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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2009, for MEDNAX, Inc. (formerly Pediatrix Medical Group, Inc.). The company operates as a national network of physician practices specializing in neonatology, maternal-fetal medicine, pediatric cardiology, and anesthesiology. Effective December 31, 2008, the company completed a holding company formation transaction establishing MEDNAX, Inc. as the parent of Pediatrix. The reporting period reflects the impact of six physician practice acquisitions completed in the first half of 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net patient service revenue increased 24.1% ($62.1 million) for the quarter and 23.9% ($120.4 million) for the six months compared to 2008. Approximately 82% of this growth was attributable to acquisitions completed after the prior year's comparable period.
• Same-Unit Performance: Same-unit revenue increased 4.4% for the quarter and 4.2% for the six months, driven by higher patient volumes (including a 2.5% increase in neonatal intensive care unit days for the quarter) and improved managed care contracting.
• Profitability: Income from continuing operations increased 13.2% for the quarter and 9.9% for the six months. However, operating margins decreased slightly (to 23.4% for the quarter and 21.1% for the six months) due to the addition of lower-margin anesthesia services and office-based practices.
• Discontinued Operations: The prior year's six-month results included a $22.0 million after-tax gain from the sale of the newborn metabolic screening laboratory business, which was completed in February 2008. No such gain was present in the 2009 period.
• Acquisitions: The company acquired six physician group practices for $61.5 million in total consideration during the first half of 2009, recording $57.3 million in goodwill.

Guidance, Outlook, and Risks

Management Commentary: Management expects to improve results of acquired practices through better managed care contracting and operational efficiencies. The company anticipates that funds from operations, cash on hand, and the $350 million revolving credit facility will be sufficient to meet obligations for the next 12 months.

Risks and Contingencies:

• Legal Proceedings: In March 2009, the company settled an SEC investigation regarding stock option granting practices with a permanent injunction but no monetary penalty. An investigation by the U.S. Attorney's Office remains ongoing with an unpredictable outcome.
• Corporate Integrity Agreement: The company is under a five-year agreement with the Office of Inspector General (OIG) following a 2006 settlement regarding billing practices. Failure to comply could result in exclusion from federal healthcare programs.
• Professional Liability: The company self-insures a portion of professional liability risks. Total liability for professional liability risks was $105.3 million as of June 30, 2009.
• Economic Environment: The company notes potential risks from the U.S. economic slowdown, including potential declines in patient volume and shifts toward government-sponsored payors which reimburse at lower rates.

Investor Verification Checklist

• Acquisition Integration: Verify the timeline and financial impact of integrating the six physician practices acquired in the first half of 2009.
• Payor Mix Trends: Monitor the shift in patient enrollment toward government-sponsored programs and its impact on reimbursement rates and margins.
• Legal Exposure: Track the status of the ongoing U.S. Attorney's Office investigation regarding stock option practices.
• Debt Covenants: Confirm continued compliance with the $350 million Line of Credit covenants, specifically the fixed charge coverage and consolidated leverage ratios.
• Uncertain Tax Positions: Review the $60.3 million liability for unrecognized tax benefits and potential future adjustments.