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Article by DailyStocks_admin    (07-17-08 04:09 AM)

The Daily Magic Formula Stock for 07/17/2008 is Pediatrix Medical Group Inc.. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

OVERVIEW

Pediatrix is a leading provider of physician services including newborn, maternal-fetal, pediatric subspecialty, and anesthesia care. At December 31, 2007, our national network was composed of 1,072 affiliated physicians, including 788 physicians who provide neonatal clinical care in 32 states and Puerto Rico, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications. We have 109 affiliated physicians who provide maternal-fetal medical care to expectant mothers experiencing complicated pregnancies in many areas where our affiliated neonatal physicians practice. Our network includes other pediatric subspecialists, including 69 physicians providing pediatric cardiology care, 37 physicians providing pediatric intensive care and 16 physicians providing hospital based pediatric care. In addition, we have 53 physicians who provide anesthesia care to patients in connection with surgical and other medical procedures.

In December 2007, we signed a definitive agreement to sell our newborn metabolic screening laboratory business in a cash transaction. The closing of the sale is subject to customary conditions. In accordance with Statement of Financial Accounting Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” the assets and liabilities related to the laboratory business have been classified as held for sale at December 31, 2007 and its business operations are considered discontinued operations. The sale of the laboratory is intended to allow us to focus more resources to support the continued expansion of our clinical and administrative competencies within physician services.

Pediatrix Medical Group, Inc. was incorporated in Florida in 1979. Our principal executive offices are located at 1301 Concord Terrace, Sunrise, Florida 33323, and our telephone number is (954) 384-0175.

Our Physician Specialties

The following discussion describes our physician specialties and the care that we provide:




Neonatal Care . We provide clinical care to babies born prematurely or with complications within specific units at hospitals, primarily NICUs, through a team of experienced neonatal physician subspecialists (called “neonatologists”), neonatal nurse practitioners and other pediatric clinicians. Neonatologists are board-certified or eligible-to-apply-for-cer tification as a neonatologist who have extensive education and training for the care of babies born prematurely or with complications that require complex medical treatment. Neonatal nurse practitioners are registered nurses who have advanced training and education in managing the healthcare needs of newborns, infants and their families.




Maternal-fetal Care . We provide outpatient and inpatient clinical care to expectant mothers experiencing complicated pregnancies and their unborn babies through our affiliated maternal-fetal medicine subspecialists and other clinicians, such as maternal-fetal nurse practitioners, certified nurse mid-wives, ultrasonographers and genetic counselors. Maternal-fetal medicine subspecialists are board-certified or eligible-to-apply-for-cer tification obstetricians who have extensive education and training for the treatment of high-risk expectant mothers and their fetuses. Our affiliated maternal-fetal

medicine subspecialists practice in certain metropolitan areas where we have affiliated neonatologists to provide coordinated care for women with complicated pregnancies and whose babies are often admitted to a NICU upon delivery.




Pediatric Cardiology Care . We provide inpatient and outpatient pediatric cardiology care of the fetus, infant, child, and adolescent patient with congenital heart defects and acquired heart disease as well as adults with congenital heart defects through our affiliated pediatric cardiologist subspecialists and other clinicians such as pediatric nurse practitioners, echocardiographers and other diagnostic technicians, and exercise physiologists. Pediatric cardiologists are board-certified pediatricians who have additional education and training in congenital heart defects and pediatric acquired heart disorders.




Other Pediatric Subspecialty Care . Our network includes pediatric intensivists, who are hospital-based pediatricians with additional education and training in caring for critically ill or injured children and adolescents, and pediatric hospitalists, who are hospital-based pediatricians specializing in inpatient care and management of acutely ill children. Our affiliated physicians also provide clinical services in other areas of hospitals, particularly in the labor and delivery area, nursery and pediatric department, where immediate accessibility to specialized care may be critical.




Anesthesia Care . We provide anesthesia care through a team of experienced physician anesthesiologists and certified registered nurse anesthetists (called “CRNAs”). Anesthesiologists are board certified or eligible-to-apply-for-cer tification physicians who have extensive education and training for the relief of pain and care of the surgical patient before, during and after surgery, primarily at hospitals. They also provide medical care and consultations in many other settings and situations in addition to the operating room.

As part of our ongoing commitment to improving patient care through evidence-based medicine, we also conduct clinical research, monitor clinical outcomes and implement clinical quality initiatives with a view to improving patient outcomes, shortening the length of hospital stays and reducing long-term health system costs. We believe that referring and collaborating physicians, hospitals, third-party payors and patients all benefit from our clinical research, education and quality initiatives.

Demand for Our Services

Neonatal Medicine . Of the approximately 4.3 million births in the United States annually, we estimate that approximately 12 percent require NICU admissions. Research continues to be conducted by numerous institutions to identify potential causes of premature birth and medical complications that often require NICU admissions. Some common contributing factors include the presence of hypertension or diabetes in the mother, lack of prenatal care, complications during pregnancy, drug and alcohol abuse and smoking or poor nutritional habits during pregnancy. Babies admitted to NICUs typically have an illness or condition that requires the care of a neonatologist. Babies who are born prematurely or have a low birth weight often require neonatal intensive care services because of increased risk for medical complications. We believe obstetricians generally prefer to perform deliveries at hospitals that provide a full complement of labor and delivery services, including a NICU staffed by board-certified or eligible-to-apply-for-cer tification neonatologists. Because obstetrics is a significant source of hospital admissions, hospital administrators have responded to these demands by establishing NICUs and contracting with independent neonatology group practices to staff and manage these units. As a result, NICUs within the United States tend to be concentrated in hospitals with a higher volume of births. There are approximately 4,000 board-certified neonatologists in the United States who practice at approximately 1,500 hospital-based NICUs.

Maternal-fetal Medicine . Expectant mothers with pregnancy complications often seek or are referred by their obstetricians to maternal-fetal medicine subspecialists. These subspecialists provide inpatient and outpatient care to women with conditions such as diabetes, hypertension, sickle cell disease, multiple gestation, recurrent miscarriage, family history of genetic diseases, suspected fetal birth defects, and other complications during their pregnancies. We believe that improved maternal-fetal care has a positive impact on neonatal outcomes. Data on neonatal outcomes demonstrate that, in general, the likelihood of mortality or an adverse condition or outcome (referred to as “morbidity”) is reduced the longer a baby remains in the womb. There are approximately 1,200 maternal-fetal medicine subspecialists providing care in the United States.

Pediatric Cardiology Medicine . Pediatric cardiologists provide inpatient and outpatient cardiology care of the fetus, infant, child, and adolescent with congenital heart defects and acquired heart disease as well as adults with congenital heart defects. We estimate that approximately one in every 120 babies is born with some form of heart defect. With advancements in care, there are approximately one million adults in the United States today living with congenital heart disease.

Other Pediatric Subspecialty Medicine . Other areas of pediatric subspecialty medicine are closely associated with maternal-fetal-newborn medical care. For example, pediatric intensivists are subspecialists who care for critically ill or injured children and adolescents in pediatric intensive care units (called “PICUs”). There are approximately 1,200 board-certified pediatric intensivists in the United States who practice at approximately 300 hospital-based PICUs. In addition, pediatric hospitalists are pediatricians who provide care in many hospital areas, including labor and delivery and the newborn nursery.

Anesthesia Medicine . An estimated 45 million inpatient procedures and 31.5 million ambulatory procedures are performed annually in the United States. Anesthesiologists generally provide or participate in the administration of anesthetics in these procedures. According to the US Census Bureau, the population continues to expand and the fastest growing segment of the population consists of individuals over the age of 65. The growth in population and the over age 65 segment thereof has resulted in an increase in demand for surgical services and a correlating increase in demand for anesthesia services. The growth of ambulatory surgical centers and expansion of office-based procedures has also contributed to the demand for anesthesia services. There are approximately 43,000 anesthesiologists practicing in the United States.

Hospital-Based Care . Hospitals generally must provide cost-effective, quality care in order to enhance their reputations within their communities and desirability to patients, referring and collaborating physicians and third-party payors. In an effort to improve outcomes and manage costs, hospitals typically employ or contract with physician subspecialists to provide specialized care in many hospital-based units or settings. Hospitals traditionally staffed these units or settings through affiliations with local physician groups or independent practitioners. However, management of these units and settings present significant operational challenges, including variable admissions rates, increased operating costs, complex reimbursement systems and other administrative burdens. As a result, hospitals contract with physician organizations that have the clinical quality initiatives, information and reimbursement systems and management expertise required to effectively and efficiently operate these units and settings in the current healthcare environment. Demand for hospital-based physician services, including neonatology and anesthesiology, is determined by a national market in which qualified physicians with advanced training compete for hospital contracts.

Practice Administration . Administrative demands and cost containment pressures from a number of sources, principally commercial and government payors, make it increasingly difficult for physicians and hospitals to effectively manage patient care, remain current on the latest procedures and efficiently administer non-clinical activities. As a result, we believe that physicians and hospitals remain receptive to being affiliated with larger organizations that reduce administrative burdens, achieve economies of scale and provide value-added clinical research, education and quality initiatives. By relieving many of the burdens associated with the management of a subspecialty group practice, we believe that our practice administration services permit our affiliated physicians to focus on providing quality patient care and thereby contribute to improving patient outcomes, ensuring appropriate length of hospital stays and reducing long-term health system costs. In addition, our national network of affiliated physician practices, although modeled around a traditional group practice structure, is managed by a non-clinical professional management team with proven abilities to achieve significant operating efficiencies in providing administrative support systems, interacting with physicians, hospitals and third-party payors, managing information systems and technologies, and complying with laws and regulations.

Our Business Strategy

Our business objective is to enhance our position as a leading provider of physician services. The key elements of our strategy to achieve our objective are:




Build upon core competencies . We have developed significant administrative expertise relating to neonatal, maternal-fetal and other pediatric subspecialty physician services. We have also facilitated the development of a clinical approach to the practice of medicine among our affiliated physicians that includes research, education and quality initiatives intended to advance the practice of neonatology, improve the quality of care provided to acutely ill newborns and reduce long-term health system costs. We are in the process of developing similar expertise in maternal-fetal medicine and pediatric cardiology and intend to explore ways to do the same for anesthesia medicine as we expand our presence in this specialty.




Promote same-unit growth . We seek opportunities for increasing revenues from our hospital and office-based operations. For example, our affiliated hospital-based neonatal, maternal-fetal and other pediatric physicians are well situated to, and, in some cases, provide physician services in other departments, such as newborn nurseries, or in situations where immediate accessibility to specialized obstetric and pediatric care may be critical. In addition, we market our capabilities to obstetricians, pediatricians and family physicians to attract referrals to our hospital-based units and our office based practices as well. We also market the services of our affiliated physicians to other hospitals to attract neonatology transport admissions. We intend to seek similar opportunities with our affiliated anesthesiologists.




Acquire physician practice groups . We continue to seek to expand our operations by acquiring established neonatal, maternal-fetal medicine and pediatric cardiology groups and other complementary pediatric subspecialty physician groups, such as pediatric intensivists and pediatric hospitalists. During 2007, we added ten physician groups to our national network through acquisitions consisting of five neonatal practices, one maternal-fetal medicine practice, one radiology practice and two pediatric cardiology practices as well as the acquisition of our first anesthesia practice. We believe that there are opportunities to apply our administrative expertise to this practice area and accordingly intend to explore other opportunities to acquire anesthesia practices during 2008.




Strengthen relationships with our partners . By managing many of the operational challenges associated with a subspecialty practice, encouraging clinical research, education and quality initiatives, and promoting timely intervention by our physicians, we believe that our business model is focused on improving the quality of care delivered to patients, promoting the appropriate length of their hospital stays and reducing long-term health system costs. We believe that referring and collaborating physicians, hospitals, third-party payors and patients all benefit to the extent that we are successful in implementing our business model. We will continue to seek opportunities to strengthen relationships with our partners.

OUR PHYSICIAN SERVICES

Neonatal Care

We provide neonatal care to babies born prematurely or with complications within specific hospital units, primarily NICUs, through our network of 788 affiliated neonatal physicians and other related clinical professionals who staff and manage clinical activities at more than 257 NICUs in 32 states and Puerto Rico. We partner with our hospital clients in an effort to enhance the quality of care delivered to premature and sick babies. Some of the nation’s largest and most prestigious hospitals, both not-for-profit and for-profit institutions, retain us to staff and manage their NICUs. Our affiliated neonatologists generally provide 24-hours-a-day, seven-days-a-week coverage in NICUs, support the local referring physician community and are available for consultation in other hospital departments. Our hospital partners benefit from our experience in managing complex intensive care units. Our neonatal physicians interact with colleagues across the country through an internal communications system to draw upon their collective expertise in managing challenging patient care issues. Our neonatal physicians also work collaboratively with maternal-fetal medicine subspecialists to coordinate care of mothers experiencing complicated pregnancies and their fetuses. We also employ or contract with neonatal nurse practitioners, who work with our affiliated physicians in providing medical care.

Maternal-fetal Care

We provide outpatient and inpatient maternal-fetal care to expectant mothers with complicated pregnancies and their fetuses through our network of 109 affiliated physicians who provide maternal-fetal medical care as well as other related clinical professionals. Our affiliated neonatologists practice with maternal-fetal medicine subspecialists to provide coordinated care for women with complicated pregnancies whose babies are often admitted to the NICU upon delivery. We believe continuity of treatment from mother and developing fetus during the pregnancy to the newborn upon delivery has improved the clinical outcomes of our patients.

Pediatric Cardiology Care

Our pediatric cardiology practice consists of 69 affiliated physicians and other related clinical professionals who provide specialized cardiac care to the fetus, pediatric patients with congenital and acquired heart disorders, as well as adults with congenital heart defects, through scheduled office visits, hospital rounds and immediate consultation in emergency situations.

Other Pediatric Subspecialty Care

Our network includes other pediatric subspecialists such as pediatric intensivists and pediatric hospitalists. In addition, our affiliated physicians also seek to provide support services in other areas of hospitals, particularly in the labor and delivery area, nursery and pediatric department, where immediate accessibility to specialized care may be critical. Our experience and expertise in maternal-fetal-neonatal medicine has led to our involvement in these other areas.




Pediatric Intensive Care . We have 37 affiliated physicians who provide clinical care for critically ill or injured children and adolescents. They staff and manage PICUs at 17 hospitals.




Pediatric Hospitalists . We have 16 affiliated hospital-based physicians who provide clinical care to acutely ill children at 13 hospitals.




Other Newborn and Pediatric Care . Because our affiliated physicians and advanced nurse practitioners generally provide hospital-based coverage, they are situated to provide highly specialized care to address medical needs that may arise during a baby’s hospitalization. For example, as part of our ongoing efforts to support and partner with hospitals and the local referring physician community, our affiliated neonatologists, pediatric hospitalists and advanced nurse practitioners provide in-hospital nursery care to newborns through our newborn nursery program. This program is made available for babies during their hospital stay, which in the case of healthy babies typically comprises two days of evaluation and observation, following which they are referred, and their hospital records are provided, to their pediatricians or family practitioners for follow-up care.




Newborn Hearing Screening Program . Our affiliated physicians also oversee the Company’s newborn hearing screening program. Since we launched this program in 1994, we believe that we have become the largest provider of newborn hearing screening services in the United States. In 2007, we screened approximately 355,000 babies for potential hearing loss at more than 159 hospitals across the nation. Over 40 states either require newborns to be screened for potential hearing loss before being discharged from the hospital or require that parents be offered the opportunity to submit their newborns to hearing screens. We contract or coordinate with hospitals to provide hearing screening services.

Anesthesia Care

We provide anesthesia care at hospitals, ambulatory surgery centers, and office based practices with our 53 affiliated anesthesiologists. We also employ CRNAs, who work with our affiliated physicians in providing anesthesia care. Our anesthesiologists generally work as part of a team that includes surgeons and nurses that assist them. They support the surgeons by providing medical care before, during and after surgery so that surgeons may concentrate on the applicable surgery. Our anesthesiologists provide this care by evaluating the patient and consulting with the surgical team before surgery, providing pain control and support of life functions during surgery, supervising care after surgery and discharging the patient from the recovery unit. They also support the hospital’s emergency room by providing services as appropriate to patients requiring immediate care. In addition, our physicians provide anesthesia care at ambulatory surgical centers and office based practices for procedures performed that require some level of anesthesia.

OUR CLINICAL RESEARCH AND EDUCATION

As part of our patient focus and ongoing commitment to improving patient care through evidenced-based medicine, we engage in clinical research, continuous quality improvement, and education initiatives. We discover, understand, and teach healthcare practices that enhance the abilities of clinicians to deliver quality care, thereby contributing to better patient outcomes and reduced long-term health system costs. We invest in these initiatives for our patients, clinicians, referring and collaborating physicians, hospital partners and third-party payors. We believe that these initiatives help us, among other things, to attract new and retain existing clinicians, improve clinical operations and enhance practice communication.




Clinical Research . We conduct clinical research to discover ways to improve care for our patients. We share our discoveries throughout the medical community through submissions to peer-reviewed literature. In the past three years, our clinicians have contributed to more than 100 published research papers, rivaling many academic institutions.




We have successfully completed five clinical trials. In 2007, the results of a major multi-center trial, A Randomized Controlled Trial Evaluating the Effect of Two Different Doses of Amino Acids on Growth and Serum Amino Acids in Premature Neonates were published in the medical journal, Pediatrics . This trial evaluated the use of protein administration and growth in the preterm infant. Epidemiology of Respiratory Failure in Near-Term Neonates commenced in February 2001 and resulted in a paper published in the Journal of Perinatology in April 2005. Comparison of Infasurf (Calfactant) and Survanta (Beractant) in the Prevention and Treatment of Respiratory Distress Syndrome commenced in March 2001 with a grant from Forest Laboratories and resulted in a paper published in Pediatrics in August 2005. Glutamine Supplementation in Safely Reducing Hospital-Acquired Sepsis in Very Low Birth Weight Infants commenced in April 2000 and resulted in a paper published in the Journal of Pediatrics in June 2003. A study on Optimal Management of Monoamniotic Twins was published in the American Journal of Obstetrics & Gynecology in December 2003.




Seven additional multi-institutional clinical trials are in progress. Two of the trials are focused on improving care for the infant: Demographic, Metabolic, and Genomic Description of Neonates with Severe Hyperbilirubinemia and Utility of Genetic Testing in Detection of Late-Onset Hearing Loss. The other five trials focus on the high-risk mother to reduce the rate of prematurity and/or complications in pregnancy or delivery: A Randomized Double-Blinded Study Comparing the Impact of One Versus Two Doses of Antenatal Steroids on Neonatal Outcomes; Removal versus Retention of Cerclage in Preterm Premature Rupture of Membranes; 17 A-Hydroxyprogesterone Caproate for Reduction of Neonatal Mortality Due to Preterm Birth in Twin or Triplet Pregnancies; Amniotic Fluid Tandem Mass Spectrometry for Pregnancies Complicated by Nonimmune Hydrops and Severe Symmetrical Intrauterine Growth Restriction; and Development of non-invasive tests to detect intra-amniotic infection and predict pre-term birth in women presenting with pre-term labor.



Continuous Quality Improvement . As part of our dedication to improving quality across our affiliated practices, we provide our clinicians with powerful information resources. Our physicians have access to accumulated data and robust software tools that enable them to compare their practices, across a variety of activity and outcome metrics, to our national practice network. From these comparisons, our physicians can identify areas for improvement, and then systematically monitor, study, learn, and implement change. We believe that our initiatives in continuous quality improvement have contributed to better patient care. For example, one of our initiatives has led to a nationwide, online collaborative effort among 80 hospitals to reduce the leading cause of infant blindness among premature newborns. We are also working on similar efforts to optimize antibiotic usage, weight gain among very low birth weight infants, the use of breast milk, and the occurrences of red blood cell transfusions in premature infants. In addition, continuous quality improvement initiatives are underway for our other physician specialties. Some of our prior continuous quality initiatives have resulted in published research papers.







Continuing Medical Education . We also make extensive physician continuing medical education and continuing nursing education resources available to our affiliated clinicians in an effort to ensure that they have access to current treatment methodologies. As an accredited provider for clinicians generally, we offer live continuing medical education through, what we believe is one of the premier conferences in neonatal medicine— NEO: The Conference for Neonatology , which we launched in 2007. In addition to live educational opportunities, we also offer online education through “Pediatrix University—A University Without Walls R ,” an interactive educational website.

We believe that these initiatives have been enhanced by our integrated national presence together with our management information systems, which are an integral component of our clinical research and education activities. See “Our Information Systems.”

OUR PRACTICE ADMINISTRATION

We provide multiple administrative services to support the practice of medicine by our affiliated physicians and improve operating efficiencies of our affiliated practice groups.




Unit Management . We appoint a senior physician practicing medicine in each NICU, PICU, maternal-fetal, pediatric cardiology and anesthesia practice and other subspecialty practice that we manage to act as our medical director for that unit or practice. Each medical director is responsible for the overall management of his or her unit or practice, including staffing and scheduling, quality of care, professional discipline, utilization review, coordinating physician recruitment, and monitoring our financial success within the unit or practice. Medical directors also serve as a liaison with hospital administration, other physicians and the community. Each medical director reports to a physician who is part of the Company’s management team and is either board-certified or eligible-to-apply-for-cer tification in his or her respective specialty.




Staffing and Scheduling . We assist with staffing and scheduling physicians and advanced practice nurses within the units and practices that we manage. For example, each NICU is staffed by at least one specialist on site or available on call. For our affiliated anesthesia physicians and CRNAs, we employ an operational system that assists with their staffing and scheduling. We are responsible for the salaries and benefits paid and provided to our affiliated physicians and practitioners. In addition, we employ, compensate and manage all non-medical personnel for our affiliated physician groups.




Recruiting and Credentialing . We have significant experience in locating, qualifying, recruiting and retaining experienced neonatologists, maternal-fetal medicine subspecialists, pediatric cardiologists, pediatricians and other pediatric subspecialists. We maintain an extensive nationwide database of maternal-fetal, neonatal and other pediatric subspecialty physicians and are beginning to develop such a database for anesthesiologists. Our medical directors and physician management play a central role in the recruiting and interviewing process before candidates are introduced to other practice group physicians and hospital administrators. We check the credentials, licenses and references of all

prospective affiliated physician candidates. In addition to our database of physicians, we recruit nationally through trade advertising, referrals from our affiliated physicians and attendance at conferences.




Billing, Collection and Reimbursement . We assume responsibility for contracting with third-party payors for all of our affiliated physicians. We are responsible for billing, collection and reimbursement for services rendered by our affiliated neonatal, maternal-fetal and pediatric subspecialty physicians. Presently, we contract with a third-party billing company to process billing, collection and reimbursement for our affiliated anesthesiologists. We are in the process of evaluating various systems that will allow us to provide these services directly. In all instances, however, we do not assume responsibility for charges relating to services provided by hospitals or other physicians with whom we collaborate. Such charges are separately billed and collected by the hospitals or other physicians. We provide our affiliated physicians with a training curriculum that emphasizes detailed documentation of and proper coding protocol for all procedures performed and services provided, and we provide comprehensive internal auditing processes, all of which are designed to achieve appropriate coding, billing and collection of revenues for physician services. Our billing and collection operations are conducted from our corporate offices, as well as our regional business offices located across the United States and in Puerto Rico .




Risk Management and Other Services . We maintain a risk management program focused on reducing risk and improving outcomes through evidence-based medicine, including diligent patient evaluation, documentation and access to research, education and best demonstrated processes. We maintain professional liability coverage for our national group of affiliated healthcare professionals. Through our risk management and medical affairs staff, we conduct risk management programs for loss prevention and early intervention in order to prevent or minimize professional liability claims. In addition, we provide a multi-faceted compliance program that is designed to assist our affiliated practice groups in complying with increasingly complex laws and regulations. We also provide management information systems, facilities management, marketing support and other services to our affiliated physicians and affiliated practice groups.

CEO BACKGROUND

Roger J. Medel, M.D. has been a Director of Pediatrix since he co-founded the Company in 1979. Dr. Medel served as Pediatrix’s President until May 2000 and as Chief Executive Officer until December 2002. In March 2003, Dr. Medel reassumed the position of President, serving in that position until May 2004, and Chief Executive Officer, a position in which he continues to serve today. Dr. Medel is a member of the Board of Trustees of the University of Miami and a member of the Board of Directors of MBF Healthcare Acquisition Corp. Dr. Medel participates as a member of several medical and professional organizations.

Cesar L. Alvarez was elected as Chairman of the Board of Directors in May 2004 and has been a Director since March 1997. Mr. Alvarez has served since 1997 as the Chief Executive Officer of the international law firm of Greenberg Traurig, P.A. Mr. Alvarez also serves on the Board of Directors of Atlantis Plastics, Inc. and Watsco, Inc.

Waldemar A. Carlo, M.D. was elected as a Director in June 1999. Dr. Carlo has served as Professor of Pediatrics and Director of the Division of Neonatology at the University of Alabama School of Medicine since 1991. Dr. Carlo also has served as Director of Newborn Nurseries at the University of Alabama Medical Center and the Children’s Hospital of Alabama since 1991. Dr. Carlo participates as a member of several medical and professional organizations. He has received numerous research awards and grants and has lectured extensively, both nationally and internationally.

Michael B. Fernandez was elected as a Director in October 1995. Mr. Fernandez has served as Chairman and is and has been a Managing Director of MBF Healthcare Partners, L.P., a private equity firm focused on investing in healthcare service companies, since February 2005 and has been Chairman and Chief Executive Officer of MBF Healthcare Acquisition Corp. since June 2006. He is also the Chairman of Navarro Discount Pharmacies, LLC. Mr. Fernandez previously served as Chairman and Chief Executive Officer of CarePlus Health Plans Inc., a managed care HMO, from January 2003 until February 2005, and as Chairman and Chief Executive Officer of Physicians Healthcare Plans, Inc., a Florida-based HMO, from 1992 until December 2002. Presently, Mr. Fernandez also serves on the Board of Directors of various private entities, including Healthcare Atlantic, Inc., a holding company that operates various health care entities.

Roger K. Freeman, M.D. was elected as a Director in May 2002. Dr. Freeman is a maternal-fetal medicine physician. In 1975, he founded Perinatal Associates of Southern California, a physician practice group that has been affiliated with Pediatrix since we acquired Magella Healthcare Corporation (“Magella”) in May 2001. In September 1999, Dr. Freeman retired from the private practice of medicine. Dr. Freeman has served on many national and local OB/GYN and maternal-fetal organizations. He is currently a member of the Long Beach Memorial Medical Center Foundation Board and serves on the Board of Directors of Todd Cancer Institute at Long Beach Memorial Hospital. Dr. Freeman has authored numerous articles and three books.

Paul G. Gabos was elected as a Director in November 2002. Mr. Gabos has served as Chief Financial Officer of Lincare Holdings Inc. since June 1997 and previously served as Vice President — Administration for Lincare. Prior to joining Lincare in 1993, Mr. Gabos worked for Coopers & Lybrand and for Dean Witter Reynolds, Inc.

Pascal J. Goldschmidt, M.D. was elected as a Director in March 2006. Dr. Goldschmidt has been the Senior Vice President for Medical Affairs and Dean of the University of Miami Leonard M. Miller School of Medicine since April 2006. Previously, Dr. Goldschmidt was a faculty member with the Department of Medicine at Duke University Medical Center where he served as Chairman from 2003 to 2006 and as Chief of the Division of Cardiology from 2000 to 2003.

Manuel Kadre was elected as a Director in May 2007. Mr. Kadre has served since 1995 as Vice President and General Counsel of the de la Cruz Companies, which distributes Eagle Brands beverages in South Florida and bottles Coca-Cola products in markets throughout the Caribbean. Mr. Kadre also serves on the Board of Directors of Equity Media Holdings Corporation and on the Board of Trustees of the University of Miami and Miami Children’s Hospital.

Enrique J. Sosa, Ph.D. was elected as a Director in May 2004. Mr. Sosa is currently a Director of FMC Corporation and Northern Trust Corporation. Mr. Sosa, who is presently retired, served as President of BP Amoco Chemicals from January 1999 to April 1999. From 1995 to 1998, he was Executive Vice President of Amoco Corporation. Prior to joining Amoco, Mr. Sosa served as Senior Vice President of The Dow Chemical Company, President of Dow North America and a member of its Board of Directors. Mr. Sosa has previously served on the Board of Directors of Electronic Data Systems Corporation, Dow Corning Corporation and Destec Energy, Inc. He also served as a member of the Executive Committee of the American Plastics Council, a member of the Executive Committee of the American section of the Society of Chemical Industry, and a member of the American Chemical Council.

Joseph M. Calabro joined Pediatrix in January 1996 as Chief Information Officer. In January 2000, Mr. Calabro was appointed Executive Vice President, Management, in May 2000, he was appointed Chief Operating Officer and in May 2004, he was appointed President. Prior to joining Pediatrix, Mr. Calabro served as Director of Information Technology for the Ambulatory Surgery Group of Columbia/HCA. He served in various operational and technology positions for various healthcare companies from 1987 to 1994.

Thomas W. Hawkins joined Pediatrix in May 2003 and became Senior Vice President, General Counsel and Secretary in June 2003. From January 2000 to April 2003, he was a partner with New River Capital Partners, L.P., a private equity firm. Mr. Hawkins previously served as Senior Vice President, Corporate Development at AutoNation, Inc., from June 1996 to December 1999. From 1994 to 1996, Mr. Hawkins was Executive Vice President — Administration of Blockbuster Entertainment Group, a division of Viacom, Inc. He served as General Counsel at Blockbuster Entertainment Corporation prior to its merger with Viacom, Inc. in 1994.

Karl B. Wagner joined Pediatrix in May 1997 and was appointed Chief Financial Officer and Treasurer in August 1998. Prior to his appointment, Mr. Wagner served as Pediatrix’s Controller. Prior to joining Pediatrix, Mr. Wagner was Chief Financial Officer for the East Region of Columbia/HCA’s Ambulatory Surgery Group from January 1995 until May 1997. From July 1993 through January 1995, Mr. Wagner was Assistant Controller of Medical Care International, Inc., a subsidiary of Medical Care America, Inc.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW

Pediatrix is a leading provider of physician services including newborn, maternal-fetal, pediatric subspecialty, and anesthesia care. At December 31, 2007, our national network was composed of 1,072 affiliated physicians, including 788 physicians who provide neonatal clinical care in 32 states and Puerto Rico, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications. We have 109 affiliated physicians who provide maternal-fetal medical care to expectant mothers experiencing complicated pregnancies in many areas where our affiliated neonatal physicians practice. Our network includes other pediatric subspecialists, including 69 physicians providing pediatric cardiology care, 37 physicians providing pediatric intensive care and 16 physicians providing hospital based pediatric care. In addition, we have 53 physicians who provide anesthesia care to patients in connection with surgical and other medical procedures.

In December 2007, we signed a definitive agreement to sell our newborn metabolic screening laboratory business in a cash transaction. The closing of the sale is subject to customary conditions. In accordance with FAS 144, the assets and liabilities related to the laboratory business have been classified as held for sale at December 31, 2007 and its business operations are reported separately as discontinued operations, net of income taxes. The sale of the laboratory is intended to allow us to focus more resources to support the continued expansion of our clinical and administrative competencies within physician services.

In September, 2007, we completed the acquisition of Fairfax Anesthesiology Associates, a physician group that consists of 53 anesthesiologists and 60 certified registered nurse anesthetists who provide anesthesia services in northern Virginia. This acquisition represents our initial expansion of services into anesthesia care. We believe that there are opportunities to apply our administrative expertise to this practice area and accordingly we intend to explore other opportunities to acquire anesthesia practices during 2008.

We completed the acquisition of ten physician group practices during the year ended December 31, 2007. These acquisitions consist of five neonatal practices, two cardiology practices, one maternal-fetal practice, one ultrasound radiology practice and one anesthesiology practice as discussed above. Based on past results, we expect that we can improve the results of these practices through improved managed care contracting, improved collections, identification of growth initiatives, as well as, operating and cost savings based upon the significant infrastructure we have developed.

In August 2007, our Board of Directors authorized a $100 million share repurchase program to repurchase shares of the Company’s common stock in open market transactions subject to price, general economic and market conditions and trading restrictions. In November 2007, we completed the share repurchase program having bought approximately 1.6 million shares for approximately $100 million. In December 2007, our Board of Directors authorized an additional $100 million share repurchase program. As of December 31, 2007, no repurchases had been made under the additional program.

In July 2007, the Audit Committee of our Board of Directors concluded a comprehensive review of our historical practices related to the granting of stock options. Based on this review, the Audit Committee and management concluded that incorrect measurement dates were used for certain stock option grants in prior periods. Our results of operations for the years ended December 31, 2007 and 2006 include professional fees incurred in connection with the review. In addition, our results of operations for the year ended December 31, 2007, reflect costs to cover Internal Revenue Code Section 409A (“409A”) tax obligations on behalf of employees and other payments to employees as a result of stock option measurement date revisions.

In September 2006, we completed a final settlement agreement with the Department of Justice and a relator who initiated a “qui tam” complaint against the Company relating to our billing practices for services reimbursed by Medicaid, the Federal Employees Health Benefit program, and the United States Department of Defense’s TRICARE program for military dependents and retirees (“Federal Settlement Agreement”). In February 2007, we completed separate state settlement agreements with each state Medicaid program involved in the settlement (the “State Settlement Agreements”). Under the terms of the Federal Settlement Agreement and State Settlement Agreements, the Company paid $25.1 million to the federal government and participating state Medicaid programs in connection with our billing for neonatal services provided from January 1996 through December 1999.

Effective January 1, 2006, we adopted FAS 123(R). This statement requires us to expense stock-based awards to our employees using a fair-value-based measurement method. Our results of operations for the years ended December 31, 2007 and 2006 include stock-based compensation expense related to stock options and restricted stock awarded under our stock incentive plans (the “Stock Incentive Plans”) and employee stock purchases under our stock purchase plans (the “Stock Purchase Plans”) in accordance with FAS 123(R). For the year ended December 31, 2005, we recorded stock-based compensation expense using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and its related interpretations (“APB 25”) for restricted stock first awarded on July 14, 2005, and for stock options determined to have been issued at grant prices below market value on the measurement date.

Geographic Coverage and Payor Mix

During 2007, 2006 and 2005, approximately 56%, 56% and 59%, respectively, of our net patient service revenue was generated by operations in our five largest states, Arizona, California, Florida, Texas and Washington. Over those same periods, our operations in Texas accounted for approximately 28%, 28% and 30% of our net patient service revenue. Adverse changes or conditions affecting states in which our operations are concentrated, such as healthcare reforms, changes in laws and regulations, reduced Medicaid reimbursements or government investigations, may have a material adverse effect on our business, financial condition, results of operations and cash flows.

We bill payors for professional services provided by our affiliated physicians to our patients based upon rates for specific services provided. Our billed charges are substantially the same for all parties in a particular geographic area regardless of the party responsible for paying the bill for our services. We determine our net patient service revenue based upon the difference between our gross fees for services and our estimated ultimate collections from payors. Net patient service revenue differs from gross fees due to (i) government sponsored healthcare program 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 in the NICU 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.

Quarterly Results

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:




A significant number of our employees and our associated professional contractors, primarily physicians, exceed the level of taxable wages for social security during the first and second quarters of the year. As a result, we incur a significantly higher payroll tax burden and our net income is lower during those quarters.




There is a lower number of calendar days in the first and second quarters of the year as compared to the remainder of the year. Because we provide services in NICUs on a 24-hour basis, 365 days a year, any reduction in service days will have a corresponding reduction in net patient service revenue.

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. Additionally, quarterly results may be affected by the timing of acquisitions and fluctuations 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. Our quarterly results are presented in further detail in Note 17 to the Consolidated Financial Statements in this Form 10-K.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Note 2 to our Consolidated Financial Statements provides a summary of our significant accounting policies, which are all in accordance with generally accepted accounting policies in the United States. Certain of our accounting policies are critical to understanding our Consolidated Financial Statements because their application requires management to make assumptions about future results and depends to a large extent on management’s judgment, because past results have fluctuated and are expected to continue to do so in the future.

We believe that the application of the accounting policies described in the following paragraphs are highly dependent on critical estimates and assumptions that are inherently uncertain and highly susceptible to change. For all of these policies, we caution that future events rarely develop exactly as estimated, and the best estimates routinely require adjustment. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below.

RESULTS OF OPERATIONS

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006

Our net patient service revenue increased $112.9 million, or 14.0%, to $917.6 million for the year ended December 31, 2007, as compared to $804.7 million for the same period in 2006. Of this $112.9 million increase, $42.2 million, or 37.4%, was attributable to revenue generated from acquisitions completed after December 31, 2005. Same-unit net patient service revenue increased $70.7 million, or 9.3%, for the year ended December 31, 2007. The change in same-unit net patient service revenue was primarily the result of increased revenue of $36.9 million from higher patient service volumes across our subspecialties and a net increase in revenue of approximately $33.8 million related to pricing and reimbursement factors. Increased revenue of $36.9 million from higher patient service volumes includes $22.0 million from a 4.2% increase in neonatal intensive care unit patient days and $14.9 million from volume growth in maternal-fetal, pediatric cardiology and other services, including hearing screens and newborn nursery services. The net increase in revenue of $33.8 million related to pricing and reimbursement factors is due to: (i) improved managed care contracting; (ii) increased reimbursement for physician services from the Texas Medicaid program beginning in September 2007; (iii) increased revenue related to hospital contract administrative fees due to expanded services in existing practices; and (iv) the flow through of revenue from modest price increases. 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 $67.1 million, or 14.4%, to $533.3 million for the year ended December 31, 2007, as compared to $466.2 million for the same period in 2006. The increase was primarily attributable to: (i) costs associated with new physicians and other staff of $48.9 million to support acquisition-related growth and volume growth at existing units; (ii) an increase in incentive compensation of $15.2 million as a result of operational improvements at the physician-practice level and an increase in the number of practices participating in our incentive compensation program; and (iii) costs of $3.0 million to cover 409A tax obligations on behalf of practice employees and other payments to practice employees as a result of stock option measurement date revisions.

Practice supplies and other operating expenses increased $4.8 million, or 16.5%, to $34.1 million for the year ended December 31, 2007, as compared to $29.2 million for the same period in 2006. This increase was primarily attributable to supply and maintenance costs and other costs to support acquisition-related growth and volume growth at existing units.

General and administrative expenses include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically related to the day-to-day operations of our physician group practices. General and administrative expenses increased $13.0 million, or 12.2%, to $119.8 million for the year ended December 31, 2007, as compared to $106.8 million for the same period in 2006. This $13.0 million increase was due to: (i) a $7.6 million increase in salaries and benefits and other general and administrative expenses related to the continued growth of the Company; (ii) costs of $3.4 million to cover 409A tax obligations on behalf of employees and other payments to employees as a result of stock option measurement date revisions; (iii) a reduction in expense in the 2006 period associated with a $1.6 million gain on the sale of the Company’s aircraft; and (iv) professional fees related to our stock option review of $400,000.

Depreciation and amortization expense increased by approximately $1.5 million, or 18.7%, to $9.6 million for the year ended December 31, 2007, as compared to $8.1 million for the same period in 2006. This increase was attributable to the amortization of intangible assets related to acquisitions and the depreciation of fixed asset additions.

Income from operations increased $26.5 million, or 13.6%, to $220.9 million for the year ended December 31, 2007, as compared with $194.4 million for the same period in 2006. Our operating margin decreased to 24.1% for the year ended December 31, 2007, as compared to 24.2% for the same period in 2006. The net decrease in our operating margin is primarily attributable to (i) $6.4 million of costs to cover 409A tax obligations on behalf of employees and other payments to employees as a result of stock option measurement date revisions; (ii) a reduction in expense in the 2006 period associated with a $1.6 million gain on the sale of the Company’s aircraft; (iii) a $400,000 increase in professional fees related to our stock option review; and (iv) an offsetting reduction in costs due to improved management of general and administrative expenses.

We recorded net investment income of $6.1 million for the year ended December 31, 2007, as compared to net investment income of $2.8 million for the same period in 2006. The increase in net investment income is due to an increase in funds available to invest and a higher return on outstanding investment balances for the year ended December 31, 2007, as compared to the prior year period. Interest expense for the years ended December 31, 2007 and 2006, consisted of interest charges, commitment fees and amortized debt costs associated with our revolving credit facility (“Line of Credit”).

Our effective income tax rate was 38.32% for the year ended December 31, 2007, as compared to 38.08% for the same period in 2006. The net increase in our effective tax rate is primarily due to an increase in our provision for uncertain tax positions as a result of the adoption of FIN 48 and increased taxes as a result of tax law changes in the State of Texas, partially offset by the recognition of tax benefits on uncertain tax positions as a result of the expiration of the statute of limitations on certain filed tax returns. We anticipate our effective tax rate will be approximately 39.25% for 2008, excluding any adjustments related to reductions in liabilities for uncertain tax positions.

Income from discontinued operations, net of income taxes for the years ended December 31, 2007 and 2006 represents the financial results of our newborn metabolic screening laboratory business. In December 2007, we signed a definitive agreement to sell this business in a cash transaction. The closing of the sale is subject to customary conditions. In accordance with FAS 144, the financial results of our newborn metabolic screening laboratory business are reported separately as income from discontinued operations, net of income taxes, for all periods presented. See Note 15 to our Consolidated Financial Statements in this Form 10-K.

Net income increased 14.7% to $142.7 million for year ended December 31, 2007, as compared to $124.5 million for the same period in 2006. Net income for the year ended December 31, 2007, reflects the after-tax impact of approximately $3.9 million for costs to cover 409A tax obligations on behalf of employees and other payments to employees as a result of stock option measurement date revisions, and the after-tax impact of approximately $250,000 for increased professional fees related to our stock option review. Net income for the year ended December 31, 2006, reflects the after-tax impact of approximately $1.0 million related to the gain on sale of the Company’s aircraft.

Diluted net income per common and common equivalent share was $2.86 on weighted average shares outstanding of 49.9 million for the year ended December 31, 2007, as compared to $2.52 on weighted average shares outstanding of 49.4 million for the same period in 2006. The net increase in weighted average shares outstanding was primarily due to the exercise of employee stock options, the vesting of restricted stock and the issuance of shares under our employee stock purchase plans (“Stock Purchase Plans”) partially offset by the weighted average impact of shares repurchased through December 31, 2007 under the $100 million share repurchase program approved by our Board of Directors in August 2007 and completed in November 2007.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Three Months Ended March 31, 2008 as Compared to Three Months Ended March 31, 2007

Our net patient service revenue increased $34.7 million, or 16.4%, to $245.6 million for the three months ended March 31, 2008, as compared to $210.9 million for the same period in 2007. Of this $34.7 million increase, $18.5 million, or 53.3%, was attributable to revenue generated from acquisitions completed after December 31, 2006. Same-unit net patient service revenue increased $16.2 million, or 7.8%, for the three months ended March 31, 2008. The change in same-unit net patient service revenue was the result of increased revenue of approximately $9.5 million related to pricing and reimbursement factors and approximately $6.7 million from higher patient service volumes across our subspecialties. The net increase in revenue of $9.5 million related to pricing and reimbursement factors is due to: (i) increased reimbursement for physician services from the Texas Medicaid program beginning in September 2007; (ii) improved managed care contracting; and (iii) increased revenue related to hospital contract administrative fees due to expanded services in existing practices; partially offset by (iv) a decrease in revenue caused by a slight increase in the percentage of our patients being enrolled in government-sponsored programs. Payments received from government-sponsored programs are substantially less than payments received from commercial insurance payors for equivalent services. Increased revenue of $6.7 million from higher patient service volumes includes $2.8 million from a 1.9% increase in neonatal intensive care unit patient days and $3.9 million from volume growth in maternal fetal, pediatric cardiology and other services, including hearing screens and newborn nursery services. Excluding the additional calendar day in February for the 2008 leap year, the increase in neonatal intensive care unit patient days was .7%. 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 $21.0 million, or 16.1%, to $151.4 million for the three months ended March 31, 2008, as compared to $130.4 million for the same period in 2007. The net increase was primarily attributable to: (i) increased costs associated with new physicians and other staff of approximately $21.2 million to support acquisition-related growth and volume growth at existing units; and (ii) an increase in incentive compensation of $2.8 million as a result of operational improvements at the physician-practice level and an increase in the number of physician practices participating in our incentive compensation program; partially offset by (iii) a decrease in costs, on a comparative basis, related to 409A tax obligations of $3.0 million accrued during the three months ended March 31, 2007.

Practice supplies and other operating expenses increased $1.8 million, or 23.6%, to $9.7 million for the three months ended March 31, 2008, as compared to $7.9 million for the same period in 2007. The increase was primarily attributable to supply and maintenance costs and other costs to support acquisition-related growth and volume growth at existing units.

General and administrative expenses include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically related to the day-to-day operations of our physician group practices. General and administrative expenses decreased $3.2 million, or 9.9%, to $29.8 million for the three months ended March 31, 2008, as compared to $33.0 million for the same period in 2007. This $3.2 million net decrease was primarily due to: (i) a decrease in costs, on a comparative basis, related to 409A tax obligations of $3.4 million accrued during the three months ended March 31, 2007; and (ii) a decrease in costs, on a comparative basis, related to stock option review professional fees of $1.5 million incurred during the three months ended March 31, 2007; partially offset by (iii) an increase in salaries and benefits and other general and administrative expenses of $1.7 million related to the continued growth of the Company.

Depreciation and amortization expense increased by $638,000, or 29.3%, to $2.8 million for the three months ended March 31, 2008, as compared to $2.2 million for the same period in 2007. This increase was attributable to the depreciation of fixed asset additions and the amortization of intangible assets related to acquisitions.

Income from operations increased $14.4 million, or 38.5%, to $51.9 million for the three months ended March 31, 2008, as compared to $37.5 million for the same period in 2007. Our operating margin increased to 21.1% for the three months ended March 31, 2008, as compared to 17.8% for the same period in 2007. The net increase in our operating margin is primarily due to: (i) decreased costs, on a comparative basis, of $7.9 million related to 409A tax obligations and stock option review professional fees incurred during the three months ended March 31, 2007; and (ii) margin improvement from improved management of general and administrative expenses during the three months ended March 31, 2008; partially offset by (iii) a decline in operating margin related to increased practice salaries and benefits during the three months ended March 31, 2008.

We recorded net investment income of $928,000 for the three months ended March 31, 2008, as compared to net investment income of $1.6 million for the same period in 2007. The decrease in net investment income is primarily due to a decrease in funds available to invest as a result of stock repurchase programs and practice acquisitions completed in late 2007 and the first quarter of 2008, as well as lower returns on our outstanding investment balances. Interest expense for the three months ended March 31, 2008 and 2007, consisted of interest charges, commitment fees and amortized debt costs associated with our revolving credit facility (“Line of Credit”).

Our effective income tax rate was 39.21% for the three months ended March 31, 2008, as compared to 36.16% for the same period in 2007. Our effective tax rate for the three months ended March 31, 2007 was affected by the recognition of $1.2 million of tax benefits on uncertain tax positions as a result of the expiration of the statute of limitations on certain filed tax returns. The tax benefit related to 2007 was partially offset by an increase in our provision for uncertain tax positions as a result of the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”) and increased taxes as a result of tax law changes in the State of Texas. We anticipate our effective tax rate will be approximately 39.25% for all of 2008, excluding any adjustments related to reductions in liabilities for uncertain tax positions.

Income from discontinued operations, net of income taxes for the three months ended March 31, 2008 was $23.7 million, compared to $589,000 for the same period in 2007. Income from discontinued operations represents the financial results of our newborn metabolic screening laboratory business. In February 2008, we completed the sale of our newborn metabolic screening laboratory business in a cash transaction for approximately $66.0 million. The net increase in income from discontinued operations for the three months ended March 31, 2008 is due to the gain on the sale of this business, net of income taxes, of $23.2 million. See Note 11 to the Condensed Consolidated Financial Statements for more information regarding the sale of our newborn metabolic screening laboratory business.

Net income increased to $55.8 million for the three months ended March 31, 2008, as compared to $25.6 million for the same period in 2007. Net income for the three months ended March 31, 2008 includes the after-tax gain of $23.2 million on the sale of our newborn metabolic screening business. Net income for the three months ended March 31, 2007 includes $4.8 million for the after-tax impact of costs to cover 409A tax obligations and professional fees related to our stock option review, and the recognition of $1.2 million of tax benefits on uncertain tax positions.

Diluted net income per common and common equivalent share was $1.14 on weighted average shares outstanding of 48.9 million for the three months ended March 31, 2008, as compared to $.51 on weighted average shares outstanding of 49.9 million for the same period in 2007. The net decrease in weighted average shares outstanding was primarily due to the impact of shares repurchased in late 2007 and through March 2008 under repurchase programs approved by our Board of Directors in August 2007 and December 2007, partially offset by an increase in weighted average shares from the exercise of employee stock options, the vesting of restricted stock and the issuance of shares under our Stock Purchase Plans.

Liquidity and Capital Resources

As of March 31, 2008, we had $39.5 million of cash and cash equivalents on hand as compared to $102.8 million at December 31, 2007. In addition, we had working capital of $54.9 million at March 31, 2008, a decrease of $44.3 million from working capital of $99.2 million at December 31, 2007. This net decrease in working capital is primarily due to the use of funds for the repurchase of common stock under our most recent share repurchase program and physician practice acquisition payments, partially offset by year-to-date earnings from continuing operations, the after-tax gain of $23.2 million on the sale of our newborn metabolic screening laboratory business, and proceeds from the exercise of employee stock options and the issuance of common stock under our Stock Purchase Plans.

Our net cash used in operating activities was $27.3 million for the three months ended March 31, 2008, as compared to net cash used in operating activities of $30.8 million for the same period in 2007. The net decrease in our cash used in operating activities for the three months ended March 31, 2008 is primarily due to: (i) improved operating results; (ii) lower estimated tax payments, on a comparative basis, for the three months ended March 31, 2008; and (iii) improved collections on accounts receivable; partially offset by (iv) an increase in cash used in operations from an increase in our annual payments due under our performance-based incentive compensation program. Our operating results for the three months ended March 31, 2007 were affected by increased costs of $7.9 million related to 409A tax obligations and professional fees related to our stock option review.

During the three months ended March 31, 2008, accounts receivable decreased by $1.5 million, as compared to an increase of $2.2 million for the same period in 2007. The net decrease in accounts receivable during the three months ended March 31, 2008 is primarily due to a slight improvement in cash collections.

Our accounts receivable are principally due from managed care payors, government payors, and other third-party insurance payors. We track our collections from these sources, monitor the age of our accounts receivable, and make all reasonable efforts to collect outstanding accounts receivable through our systems, processes and personnel at our corporate and regional billing and collection offices. We use customary collection practices, including the use of outside collection agencies, for accounts receivable due from private pay patients when appropriate. Almost all of our accounts receivable adjustments consist of contractual adjustments due to the difference between gross amounts billed and the amounts allowed by our payors. Any amounts written off related to private pay patients are based on the specific facts and circumstances related to each individual patient account.

Days sales outstanding (“DSO”) is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Since December 31, 2007, our DSO has decreased slightly from 53.5 days at December 31, 2007 to 53.4 days at March 31, 2008.

During the three months ended March 31, 2008, cash used in operating activities related to accounts payable and accrued expenses was $73.3 million, compared to $60.8 million for the same period in 2007. This $12.5 million net increase is primarily due to an increase in our annual payments due under our performance-based incentive compensation program.

During the three months ended March 31, 2008, net cash used in operating activities included estimated tax payments of approximately $8.8 million, as compared to estimated tax payments of approximately $16.4 million for the same period in 2007.

During the three months ended March 31, 2008, our net cash provided from investing activities of $56.4 million included the proceeds from the sale of our newborn metabolic screening laboratory business of $66.0 and net proceeds of $1.9 million related to the purchase and maturity of investments, partially offset by physician practice acquisition payments and capital expenditures of $6.6 million and $4.9 million, respectively. Our acquisition payments were primarily related to the acquisition of a maternal-fetal and obstetric physician practice. Our capital expenditures were for medical equipment, computer and office equipment, software, furniture and other improvements at our office-based practices and our corporate and regional offices.

During the three months ended March 31, 2008, our net cash used in financing activities of $92.4 million consisted primarily of the $100 million repurchase of our common stock under the share repurchase program approved by our Board of Directors in December 2007, partially offset by $5.6 million of proceeds from the exercise of employee stock options and the issuance of common stock under our Stock Purchase Plans, and $2.3 million from the excess tax benefit of stock option exercises and restricted stock vestings.

Our $225 million Line of Credit matures in July 2009 and includes a $25 million subfacility for the issuance of letters of credit. At our option, the Line of Credit bears interest at (i) the base rate (defined as the higher of the Federal Funds Rate plus .5% or the Bank of America prime rate) or (ii) the Eurodollar rate plus an applicable margin rate ranging from .75% to 1.75% based on our consolidated leverage ratio. Our Line of Credit is collateralized by substantially all of our assets. We are subject to certain covenants and restrictions specified in the Line of Credit, including covenants that require us to maintain a minimum level of net worth and that restrict us from paying dividends and making certain other distributions as specified therein. Failure to comply with these covenants and restrictions would constitute an event of default under the Line of Credit, notwithstanding our ability to meet our debt service obligations. Our Line of Credit includes various customary remedies for our lenders following an event of default.

At March 31, 2008, we believe we were in compliance with the financial covenants and other restrictions applicable to us under the Line of Credit. At March 31, 2008, we had no outstanding principal balance on our Line of Credit; however, we had outstanding letters of credit of $18.3 million which reduced the amount available on our Line of Credit.

We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record a liability for self-insured amounts and an estimate of liabilities for claims incurred but not reported based on an actuarial valuation using historical loss patterns.

We anticipate that funds generated from operations, together with our current cash on hand, short-term investments and funds available under the Line of Credit, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, and meet our contractual obligations for at least the next 12 months.

Our cash equivalents typically consist of money market funds, commercial paper and overnight repurchase agreements. Our investments consist entirely of held-to-maturity securities issued primarily by the U.S. Treasury, other U.S. Government corporations and agencies and states of the United States. We maintain a conservative investment policy to preserve principal and minimize liquidity risk. All investment purchases are subject to maturity limit restrictions and high credit rating standards.

Contractual Obligations

Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Accounting for uncertain tax positions under FIN 48 requires significant judgment and analyses as well as assumptions about future events. At March 31, 2008, our total liability for unrecognized tax benefits was $25.7 million, and the current portion of this liability was $15.9 million. Although we believe our liability for unrecognized tax benefits is adequate, it is difficult to predict the final outcome or the timing of the resolution of any particular tax matter. We may need to adjust our liability for unrecognized tax benefits as relevant circumstances evolve and we cannot predict when, or if, any future tax payments related to our uncertain tax positions may occur.

Caution Concerning Forward-Looking Statements

Certain information included or incorporated by reference in this Quarterly Report may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions and are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements in this Quarterly Report are made as of the date hereof, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the Company’s most recent Annual Report on Form 10-K, including the section entitled “Risk Factors.”

CONF CALL

Bob Kneeley - Director, Investor Relations

Thanks Ryan and good morning everyone. Thanks for joining the call this morning. I want to read our forward-looking disclosure before turning the call over to Dr. Roger Medel and Karl Wagner, our senior management team. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to objectives, plans, and strategies, and all statements other than statements of historical facts that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These statements are based on assumptions and assessments made by Pediatrix's management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors that they believe to be appropriate.

Any forward-looking statements made during this call or made as of today and Pediatrix undertakes no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in Pediatrix's most recent Annual Report on Form 10-K, including the section entitled "Risk Factors.”

With that let me turn the call over to our Chief Executive Officer, Roger Medel.

Roger J. Medel - Chief Executive Officer

Thank you, Bob. Good morning and welcome to our review of the 2008 first quarter. I am happy to report results that include solid top line and bottom line growth. Revenue and earnings per share both increased by 16% for the 2008 first quarter. Revenue growth was generated from a balance of acquisitions and same-unit revenue growth. We also completed our previously announced $100 million share repurchase during this period. Earnings per share, including income from discontinued operations, were at the low end of our guided range for the first quarter, only as a result of lower than expected same-unit neonatal intensive care unit patient volume. Overall, same-unit growth was 7.8% and included improved reimbursement from commercial payers, as well as the Texas Medicaid increase.

We also had strong volume growth from our office-based practices. This was in line with expectations and contributed positively to overall same-unit patient volume growth of 3.2%. Same-unit neonatal intensive care unit volume grew by 1.9%, but when you adjust for the leap year our 2008 first quarter NICU patient volume growth was seven-tenth of 1%. Historically, we talk about NICU patient volume growing in a range of about 3% to 5%, that's our annual experience over many years of operations. In fact, since 2002 our full-year NICU volume numbers have been between 3.6% and 5.5%, but there is a lot of variability quarter-to-quarter within that range. For example, the year we saw 5.5% same-unit NICU patient volume growth, we had one reporting quarter with growth of one-half of 1%. At this time, we have no reason to believe that what we are seeing this quarter is anything other than normal variability.

After the specifics of the first quarter, average daily census at our neonatal intensive care units was tracking to expectations for January. In February, volume was slightly lower than our growth expectations. And then in March, same-unit volume levels were actually below the prior year. This activity is not unique to a specific unit or even a geographic area. Though as you would expect some of our operating regions had good volume growth during the quarter and some were down from last year. We are also checking our numbers against hospital numbers. The NICU admission rate historically about 10% to 12% of all births across the country has remained stable. During the 2008 first quarter, we did see a decline in the rate of growth in the number of births at hospitals where we practice and it's hard for us to know if that's just quarterly variability or something else. Of course, in this environment, when you start talking about lower birth rates, one wonders if what we are seeing is related to the overall U.S. economy.

When you look historically at births in the United States relative to gross domestic product growth, it’s hard for us to find a pattern that suggests there’s correlation between GDP and birth rates. Any suggestion that birth rates for the 2008 first quarter are lower because of a weakening economy, thus affecting our results, means that people were acting on any concerns six to nine months ago. I don't know enough about consumer behavior, but I believe such a turn is improbable. As I said, at this point in time, I believe that our numbers reflect quarterly fluctuation, something that we’ve seen before and I expect we’ll see again in the future.

Next, I want to talk about the reimbursement environment. It’s early May, a time when most state governments are finishing their budget cycle, and we are pleased with what we are seeing from our numerous government payers. During last quarter's call, there was some discussion about our proposed cut in California and concerns over the budget situation here in Florida, two of our top-five states. In California, the expectation is that there will be a protracted budget fight this summer. In anticipation of that, the state has already announced that reimbursement to MediCall [ph] providers will be reduced by 10% effective July 1, 2008. We are supporting groups like the California Medical Association in their efforts to try to reverse this cut. You may have seen earlier this week that a coalition of providers, including California Medical Association and the California Hospital Association have filed suit seeking to block the cuts. However, given the severity of the decline in state tax revenue and the growth of the state's deficits, we are not making any predictions about the probability of this suit or other measures to refin [ph] the cuts scheduled in California.

In Florida, the legislature has approved a budget that does not cut reimbursement for physician services. While reimbursement for other healthcare sectors will be cut, there will be no change to reimbursement for physician services. The state seems to be recognizing that physician reimbursement through the Medicaid system is already low and any cuts would only create an access to care problem. In the end, any efforts that make it difficult for patients to be seen by physicians will only move care from a doctor's office to a hospital setting making it far more expensive for the states. We’ve always viewed our Medicaid revenues as coming from a diverse group of payers and as you would expect, these payers do not act in unison. In fact, our expectation for overall Medicaid reimbursement for the remainder of 2008 and the first half of 2009 is that it will be essentially unchanged. We anticipate that slight increases to physician reimbursement in several states will offset the anticipated decrease in California, if the 10% cut there actually goes through. So, our experience during this legislative season serves as a reminder that our reimbursement for Medicaid should really be viewed as a portfolio of more than 30 payers in states across the country.

Turning now to the growth drivers of our business, I want to discuss the status of our acquisition efforts, as well as to provide an update on anesthesiology. During the first quarter, we acquired a relatively large maternal-fetal medicine and obstetrical practice based in Atlanta. These doctors worked closely with our neonatalogists at Northside and also practice at offices and hospitals in the Northern Atlanta suburbs. So far in the second quarter, we’ve completed three acquisitions. They include two pediatric cardiology practices, one in El Paso, Texas and the other in Pembroke Pines, Florida, a community that's close to our headquarters. We have also acquired a large neonatal physician group in Rockville, Maryland, which has annual patient volume of 19,000 NICU days and 13,000 well-baby nursery patient days. As we've seen in the past, the timing of acquisitions is not as predictable as we would like. Our first quarter closing activity was slow and the pace of closing just picked up thus far in the second quarter. As of now, we’ve invested about $30 million in acquisitions year-to-date. So, we are pleased with acquisitions so far and we are confident that we will meet our acquisition spending target for this year.

Finally, I want to provide a brief update on our efforts in anesthesia. We are extremely pleased with the Fairfax acquisition and with direct activity of other groups in wanting to join us to be a part of building our national group of anesthesiologists. As many of you know, we completed the Fairfax acquisition last September. Operationally, we've been focused on building the systems and infrastructure needed to apply our model to this specialty and in a way that will allow us to scale this at a national level. At the same time, our business development efforts in anesthesia continue to move forward and we are encouraged by the number of potential opportunities and remain confident that we will be making an additional anesthesia practice acquisition in the near future. We remain focused on our strategy of acquiring groups across a growing range of physician specialties and increasing the efficiency of those groups under our management.

This is a good time to turn the call over to Karl Wagner, our Chief Financial Officer, for our review of the quarter's financial results. Karl?

Karl B. Wagner - Chief Financial Officer

Thank you, Roger. Good morning, and thank you for participating in this discussion of our 2008 first quarter results. Before we take your questions, I want to present an overview of our financial results for this quarter and for purposes of comparison to last year, I am going to present some of the results on a non-GAAP basis. This presentation excludes a gain on the sale of our metabolic screening lab during the 2008 first quarter and for the 2007 first quarter, I’m excluding expenses related to the stock option review and a benefit from a change in our reserves for uncertain tax positions. Our press release this morning contains a detailed GAAP reconciliation table. It's available on our website at www.pediatrix.com.

For the three months ended March 31st, our net patient service revenue increased by 16%, operating income increased by 14%, and earnings per share grew by 16% over the 2007 first quarter. As Roger said, our results were impacted by lower than expected same-unit NICU volume growth, which led to our earnings per share come in at $0.67. This includes $0.01 from discontinued operations related to the metabolic screening laboratory, which was included in our guidance for the quarter. For the quarter, we reported revenue of $245.6 million, up 16% from $210.9 million for the same period in 2007. We continue to grow our business through consistent improvement in contracting from third-party commercial payers. Our same-unit revenue growth of 7.8% consists of overall volume growth of 3.2% and contributions from reimbursement-related factors of 4.6% or a little bit higher than our annual guidance. We continue to see the flow through from the increase in the Texas Medicaid fee schedule that was effective in September of last year, as well as improvements from commercial payers. Same-unit volume growth of 3.2% includes contributions from our office-based practices, maternal-fetal medicine and pediatric cardiology, as well as NICU patient volume growth of 1.9%. When adjusted to exclude the extra day for leap year, our 2008 first quarter NICU patient volume grew by seven-tenth of 1% for the 2007 first quarter. As Roger said, this is below our historical range of 3% to 5%.

NICU patient volume declined throughout the quarter, our same-unit average daily census for February was lower than January, and for March it was below the prior year. Our preliminary results suggest that same-unit NICU volume for April was obviously slightly below the prior year levels, but was better than what we saw in March. We’re looking at all the available data to try to determine a cause for this. Unfortunately at this time, we've been unable to pinpoint any specific reason for the same-unit NICU volume slowdown this quarter. I'm sure there will be a lot of questions on this subject, but I'm also sure that we are not in a position today to comment much further than what we have at this point. Anything further would be speculative. I would expect that our next update on NICU patient volume will coincide with our second quarter results.

Getting back to our first quarter results, our profit after practice expense was $84.5 million for the 2008 first quarter, up 12% from $75.7 million for the same period in '07. Profit after practice expense margin declined by 148 basis points due principally to practice salaries and benefits as a percent of revenue growing by approximately 125 basis points for the quarter. Most of this increase is the result of the inclusion of our anesthesia services in this year's quarterly results, as well as lower revenue associated with the lower than anticipated NICU patient volume. Overall general and administrative expense growth was only 6%, considerably less than the rate of revenue growth. General and administrative expenses as a percent of revenue decline by 122 basis points to 12.1% for the first quarter when compared to the 2007 results. Historically, our G&A expense management has driven operating margin improvements and we are pleased that we continue to see administrative efficiencies. As for the 2008 first quarter, our G&A expense management cushioned the impact of lower patient volume on operating income and operating margin.

We had operating income of $51.9 million for the first quarter, up 14% from $45.4 million for the comparable 2007 period. Operating margin declined by 37 basis points to 21.1% for the quarter and 21.5% for the prior year. After-tax income from continuing operations grew by 12% to $32.1 million from $28.6 million for the same period in '07. Income from continuing operations was $505,000, reflecting the net contribution of the metabolic screening lab during the two months of the quarter that we owned the business.

Net income was $32.6 million for the first quarter, up 12% from $29.2 million for '07. Earnings per share were $0.67 and includes the net contribution of $0.01 for the metabolic screening lab based on a weighted average of 48.9 million shares outstanding. Our earnings per share increased by 16% from $0.58 a year ago, which also included a contribution of $0.01 from discontinued operations and is based upon 49.9 million shares outstanding for the 2007 first quarter. Our weighted average share count is down by approximately 1 million shares as a result of share repurchase programs that were completed in the 2007 fourth quarter and the 2008 first quarter. During the first quarter, we used $27.3 million of our cash to fund operations, including bonuses and 401(k) matching contribution payments mostly to physicians. Based on the timing of accruals and payments, we typically expect negative cash flow during the first quarter of each year. We also invested $6.6 million in physician group practice acquisitions during the quarter. The share repurchase program that we announced in late December was completed during the first quarter. We used $100 million of our cash to purchase approximately 1.5 million shares. Our balance sheet remains very clean. We had less than $1 million in debt, mostly capital leases, and cash of $39.5 million at March 31st. Accounts receivable were $144 million for the period, down slightly from December 31st. Our days sales outstanding for the period were down slightly sequentially and year-over-year. This completes my review of the quarter.

I want to discuss our guidance for the remainder of 2008 in light of the year-to-date NICU patient volume. When we last provided an update on our guidance, I detailed several specific assumptions. They include contributions from the metabolic screening lab until its sale, which occurred at the end of February and reinvestment of the net proceeds from the transaction, which has occurred; our ability to invest $70 million to $75 million in base acquisitions; and same-unit revenue growth from reimbursement factors of 2% to 4%, and same-unit NICU patient volume growth of 3% to 5%. We are comfortable with where we are year-to-date, we’ve invested a little bit less than $30 million in acquisitions through four months and our pipeline is solid. Same-unit revenue growth from reimbursement was 4.6%, a little bit ahead of guidance, as was expected, as we knew the Texas Medicaid increase would give us some tailwind and that was included in our guidance. Obviously, NICU patient volume growth is below our range for the first quarter and at the beginning of the second quarter. While we talk about quarter-to-quarter volume variability, we can't predict when NICU patient volume levels will return to historical growth levels.

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