Medel the authority to exercise the Compensation Committee’s negative discretion in determining the actual bonus payment to Mr. Pepia, and Dr. Medel concluded that Mr. Pepia would also receive a payment of 75% of his target bonus opportunity.
Name | Maximum Annual Bonus as a % of Base Salary | Target Annual Bonus as a % of Base Salary | Actual Annual Bonus as a % of Target | Actual Bonus ($) | ||||||||||||
Dr. Medel | 300 | % | 150 | % | 75.0 | % | $ | 1,125,000 | * | |||||||
Mr. Farber | 200 | % | 100 | % | 75.0 | % | $ | 412,500 | ||||||||
Mr. Calabro | 200 | % | 100 | % | 75.0 | % | $ | 223,151 | ** | |||||||
Mr. Clark | 200 | % | 100 | % | 75.0 | % | $ | 393,750 | ||||||||
Mr. Andreano | 200 | % | 100 | % | 75.0 | % | $ | 356,250 | ||||||||
Mr. Pepia | 100 | % | 50 | % | 75.0 | % | $ | 159,375 | ||||||||
| * | Pursuant to the amendment to Dr. Medel’s employment agreement entered into on July 1, 2019, Dr. Medel’s performance bonus is based on his $1,000,000 base salary in place prior to entering into such amendment. |
| ** | Mr. Calabro was entitled to a prorated bonus for the period January 1, 2019 through June 30, 2019, his last date of employment. |
Equity-Based Awards
2019 Equity-Based Awards
The Compensation Committee approved the annual equity-based awards outlined below in February 2019. These equity-based awards were divided equally into performance share awards and time-based restricted stock awards for each of Dr. Medel and Messrs. Farber, Calabro, Clark and Andreano. Mr. Pepia’s award was a time-based restricted stock award.
For 2019, the Compensation Committee decreased the equity grant values for Dr. Medel and Mr. Calabro back to the historical levels of $6,150,000, and $3,750,000, respectively, in light of the decline of the Company’s stock price in the latter part of 2018 and early 2019.
50% of the equity-based awards for Dr. Medel and Messrs. Farber, Calabro, Clark and Andreano were granted in performance shares that:
Use two metrics | Have rigorous performance goals | |
Shares are earned based on the achievement of net revenue and | A target award for each metric will be earned if net revenue or Adjusted EBITDA equals or exceeds $3.1 billion and $475 million, respectively. NEOs may receive an above-target award for each metric only if net revenue or Adjusted EBITDA exceeds $3.9 billion and $600 million, respectively. These goals vary year-to-year, based on various factors that may have a direct impact on the results for the performance period, including the effects of volume and reimbursement-related factors and acquisition-related activities. |
20
The approach described in the table above reflects the Compensation Committee’s desire to set rigorous performance goals in a highly volatile and uncertain environment, while also rewarding NEOs when the Company achieves these goals and delivers sustained results for our shareholders. In setting financial performance goals for these performance share awards, the Compensation Committee received recommendations from management based on the Company’s strategic plan for the performance measurement period. The Compensation Committee, working with its independent compensation consultant and Company management, evaluated the impact of various drivers on revenue and Adjusted EBITDA in determining the 2019 grants. The 2019 performance goals incorporate specific factors that were expected to have a direct impact on the results for this performance period, while remaining challenging to achieve. The targets for the 2019 performance period differ from the Company’s historical five-year averages because of volatility in the various drivers that impact results from year to year. Other drivers considered in setting the performance goals included, but were not necessarily limited to: acquisition-related activities, including size, type, timing and volume of acquisitions, same-unit volume growth, increases in clinical compensation and malpractice expense, various expense-related initiatives and reimbursement-related factors, including payor mix. The Compensation Committee established net revenue and Adjusted EBITDA goals that reflected the financial challenges and uncertain operating environment, particularly with regard to year-over-year changes in Adjusted EBITDA, that the Compensation Committee felt were still rigorous yet achievable. At the time the goals were approved, the Company’s internal forecast for the Performance Share measurement period projected a modest decline in EBITDA and modest growth in net | Why We Use Adjusted EBITDA The Compensation Committee introduced the use of Adjusted EBITDA, a non-GAAP measure, as a performance measure for its equity-based awards beginning in 2019. In connection with its transformation and restructuring initiatives previously discussed, beginning with the first quarter of 2019, we began to incur and anticipate we will continue to incur certain expenses that are expected to be project-based and periodic in nature. Accordingly, we began reporting Adjusted EBITDA from continuing operations, defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. The Adjusted EBITDA measure is also intended to be further adjusted as necessary to exclude variousnon-ordinary course activities, such as costs and noncash charges, from the closure or sale of other assets, businesses, and other such activities. The Compensation Committee strives to set financial targets that are both challenging and realistic and believes this Adjusted EBITDA measure provides our shareholders with useful financial information to understand our underlying business trends and performance. | |||
revenue, due to changes in payor mix, reduced patient volumes and increased pressures on clinical compensation. The Compensation Committee developed performance goals in light of these forecasts, noting that it would be extremely unlikely that an above-target award would be earned based on the financial forecasts at the time of the goal. The Compensation Committee believes the performance targets used for both net revenue and Adjusted EBITDA were challenging to achieve in the current market with adequate rigor. Consideration was also given to those factors that impacted previous year results (positively or negatively) but were not anticipated to impact 2019 results. In 2017, the Compensation Committee elected to eliminate a retesting feature of the equity program that allowed an additional opportunity to earn performance shares if the performance criteria were not met during the initial performance period, and consistent with equity awards granted in 2018, the 2019 equity awards did not include any retesting feature. | ||||
At the time the Compensation Committee set the performance goals for both the 2019 equity-based awards and the 2019 annual bonuses during February 2019 and March 2019, respectively, the 2019 budgeted results for the Company’s MedData business was included in such performance goals. Beginning with the first quarter of 2019, the Company reported the results from MedData as discontinued operations as the business unit was considered an asset held for sale. The MedData organization was sold in October 2019. When the Company measured its 2019 performance against the preestablished goals, it was necessary to include a pro forma adjustment to increase the continuing operations results, which did not include the results of MedData, by the amount of net revenue and Adjusted EBITDA that was included in the preestablished performance goals. As a result of these pro forma adjustments, the achievement of actual net revenue and Adjusted EBITDA was measured on the same basis as the performance goals were set. These pro forma adjustments are described in more detail in the equity program table below.
The Compensation Committee believes the above approach used to establish financial performance goals for performance share awards results in goals that are challenging yet realistic and achievable, adequately rigorous and effective in continuing to motivate the executive team to drive the strong shareholder returns historically generated by the Company. Accordingly, the Committee believes the performance shares awarded appropriately align Company performance with executive compensation.
While this discussion of 2019 equity awards relates to performance targets for the 2019 performance period, we believe our approach to granting performance shares also creates long-term alignment, given that the value of the award realized by the NEOs will depend on the value of our stock when the shares vest over a multi-year period. As a result, we believe our NEOs are
21
incentivized not only to execute the Company’s strategy but also to maintain discipline in its acquisition-related activities and processes in order to generate sustainable longer-term growth and increased shareholder value. We believe our approach also addresses our critical need to retain the highest-caliber executives in our industry—especially as the challenges in the healthcare sector grow increasingly more complex and competition for executive talent in the healthcare sector increases.
The table below outlines the 2019 equity award program:
Equity Component | How It Works | ||||||
Performance Share Awards (50%) Purpose: pre-established goals | • 50% of the performance share award is tied to net revenue results and 50% is tied to Adjusted EBITDA results; results for each metric are considered separately.• Performance was measured over aone-year period from January 1, 2019 through December 31, 2019.• If shares are earned during this initial measurement period, they will vest over the first three anniversaries of the grant date (March 1, 2020, March 1, 2021 and March 1, 2022) subject to continued employment.• Shares earned may vary from 0% to 150% of target based on achievement of net revenue and Adjusted EBITDA results during the initial measurement period: | ||||||
Net Revenue Achieved* | Shares Earned | Adjusted EBITDA Achieved* | |||||
Below $3,100,000 | 0% | Below $475,000 | |||||
$3,100,000 | 25% | $475,000 | |||||
$3,100,001 to $3,299,999 | See Footnote (1) below | $475,001 to $499,000 | |||||
$3,300,000 to $3,700,000 | 100% | $500,000 to $565,000 | |||||
$3,700,001 to $3,900,000 | See Footnote (1) below | $565,001 to $600,000 | |||||
Over $3,900,001 | 150% | Over $600,000 | |||||
* To be adjusted on a pro forma basis as necessary to exclude the impacts, including costs and noncash charges, from the sale of MedData, the closure or sale of other assets, businesses, and other such activities. Net revenue achieved consisted of net revenue from continuing operations of $3.5 billion plus a pro forma adjustment of $183.5 million which represented thenon-intercompany related net revenue included in the 2019 budget for MedData. Adjusted EBITDA achieved consisted of Adjusted EBITDA from continuing operations of $500.8 million plus a pro forma adjustment of $42.7 million which represented thenon-intercompany related Adjusted EBITDA included in the 2019 budget for MedData.(1) Actual percentage of shares earned was determined by linear interpolation based on the actual growth rate achieved. For example, for each 1% of net revenue growth achieved between -1.99% and 1.99%, 18.75% of the performance shares would be earned for that metric, and for each 1% of net revenue growth achieved between 9.01% and 12.0%, 16.7% of the performance shares would be earned. In each case, any earned performance shares are subject to additional time-based vesting. • Any shares that were not earned by December 31, 2019 would have been forfeited. | |||||||
Restricted Stock Awards (50%) Purpose: | • Vesting was contingent upon the Company achieving a performance goal established at the time of the grant to preserve tax deductibility under §162(m) of the Code for applicable grants under grandfathered agreements consisting of Adjusted EBITDA for the 12 months ended December 31, 2019 of not less than $425 million*. Because the performance goal was satisfied, shares will vest at the rate ofone-third per year over the first three anniversaries of the grant date (March 1, 2020, March 1, 2021 and March 1, 2022) subject to continued employment.* To be adjusted on a pro forma basis as necessary to exclude the impacts, including costs and noncash charges, from the sale of MedData, the closure or sale of other assets, businesses, and other such activities. Adjusted EBITDA achieved consisted of Adjusted EBITDA from continuing operations of $500.8 million plus a pro forma adjustment of $42.7 million which represented thenon-intercompany related Adjusted EBITDA included in the 2019 budget for MedData.• If the performance goal had not been achieved by March 31, 2020, all shares would have been forfeited. | ||||||
22
Other Practices, Policies & Guidelines
Equity Grant Practices
The Compensation Committee determines the effective date of annual equity-based awards without regard to current or anticipated stock price levels. The Compensation Committee made the 2019 annual equity grant in February 2019 and may also make, and in the past has made, grants during the course of the year, primarily for new hires, promotions, to retain valued employees or to reward exceptional performance. These grants may be subject to performance conditions and/or time-based vesting, and are issued on the date of grant approval or upon a date certain following the grant approval date.
We follow equity grant procedures designed to promote the proper authorization, documentation and accounting for all equity grants. Pursuant to these procedures the Compensation Committee or the Board of Directors must formally approve all equity awards during an in person or telephonic meeting or by the unanimous written consent executed by all members of the Compensation Committee or the Board of Directors, as the case may be, it being understood that no equity award granted pursuant to any such written consent may have an effective date earlier than the date that all executed counterparts of such unanimous written consent are delivered to the General Counsel of the Company.
The grant-date fair value of our equity-based awards will be the closing sales price for a share of our common stock as reported on the New York Stock Exchange on the effective date of the grant as approved by the Compensation Committee or the Board of Directors, which date may not be prior to either the date such grant was approved or the commencement date of employment of the employee to whom the equity award is being made.
Our “insiders” can only buy or sell Company stock in accordance with our Insider Trading Policy, and our employees generally can only buy or sell Company stock in accordance with our Policy Statement on Inside Information and Insider Trading for All Employees.
NEOs are allowed to vote performance shares and restricted stock as a shareholder based on the number of shares held under restriction. Any dividends declared with respect to any performance share or restricted stock awards would be held until the awards vest, at which time the dividends would be paid to the NEOs. If performance shares or restricted stock are forfeited, the NEO’s rights to receive the dividends declared with respect to those shares would be forfeited as well. At present, the Company does not pay dividends and it has no current intention to do so in the future.
Clawback Policy
The Company has adopted a “clawback policy” that permits the Company to seek to recover certain amounts of incentive compensation, including both cash and equity, awarded to any executive officer (as defined in the Exchange Act ) on or after January 1, 2014 if payment of such compensation was based on the achievement of financial results that were subsequently the subject of a restatement of our financial statements due to misconduct, and if the executive officer engaged in improper conduct that materially contributed to the need for restatement, and a lower amount of incentive compensation would have been earned based on the restated financial results.
Stock Ownership and Retention Policy
The Compensation Committee believes that the Company’s Board of Directors and NEOs should maintain a material personal financial stake in the Company through the ownership of shares of the Company’s common stock to promote a long-term perspective in managing the enterprise and to align shareholder, director and executive interests.
Each of our NEOs are required to own shares of MEDNAX common stock with a value of not less than a specified multiple of his or her base salary. The policy also requires NEOs to retain 50% of net
after-tax
shares acquired during the year upon vesting (or exercise of stock options) unless his or her ownership level was satisfied as of the beginning of the year. These multiples were determined in accordance with current market practice.The chart below shows the multiple of base salary ownership requirements and actual ownership levels as of December 31, 20022019 for NEOs active as of December 31, 2019:
Name | Ownership Requirement | Ownership Level | ||||
Dr. Medel | 6x base salary | 72.6x base salary | ||||
Mr. Farber | 2x base salary | 3.9x base salary | ||||
Mr. Andreano | 2x base salary | 2.3x base salary | ||||
Mr. Pepia | 2x base salary | 5.5x base salary | ||||
23
As the table above reflects, our NEOs hold a significant investment in MEDNAX, which is a strong reflection of our culture and aligns with our compensation philosophy.
Shares that count toward the ownership requirement are as follows (in thousands):
2003 $ 14,099
2004 4,405
2005 3,341
2006 4,037
2007 819
Thereafter 557
---------
$ 27,258
=========
10. RETIREMENT PLAN:
During 2001,follows:
Owned outright by the Company maintained two qualified contributory savings
plans as allowedNEO or Director, or by spouse or dependent children;
Held in trust for economic benefit of the NEO or Director, or spouse or dependent children;
Held in the MEDNAX 401(k) plan or other Company-sponsored benefit plan; and
Restricted shares/units for which the underlying performance conditions have been met and only remain subject to time-based vesting requirements or any restricted shares/units only subject to time-based vesting requirements or the achievement of performance goals established at the time of the grant solely to preserve tax deductibility under Section 401(k)162(m) of the Internal Revenue Code. Code for grandfathered agreements.
The Company's primary plan (the "Plan") permits participant contributionsCompensation Committee will evaluate NEO ownership levels annually and allows elective Company contributions based on each participant's
contribution. Participants may defer upwill review this policy from time to 15% of their annual
compensation by contributing amounts totime and, following consultation with the Plan.
The Company maintained a second plan as a result of the Merger (the
"Magella Plan"). This second plan permitted participant contributions
and allowed discretionary Company contributions based on each
participant's contribution.
Effective January 1, 2002, the Magella Plan was merged into the Plan.
The Company recorded an expense of $1,807,000, $3,765,000 and
$5,728,000 for the years ended December 31, 2000, 2001, and 2002,
respectively, related to the savings plans.
54
PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
The calculation of basic and diluted net income per share for the years
ended December 31, 2000, 2001 and 2002 are as follows:
12. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS:
In 1993, the Company's Board of Directors, authorizedmake modifications as necessary or appropriate.
Anti-Hedging and Anti-Pledging Policy
All MEDNAX directors, management, financial and other insiders are prohibited from engaging in transactions in MEDNAX securities or derivatives of MEDNAX securities that might be considered hedging, such as selling short or buying or selling options. In addition, it is against the policy for such persons to hold securities in margin accounts or pledge MEDNAX securities as collateral for a loan, unless such person clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities.
Retirement and Deferred Compensation Plans
We maintain a Thrift and Profit Sharing Plan (the “401(k) Plan”), which is a 401(k) plan, to enable eligible employees to save for retirement through a
tax-advantaged
combination of elective employee contributions and our discretionary matching contributions, and provide employees the opportunity to directly manage their retirement plan assets through a variety of investment options. The 401(k) Plan allows eligible employees to elect to contribute from 1% to 60% of their eligible compensation to an investment trust on apre-tax
and/or Rothafter-tax
basis, up to the maximum dollar amounts permitted by law. The 401(k) Plan also offers employees the option to voluntarily contribute additional funds on anon-deductible
after-tax
basis subject to certain limits. In 2019, the maximum employeepre-tax
and/or Roth elective contribution to the 401(k) Plan was $19,000, plus an additional $6,000 for employees who were at least 50 years old in 2019. In 2020, the maximum employeepre-tax
and/or Roth elective contribution to the 401(k) Plan is $19,500. Eligible compensation generally means all wages, salaries and fees for services from the Company, up to a maximum specified amount permitted by law. Matching contributions under the 401(k) Plan are discretionary. For 2019, the Company matched 100% of the first 3% of eligible compensation that each eligible participant contributed to the 401(k) Plan on his or her behalf. The portion of an employee’s account under the 401(k) Plan that is attributable to matching contributions vests as follows: 30% after one year of service, 60% after two years of service, and 100% after three years of service. However, regardless of the number of years of service, an employee is fully vested in our matching contributions (and the earnings thereon) if the employee retires at age 65 or later, or terminates employment by reason of death or total and permanent disability. The 401(k) Plan provides for a variety of different investment options, in which the employee’s and the Company’s contributions are invested.Although the Company maintains a
non-qualified
deferred compensation plan, none of the NEOs participate in that Plan.The amounts of the Company’s matching contributions under the 401(k) Plan for 2019 for each of the NEOs are included in the “All Other Compensation” column of the Summary Compensation Table.
Benefits and Perquisites
We provide our NEOs with certain benefits designed to protect them and their immediate families in the event of illness, disability, or death. We believe it is necessary to provide these benefits in order for us to be successful in attracting and retaining executives in a competitive marketplace, and to provide financial security in these circumstances. NEOs are eligible for health and welfare benefits available to similarly situated eligible Company employees during active employment under the same terms and conditions. These benefits include medical, dental, vision, short-term and long-term disability and group-term life insurance coverage.
24
Pursuant to the terms of their Employment Agreements, Dr. Medel and Messrs. Farber and Andreano are entitled to 38 days paid time off each year and Mr. Pepia is entitled to 28 days paid time off each year for vacation, illness, injury, personal days and other similar purposes in accordance with our policies in effect from time to time. Any paid time off not used during a calendar year may be carried over to the next year to the extent permitted under those policies. Dr. Medel and Mr. Calabro each are entitled under their Employment Agreements to utilize, for personal travel, the aircraft that the Company leases. Dr. Medel’s personal use of the aircraft may not exceed 95 hours of flight in any calendar year, and Mr. Calabro’s personal use of the aircraft was limited to 50 hours of flight in any calendar year without the consent of the Compensation Committee. The incremental cost to the Company of these benefits for Dr. Medel and Mr. Calabro is included in the “All Other Compensation” column of the Summary Compensation Table.
The Compensation Committee has reviewed our perquisites expenditures, and believes they continue to be an important element of the overall compensation package to retain current officers, and in fact command a higher perceived value than the actual cost.
Termination of Employment and Change in Control Agreements
As described in greater detail below, the Employment Agreements between the Company and each of the NEOs provide for the payment of certain compensation and benefits in the event of the termination of an executive’s employment, the amount of which varies depending upon the reason for such termination. The Compensation Committee has reviewed the essential terms of these termination provisions, and believes they are reasonable, appropriate, and generally consistent with market practice. In the case of Dr. Medel, Mr. Farber and Mr. Andreano their current Employment Agreements provide that, if any amount payable to the executive in connection with a Change in Control would be subject to excise tax under Section 4999 of the Code, then the Company will reduce the payment to an amount equal to the largest portion of such payment that would result in no portion of such payment being subject to excise tax (unless such reduction would result in the executive receiving, on an after tax basis, an amount lower than the unreduced payment after taking into account all applicable federal, state and local employment taxes, income taxes and excise taxes, in which case the payment amount would not be reduced).
In certain situations pursuant to the terms of the award agreement or an executive’s Employment Agreement, the performance and service requirements may be waived and vesting accelerated.
Additionally, any unvested restricted stock option
plan (the "Option Plan"). Underis generally forfeited upon termination of the Option Plan, options to purchase
sharesemployment of commonthe NEOs. The Employment Agreements with our NEOs provide, however, that their restricted stock may be grantedvest or continue to vest after termination of employment in certain employees atcircumstances. For a price
not less than the fair market valuemore detailed explanation of the sharesemployment agreement terms governing vesting of equity in various termination events, please see the section below entitled “Potential Payments upon Termination or Change in Control”.
25
Summary Compensation Table
The following table sets forth the 2019, 2018 and 2017 compensation for our principal executive officer, principal financial officer, and our other NEOs for the time they were deemed to be NEOs.
Name and Principal Position | Year | Salary | Stock Awards(1) | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | ||||||||||||||||||
Roger J. Medel, M.D. | 2019 | $ | 500,001 | (2) | $ | 6,150,034 | $ | 1,125,000 | $ | 291,241 | (3) | $ | 8,066,276 | |||||||||||
Chief Executive Officer | 2018 | $ | 1,000,000 | $ | 8,000,040 | $ | 669,000 | $ | 268,977 | (3) | $ | 9,938,017 | ||||||||||||
2017 | $ | 1,000,000 | $ | 6,150,000 | $ | — | $ | 215,508 | (3) | $ | 7,365,508 | |||||||||||||
Stephen D. Farber | 2019 | $ | 550,000 | $ | 2,400,008 | $ | 412,500 | $ | 36,649 | (5) | $ | 3,399,157 | ||||||||||||
Executive Vice President and Chief Financial Officer | 2018 | $ | 192,882 | (4) | $ | 4,758,000 | $ | 191,370 | $ | 607,381 | (5) | $ | 5,749,633 | |||||||||||
Joseph M. Calabro | 2019 | $ | 300,000 | $ | 3,750,026 | $ | 223,151 | $ | 538,945 | (6) | $ | 4,812,122 | ||||||||||||
Former President | 2018 | $ | 600,000 | $ | 5,000,005 | $ | 267,600 | $ | 155,790 | (6) | $ | 6,023,395 | ||||||||||||
2017 | $ | 600,000 | $ | 3,750,025 | $ | — | $ | 90,766 | (6) | $ | 4,440,791 | |||||||||||||
David A. Clark | 2019 | $ | 525,000 | $ | 1,950,002 | $ | 393,750 | $ | 8,648 | (8) | $ | 2,877,400 | ||||||||||||
Former Chief Operating Officer | 2018 | $ | 483,333 | (7) | $ | 3,220,840 | $ | 234,150 | $ | 11,288 | (8) | $ | 3,949,611 | |||||||||||
2017 | $ | 450,000 | $ | 1,600,034 | $ | 337,500 | $ | 18,266 | (8) | $ | 2,405,800 | |||||||||||||
Dominic J. Andreano | 2019 | $ | 475,000 | $ | 1,050,025 | $ | 356,250 | $ | 8,648 | (10) | $ | 1,889,923 | ||||||||||||
Executive Vice President, General Counsel and Secretary | 2018 | $ | 433,333 | (9) | $ | 1,353,036 | $ | 211,850 | $ | 11,288 | (10) | $ | 2,009,507 | |||||||||||
2017 | $ | 350,000 | $ | 1,000,085 | $ | 196,875 | $ | 11,088 | (10) | $ | 1,558,048 | |||||||||||||
John C. Pepia | 2019 | $ | 406,183 | (11) | $ | 1,500,026 | $ | 159,375 | $ | 8,648 | (12) | $ | 2,074,232 | |||||||||||
Senior Vice President and Chief Accounting Officer | ||||||||||||||||||||||||
| (1) | Stock awards consist of performance-based restricted stock awards, time-based restricted stock awards and time-based restricted stock unit awards. The amounts in this column reflect the grant-date fair value of the awards, calculated in accordance with the accounting guidance for equity-based compensation, but excluding the impact of estimated forfeitures. The amounts included for any performance-based restricted stock awards are calculated based on the most probable outcome of the performance conditions for such awards on the grant date. See the Grants of Plan-Based Awards in 2019 table for information on restricted stock awards granted in 2019. For information regarding the assumptions made in calculating the amounts reflected in this column, see Note 15, “Stock Incentive Plans and Stock Purchase Plans,” to our Consolidated Financial Statements included in the Original Form 10-K. |
| (2) | The salary amount provided represents actual paid salary for 2019. Dr. Medel’s salary was reduced to a net amount of $1 effective July 1, 2019. |
| (3) | Reflects incremental costs in 2019, 2018 and 2017 of $282,774, $257,848 and $204,578, respectively, for Dr. Medel’s personal use of an aircraft which MEDNAX leases, in accordance with his Employment Agreement, additional compensation in 2019, 2018, and 2017 of $8,400, $11,000 and $10,800, respectively, for 401(k) thrift and profit sharing matching contributions, and costs incurred by MEDNAX of $66, $130 and $130, respectively, for term life insurance coverage. |
| (4) | The salary amount provided represents actual paid salary for 2018. Mr. Farber joined the Company effective August 22, 2018. |
| (5) | Reflects additional compensation of $8,400 for 401(k) thrift and profit sharing matching contribution in 2019, costs incurred by MEDNAX of $248 and $48 for term life insurance coverage in 2019 and 2018, respectively, incremental costs in 2019 of $28,001 for Mr. Farber’s share of personal travel on an aircraft which MEDNAX leases, and $300,000 for a sign-on bonus and $300,000 for a relocation expense allowance in 2018. |
| (6) | Reflects $300,000 for severance payments made pursuant to Mr. Calabro’s employment agreement and $150,000 for salary in lieu of 90 days’ notice of termination in 2019, incremental costs in 2019, 2018 and 2017 of $80,420, $144,502 and $79,678, respectively, for Mr. Calabro’s personal use of an aircraft which MEDNAX leases, in accordance with his Employment Agreement, additional compensation in 2019, 2018 and 2017 of $8,400, $11,000 and $10,800, respectively, for 401(k) thrift and profit sharing matching contributions, and costs incurred by MEDNAX in 2019, 2018 and 2017 of $124, $288 and $288, respectively, for term life insurance coverage. |
| (7) | The salary amount provided represents actual paid salary for 2018. Mr. Clark received increases in base salary effective January 2018 and November 2018. |
| (8) | Reflects additional compensation of $8,400, $11,000 and $10,800 for 401(k) thrift and profit sharing matching contributions in 2019, 2018 and 2017, respectively, costs incurred by MEDNAX of $248, $288 and $288 for term life insurance coverage in each of 2019, 2018 and 2017, respectively, and incremental costs of $7,178 in 2017 for Mr. Clark’s share of personal travel on an aircraft which MEDNAX leases, which use of such aircraft occurred during travel with either Dr. Medel or Mr. Calabro under the terms of each executive’s Employment Agreement. |
| (9) | The salary amount provided represents actual paid salary for 2018. Mr. Andreano received increases in base salary effective January 2018 and November 2018. |
| (10) | Reflects additional compensation of $8,400, $11,000 and $10,800 for 401(k) thrift and profit sharing matching contributions in 2019, 2018 and 2017, respectively, and costs incurred by MEDNAX of $248, $288 and $288, respectively, for term life insurance coverage in 2019, 2018 and 2017. |
| (11) | The salary amount provided represents actual paid salary for 2019. Mr. Pepia received an increase in base salary effective May 16, 2019. |
| (12) | Reflects additional compensation of $8,400 for 401(k) thrift and profit sharing matching contributions and costs incurred by MEDNAX of $248 for term life insurance coverage. |
26
Grants of Plan-Based Awards in 2019
Estimated Future Payouts Under Non-Equity Incentive PlanAwards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards (Shares) (2) | All Other Stock Awards (Shares) | Grant- Date Fair Value of Stock Awards (5) | |||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||
Roger J. Medel, M.D. | ||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 0 | $ | 1,500,000 | $ | 3,000,000 | ||||||||||||||||||||||||||||||
Performance share award | 2/12/19 | 0 | 89,208 | 133,812 | $ | 3,075,017 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/12/19 | 89,209 | (3) | $ | 3,075,017 | |||||||||||||||||||||||||||||||
Stephen D. Farber | ||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 0 | $ | 550,000 | $ | 1,100,000 | ||||||||||||||||||||||||||||||
Performance share award | 2/12/19 | 0 | 34,812 | 52,218 | $ | 1,200,004 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/12/19 | 34,814 | (3) | $ | 1,200,004 | |||||||||||||||||||||||||||||||
Joseph M. Calabro | ||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 0 | $ | 600,000 | $ | 1,200,000 | ||||||||||||||||||||||||||||||
Performance share award | 2/12/19 | 0 | 54,396 | 81,594 | $ | 1,875,013 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/12/19 | 54,395 | (3) | $ | 1,875,013 | |||||||||||||||||||||||||||||||
David A. Clark | ||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 0 | $ | 525,000 | $ | 1,050,000 | ||||||||||||||||||||||||||||||
Performance share award | 2/12/19 | 0 | 28,286 | 42,429 | $ | 975,001 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/12/19 | 28,285 | (3) | $ | 975,001 | |||||||||||||||||||||||||||||||
Dominic J. Andreano | ||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 0 | $ | 475,000 | $ | 950,000 | ||||||||||||||||||||||||||||||
Performance share award | 2/12/19 | 0 | 15,230 | 22,845 | $ | 525,012 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/12/19 | 15,232 | (3) | $ | 525,013 | |||||||||||||||||||||||||||||||
John C. Pepia | ||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 0 | $ | 212,500 | $ | 425,000 | ||||||||||||||||||||||||||||||
Restricted stock award | 2/12/19 | 7,253 | (3) | $ | 250,011 | |||||||||||||||||||||||||||||||
Restricted stock award | 6/01/19 | 50,690 | (4) | $ | 1,250,015 | |||||||||||||||||||||||||||||||
| (1) | These columns reflect the range of payouts for 2019 annual cash bonuses under the MEDNAX, Inc. Amended and Restated 2008 Incentive Compensation Plan (the “Plan”). Amounts actually earned in 2019 are reported as Non-Equity Incentive Plan Compensation in the Summary Compensation Table. For a more detailed description of the annual cash awards, see the section entitled “Annual Bonuses” in CD&A. |
| (2) | Represents performance share awards granted under the Plan, for which shares earned had the ability to vary from 0% to 150% of target based on growth rates of net revenue and Adjusted EBITDA during the initial measurement period. Award amounts were divided equally into performance share awards (50%) and time-based restricted stock (50%). 50% of the performance share award was tied to the Company’s net revenue results and 50% of the performance share award was tied to the Company’s Adjusted EBITDA results; results for each metric were considered separately. Performance was measured over a one-year period from January 1, 2019 through December 31, 2019, and it was determined that the target shares were earned. The shares earned vest in three equal increments on March 1, 2020, March 1, 2021 and March 1, 2022, subject to continued employment. Had there been a Change in Control (as defined in the Plan) during 2019, the performance metrics would have automatically been deemed to have been met at at least the 100% level. Any shares not earned by March 31, 2020 would have been forfeited. For a more detailed description of our performance share awards and equity-based award granting policies, see the section entitled “2019 Equity-Based Awards” in CD&A. |
| (3) | Represents restricted stock awards granted under the Plan, for which the vesting was contingent upon the Company achieving a performance goal established at the time of the grant to preserve tax deductibility under §162(m) of the Code for grandfathered agreements. The performance goal was established as Company Adjusted EBITDA for the twelve months ended December 31, 2019 and must have equaled or exceeded $425 million. Had there been a Change in Control (as defined in the Plan) during 2019, the Adjusted EBITDA performance measure for the Performance Based Restricted Shares would have automatically been deemed to have been met. The performance goal was achieved, and accordingly, the restricted stock awards will vest in three equal increments on March 1, 2020, March 1, 2021 and March 1, 2022, subject to continued employment. If, however, the Adjusted EBITDA goal had not been met, then the restricted stock would have terminated and become null and void. For a more detailed description of our restricted stock and equity-based award granting policies, see the section entitled “2019 Equity-Based Awards” in CD&A. |
| (4) | Represents restricted stock awards granted under the Plan. The restricted stock awards shall vest 50% on June 1, 2021 and 50% on June 1, 2022, subject to continued service on each such anniversary date. |
| (5) | The grant-date fair value of the performance share awards (based on the probable outcome of such conditions) and restricted stock awards is determined pursuant to the accounting guidance for equity-based compensation, and represents the total amount that will be expensed in our financial statements over the relevant vesting periods. For information regarding the assumptions made in calculating the amounts reflected in this column, see Note 15, “Stock Incentive Plans and Stock Purchase Plans,” to our Consolidated Financial Statements included in the Original Form 10-K. |
27
Outstanding Equity Awards at 2019 Fiscal
Year-End
Name | Stock Awards | |||||||
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Yet Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Yet Vested (1) | |||||||
Roger J. Medel, M.D. | 36,844 | (2) | $ | 1,023,895 | ||||
98,292 | (3) | $ | 2,731,535 | |||||
178,417 | (4) | $ | 4,958,208 | |||||
Stephen D. Farber | 50,000 | (5) | $ | 1,389,500 | ||||
69,626 | (4) | $ | 1,934,907 | |||||
Joseph M. Calabro | 22,466 | (2) | $ | 624,330 | ||||
61,432 | (3) | $ | 1,707,195 | |||||
108,791 | (4) | $ | 3,023,302 | |||||
David A. Clark | 14,741 | (6) | $ | 409,652 | ||||
Dominic J. Andreano | 2,996 | (2) | $ | 83,259 | ||||
9,828 | (8) | $ | 273,120 | |||||
9,215 | (3) | $ | 256,085 | |||||
7,500 | (7) | $ | 208,425 | |||||
30,462 | (4) | $ | 846,539 | |||||
John C. Pepia | 1,348 | (2) | $ | 37,461 | ||||
7,862 | (8) | $ | 218,485 | |||||
2,764 | (3) | $ | 76,812 | |||||
7,253 | (4) | $ | 201,561 | |||||
50,690 | (9) | $ | 1,408,675 | |||||
| (1) | Based on a stock price of $27.79, which was the closing price of a share of our common stock on the New York Stock Exchange on December 31, 2019. |
| (2) | These performance share awards and restricted stock awards vest on June 1, 2020. |
| (3) | These performance share awards and restricted stock awards vest in two equal increments on each of March 1, 2020 and March 1, 2021. |
| (4) | These performance share awards and restricted stock awards vest in three equal increments on each of March 1, 2020, March 1, 2021 and March 1, 2022. |
| (5) | These restricted stock awards vest 60% on September 1, 2020 and 40% on September 1, 2021. |
| (6) | These restricted stock unit awards vest on July 13, 2020. |
| (7) | These restricted stock awards vest 60% on December 1, 2020 and 40% on December 1, 2021. |
| (8) | These restricted stock unit awards vested on March 1, 2020. |
| (9) | These restricted stock awards vest 50% on June 1, 2021 and 50% on June 1, 2022. |
28
Stock Vested in Fiscal Year 2019
Stock Awards (1) | ||||||||
Name | Number of Shares Acquired on Vesting | Value Realized Upon Vesting (2) | ||||||
Roger J. Medel, M.D. | 110,529 | $ | 3,131,108 | |||||
Stephen D. Farber | 50,000 | $ | 1,054,000 | |||||
Joseph M. Calabro | 68,146 | $ | 1,933,896 | |||||
David A. Clark | 41,853 | $ | 1,124,744 | |||||
Dominic J. Andreano | 17,555 | $ | 481,872 | |||||
John C. Pepia | 3,834 | $ | 105,956 | |||||
Note: There were no exercises of option awards in 2019 and no options are outstanding for any NEO as of December 31, 2019.
| (1) | These columns reflect performance shares and restricted stock previously awarded to the NEO that vested during 2019. |
| (2) | Calculated based on the closing price of a share of our common stock on the New York Stock Exchange on the vesting date. |
Potential Payments Upon Termination or Change in Control
In August 2011, the Company entered into a new Employment Agreement with Dr. Medel that replaced his previous Employment Agreement entered into in August 2008. In October 2017, the Company entered into an amendment to Dr. Medel’s Employment Agreement to extend its term until August 2021. In August 2008, the Company entered into an Employment Agreement with Mr. Calabro. The Company entered into new Employment Agreements with Mr. Clark in February 2018. In August 2018, the Company entered into an Employment Agreement with Mr. Farber. In August 2019, the Company entered into a new Employment Agreement with Mr. Pepia. In February 2020, the Company entered into new Employment Agreements with Messrs. Farber and Andreano, which replaced their previous Employment Agreements. Each of these Employment Agreements provides for the Company to make certain payments and provide certain benefits to the executive upon termination of employment with the Company. Those provisions are summarized below.
Termination by Company for Cause
The options mustterm “Cause” is defined in each of the Employment Agreements for Dr. Medel and Messrs. Farber and Andreano to mean the executive’s (i) engagement in (A) willful misconduct resulting in material harm to the Company, or (B) gross negligence; (ii) conviction of, or pleadingto, a felony or any other crime involving fraud, financial misconduct, or misappropriation of the Company’s assets; (iii) willful and continual failure, after written notice, to (A) perform substantially his employment duties consistent with his position and authority, or (B) follow, consistent with his position, duties, and authorities, the reasonable lawful mandates of his supervisor; or (iv) breach of the requirements of his employment agreement with respect to the Company’s confidential information. For purposes of this definition, acts or omissions taken by the executive in a good faith belief that they were in the best interests of the Company or if done at the express direction of the Company’s Board of Directors will not be exercised within 10 yearsdeemed willful or grossly negligent. In the Employment Agreement for Mr. Pepia, the term “Cause” is defined to mean (i) any act or omission of the executive which is materially contrary to the business interests, reputation or goodwill of the Company; (ii) a material breach by the executive of his obligations under the Employment Agreement, which breach is not promptly remedied upon written notice from the Company; (iii) his refusal to perform his duties as assigned pursuant to the Employment Agreement other than a refusal which is remedied by the executive promptly after receipt of written notice thereof by the Company; (iv) the determination by Employer made in good faith that Mr. Pepia’s performance of his duties is below the Company’s standards, and which performance is not cured after appropriate notice by the Company; or (v) his failure or refusal to comply with a reasonable policy, standard or regulation of the Company in any material respect.
nolo contendere
29
Termination by Executive due to Poor Health or due to Executive’s Death
Termination due to Disability
Termination by Company without Cause or by Executive for Good Reason or due to Change in Control
30
employment terminates, and low sales price(d) pay him an amount equal to the greater of the stock as reported as of commencement of
the purchase period or as of the purchase date, whichever is lower.
Under the Stock Purchase Plans, 224,716, 107,423 and 64,397 shares were
issued during the years ended December 31, 2000, 2001 and 2002,
respectively. At December 31, 2002, the Company has an additional
373,169 shares reserved under the Stock Purchase Plans.
13. COMMON STOCK REPURCHASE PROGRAM:
In July 2002, the Company's Board of Directors approved a common stock
repurchase program (the "Repurchase Program"). Under this Repurchase
Program, the Company was authorized to repurchase up to $50 million of
its common stock in the open market, subject to market conditions and
trading restrictions. In November 2002, the Company's Board of
Directors authorized the repurchase of an additional $50 million of
common stock. As of December 31, 2002, the Company had repurchased
approximately 1.7 million shares at a cost of approximately $50
million. The Company expects to complete the additional $50 million
repurchase during the first quarter of 2003.
14. PREFERRED SHARE PURCHASE RIGHTS PLAN:
The Board of Directors of the Company has adopted a Preferred Share
Purchase Rights Plan (the "Rights Plan") and, in connection therewith,
declared a dividend distribution of one preferred share purchase right
("Right") on each outstanding share of the Company's common stock to
shareholders of record at the close of business on April 9, 1999.
Each Right entitles the shareholder to purchase from the Company one
one-thousandth of a share of the Company's Series A Junior
Participating Preferred Stock (the "Preferred Shares") (or in certain
circumstances, cash, property or other securities). Each Right has an
initial exercise price of $150.00 for one one-thousandth of a Preferred
Share (subject to adjustment). The Rights will be exercisable only if a
person or group acquires 15% or more of the Company's common stock or
announces a tender or exchange offer, the consummation of which would
result in ownership by a person or group of 15% or more of the common
stock. Upon such occurrence, each Right will entitle its holder (other
than such person or group of affiliated or associated persons) to
purchase, at the Right's then-current exercise price, a number of the
Company's common shares having a market value of twice such price. The
final expiration date of the Rights is the close of business on March
31, 2009 (the "Final Expiration Date").
The Board of Directors of the Company may, at its option, as approved
by a Majority Director Votehis “average annual performance bonus” (as defined in his Employment Agreement) or his bonus for the Rights Plan), atyear immediately preceding his termination. If the Company terminates the employment of Mr. Pepia without Cause, then the Company will (a) pay his base salary through the termination date plus any timereimbursement owed to him for any reasonable business expenses incurred through the date of termination, (b) continue to pay his base salary for a period of 12 months after the termination date, (c) pay him a pro rata portion of the performance bonus he would have received for the year in which his employment terminates, and (d) within 30 days of the first anniversary of the termination date, pay him an amount equal to his “average annual performance bonus.” For this purpose, “average annual performance bonus” means (i) the average of the percentage of the performance bonus target achieved by the executive for the three full calendar years prior to the earliertermination date. If the termination is due to a Change in Control, then the performance bonuses referred to in (d) above would be paid to the executive in a lump sum within 90 days of the termination date. For purposes of this definition, “Good Reason” will not be deemed to exist unless the executive provides the Company with written notice of the existence of such condition within 180 days after the initial existence of the condition and the Company fails to remedy the condition within 30 days after its receipt of such notice.
The Employment Agreement for Dr. Medel defines “Good Reason” to mean (i) the time that any persona material diminution in his base salary or entity
becomes an Acquiring Person (as definedperformance bonus eligibility; (ii) a material diminution in his authority, duties, or responsibilities; (iii) a material diminution in the Rights Plan), and (ii)
the Final Expiration Date, redeem all but not less than allauthority, duties or responsibilities of the then
outstanding Rights atsupervisor to whom Dr. Medel is required to report, including a redemption pricerequirement that Dr. Medel report to a corporate officer or employee instead of $.005 per Right, as such
amount may be appropriately adjustedreporting directly to reflect any stock split, stock
dividend or similar transaction. The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the Board of Directors of the Company; (iv) a material diminution in the budget over which Dr. Medel retains authority; (v) a material change in the geographic location at which Dr. Medel must perform the services under his Employment Agreement; or (vi) any other action or inaction that constitutes a material breach by the Company under his Employment Agreement. The Employment Agreement for Messrs. Farber and Andreano defines “Good Reason” to mean (i) a decrease in the executive’s base salary; (ii) a decrease in the performance bonus potential utilized by the Company in determining a performance bonus for the executive; (iii) a failure by the Compensation Committee to approve an annual equity grant of at least the amount set forth in his Employment Agreement; (iv) assigned any position, duties, responsibilities or compensation that is inconsistent with his current position, duties, responsibilities or compensation; (v) a material diminution in his authorities, duties or responsibilities, provided that, if following a Change in Control, the Company’s stock is no longer listed for trading on a national securities exchange, the executive has Good Reason to terminate his employment; (vi) Messrs. Farber or Andreano are required to report to any person other than the senior most executive officer of the Company, the Board or a duly constituted committee thereof, or if the senior most executive officer of the Company is any person other than Dr. Medel, unless such executive becomes the senior most executive officer of the Company; (vii) Messrs. Farber or Andreano are required to be based in any office or location outside of the metropolitan area where the Company’s present corporate offices are located; or (viii) any other action or inaction that constitutes a material breach of this Agreement by Employer. The Employment Agreement for Mr. Pepia defines “Good Reason” to mean (i) a decrease in the his base salary; (ii) a decrease in the performance bonus potential utilized by the Company in determining a performance bonus for the executive; (iii) within a twelve-month period after a Change in Control, the executive is either (a) terminated, (b) assigned any position, duties, responsibilities or compensation that is inconsistent with his position, duties, responsibilities or compensation prior to such Change in Control, or (c) forced to relocate to another location more than 25 miles from the Company’s location prior to the Change in Control (each of (iii)(a),(b) and (c) a “Change in Control Good Reason”); (iv) the assignment to the executive of any officer position inconsistent with his present position or material diminution in authority, other than any isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of written notice; or (v) the requirement by the Company that the executive be based in any office or location outside of the metropolitan area where the Company’s present corporate offices are located, except for travel reasonably required in the performance of Mr. Pepia’s duties.
The term “Change in Control” is defined in each executive’s Employment Agreement to mean (i) the acquisition by a person or an entity or a group of persons and entities, directly or indirectly, of more than 50% of the Company’s common stock in a single transaction or a series of transactions (hereinafter referred to as a “50% Change in Control”); (ii) a merger or other form of corporate reorganization resulting in an actual or50% Change in Control; or (iii) the failure of Applicable Directors (as defined below) to constitute a majority of the Company’s Board of Directors during any two (2) consecutive year period after the date of each of the executive’s Employment Agreement (the
de facto
“Two-Year
Period”). “Applicable Directors” means those individuals who are members of the Company’s Board of Directors at the inception of theTwo-Year
Period and any new Director whose election to the Board of Directors or nomination for election to the Board of Directors was approved (prior to any vote thereon by the shareholders) by a vote of at leasttwo-thirds
of the Directors then still in office who either were Directors at the beginning of theTwo-Year
Period at issue or whose election or nomination for election during suchTwo-Year
Period was previously approved as provided in this sentence.31
Termination by Executive
th
day.Employment Transition and Severance Agreement
Continuation of Group Health Coverage
Vesting of Equity Awards.
32
Company without Cause or by the executive for Good Reason, provided that termination by the executive for Good Reason related to a diminution in duties following a Change in Control must occur within the
12-month
period following a Change in Control, any unvested stock options, unvested restricted stock, unvested stock appreciation rights and other unvested incentive compensation awards, held by the executive on the termination date will automatically vest and, in the case of stock options, become immediately exercisable as of the effective date of such termination.Payments of Unused Leave Time
Restrictive Covenants
24-month
non-solicitation
andnon-competition
restrictive covenants, a customary confidentiality agreement surviving the term of the 10-year
non-disparagement
restrictive covenant. If the executive fails to The following table illustrates the Company's 2003 annual meetingpayments and benefits that each of shareholders, to be filedDr. Medel and Messrs. Farber, Andreano and Pepia would have received under his Employment Agreement if his employment with the Securities and Exchange Commission within 120
days after fiscal year end.
RECENT EVENTS
On March 27, 2003,Company had terminated for any of the reasons described above on December 31, 2019. Mr. Clark was terminated by the Company announcedwithout Cause effective as of December 31, 2019. The amounts presented in the tables, reflect compensation (including equity ownership) at such year end, are estimates only and do not necessarily reflect the actual value of the payments and other benefits that its Presidentwould be received by the NEOs, which would only be known at the time that employment actually terminates.
TRIGGERING EVENT | ||||||||||||||||||||||||||||||
Executive | Compensation Components | Change in Control | By Executive without Good Reason | By Company for Cause | By Company without Cause | By Executive for Good Reason | By the Company by Reason of Executive’s Disability | By Executive Due to Poor Health or Due to Executive’s Death | ||||||||||||||||||||||
Roger J. Medel, M.D. | Cash Severance(1) | $ | 6,375,000 | $ | 1,125,000 | $ | — | (10) | $ | 5,375,000 | $ | 5,375,000 | $ | 2,125,000 | $ | 1,125,000 | ||||||||||||||
Long-term Incentives(5) | 8,713,638 | — | — | 8,713,638 | 8,713,638 | 8,713,638 | 8,713,638 | |||||||||||||||||||||||
Other Compensation(6) | 198,000 | 198,000 | 198,000 | 198,000 | 198,000 | 198,000 | 198,000 | |||||||||||||||||||||||
Total Benefit to Employee | $ | 15,286,638 | $ | 1,323,000 | $ | 198,000 | $ | 14,286,638 | $ | 14,286,638 | $ | 11,036,638 | $ | 10,036,638 | ||||||||||||||||
Stephen D. Farber | Cash Severance(2) | $ | 2,887,500 | $ | — | $ | — | (10) | $ | 2,337,500 | $ | 2,062,500 | $ | 1,237,500 | $ | 412,500 | ||||||||||||||
Long-term Incentives(7) | 3,324,407 | — | — | 3,324,407 | 3,324,407 | 3,324,407 | 3,324,407 | |||||||||||||||||||||||
Total Benefit to Employee | $ | 6,211,907 | $ | — | $ | — | $ | 5,661,907 | $ | 5,386,907 | $ | 4,561,907 | $ | 3,736,907 | ||||||||||||||||
David A. Clark | Cash Severance(3) | $ | — | $ | — | $ | — | $ | 1,575,000 | $ | — | $ | — | $ | — | |||||||||||||||
Long-Term Incentives (7) | — | — | — | 3,232,088 | — | — | — | |||||||||||||||||||||||
Total Benefit to Employee | $ | — | $ | — | $ | — | $ | 4,807,088 | $ | — | $ | — | $ | — | ||||||||||||||||
Dominic J. Andreano | Cash Severance(3) | $ | 1,662,500 | $ | — | $ | — | (10) | $ | 1,425,000 | $ | 1,425,000 | $ | 1,068,750 | $ | 356,250 | ||||||||||||||
Long-term Incentives(8) | 1,667,428 | — | — | — | 1,667,428 | 1,667,428 | 1,667,428 | |||||||||||||||||||||||
Total Benefit to Employee | $ | 3,329,928 | $ | — | $ | — | $ | 1,425,000 | $ | 3,092,428 | $ | 2,736,178 | $ | 2,023,678 | ||||||||||||||||
John C. Pepia | Cash Severance(4) | $ | 584,375 | $ | — | $ | — | (10) | $ | 743,750 | $ | 743,750 | $ | 265,625 | $ | 159,375 | ||||||||||||||
Long-term Incentives(9) | 1,942,993 | — | — | 1,942,993 | 1,942,993 | — | — | |||||||||||||||||||||||
Total Benefit to Employee | $ | 2,527,368 | $ | — | $ | — | $ | 2,686,743 | $ | 2,686,743 | $ | 265,625 | $ | 159,375 | ||||||||||||||||
33
| (1) | Cash severance includes: (i) in the case of a termination by the executive without Good Reason, base salary through the date of termination, the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year, as set forth in the Summary Compensation Table, if the executive had not been terminated so long as the executive gives sufficient notice and executes a general release of Company plus any reimbursement owed to the executive for reasonable business expenses incurred through the date of termination, (ii) in the case of termination by the Company without Cause or by the executive for Good Reason, (a) continuation of base salary through the termination date, plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination, (b) continuation of base salary for 24 months after the termination date, (c) on the first and second anniversaries of the termination date, the greater of the executive’s “average annual performance bonus” (as defined in the executive’s Employment Agreement) or his prior year’s bonus (this amount is paid as a lump sum within 90 days of the termination date if the termination is in connection with a Change in Control) and (d) the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, (iii) in the case of termination by the Company without Cause or Dr. Medel for Good Reason, in either case within 24 months following a Change in Control: (a) continuation of base salary through the termination date, plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination, (b) continuation of base salary for 36 months after the termination date, (c) within 90 days following such termination, an amount equal to three times the greater of the executive’s “average annual performance bonus” (as defined in the executive’s Employment Agreement) or his prior year’s bonus, and (iv) in the case of termination by the Company on account of the executive’s Disability, continuation of base salary for a period of 12 months after the termination date and the actual performance bonus, on a pro rata basis, that would have been payable to executive for the fiscal year if executive had not been terminated, and (v) in the case of termination by the executive due to executive’s Poor Health or Death, the executive’s base salary through the termination date, the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated plus any reimbursement owed to the executive for reasonable business expenses incurred through the date of termination. |
| (2) | Cash severance includes: (i) in the case of termination by the Company without Cause, (a) continuation of base salary through the termination date, plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination, (b) continuation of base salary for 24 months after the termination date, (c) the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, and (d) the executive’s “average annual performance bonus” (as defined in the executive’s Employment Agreement), (ii) in the case of termination by the Executive for Good Reason, (a) continuation of base salary through the termination date, plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination, (b) continuation of base salary for 18 months after the termination date (24 months in the case of Good Reason termination following a Change in Control, each as defined in the Executive’s Employment Agreement), (c) an amount equal to 1.5 times the executive’s “average annual performance bonus” (as defined in the executive’s Employment Agreement), and (d) the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, and (iii) in the case of termination by the Company on account of the executive’s Disability, the Company will pay the executive his base salary for a period of 12 months after the termination date and the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, and (iv) in the case of termination by the executive due to the executive’s Poor Health or Death, the executive’s base salary through the termination date, plus any reimbursement owed to the executive for reasonable business expenses incurred through the date of termination and the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated. |
| (3) | Cash severance includes: (i) in the case of termination of Mr. Clark or Mr. Andreano by the Company without Cause or by the executive for Good Reason (in the case of Mr. Andreano), (a) continuation of base salary through the termination date, plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination, (b) continuation of base salary for 18 months after the termination date, (c) the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, and (d) the executive’s “average annual performance bonus” (as defined in the executive’s Employment Agreement), (ii) in the case of Mr. Andreano’s termination by the Company on account of his Disability, the Company will pay his base salary for a period of 12 months after the termination date and the actual performance bonus, on a pro rata basis, that would have been payable to him for the fiscal year if he had not been terminated, and (iii) in the case of termination of Mr. Andreano by himself due to his Poor Health or Death, his base salary through the termination date, plus any reimbursement owed to Mr. Andreano for reasonable business expenses incurred through the date of termination and the actual performance bonus, on a pro rata basis, that would have been payable to him for the fiscal year if he had not been terminated. |
| (4) | Cash severance includes: (i) in the case of termination by the Company without Cause or by the Executive for Good Reason, (a) continuation of base salary through the termination date, plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination, (b) continuation of base salary for 12 months after the termination date, (c) the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, and (d) the greater of the executive’s “average annual performance bonus” (as defined in the executive’s Employment Agreement) or his prior year’s performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, (ii) in the case of termination by the Company on account of the executive’s Disability, the Company will pay the executive his base salary for a period of 12 months after the termination date and the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated, and (iii) in the case of termination by the executive due to the executive’s Poor Health or Death, the executive’s base salary through the termination date, plus any reimbursement owed to the executive for reasonable business expenses incurred through the date of termination and the actual performance bonus, on a pro rata basis, that would have been payable to the executive for the fiscal year if the executive had not been terminated. |
| (5) | This amount reflects the value of the executive’s unvested restricted stock as of December 31, 2019 that would continue to vest until fully vested if a specified termination event had occurred on December 31, 2019. In the case of a Change in Control, the vesting of such unvested restricted stock is immediate whether or not the executive’s employment is terminated. |
| (6) | If Dr. Medel’s employment is terminated for any reason, the Company will reimburse Dr. Medel for mutually agreed upon lease space and reasonable wages to an administrative assistant for two years from his date of termination. This amount represents the approximate cost of lease space and reasonable wages to an administrative assistant for two years. |
| (7) | This amount reflects the value of the executive’s unvested restricted stock as of December 31, 2019 that would vest if a specified termination event had occurred on December 31, 2019. |
| (8) | This amount reflects the value of the executive’s unvested restricted stock as of December 31, 2019 that would continue to vest until fully vested if a specified termination event had occurred on December 31, 2019. Other than as determined by the Compensation Committee for any particular grant, in the case of a Change in Control, the vesting of such unvested restricted stock is immediate in the case of termination by the Company without Cause or by the executive for Good Reason following a Change in Control, or in the event that termination by the executive for Good Reason related to certain triggering events following a Change in Control occurs within the 24-month period of a Change in Control, any unvested restricted stock will automatically vest. |
| (9) | This amount reflects the value of the executive’s unvested restricted stock as of December 31, 2019 that would continue to vest until fully vested if a specified termination event had occurred on December 31, 2019. Other than as determined by the Compensation Committee for any particular grant, in the case of a Change in Control, the vesting of such unvested restricted stock is immediate in the case of termination by the Company without Cause or by the executive for Good Reason following a Change in Control, or in the event that termination by the executive for Good Reason related to certain triggering events following a Change in Control occurs within the 12-month period of a Change in Control, any unvested restricted stock will automatically vest. If the executive is terminated for Cause, then the Company will continue to pay the executive his base salary through the termination date plus any reimbursement owed to the executive for any reasonable business expenses incurred through the date of termination. |
34
Chief Executive Officer Kristen Bratberg, had resignedPay Ratio
Our CEO’s annual total compensation for personal reasons2019 was $8,066,275, as reflected in the Summary Compensation Table included in this Form
10-K/A.
The calculation of annual total compensation of all employees, excluding our CEO, as of December 31, 2019 was determined using 2019W-2
compensation, on an annualized basis for full-time employees who were not employed by us for all of 2019. Our median employee’s annual total compensation for 2019 was $98,094. As a result, we estimate that our CEO’s 2019 annual total compensation was approximately 82 times that of our median employee.Compensation Committee Interlocks and that
Roger J. Medel, M.D.,Insider Participation
In 2019, none of our executive officers or Directors was a member of the Board of Directors of any other company where the relationship would be considered a compensation committee interlock under the SEC rules.
DIRECTOR COMPENSATION
Eachfounderan additional annual retainer fee of Pediatrix, had$25,000, payable quarterly, for the Lead Independent Director, (iv) an additional annual retainer fee of $20,000, payable quarterly, for the chair of the Audit Committee, and (v) an additional annual retainer fee of $10,000 per committee, payable quarterly, for the chair of any committee of the Board of Directors other than the Audit Committee. In addition, each year, each
non-employee
Director receives the following compensation for their service: (i) an annual retainer fee of $65,000, payable quarterly, (ii) an annual fee of $7,500 for attendance at meetings, payable quarterly, (iii) an additional annual retainer fee of $50,000, payable quarterly, for the Chairman of the Board of Directors and non-employee
Director is granted restricted stock with a grant date fair value of $127,500, vesting in equal annual increments over a three-year period commencing on the anniversary of the date of grant.The Board of Directors’ policy for awarding restricted stock also applies to each
non-employee
Director upon his or her initial election or appointment to the Board of Directors. The grant date fair value of the award will be $200,000 with a three-year vesting period. We provide grants of equity to our Directors because we believe that it helps foster a long-term perspective and aligns our Directors’ interests with that of our shareholders. All non-management
members of our Board of Directors are required to own MEDNAX common stock worth three times their annual base cash retainer fee. MEDNAX also reimburses all of its Directors for out-of-pocket
expenses incurred in connection with the rendering of services as a Director.Due to the impacts of
COVID-19
on the Company’s business, in March 2020, the Board of Directors agreed to forego their annual cash retainer and cash meeting payments, until further notice.The following table includes allnew three-year contract to reassume the roleDirector.
non-employee
Directors who served in 2019. Dr. Medel does not earn additional income for his service as a Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Total Compensation | |||||||||
Cesar L. Alvarez | $ | 122,500 | $ | 127,505 | $ | 250,005 | ||||||
Manuel Kadre | $ | 107,500 | $ | 127,505 | $ | 235,005 | ||||||
Karey D. Barker | $ | 72,500 | $ | 127,505 | $ | 200,005 | ||||||
Waldemar A. Carlo, M.D. | $ | 82,500 | $ | 127,505 | $ | 210,005 | ||||||
Michael B. Fernandez | $ | 72,500 | $ | 127,505 | $ | 200,005 | ||||||
Paul G. Gabos | $ | 92,500 | $ | 127,505 | $ | 220,005 | ||||||
Pascal J. Goldschmidt, M.D. | $ | 76,236 | $ | 127,505 | $ | 203,741 | ||||||
Carlos A. Migoya (3) | $ | 45,412 | $ | 200,004 | $ | 245,416 | ||||||
Michael A. Rucker (3) | $ | 45,412 | $ | 200,004 | $ | 245,416 | ||||||
Enrique J. Sosa, Ph.D. | $ | 78,764 | $ | 127,505 | $ | 206,269 | ||||||
| (1) | This column reports the amount of cash compensation earned in 2019 for Board and committee service. |
| (2) | The amounts in this column reflect the grant-date fair value of the restricted stock awards, calculated in accordance with the FASB Accounting Standards Codification (ASC) Topic 718, but excluding the impact of estimated forfeitures. The following Directors had outstanding stock option awards and restricted stock awards, respectively, at the end of fiscal year 2019: Mr. Alvarez (18,202 and 6,029), Mr. Kadre (-0- and 6,029), Ms. Barker(-0- and 6,029), Dr. Carlo (18,202 and 6,029), Mr. Fernandez(-0- and 6,029), Mr. Gabos (18,202 and 6,029), Dr. Goldschmidt(-0- and 6,029), Mr. Migoya(-0- and 7,345), Mr. Rucker(-0- and 7,345) and Dr. Sosa (18,202 and 6,029). For information regarding the assumptions made in calculating the amounts reflected in this column, see Note 15, “Stock Incentive Plans and Stock Purchase Plans,” to our Consolidated Financial Statements included in the Original Form10-K filed on February 20, 2020. |
| (3) | Elected to the Company’s Board of Directors in May 2019. |
35
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN INFORMATION
PLANS
The following table provides information as of December 31, 2002,2019, with respect to shares of Pediatrixour common stock that may be issued under existing equity compensation plans, including Pediatrix'sour Amended and Restated Stock
Option2008 Incentive Compensation Plan (the "Option Plan"“Amended and Restated 2008 Incentive Plan”), Pediatrix's 1996 Qualifiedour ESPP and Non-Qualified
Employee Stock Purchase Plans, as amendedour SPP.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 72,808 | (1) | $ | 32.49 | 9,404,824 | (2) | ||||||
Equity compensation plans not approved by security holders | N/A | N/A | N/A | |||||||||
Total | 72,808 | $ | 32.49 | 9,404,824 | ||||||||
| (1) | All shares are issuable under the Amended and Restated 2008 Incentive Plan. |
| (2) | Under the Amended and Restated 2008 Incentive Plan, 8,321,355 shares remain available for future issuance, and under the ESPP and the SPP, an aggregate of 1,083,469 shares remain available for future issuance. |
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires MEDNAX’s Directors and restated, (the "Stock Purchase
Plans"),executive officers, and sharespersons who own more than 10% of our common stock, reserved for issuance under presently
exercisable stock options issued by Magella atto file with the timeSEC reports of ownership and changes in ownership of our common stock.
Based solely on a review of the Merger (the
"Magella Plan").
(1) Represents 4,240,869 shares issuable under the Option Plan and 228,363
shares issuable under the Magella Plan.
(2) Under the Option Plan and the Stock Purchase Plans, 1,122,795 and 373,169
shares, respectively, remain available for future issuance.
58
s
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to instruction G(3)copies of the General Instructions to Form 10-K, the
information required herein is incorporated by reference to the Company's
definitive proxy statement with respect to the Company's 2003 annual meeting of
shareholders, to besuch reports filed with the SecuritiesSEC, the absence of a Form 3, 4 or 5, or representations from certain reporting persons that no Forms 5 were required, MEDNAX believes that all Section 16(a) filing requirements applicable to its Directors, officers and Exchange Commission within 120greater than 10% beneficial owners were complied with during the fiscal year ended December 31, 2019, with the exception of initial restricted stock grants for Messrs. Rucker and Migoya following their appointment to the Company’s Board, which were disclosed in Form 3 filings, two days after fiscal year end.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days priorthe deadline to disclose the filing date of this Annual Reportgrants on Form 10-K,
Pediatrix carried out an evaluation, under4.
36
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information concerning the supervision and withbeneficial ownership of common stock of MEDNAX as of April 15, 2020, for the participationfollowing:
Each person known to us to be a beneficial owner of Pediatrix's management, including themore than 5% of our outstanding shares of common stock;
Each of our Directors;
Our Chief Executive Officer and Chief Financial Officer,our other NEOs; and
All of our Directors and executive officers as a group.
Name of Beneficial Owner(1) | Common Stock Beneficially Owned(2) | |||||||
Shares | Percent | |||||||
BlackRock, Inc.(3) | 7,869,083 | 9.2 | % | |||||
Starboard Value LP(4) | 7,590,000 | 8.9 | % | |||||
The Vanguard Group, Inc.(5) | 7,493,058 | 8.8 | % | |||||
ArrowMark Colorado Holdings, LLC(6) | 5,352,519 | 6.3 | % | |||||
Dimensional Fund Advisors LP(7) | 5,005,995 | 5.9 | % | |||||
Roger J. Medel, M.D.(8) | 1,719,111 | 2.0 | % | |||||
Cesar L. Alvarez(9) | 66,605 | * | ||||||
Karey D. Barker(10) | 17,778 | * | ||||||
Waldemar A. Carlo, M.D.(11) | 50,004 | * | ||||||
Michael B. Fernandez(12) | 605,005 | * | ||||||
Paul G. Gabos(13) | 42,515 | * | ||||||
Pascal J. Goldschmidt, M.D.(14) | 15,538 | * | ||||||
Manuel Kadre(15) | 124,313 | * | ||||||
Carlos A. Migoya(16) | 12,062 | * | ||||||
Michael A. Rucker(17) | 15,462 | * | ||||||
Enrique J. Sosa, Ph.D.(18) | 55,552 | * | ||||||
Stephen D. Farber(19) | 229,608 | * | ||||||
Dominic J. Andreano(20) | 109,300 | * | ||||||
John C. Pepia(21) | 110,615 | |||||||
All Directors and executive officers as a group (15 persons)(22) | 3,308,596 | 3.9 | % | |||||
| * | Less than one percent |
| (1) | Unless otherwise specified, the address of each of the beneficial owners identified is c/o MEDNAX, Inc., 1301 Concord Terrace, Sunrise, Florida 33323. Each holder is a beneficial owner of common stock of MEDNAX. |
| (2) | Based on 85,412,375 shares of common stock issued and outstanding as of April 15, 2020. The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act and the information is not necessarily indicative of beneficial ownership for any other purpose. Under that rule, beneficial ownership includes any shares as to which the individual or entity has voting power or investment power and any shares that the individual or entity has the right to acquire within 60 days of April 15, 2020, through the exercise of any stock option or other right. Unless otherwise indicated in the footnotes or table, each individual or entity has sole voting and investment power, or shares such powers with his or her spouse, with respect to the shares shown as beneficially owned. |
| (3) | BlackRock, Inc. has sole voting power over 7,496,146 shares and sole dispositive power over 7,869,083 shares. This information is based on a Schedule 13G/A filed with the SEC on February 5, 2020. BlackRock, Inc.’s address is 55 East 52 nd Street, New York, New York 10055. Reported ownership includes shares held by subsidiaries listed in the filing. |
| (4) | Starboard Value LP has sole voting and dispositive power over 7,590,000 shares. Starboard Value LP is an investment manager for Starboard Value and Opportunity Master Fund Ltd. and Starboard Value and Opportunity C LP, and the manager of Starboard Value and Opportunity S LLC. This information is based on a Schedule 13D/A filed with the SEC on March 2, 2020. Starboard Value LP’s address is 777 Third Avenue, 18th Floor, New York, New York 10017. |
| (5) | The Vanguard Group, Inc. has sole voting power over 43,481 shares, shared voting power over 13,603 shares, sole dispositive power over 7,447,532 shares and shared dispositive power over 45,526 shares. This information is based on a Schedule 13G filed with the SEC on February 12, 2020. The Vanguard Group’s address is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. Reported ownership includes shares held by subsidiaries listed in the filing. |
37
| (6) | ArrowMark Colorado Holdings, LLC has sole voting and dispositive power over 5,352,519 shares. This information is based on a Schedule 13G filed with the SEC on February 14, 2020. ArrowMark Colorado Holdings, LLC’s address is 100 Fillmore Street, Suite 325, Denver, Colorado 80206. |
| (7) | Dimensional Fund Advisors LP has sole voting power over 4,887,752 shares and sole dispositive power over 5,005,995 shares. The Dimensional Fund Advisors LP is an investment adviser in accordance with Rule 13d 1(b)(1)(ii)(E) and serves as an investment manager or sub-adviser to investment companies, trusts and accounts, collectively referred to as the “Funds”. In such role, Dimensional Fund Advisors LP or its subsidiaries may be deemed to be the beneficial owner of the shares held by the Funds. This information is based on a Schedule 13G filed with the SEC on February 12, 2020. Dimensional Fund Advisors LP’s address is Building One, 6300 Bee Cave Road, Austin, Texas 78746. |
| (8) | Includes (i) 1,286,652 shares of common stock directly owned; and (ii) 432,459 shares of unvested performance shares and restricted stock which Dr. Medel presently has the power to vote. |
| (9) | Includes (i) 39,673 shares of common stock directly owned; (ii) 18,202 shares of common stock subject to options exercisable within 60 days of April 15, 2020; and (iii) 8,730 shares of unvested restricted stock which Mr. Alvarez presently has the power to vote. |
| (10) | Includes (i) 9,048 shares of common stock directly owned; and (ii) 8,730 shares of unvested restricted stock which Ms. Barker presently has the power to vote. |
| (11) | Includes (i) 23,072 shares of common stock directly owned; (ii) 18,202 shares of common stock subject to options exercisable within 60 days of April 15, 2020; and (iii) 8,730 shares of unvested restricted stock which Dr. Carlo presently has the power to vote. |
| (12) | Includes (i) 323,955 shares of common stock directly owned; (ii) 22,320 shares of common stock beneficially owned through a self-directed IRA; (iii) 250,000 shares of common stock beneficially owned through MBF Family Investments, Ltd. (“MBF Family”), of which Mr. Fernandez is the sole owner of MBF Holdings, Inc., the general partner of MBF Family; and (iv) 8,730 shares of unvested restricted stock which Mr. Fernandez presently has the power to vote. |
| (13) | Includes (i) 15,583 shares of common stock directly owned; (ii) 18,202 shares of common stock subject to options exercisable within 60 days of April 15, 2020; and (iii) 8,730 shares of unvested restricted stock which Mr. Gabos presently has the power to vote. |
| (14) | Includes (i) 6,808 shares of common stock directly owned; and (ii) 8,730 shares of unvested restricted stock which Dr. Goldschmidt presently has the power to vote. |
| (15) | Includes (i) 115,583 shares of common stock directly owned; and (ii) 8,730 shares of unvested restricted stock which Mr. Kadre presently has the power to vote. |
| (16) | Includes 12,062 shares of unvested restricted stock which Mr. Migoya presently has the power to vote. |
| (17) | Includes (i) 3,400 shares of common stock directly owned; and (ii) 12,062 shares of unvested restricted stock which Mr. Rucker presently has the power to vote. |
| (18) | Includes (i) 28,620 shares of common stock directly owned; (ii) 18,202 shares of common stock subject to options exercisable within 60 days of April 15, 2020; and (iii) 8,730 shares of unvested restricted stock which Dr. Sosa presently has the power to vote. |
| (19) | Includes (i) 44,400 shares of common stock directly owned; and (ii) 185,208 shares of unvested performance shares and restricted stock which Mr. Farber presently has the power to vote. |
| (20) | Includes (i) 22,602 shares of common stock directly owned; (ii) 1,342 shares of common stock directly owned that were acquired through the Company’s Employee Stock Purchase Plan; and (iii) 85,356 shares of unvested performance shares and restricted stock which Mr. Andreano presently has the power to vote. |
| (21) | Includes (i) 22,920 shares of common stock directly owned; (ii) 10,942 shares of common stock directly owned that were acquired through the Company’s Employee Stock Purchase Plan; and (iii) 76,753 shares of unvested performance shares and restricted stock which Mr. Pepia presently has the power to vote. |
| (22) | Includes (i) 1,954,600 shares of common stock directly owned; (ii) 22,320 shares of common stock beneficially owned through a self-directed IRA, (iii) 250,000 shares of common stock beneficially owned through a director’s related company, (iv) 72,808 shares of common stock subject to options exercisable within 60 days of April 15, 2020; and (v) 1,008,868 shares of unvested performance shares and restricted stock which certain executive officers presently have the power to vote. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Review and Approval of Related Person Transactions
MEDNAX has a written policy for the review and approval or ratification of transactions (i) between MEDNAX and any MEDNAX Director or any other entity in which any MEDNAX Director is a director, officer or has a financial interest; and (ii) in which MEDNAX is or will be a participant and any related person has or will have a direct or indirect material interest. For purposes of the effectivenesspolicy, a related person includes any MEDNAX Director or Director nominee, executive officer or holder of Pediatrix's disclosure
controlsmore than 5% of the outstanding voting stock of MEDNAX or any of their respective immediate family members. The policy does not apply to transactions
38
pertaining to (i) director or officer compensation that is approved or recommended to MEDNAX’s Board of Directors for approval by MEDNAX’s Compensation Committee or (ii) the employment by MEDNAX of any immediate family member of a related person in a
non-officer
position and at compensation levels commensurate with that paid to other similarly situated employees.Pursuant to the terms of the policy, all covered transactions, if determined to be material by MEDNAX’s General Counsel or if the transaction involves the participation of a member of the MEDNAX Board of Directors, are required to be promptly referred to the disinterested members of the MEDNAX Audit Committee for their review or, if less than a majority of the members of MEDNAX Audit Committee are disinterested, to all the disinterested members of the MEDNAX Board of Directors. Pursuant to the terms of the policy, materiality determinations must be based on the significance of the information to investors in light of all circumstances, including, but not limited to, the (i) relationship of the related persons to the covered transaction, and with each other, (ii) importance to the person having the interest, and (iii) amount involved in the transaction. All transactions involving in excess of $120,000 are automatically deemed to be material pursuant to the terms of the policy.
The disinterested Directors of MEDNAX’s Audit Committee or Board of Directors, as applicable, are required to review such material covered transactions at their next regularly-scheduled meeting, or earlier if a special meeting is called by the Chairman of the Audit Committee and may only approve such a material covered transaction if it has been entered into in good faith and on fair and reasonable terms that are no less favorable to MEDNAX than those that would be available to MEDNAX in a comparable transaction in arm’s length dealings with an unrelated third party at the time it is considered by the disinterested Directors of MEDNAX’s Audit Committee or Board of Directors, as applicable.
All of the transactions described in “Transactions with Related Persons” below were covered transactions under our policy and the policies and procedures required by the policy were followed in connection with the review and approval or ratification of all of such transactions.
Transactions with Related Persons
Mr. Alvarez has served on MEDNAX’s Board of Directors since March 1997. Mr. Alvarez is the Senior Chairman of Greenberg Traurig, P.A., which serves as definedone of MEDNAX’s outside counsels and receives customary fees for legal services. In 2019, MEDNAX paid Greenberg Traurig, P.A. approximately $1 million for such services and currently anticipates that this relationship will continue. Mr. Alvarez does not personally provide legal services to MEDNAX and derives no direct personal benefit from MEDNAX’s payment for legal services to Greenberg Traurig, P.A. Further, the fees derived from MEDNAX represent an immaterial portion of the overall revenue generated by Greenberg Traurig, P.A.
Independence
See Item 10 – Directors, Executive Officers and Corporate Governance – above for a discussion on director independence.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Independent Auditors
MEDNAX’s independent auditor for the year ended December 31, 2019 was the firm of PricewaterhouseCoopers LLP. Subject to shareholder ratification at the Company’s 2020 Annual Meeting of Shareholders, the Audit Committee has reappointed PricewaterhouseCoopers LLP as the independent registered public accounting firm to perform audit services for MEDNAX in Rule 13a-14 under2020.
39
Fees Paid to Independent Auditors
The aggregate fees billed by PricewaterhouseCoopers LLP for the Securitiesindicated services rendered during fiscal years 2019 and 2018 were as follows:
Audit Fees
PricewaterhouseCoopers LLP billed MEDNAX $1,923,500, in the aggregate, for professional services for the audit of the Company’s consolidated financial statements and internal control over financial reporting for the year ended December 31, 2019, reviews of MEDNAX’s interim consolidated financial statements, which are included in each of MEDNAX’s Quarterly Reports on Form
10-Q
for the year ended December 31, 2019, the statutory audit of MEDNAX’s wholly owned captive insurance subsidiary and the review of certain SEC filings. During 2018, billed MEDNAX $1,637,000, in the aggregate, for professional services for the audit of the Company’s consolidated financial statements and internal control over financial reporting for the year ended December 31, 2018, reviews of MEDNAX’s interim consolidated financial statements, which are included in each of MEDNAX’s Quarterly Reports on Form 10-Q
for the year ended December 31, 2018, the statutory audit of MEDNAX’s wholly owned captive insurance subsidiary and the review of certain SEC filings.Audit-Related Fees
PricewaterhouseCoopers LLP did not bill MEDNAX for any audit-related fees in 2019 or 2018.
Tax Fees
PricewaterhouseCoopers LLP did not bill MEDNAX for any tax services in 2019 or 2018.
All Other Fees
In 2019, PricewaterhouseCoopers LLP billed MEDNAX $928,000 for transaction related expenses related to the divestiture of the Company’s management services organization and $25,000 for the review of an offering memorandum and the related issuance of a comfort letter. In 2018, PricewaterhouseCoopers LLP billed MEDNAX $100,000 for the review of an offering memorandum and the related issuance of a comfort letter, as well as $250,000 for a portion of the engagement related to a
carve-out
audit of one of the Company’s subsidiaries.Pre-Approval
Policies and ProceduresThe Audit Committee is required to review and approve the proposed retention of independent auditors to perform any proposed auditing and
non-auditing
services as outlined in its charter. The Audit Committee has not established policies and procedures separate from its charter concerning the pre-approval
of auditing and non-auditing
related services. As required by Section 10A of the Exchange Act, our Audit Committee has authorized all auditing and non-auditing
services provided by PricewaterhouseCoopers LLP during 2019 and 2018 and the fees paid for such services.40
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
An index to
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a)(1) | Financial Statements |
All financial statements includedare omitted for the reason that they are not required or the information is otherwise supplied in this Annual ReportItem 8. “Financial Statements and Supplementary Data” in the Original FormForm 10-K
appears on page 36.
(A)(2) FINANCIAL STATEMENT SCHEDULE
February 20, 2020.
10-K
filed on | (a)(2) | Financial Statement Schedules |
The following financial statement schedule for the years ended December 31, 2000, 20012019, 2018 and 2002,2017, is included in this Annual Report on Form 10-K as set forth
below.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
All other schedules for which provision is madeItem 15. “Exhibits and Financial Statement Schedules” in the applicable accounting
regulationsOriginal Form
10-K
filed on February 20, 2020.| (a)(3) | Exhibits |
See Item 15(b) of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and therefore have been omitted.
60
(A)(3) EXHIBITS
2.1 this Form
10-K/A.
| (b) | Exhibits |
2.1 | ||
2.2** | ||
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
4.5 |
41
4.6 | ||
4.7 | ||
4.8 | ||
4.9 | ||
4.10+++ | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 |
42
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
10.15 | ||
10.16 | ||
10.17 | ||
10.18 | ||
10.19 |
43
10.20 | ||
10.21 | ||
10.22 | ||
10.23+ | ||
10.24+ | ||
10.25+ | ||
10.26+ | ||
10.27+++ | ||
10.28+ | ||
10.29 | ||
10.30 | ||
21.1+++ | ||
23.1+++ | ||
31.1+++ | ||
31.2+++ |
44
31.3+ | ||
31.4+ | ||
32++ | ||
104+ | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Management contracts or compensation plans, contracts or arrangements. | |
** | Portions of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of RegulationS-K. | |
+ | Filed herewith. | |
++ | Furnished as an exhibit to the Original Form 10-K, filed on February 20, 2020. | |
+++ | Filed as an exhibit to the Original Form 10-K, filed on February 20, 2020. |
| ITEM 16. | FORM 10-K SUMMARY |
None.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 2003 By: /s/ Roger J. Medel, M.D.
------------------------------------------
Roger J. Medel, M.D., M.B.A.
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
MEDNAX, INC. | ||||||
Date: April 28, 2020 | By: | /s/ Roger J. Medel, M.D. | ||||
Roger J. Medel, M.D. | ||||||
Chief | ||||||
46