Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark
one)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended June 30, 2008
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Or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from
to
Commission
file numbers:
001-32701
333-127115
EMERGENCY MEDICAL SERVICES CORPORATION
EMERGENCY
MEDICAL SERVICES L.P.
(Exact name of
Registrants as Specified in their Charters)
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20-3738384
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Delaware
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20-2076535
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(State or other
jurisdiction of
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(IRS Employer
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incorporation or
organization)
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Identification
Numbers)
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6200
S. Syracuse Way, Suite 200
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Greenwood
Village, CO
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80111
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(Address of
principal executive offices)
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(Zip Code)
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Registrants
telephone number, including area code:
303-495-1200
Former name,
former address and former fiscal year, if changed since last report:
Not
applicable
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
x
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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(Do not check if a
smaller reporting company)
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Smaller reporting
company
o
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange act). Yes
o
No
x
Shares of class A
common stock outstanding at August 1, 2008 9,331,533; shares of class B
common stock outstanding at August 1, 2008 142,545; LP exchangeable
units outstanding at August 1, 2008 32,107,500.
Table of Contents
EMERGENCY
MEDICAL SERVICES CORPORATION
INDEX TO QUARTERLY REPORT
ON
FORM 10-Q
FOR
THE THREE AND SIX MONTHS ENDED
JUNE
30, 2008
2
Table of Contents
EMERGENCY
MEDICAL SERVICES CORPORATION
PART I. FINANCIAL INFORMATION
FOR
THE THREE AND SIX MONTHS ENDED
JUNE
30, 2008
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
Emergency
Medical Services Corporation
Consolidated Statements of Operations
and Comprehensive Income
(unaudited;
in thousands, except share and per share data)
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Quarter ended June 30,
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Six months ended June 30,
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2008
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2007
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2008
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2007
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Net revenue
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$
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571,079
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$
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516,712
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$
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1,136,865
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$
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1,040,031
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Compensation and
benefits
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400,501
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357,309
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794,852
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712,241
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Operating
expenses
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83,704
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76,262
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166,927
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156,258
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Insurance
expense
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17,568
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17,476
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38,531
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37,777
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Selling, general
and administrative expenses
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15,520
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14,901
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30,112
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28,206
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Depreciation and
amortization expense
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17,446
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17,577
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35,163
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34,356
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Restructuring
charges
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2,242
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Income from
operations
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36,340
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33,187
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71,280
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68,951
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Interest income
from restricted assets
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1,735
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1,660
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3,490
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3,375
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Interest expense
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(10,354
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)
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(11,395
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)
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(20,270
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)
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(22,629
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)
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Realized gain on
investments
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1,571
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22
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2,243
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59
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Interest and
other income
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287
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532
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589
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1,189
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Income before income
taxes and equity in earnings of unconsolidated subsidiary
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29,579
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24,006
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57,332
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50,945
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Income tax
expense
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(11,348
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)
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(9,012
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)
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(22,032
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)
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(19,474
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)
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Income before
equity in earnings of unconsolidated subsidiary
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18,231
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14,994
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35,300
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31,471
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Equity in
earnings of unconsolidated subsidiary
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104
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101
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54
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255
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Net income
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18,335
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15,095
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35,354
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31,726
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Other
comprehensive income (loss), net of tax:
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Unrealized
holding losses during the period
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(3,107
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(723
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(1,760
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)
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(425
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Unrealized gains
(losses) on derivative financial instruments
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2,165
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(760
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)
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Comprehensive
income
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$
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17,393
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$
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14,372
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$
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32,834
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$
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31,301
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Basic earnings
per common share
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$
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0.44
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$
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0.36
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$
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0.85
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$
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0.76
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Diluted earnings
per common share
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$
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0.43
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$
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0.35
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$
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0.82
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$
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0.74
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Weighted average
common shares outstanding, basic
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41,573,893
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41,544,901
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41,572,162
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41,533,093
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Weighted average
common shares outstanding, diluted
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43,022,034
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43,211,661
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43,052,668
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43,120,416
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The accompanying
notes are an integral part of these financial statements.
3
Table of Contents
Emergency
Medical Services Corporation
Consolidated Balance Sheets
(in
thousands, except share and per share data)
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June 30,
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December 31,
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2008
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2007
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(Unaudited)
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Assets
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Current assets:
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Cash and cash
equivalents
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$
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73,019
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$
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28,914
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Insurance
collateral
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41,226
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37,776
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Trade and other
accounts receivable, net
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512,027
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495,348
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Parts and
supplies inventory
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20,124
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20,010
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Prepaids and
other current assets
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16,398
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11,715
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Current deferred
tax assets
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78,566
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76,997
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Total current
assets
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741,360
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670,760
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Non-current
assets:
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Property, plant
and equipment, net
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127,745
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143,342
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Intangible
assets, net
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76,112
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81,717
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Non-current
deferred tax assets
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76,587
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94,961
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Insurance
collateral
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126,572
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146,638
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Goodwill
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329,300
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313,124
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Other long-term
assets
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24,508
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29,021
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Total assets
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$
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1,502,184
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$
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1,479,563
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Liabilities
and Equity
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Current
liabilities:
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Accounts payable
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$
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63,117
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$
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64,855
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Accrued
liabilities
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233,545
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237,319
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Current portion
of long-term debt
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4,828
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4,717
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Total current
liabilities
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301,490
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306,891
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Long-term debt
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476,186
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478,166
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Insurance
reserves and other long-term liabilities
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240,945
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245,010
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Total
liabilities
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1,018,621
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1,030,067
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Equity:
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Preferred stock
($0.01 par value; 20,000,000 shares authorized, 0 issued and outstanding)
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Class A
common stock ($0.01 par value; 100,000,000 shares authorized, 9,331,533 and
9,320,347 issued and outstanding in 2008 and 2007, respectively)
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93
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93
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Class B
common stock ($0.01 par value; 40,000,000 shares authorized, 142,545 issued
and outstanding in 2008 and 2007)
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1
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1
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Class B
special voting stock ($0.01 par value; 1 share authorized, issued and outstanding
in 2008 and 2007)
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LP exchangeable
units (32,107,500 shares issued and outstanding in 2008 and 2007)
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212,361
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212,361
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Additional
paid-in capital
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118,312
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117,079
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Retained
earnings
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154,310
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118,956
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Accumulated
other comprehensive (loss) income
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(1,514
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)
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1,006
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Total equity
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483,563
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449,496
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Total
liabilities and equity
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$
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1,502,184
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$
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1,479,563
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The accompanying
notes are an integral part of these financial statements.
4
Table of Contents
Emergency
Medical Services Corporation
Consolidated Statements of Cash Flows
(unaudited;
in thousands)
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Six months ended June 30,
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2008
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2007
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Cash
Flows from Operating Activities
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Net income
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$
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35,354
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$
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31,726
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Adjustments to
reconcile net income to net cash provided by operating activities:
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Depreciation and
amortization
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36,269
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35,376
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Gain on disposal
of property, plant and equipment
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(103
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)
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(181
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)
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Equity-based
compensation expense
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1,124
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800
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Equity in
earnings of unconsolidated subsidiary
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(54
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)
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(255
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)
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Dividends
received
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416
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Deferred income
taxes
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18,622
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19,050
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Changes in
operating assets/liabilities, net of acquisitions:
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Trade and other
accounts receivable
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(13,752
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)
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(63,934
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)
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Parts and
supplies inventory
|
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(14
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)
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(314
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)
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Prepaids and
other current assets
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(4,638
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)
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(3,570
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)
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Accounts payable
and accrued liabilities
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(10,289
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)
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162
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Insurance
accruals
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(7,140
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)
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4
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Net cash
provided by operating activities
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55,379
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19,280
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Cash
Flows from Investing Activities
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|
|
|
|
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Purchases of
property, plant and equipment
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(10,180
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)
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(22,743
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)
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Proceeds from
sale of property, plant and equipment
|
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220
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|
291
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Acquisition of
businesses, net of cash received
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(19,957
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)
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(477
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)
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Net change in
insurance collateral
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14,856
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(3,033
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)
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Other investing
activities
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2,628
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2,715
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Net cash used in
investing activities
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(12,433
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)
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(23,247
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)
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Cash
Flows from Financing Activities
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EMSC issuance of
class A common stock
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45
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249
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Repayments of
capital lease obligations and other debt
|
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(16,721
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)
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(3,391
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)
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Increase
(decrease) in bank overdrafts
|
|
3,835
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|
(2,743
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)
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Borrowings under
revolving credit facility
|
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14,000
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|
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|
Net cash
provided by (used in) financing activities
|
|
1,159
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|
(5,885
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)
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Change in cash
and cash equivalents
|
|
44,105
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|
(9,852
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)
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Cash and cash
equivalents, beginning of period
|
|
28,914
|
|
39,336
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|
Cash and cash
equivalents, end of period
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$
|
73,019
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|
$
|
29,484
|
|
|
|
|
|
|
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Non-cash
Activities
|
|
|
|
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Capital lease
obligations incurred
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$
|
682
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$
|
8,038
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|
The accompanying
notes are an integral part of these financial statements.
5
Table
of Contents
Emergency Medical Services
Corporation
Notes to Unaudited Consolidated Financial
Statements
(in
thousands, except share and per share data)
1.
General
Basis of Presentation of Financial Statements
The accompanying interim
consolidated financial statements for Emergency Medical Services Corporation (EMSC
or the Company) have been prepared in accordance with U. S. generally
accepted accounting principles (GAAP) for interim reporting, and accordingly,
do not include all of the disclosures required for annual financial statements.
In the opinion of management, all adjustments considered necessary for fair
presentation have been included. All such adjustments are of a normal,
recurring nature. Operating results for the three and six month periods ended June 30,
2008 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2008. For further information, see the Companys
consolidated financial statements, including the accounting policies and notes
thereto, included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
The consolidated
financial statements of EMSC include those of its direct subsidiary, Emergency
Medical Services L.P. (EMS LP), a Delaware limited partnership. EMS LP
acquired American Medical Response, Inc. and its subsidiaries (AMR) and
EmCare Holdings Inc. and its subsidiaries (EmCare) from Laidlaw International, Inc.
(Laidlaw) on February 10, 2005, with an effective transaction date after
the close of business January 31, 2005. On December 21, 2005, the
Company effected a reorganization and issued class A common stock in an initial
public offering.
The Company is party to a
management agreement with a wholly-owned subsidiary of Onex Corporation, the
Companys principal equityholder. In exchange for an annual management fee of
$1.0 million, the Onex subsidiary provides the Company with corporate finance
and strategic planning consulting services. For each of the three and six
months ended June 30, 2008 and 2007, the Company expensed $250 and $500,
respectively, in respect of this fee.
2.
Summary
of Significant Accounting Policies
Consolidation
The consolidated
financial statements include all wholly-owned subsidiaries of EMSC, including
AMR and EmCare and their respective subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of
financial statements requires management to make estimates and assumptions
relating to the reporting of results of operations, financial condition and
related disclosure of contingent assets and liabilities at the date of the
financial statements. Actual results may differ from those estimates under
different assumptions or conditions.
Insurance
Insurance collateral is
comprised principally of government and investment grade securities and cash
deposits with third parties and supports the Companys insurance program and
reserves. Certain of these investments, if sold or otherwise liquidated, would
have to be replaced by other suitable financial assurances and are, therefore,
considered restricted.
Insurance reserves are
established for automobile, workers compensation, general liability and
professional liability claims utilizing policies with both fully-insured and
self-insured components. This includes the use of an off-shore captive
insurance program through a wholly-owned subsidiary for certain professional liability
(malpractice) programs for EmCare. In those instances where the Company has
obtained third-party insurance
6
Table
of Contents
coverage, the Company
generally retains liability for the first $1 to $2 million of the loss.
Insurance reserves cover known claims and incidents within the level of Company
retention that may result in the assertion of additional claims, as well as
claims from unknown incidents that may be asserted arising from activities
through the balance sheet date.
The Company establishes
reserves for claims based upon an assessment of actual claims and claims
incurred but not reported. The reserves are established based on quarterly
consultation with third-party independent actuaries using actuarial principles
and assumptions that consider a number of factors, including historical claim
payment patterns (including legal costs) and changes in case reserves and the
assumed rate of inflation in healthcare costs and property damage repairs.
The Companys most recent
actuarial valuation was completed in June 2008. As a result of this
actuarial valuation, in the three and six months ended June 30, 2008 the
Company recorded reductions in its provision for insurance liabilities of
approximately $3.4 million and $6.2 million, respectively, related to its
reserves for losses in prior years. In the three and six months ended June 30,
2007 the Company recorded reductions in its provision for insurance liabilities
of approximately $8.7 million and $13.8 million, respectively, as a result of
an actuarial valuation completed in June 2007.
The long-term portion of
insurance reserves was $139.0 million and $144.7 million as of June 30,
2008 and December 31, 2007, respectively.
Trade and Other Accounts Receivable, net
The Company determines
its allowances based on payor reimbursement schedules, historical write-off
experience and other economic data. The allowances for contractual discounts
and uncompensated care are reviewed monthly. Account balances are charged off
against the uncompensated care allowance when it is probable the receivable
will not be recovered. Write-offs to the contractual allowance occur when
payment is received. The allowance for uncompensated care is related
principally to receivables recorded for self-pay patients. The Companys
accounts receivable allowances are as follows:
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June 30,
2008
|
|
December 31,
2007
|
|
Gross trade
accounts receivable
|
|
$
|
1,875,919
|
|
$
|
1,693,862
|
|
Allowance for
contractual discounts
|
|
953,442
|
|
832,738
|
|
Allowance for
uncompensated care
|
|
481,434
|
|
431,920
|
|
Net trade
accounts receivable
|
|
441,043
|
|
429,204
|
|
Other
receivables, net
|
|
70,984
|
|
66,144
|
|
Net accounts
receivable
|
|
$
|
512,027
|
|
$
|
495,348
|
|
Other receivables
represent EmCare hospital subsidies and fees and AMR fees for stand-by and
special events and subsidies from community organizations.
AMR contractual
allowances are primarily determined on payor reimbursement schedules that are
included and regularly updated in the billing systems, and by historical
collection experience. The billing
systems calculate the difference between payor specific gross billings and
contractually agreed to, or governmentally driven, reimbursement rates. The allowance for uncompensated care at AMR
is related principally to receivables recorded for self-pay patients. AMRs allowances on self-pay accounts
receivable are estimated on claim level, historical write-off experience.
Accounts receivable
allowances at EmCare are estimated based on cash collection and write-off
experience at a facility level contract and facility specific payor mix. These allowances are reviewed and adjusted
monthly through revenue provisions. In
addition, an analysis is done after 15 months to compare actual cash collected
on a date of service basis to the revenue recorded for that period. Any adjustment necessary for an overage or
deficit in these allowances based on actual collections is recorded through a
retroactive revenue adjustment in the current period.
7
Table
of Contents
Revenue Recognition
Revenue is recognized at
the time of service and is recorded net of provisions for contractual discounts
and estimated uncompensated care. Provisions for contractual discounts and
estimated uncompensated care as a percentage of gross revenue and as a
percentage of gross revenue less provision for contractual discounts are as
follows:
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Gross revenue
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Provision for
contractual discounts
|
|
46.1
|
%
|
42.2
|
%
|
45.9
|
%
|
42.3
|
%
|
Revenue net of contractual
discounts
|
|
53.9
|
%
|
57.8
|
%
|
54.1
|
%
|
57.7
|
%
|
Provision for
uncompensated care as a percentage of gross revenue
|
|
19.3
|
%
|
20.1
|
%
|
19.0
|
%
|
19.8
|
%
|
Provision for
uncompensated care as a percentage of gross revenue less contractual
discounts
|
|
35.8
|
%
|
34.8
|
%
|
35.1
|
%
|
34.3
|
%
|
Healthcare reimbursement
is complex and may involve lengthy delays. Third-party payors are continuing
their efforts to control expenditures for healthcare, including proposals to
revise reimbursement policies. The Company has from time to time experienced
delays in reimbursement from third-party payors. In addition, third-party
payors may disallow, in whole or in part, claims for reimbursement based on
determinations that certain amounts are not reimbursable under plan coverage,
determinations of medical necessity, or the need for additional information.
Laws and regulations governing the Medicare and Medicaid programs are very
complex and subject to interpretation. As a result, there is a reasonable
possibility that recorded estimates will change materially in the short-term.
Retroactive adjustments may change the amounts realized from third-party payors
and are considered in the recognition of revenue on an estimated basis in the
period the related services are rendered. Such amounts, including adjustments
between provisions for contractual discounts and uncompensated care, are
adjusted in future periods, as adjustments become known. Retroactive
adjustments in the three months ended June 30, 2008, which increased
revenue, were 0.1% of consolidated net revenue compared to 1.7% of consolidated
net revenue for the three months ended June 30, 2007. Retroactive adjustments recorded in the six
month period ended June 30, 2008, which increased revenue, were 0.4% of
consolidated net revenue compared to 2.0% of consolidated net revenue for the
six months ended June 30, 2007.
The Company also provides
services to patients who have no insurance or other third-party payor coverage.
In certain circumstances, federal law requires providers to render services to
any patient who requires emergency care regardless of their ability to pay.
Equity Structure
On December 21,
2005, the Company effected a reorganization and issued 8.1 million shares
of class A common stock in an initial public offering. Pursuant to the
reorganization, EMS LP, the former top-tier holding company of AMR and EmCare,
became the consolidated subsidiary of EMSC, a newly formed corporation. To
effect the reorganization, the holders of the capital stock of the sole general
partner of EMS LP contributed that capital stock to the Company in exchange for
class B common stock; the general partner was merged into the Company and the
Company became the sole general partner of EMS LP. Concurrently, the holders of
class B units of EMS LP contributed their units to the Company in exchange for
shares of the Companys class A common stock, and the holders of certain class
A units of EMS LP contributed their units to the Company in exchange for shares
of the Companys class B common stock.
The Company holds 22.8%
of the equity interests in EMS LP. LP exchangeable units, held by persons
affiliated with the Companys principal equity holder, represent the balance of
the EMS LP equity. The LP exchangeable units are exchangeable at any time, at
the option of the holder, for shares of the Companys class B common stock on a
one-for-one basis. The holders of the LP exchangeable units have the right to
vote, through the trustee holder of the Companys class B special voting stock,
at all stockholder meetings at which holders of the Companys class B common
stock or class B special voting stock are entitled to vote.
8
Table
of Contents
In the EMS LP partnership
agreement, the Company has agreed to maintain the economic equivalency of the
LP exchangeable units and the class B common stock, and the holders of the LP
exchangeable units have no general voting rights. The LP exchangeable units, when
considered with the class B special voting stock, have the same rights,
privileges and characteristics of the Companys class B common stock. The LP
exchangeable units are intended to be economically equivalent to the class B
common stock of the Company in that the LP exchangeable units carry the right
to vote (by virtue of the class B special voting stock) with the holders of
class B common stock as if one class, and entitle holders to receive
distributions only if the equivalent dividends are declared on the Companys
class B common stock. Accordingly, the Company accounts for the LP exchangeable
units as if the LP exchangeable units were shares of its common stock,
including reporting the LP exchangeable units in the equity section of the
Companys balance sheet and including the number of outstanding LP exchangeable
units in both its basic and diluted earnings per share calculations.
Recent Accounting Pronouncements
The Company adopted SFAS No. 157
Fair value measurement
(SFAS 157)
effective January 1, 2008, which among other things, requires additional
disclosures about investments that are reported at fair value. SFAS 157 establishes a hierarchal disclosure
framework which ranks the level of market price observability used in measuring
investments at fair value. Market price observability is impacted by a number
of factors, including the type of investment and the characteristics specific
to the investment. Investments with
readily available active quoted prices or for which fair value can be measured
from actively quoted prices generally will have a higher degree of market price
observability and a lesser degree of judgment used in measuring fair value.
Investments measured and
reported at fair value are classified and disclosed in one of the following
categories.
Level 1 Quoted prices
are available in active markets for identical investments as of the reporting
date. As required by SFAS 157, the
Company does not adjust the quoted price for these investments.
Level 2 Pricing inputs
are other than quoted prices in active markets, which are either directly or
indirectly observable as of the reporting date, and fair value is determined
through the use of models or other valuation methodologies.
The following table
summarizes the valuation of EMSCs investments by the above SFAS 157 fair value
hierarchy levels as of June 30, 2008:
|
|
Fair value measurements at June 30, 2008
using:
|
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Assets:
|
|
|
|
|
|
|
|
Securities
|
|
$
|
89,403
|
|
$
|
83,622
|
|
$
|
5,781
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
2,009
|
|
$
|
|
|
$
|
2,009
|
|
3.
Acquisitions
In March 2008, the
Company completed its acquisition of River Medical, Inc. based in Lake
Havasu, Arizona, which provides exclusive emergency ambulance transportation
services to Lake Havasu City, and La Paz and Mohave Counties in western
Arizona. The Company believes that this
acquisition positions the Company for future expansion in the Arizona market. In April 2008, the Company completed its
acquisition of Aldan Emergency Physicians, P.A. which provides emergency
department staffing and management services at facilities located in
Brooksville, Florida and Hudson, Florida. The total cost of these acquisitions
was $20.0 million and the Company has recorded $14.5 million of goodwill, which
amount is subject to adjustment based upon completion of purchase price
allocations.
9
Table
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4.
Accrued
Liabilities
Accrued liabilities were
as follows at June 30, 2008 and December 31, 2007:
|
|
June 30, 2008
|
|
December 31,
2007
|
|
Accrued wages
and benefits
|
|
$
|
85,512
|
|
$
|
79,781
|
|
Accrued paid
time-off
|
|
27,418
|
|
24,687
|
|
Current portion
of self-insurance reserves
|
|
58,391
|
|
59,821
|
|
Accrued
restructuring
|
|
570
|
|
600
|
|
Current portion
of compliance and legal
|
|
2,659
|
|
2,245
|
|
Accrued billing
and collection fees
|
|
4,184
|
|
5,046
|
|
Accrued profit
sharing
|
|
15,351
|
|
23,661
|
|
Accrued interest
|
|
10,039
|
|
10,407
|
|
Other
|
|
29,421
|
|
31,071
|
|
Total accrued
liabilities
|
|
$
|
233,545
|
|
$
|
237,319
|
|
5.
Long-Term
Debt
Long-term debt consisted
of the following at June 30, 2008 and December 31, 2007:
|
|
June 30, 2008
|
|
December 31,
2007
|
|
Senior
subordinated notes due 2015
|
|
$
|
250,000
|
|
$
|
250,000
|
|
Senior secured
term loan due 2012 (6.69% at June 30, 2008)
|
|
223,015
|
|
224,167
|
|
Notes due at
various dates from 2008 to 2022 with interest rates from 6% to 10%
|
|
1,788
|
|
2,292
|
|
Capital lease
obligations due at various dates from 2008 to 2018 (see note 6)
|
|
6,211
|
|
6,424
|
|
|
|
481,014
|
|
482,883
|
|
Less current
portion
|
|
(4,828
|
)
|
(4,717
|
)
|
Total long-term
debt
|
|
$
|
476,186
|
|
$
|
478,166
|
|
6.
Commitments
and Contingencies
Lease Commitments
The Company leases
various facilities and equipment under operating lease agreements.
The Company also leases
certain vehicles and certain leasehold improvements under capital leases.
During the first quarter of 2007 the Company extended the term on the vehicles
lease for an additional three years. Assets under capital leases are
capitalized using inherent interest rates at the inception of each lease.
Capital leases are collateralized by the underlying assets.
Services
The Company is subject to
the Medicare and Medicaid fraud and abuse laws which prohibit, among other
things, any false claims, or any bribe, kick-back or rebate in return for the
referral of Medicare and Medicaid patients. Violation of these prohibitions may
result in civil and criminal penalties and exclusion from participation in the Medicare
and Medicaid programs. Management has implemented policies and procedures that
management believes will assure that the Company is in substantial compliance
with these laws and regulations but there can be no assurance the Company will
not be found to have violated certain of these laws and regulations. From time
to time, the Company receives requests for information from government agencies
pursuant to their regulatory or investigational authority. Such requests can
include subpoenas or demand letters for documents to assist the government in
audits or investigations. The Company is cooperating with the government
agencies conducting these
10
Table
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investigations and is
providing requested information to the government agencies. Other than the
proceedings described below, management believes that the outcome of any of
these investigations would not have a material adverse effect on the Company.
On April 17, 2006,
the Office of Inspector General for the United States Department of Health and
Human Services, or OIG, finalized its draft report requesting that the Companys
Massachusetts subsidiary reimburse the Medicare program for approximately $1.8
million in alleged overpayments from Medicare for services performed between July 1,
2002 and December 31, 2002. The OIG claims that these payments
were made for services that did not meet Medicare medical necessity and reimbursement
requirements. On December 10, 2006, AMR paid the $1.8 million
in alleged overpayments. However, the Company disagreed with the OIGs
finding, filed an administrative appeal and on May 15, 2008, received $1.2
million back from Medicare as a result of the successful appeal. The outcome of this appeal did not have an
impact on the results of operations of the Company.
Other Legal Matters
On December 13,
2005, a lawsuit purporting to be a class action was commenced against AMR in
Spokane, Washington in Washington State Court, Spokane County. The
complaint alleges that AMR billed patients and third party payors for
transports it conducted between 1998 and 2005 at higher rates than
contractually permitted. The court has certified a class in this case,
but the size and membership of the class has not been determined. At this
time, AMR does not believe that any incorrect billings are material in amount.
EmCare entered into a
settlement agreement with respect to June Belt, et. al. v. EmCare, Inc.
et. al. brought by a number of nurse practitioners and physician assistants
under the Fair Labor Standards Act. The suit was filed on February 25,
2003 in the Eastern District of Texas. Pursuant to the settlement
agreement, EmCare paid $1.7 million during the first quarter of 2007 in
satisfaction of all claims in the lawsuit.
AMR and the City of
Stockton, California, are parties to litigation regarding the terms and
enforceability of a memorandum of understanding and a related joint venture
agreement between the parties to present a joint bid in response to a request
for proposals to provide emergency ambulance services in the County of San
Joaquin, California. The suit was filed on June 28, 2005, in the United
States District Court for the Eastern District of California. The parties were
unable to agree on the final terms of a joint bid. AMR has been awarded the San
Joaquin contract. While we are unable at this time to estimate the amount of
potential damages, we believe that Stockton may claim as damages a portion of
our profit on the contract or the profit Stockton might have realized had the
joint venture proceeded.
7.
Restructuring
Charges
The Company restructured
certain billing functions of AMR and operations in the Los Angeles, California
market during the first quarter of 2007 and recorded a restructuring charge of
$2.2 million. This restructuring charge included $0.2 million in lease
termination and exit costs and $2.0 million related to termination benefits.
8.
Equity
Based Compensation
The Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004)
Share-Based Payment
(SFAS 123R) on January 1, 2006 using the prospective transition
method. The stock options are valued using the Black-Scholes valuation
method on the date of grant.
Equity
Option Plan
Under the Companys
Equity Option Plan, key employees were granted options that permit the
individuals to purchase class A common shares and vest ratably generally over a
period of four years. In addition, certain performance measures must be met for
50% of the options to become exercisable. Options with similar provisions were
granted to non-employee directors. The Company recorded a compensation charge
of $431 and $300 for the three months ended June 30, 2008 and 2007,
respectively, and $862 and $600 for the six months ended June 30, 2008 and
2007, respectively.
11
Table
of Contents
Non-Employee
Director Compensation Plan
The Non-Employee Director
Compensation Plan, approved in May 2007, is available to non-employee
directors of the Company, other than the Chair of the Compliance
Committee. Under this plan, eligible
directors are granted Restricted Stock Units (RSUs) following each annual
stockholder meeting with each RSU representing one share of the Companys class
A common stock. Eligible directors
receive a grant of RSUs having a fair market value of $100 on the date of grant
based on the closing price of the Companys class A common stock on the
business day immediately preceding the grant date. The Non-Employee Director Compensation Plan
allows directors to defer income from the grant of RSUs, which vest immediately
prior to the election of directors at the next following annual stockholder
meeting. In connection with this plan,
the Company granted 4,145 and 2,705 RSUs per director in 2008 and 2007,
respectively, and expensed $100 for each of the three month periods ended June 30,
2008 and 2007 and $200 for each of the six month periods ended June 30,
2008 and 2007.
Long-Term
Incentive Plan
The Companys original
Long-Term Incentive Plan was approved by stockholders in May 2007 and an
Amended and Restated Long-Term Incentive Plan (the Plan) was approved by
stockholders in May 2008. The Plan
provides for the grant of long-term incentives, including various equity-based
incentives, to those persons with responsibility for the success and growth of
the Company and its subsidiaries.
The Company granted
options under the Plan to key employees
during the six months ended June 30, 2008 under the Plan. The options
permit employees to purchase a total of 132,250 shares of class A common
stock at a weighted average exercise price of $28.78 per share, vest and become
exercisable ratably over a period of 4 years from the date of grant and
have a maximum term of ten years.
The Company recorded a
compensation charge of $31 during the three months ended June 30, 2008 and
$62 for the six months ended June 30, 2008 in connection with the Plan.
Stock
Purchase Plan/Employee Stock Purchase Plan
During the first quarter
of 2008, the Company commenced an offering of its class A common stock to
eligible employees and independent contractors associated with the Company and
its subsidiaries pursuant to a Stock Purchase Plan and the Companys Employee
Stock Purchase Plan (together, the SPPs). The purchases of stock under
the SPPs will occur in September 2008 at a 5% discount to the closing
price of the Companys class A common stock on September 15, 2008, and as
such no compensation charge has been recorded for the SPPs during the six
months ended June 30, 2008.
9.
Segment
Information
The Company is organized
around two separately managed business units: healthcare transportation
services and emergency management services, which have been identified as
operating segments. The healthcare transportation services reportable segment
focuses on providing a full range of medical transportation services from basic
patient transit to the most advanced emergency care and pre-hospital
assistance. The emergency management services reportable segment provides
outsourced business services to hospitals primarily for emergency departments,
urgent care centers and for certain inpatient departments. The Chief Executive
Officer has been identified as the chief operating decision maker (CODM) for
purposes of SFAS No. 131
Disclosures about Segments of an Enterprise and Related Information
(SFAS 131), as he assesses the performance of the business units and
decides how to allocate resources to the business units.
Net income before equity
in earnings of unconsolidated subsidiary, income tax expense, interest and
other income, realized gain on investments, interest expense and depreciation
and amortization (Adjusted EBITDA) is the measure of profit and loss that the
CODM uses to assess performance, measure liquidity and make decisions. The
accounting policies for reported segments are the same as for the Company as a
whole.
12
Table of Contents
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Healthcare
Transportation Services
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
323,672
|
|
$
|
295,304
|
|
$
|
649,988
|
|
$
|
603,412
|
|
Segment Adjusted
EBITDA
|
|
25,976
|
|
23,364
|
|
54,374
|
|
48,309
|
|
Emergency
Management Services
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
247,407
|
|
221,408
|
|
486,877
|
|
436,619
|
|
Segment Adjusted
EBITDA
|
|
29,545
|
|
29,060
|
|
55,559
|
|
58,373
|
|
Total
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
571,079
|
|
516,712
|
|
1,136,865
|
|
1,040,031
|
|
Total Adjusted
EBITDA
|
|
55,521
|
|
52,424
|
|
109,933
|
|
106,682
|
|
Reconciliation
of Adjusted EBITDA to Net Income
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
55,521
|
|
$
|
52,424
|
|
$
|
109,933
|
|
$
|
106,682
|
|
Depreciation and
amortization expense
|
|
(17,446
|
)
|
(17,577
|
)
|
(35,163
|
)
|
(34,356
|
)
|
Interest expense
|
|
(10,354
|
)
|
(11,395
|
)
|
(20,270
|
)
|
(22,629
|
)
|
Realized gain on
investments
|
|
1,571
|
|
22
|
|
2,243
|
|
59
|
|
Interest and
other income
|
|
287
|
|
532
|
|
589
|
|
1,189
|
|
Income tax
expense
|
|
(11,348
|
)
|
(9,012
|
)
|
(22,032
|
)
|
(19,474
|
)
|
Equity in
earnings of unconsolidated subsidiary
|
|
104
|
|
101
|
|
54
|
|
255
|
|
Net income
|
|
$
|
18,335
|
|
$
|
15,095
|
|
$
|
35,354
|
|
$
|
31,726
|
|
A reconciliation of
Adjusted EBITDA to cash flows provided by operating activities is as follows:
|
|
For the six months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Adjusted EBITDA
|
|
$
|
109,933
|
|
$
|
106,682
|
|
Interest paid
|
|
(19,164
|
)
|
(21,609
|
)
|
Change in
accounts receivable
|
|
(13,752
|
)
|
(63,934
|
)
|
Change in other
operating assets/liabilities
|
|
(22,081
|
)
|
(3,718
|
)
|
Equity based
compensation
|
|
1,124
|
|
800
|
|
Other
|
|
(681
|
)
|
1,059
|
|
Cash flows
provided by operating activities
|
|
$
|
55,379
|
|
$
|
19,280
|
|
10.
Guarantors of Debt
EMS LP financed the
acquisition of AMR and EmCare in part by issuing $250.0 million principal
amount of senior subordinated notes and borrowing $370.2 million under its
senior secured credit facility. Its wholly-owned subsidiaries, AMR HoldCo, Inc.
(f/k/a EMSC Management, Inc.) and EmCare HoldCo, Inc., are the
issuers of the senior subordinated notes and the borrowers under the senior
secured credit facility. As part of the transaction, AMR and its subsidiaries
became wholly-owned subsidiaries of AMR HoldCo, Inc. and EmCare and its
subsidiaries became wholly-owned subsidiaries of EmCare HoldCo, Inc. The
senior subordinated notes and the senior secured credit facility include a
full, unconditional and joint and several guarantee by EMSC, EMS LP and EMSCs
domestic subsidiaries. The senior subordinated notes and senior secured credit
facility do not include a guarantee by the Companys captive insurance
subsidiary. All of the operating income and cash flow of EMSC, EMS LP, AMR
HoldCo, Inc. and EmCare HoldCo, Inc. is generated by AMR, EmCare and
their subsidiaries. As a result, funds necessary to meet the debt service
obligations under the senior secured notes and senior secured credit facility
described above are provided by the distributions or advances from the
subsidiary companies, AMR and EmCare. Investments in subsidiary operating
companies are accounted for on the equity method. Accordingly, entries
necessary to consolidate EMSC, EMS LP, AMR HoldCo, Inc., EmCare HoldCo, Inc.
and all of their subsidiaries are reflected in the Eliminations/Adjustments
column. Separate complete financial statements of the issuers, EMS LP
13
Table of Contents
and subsidiary guarantors
would not provide additional material information that would be useful in
assessing the financial composition of the issuers, EMS LP or the subsidiary
guarantors. The condensed consolidating financial statements for EMSC, EMS LP,
the issuers, the guarantors and the non-guarantor are as follows:
Consolidating
Statement of Operations
For
the three months ended June 30, 2008
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
Eliminations/
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo, Inc.
|
|
HoldCo, Inc.
|
|
Guarantors
|
|
Non-Guarantor
|
|
Adjustments
|
|
Total
|
|
Net revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
571,079
|
|
$
|
7,952
|
|
$
|
(7,952
|
)
|
$
|
571,079
|
|
Compensation and
benefits
|
|
|
|
|
|
|
|
|
|
400,501
|
|
|
|
|
|
400,501
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
83,704
|
|
|
|
|
|
83,704
|
|
Insurance expense
|
|
|
|
|
|
|
|
|
|
14,944
|
|
10,576
|
|
(7,952
|
)
|
17,568
|
|
Selling, general
and administrative expenses
|
|
|
|
|
|
|
|
|
|
15,520
|
|
|
|
|
|
15,520
|
|
Depreciation and
amortization expense
|
|
|
|
|
|
|
|
|
|
17,446
|
|
|
|
|
|
17,446
|
|
Restructuring
charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
from operations
|
|
|
|
|
|
|
|
|
|
38,964
|
|
(2,624
|
)
|
|
|
36,340
|
|
Interest income
from restricted assets
|
|
|
|
|
|
|
|
|
|
682
|
|
1,053
|
|
|
|
1,735
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
(10,354
|
)
|
|
|
|
|
(10,354
|
)
|
Realized gain on
investments
|
|
|
|
|
|
|
|
|
|
|
|
1,571
|
|
|
|
1,571
|
|
Interest and
other income
|
|
|
|
|
|
|
|
|
|
287
|
|
|
|
|
|
287
|
|
Income before
income taxes
|
|
|
|
|
|
|
|
|
|
29,579
|
|
|
|
|
|
29,579
|
|
Income tax
expense
|
|
|
|
|
|
|
|
|
|
(11,348
|
)
|
|
|
|
|
(11,348
|
)
|
Income before
equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
18,231
|
|
|
|
|
|
18,231
|
|
Equity in
earnings of unconsolidated subsidiaries
|
|
18,335
|
|
18,335
|
|
3,637
|
|
14,698
|
|
104
|
|
|
|
(55,005
|
)
|
104
|
|
Net income
|
|
$
|
18,335
|
|
$
|
18,335
|
|
$
|
3,637
|
|
$
|
14,698
|
|
$
|
18,335
|
|
$
|
|
|
$
|
(55,005
|
)
|
$
|
18,335
|
|
Consolidating
Statement of Operations
For
the three months ended June 30, 2007
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
Eliminations/
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo, Inc.
|
|
HoldCo, Inc.
|
|
Guarantors
|
|
Non-Guarantor
|
|
Adjustments
|
|
Total
|
|
Net revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
516,712
|
|
$
|
6,867
|
|
$
|
(6,867
|
)
|
$
|
516,712
|
|
Compensation and
benefits
|
|
|
|
|
|
|
|
|
|
357,309
|
|
|
|
|
|
357,309
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
76,262
|
|
|
|
|
|
76,262
|
|
Insurance expense
|
|
|
|
|
|
|
|
|
|
17,454
|
|
6,889
|
|
(6,867
|
)
|
17,476
|
|
Selling, general
and administrative expenses
|
|
|
|
|
|
|
|
|
|
14,901
|
|
|
|
|
|
14,901
|
|
Depreciation and
amortization expense
|
|
|
|
|
|
|
|
|
|
17,577
|
|
|
|
|
|
17,577
|
|
Income (loss)
from operations
|
|
|
|
|
|
|
|
|
|
33,209
|
|
(22
|
)
|
|
|
33,187
|
|
Interest income
from restricted assets
|
|
|
|
|
|
|
|
|
|
1,660
|
|
|
|
|
|
1,660
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
(11,395
|
)
|
|
|
|
|
(11,395
|
)
|
Realized gain on
investments
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
22
|
|
Interest and
other income
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
|
|
532
|
|
Income before
income taxes
|
|
|
|
|
|
|
|
|
|
24,006
|
|
|
|
|
|
24,006
|
|
Income tax
expense
|
|
|
|
|
|
|
|
|
|
(9,012
|
)
|
|
|
|
|
(9,012
|
)
|
Income before
equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
14,994
|
|
|
|
|
|
14,994
|
|
Equity in
earnings of unconsolidated subsidiaries
|
|
15,095
|
|
15,095
|
|
2,050
|
|
13,045
|
|
101
|
|
|
|
(45,285
|
)
|
101
|
|
Net income
|
|
$
|
15,095
|
|
$
|
15,095
|
|
$
|
2,050
|
|
$
|
13,045
|
|
$
|
15,095
|
|
$
|
|
|
$
|
(45,285
|
)
|
$
|
15,095
|
|
14
Table
of Contents
Consolidating
Statement of Operations
For
the six months ended June 30, 2008
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
Eliminations/
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo, Inc.
|
|
HoldCo, Inc.
|
|
Guarantors
|
|
Non-Guarantor
|
|
Adjustments
|
|
Total
|
|
Net revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,136,865
|
|
$
|
18,709
|
|
$
|
(18,709
|
)
|
$
|
1,136,865
|
|
Compensation and
benefits
|
|
|
|
|
|
|
|
|
|
794,852
|
|
|
|
|
|
794,852
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
166,927
|
|
|
|
|
|
166,927
|
|
Insurance expense
|
|
|
|
|
|
|
|
|
|
34,162
|
|
23,078
|
|
(18,709
|
)
|
38,531
|
|
Selling, general
and administrative expenses
|
|
|
|
|
|
|
|
|
|
30,112
|
|
|
|
|
|
30,112
|
|
Depreciation and
amortization expense
|
|
|
|
|
|
|
|
|
|
35,163
|
|
|
|
|
|
35,163
|
|
Restructuring
charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
from operations
|
|
|
|
|
|
|
|
|
|
75,649
|
|
(4,369
|
)
|
|
|
71,280
|
|
Interest income
from restricted assets
|
|
|
|
|
|
|
|
|
|
1,364
|
|
2,126
|
|
|
|
3,490
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
(20,270
|
)
|
|
|
|
|
(20,270
|
)
|
Realized gain on
investments
|
|
|
|
|
|
|
|
|
|
|
|
2,243
|
|
|
|
2,243
|
|
Interest and
other income
|
|
|
|
|
|
|
|
|
|
589
|
|
|
|
|
|
589
|
|
Income before
income taxes
|
|
|
|
|
|
|
|
|
|
57,332
|
|
|
|
|
|
57,332
|
|
Income tax
expense
|
|
|
|
|
|
|
|
|
|
(22,032
|
)
|
|
|
|
|
(22,032
|
)
|
Income before
equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
35,300
|
|
|
|
|
|
35,300
|
|
Equity in
earnings of unconsolidated subsidiaries
|
|
35,354
|
|
35,354
|
|
8,698
|
|
26,656
|
|
54
|
|
|
|
(106,062
|
)
|
54
|
|
Net income
|
|
$
|
35,354
|
|
$
|
35,354
|
|
$
|
8,698
|
|
$
|
26,656
|
|
$
|
35,354
|
|
$
|
|
|
$
|
(106,062
|
)
|
$
|
35,354
|
|
Consolidating
Statement of Operations
For
the six months ended June 30, 2007
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
Eliminations/
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo, Inc.
|
|
HoldCo, Inc.
|
|
Guarantors
|
|
Non-Guarantor
|
|
Adjustments
|
|
Total
|
|
Net revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,040,031
|
|
$
|
15,507
|
|
$
|
(15,507
|
)
|
$
|
1,040,031
|
|
Compensation and
benefits
|
|
|
|
|
|
|
|
|
|
712,241
|
|
|
|
|
|
712,241
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
156,258
|
|
|
|
|
|
156,258
|
|
Insurance expense
|
|
|
|
|
|
|
|
|
|
37,718
|
|
15,566
|
|
(15,507
|
)
|
37,777
|
|
Selling, general
and administrative expenses
|
|
|
|
|
|
|
|
|
|
28,206
|
|
|
|
|
|
28,206
|
|
Depreciation and
amortization expense
|
|
|
|
|
|
|
|
|
|
34,356
|
|
|
|
|
|
34,356
|
|
Restructuring
charge
|
|
|
|
|
|
|
|
|
|
2,242
|
|
|
|
|
|
2,242
|
|
Income (loss)
from operations
|
|
|
|
|
|
|
|
|
|
69,010
|
|
(59
|
)
|
|
|
68,951
|
|
Interest income
from restricted assets
|
|
|
|
|
|
|
|
|
|
3,375
|
|
|
|
|
|
3,375
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
(22,629
|
)
|
|
|
|
|
(22,629
|
)
|
Realized gain on
investments
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
59
|
|
Interest and
other income
|
|
|
|
|
|
|
|
|
|
1,189
|
|
|
|
|
|
1,189
|
|
Income before
income taxes
|
|
|
|
|
|
|
|
|
|
50,945
|
|
|
|
|
|
50,945
|
|
Income tax
expense
|
|
|
|
|
|
|
|
|
|
(19,474
|
)
|
|
|
|
|
(19,474
|
)
|
Income before
equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
31,471
|
|
|
|
|
|
31,471
|
|
Equity in
earnings of unconsolidated subsidiaries
|
|
31,726
|
|
31,726
|
|
4,876
|
|
26,850
|
|
255
|
|
|
|
(95,178
|
)
|
255
|
|
Net income
|
|
$
|
31,726
|
|
$
|
31,726
|
|
$
|
4,876
|
|
$
|
26,850
|
|
$
|
31,726
|
|
$
|
|
|
$
|
(95,178
|
)
|
$
|
31,726
|
|
15
Table of Contents
Consolidating
Balance Sheet
As
of June 30, 2008
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
Eliminations/
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo, Inc.
|
|
HoldCo, Inc.
|
|
Guarantors
|
|
Non-Guarantor
|
|
Adjustments
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
61,981
|
|
$
|
11,038
|
|
$
|
|
|
$
|
73,019
|
|
Insurance
collateral
|
|
|
|
|
|
|
|
|
|
21,367
|
|
43,528
|
|
(23,669
|
)
|
41,226
|
|
Trade and other
accounts receivable, net
|
|
|
|
|
|
|
|
|
|
511,037
|
|
990
|
|
|
|
512,027
|
|
Parts and
supplies inventory
|
|
|
|
|
|
|
|
|
|
20,124
|
|
|
|
|
|
20,124
|
|
Other current
assets
|
|
|
|
|
|
|
|
|
|
14,598
|
|
1,800
|
|
|
|
16,398
|
|
Current deferred
tax assets
|
|
|
|
|
|
|
|
|
|
71,946
|
|
6,620
|
|
|
|
78,566
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
701,053
|
|
63,976
|
|
(23,669
|
)
|
741,360
|
|
Non-current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
|
|
|
|
127,745
|
|
|
|
|
|
127,745
|
|
Intercompany
receivable
|
|
5,006
|
|
113,400
|
|
281,282
|
|
192,537
|
|
|
|
|
|
(592,225
|
)
|
|
|
Intangible
assets, net
|
|
|
|
|
|
|
|
|
|
76,112
|
|
|
|
|
|
76,112
|
|
Non-current
deferred tax assets
|
|
|
|
|
|
|
|
|
|
80,033
|
|
(3,446
|
)
|
|
|
76,587
|
|
Insurance
collateral
|
|
|
|
|
|
|
|
|
|
43,852
|
|
84,805
|
|
(2,085
|
)
|
126,572
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
328,842
|
|
458
|
|
|
|
329,300
|
|
Other long-term
assets
|
|
|
|
|
|
6,393
|
|
2,855
|
|
15,260
|
|
|
|
|
|
24,508
|
|
Investment and
advances in subsidiaries
|
|
478,557
|
|
365,157
|
|
216,160
|
|
148,983
|
|
16,807
|
|
|
|
(1,225,664
|
)
|
|
|
Assets
|
|
$
|
483,563
|
|
$
|
478,557
|
|
$
|
503,835
|
|
$
|
344,375
|
|
$
|
1,389,704
|
|
$
|
145,793
|
|
$
|
(1,843,643
|
)
|
$
|
1,502,184
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
63,046
|
|
$
|
71
|
|
$
|
|
|
$
|
63,117
|
|
Accrued liabilities
|
|
|
|
|
|
5,295
|
|
4,744
|
|
192,532
|
|
32,731
|
|
(1,757
|
)
|
233,545
|
|
Current portion
of long-term debt
|
|
|
|
|
|
1,656
|
|
744
|
|
2,428
|
|
|
|
|
|
4,828
|
|
Current
liabilities
|
|
|
|
|
|
6,951
|
|
5,488
|
|
258,006
|
|
32,802
|
|
(1,757
|
)
|
301,490
|
|
Long-term debt
|
|
|
|
|
|
280,724
|
|
189,890
|
|
5,572
|
|
|
|
|
|
476,186
|
|
Other long-term
liabilities
|
|
|
|
|
|
|
|
|
|
168,835
|
|
96,107
|
|
(23,997
|
)
|
240,945
|
|
Intercompany
|
|
|
|
|
|
|
|
|
|
592,148
|
|
77
|
|
(592,225
|
)
|
|
|
Liabilities
|
|
|
|
|
|
287,675
|
|
195,378
|
|
1,024,561
|
|
128,986
|
|
(617,979
|
)
|
1,018,621
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
common stock
|
|
93
|
|
|
|
|
|
|
|
|
|
30
|
|
(30
|
)
|
93
|
|
Class B
common stock
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Partnership
equity
|
|
212,361
|
|
325,761
|
|
189,394
|
|
22,967
|
|
212,361
|
|
|
|
(750,483
|
)
|
212,361
|
|
Additional
paid-in capital
|
|
118,312
|
|
|
|
|
|
|
|
|
|
6,690
|
|
(6,690
|
)
|
118,312
|
|
Retained earnings
|
|
154,310
|
|
154,310
|
|
28,845
|
|
124,523
|
|
154,296
|
|
8,297
|
|
(470,271
|
)
|
154,310
|
|
Comprehensive
income (loss)
|
|
(1,514
|
)
|
(1,514
|
)
|
(2,079
|
)
|
1,507
|
|
(1,514
|
)
|
1,790
|
|
1,810
|
|
(1,514
|
)
|
Equity
|
|
483,563
|
|
478,557
|
|
216,160
|
|
148,997
|
|
365,143
|
|
16,807
|
|
(1,225,664
|
)
|
483,563
|
|
Liabilities and
Equity
|
|
$
|
483,563
|
|
$
|
478,557
|
|
$
|
503,835
|
|
$
|
344,375
|
|
$
|
1,389,704
|
|
$
|
145,793
|
|
$
|
(1,843,643
|
)
|
$
|
1,502,184
|
|
16
Table of Contents
Consolidating
Balance Sheet
As
of December 31, 2007
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
Eliminations/
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo, Inc.
|
|
HoldCo, Inc.
|
|
Guarantors
|
|
Non-Guarantor
|
|
Adjustments
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
24,987
|
|
$
|
3,927
|
|
$
|
|
|
$
|
28,914
|
|
Insurance
collateral
|
|
|
|
|
|
|
|
|
|
24,498
|
|
13,278
|
|
|
|
37,776
|
|
Trade and other
accounts receivable, net
|
|
|
|
|
|
|
|
|
|
494,376
|
|
972
|
|
|
|
495,348
|
|
Parts and
supplies inventory
|
|
|
|
|
|
|
|
|
|
20,010
|
|
|
|
|
|
20,010
|
|
Other current
assets
|
|
|
|
|
|
|
|
|
|
11,709
|
|
6
|
|
|
|
11,715
|
|
Current deferred
tax assets
|
|
|
|
|
|
|
|
|
|
73,834
|
|
3,163
|
|
|
|
76,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
649,414
|
|
21,346
|
|
|
|
670,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
|
|
|
|
143,342
|
|
|
|
|
|
143,342
|
|
Intercompany
receivable
|
|
3,773
|
|
113,400
|
|
281,598
|
|
192,635
|
|
|
|
|
|
(591,406
|
)
|
|
|
Intangible
assets, net
|
|
|
|
|
|
|
|
|
|
81,717
|
|
|
|
|
|
81,717
|
|
Non-current
deferred tax assets
|
|
|
|
|
|
|
|
|
|
94,092
|
|
869
|
|
|
|
94,961
|
|
Insurance
collateral
|
|
|
|
|
|
|
|
|
|
49,200
|
|
102,280
|
|
(4,842
|
)
|
146,638
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
312,666
|
|
458
|
|
|
|
313,124
|
|
Other long-term
assets
|
|
|
|
|
|
7,124
|
|
3,231
|
|
18,666
|
|
|
|
|
|
29,021
|
|
Investment and
advances in subsidiaries
|
|
445,723
|
|
332,323
|
|
212,555
|
|
119,754
|
|
3,458
|
|
|
|
(1,113,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
449,496
|
|
$
|
445,723
|
|
$
|
501,277
|
|
$
|
315,620
|
|
$
|
1,352,555
|
|
$
|
124,953
|
|
$
|
(1,710,061
|
)
|
$
|
1,479,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
64,746
|
|
$
|
109
|
|
$
|
|
|
$
|
64,855
|
|
Accrued
liabilities
|
|
|
|
|
|
5,547
|
|
4,860
|
|
196,565
|
|
30,347
|
|
|
|
237,319
|
|
Current portion
of long-term debt
|
|
|
|
|
|
1,656
|
|
744
|
|
2,317
|
|
|
|
|
|
4,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
7,203
|
|
5,604
|
|
263,628
|
|
30,456
|
|
|
|
306,891
|
|
Long-term debt
|
|
|
|
|
|
281,519
|
|
190,248
|
|
6,399
|
|
|
|
|
|
478,166
|
|
Other long-term
liabilities
|
|
|
|
|
|
|
|
|
|
158,813
|
|
91,039
|
|
(4,842
|
)
|
245,010
|
|
Intercompany
|
|
|
|
|
|
|
|
|
|
591,406
|
|
|
|
(591,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
288,722
|
|
195,852
|
|
1,020,246
|
|
121,495
|
|
(596,248
|
)
|
1,030,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
93
|
|
|
|
|
|
|
|
|
|
30
|
|
(30
|
)
|
93
|
|
Class B common
stock
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Partnership
equity
|
|
212,361
|
|
325,761
|
|
189,394
|
|
22,967
|
|
212,361
|
|
|
|
(750,483
|
)
|
212,361
|
|
Additional
paid-in capital
|
|
117,079
|
|
|
|
|
|
|
|
|
|
6,690
|
|
(6,690
|
)
|
117,079
|
|
Retained earnings
|
|
118,956
|
|
118,956
|
|
23,783
|
|
95,173
|
|
118,942
|
|
(5,500
|
)
|
(351,354
|
)
|
118,956
|
|
Comprehensive
income (loss)
|
|
1,006
|
|
1,006
|
|
(622
|
)
|
1,628
|
|
1,006
|
|
2,238
|
|
(5,256
|
)
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
449,496
|
|
445,723
|
|
212,555
|
|
119,768
|
|
332,309
|
|
3,458
|
|
(1,113,813
|
)
|
449,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity
|
|
$
|
449,496
|
|
$
|
445,723
|
|
$
|
501,277
|
|
$
|
315,620
|
|
$
|
1,352,555
|
|
$
|
124,953
|
|
$
|
(1,710,061
|
)
|
$
|
1,479,563
|
|
17
Table of Contents
Condensed
Consolidating Statement of Cash Flows
For
the six months ended June 30, 2008
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo Inc.
|
|
HoldCo Inc.
|
|
Guarantors
|
|
Non-guarantors
|
|
Total
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by operating activities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
54,494
|
|
$
|
885
|
|
$
|
55,379
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
property, plant and equipment
|
|
|
|
|
|
|
|
|
|
(10,180
|
)
|
|
|
(10,180
|
)
|
Proceeds from
sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
220
|
|
Acquisition of
businesses, net of cash received
|
|
|
|
|
|
|
|
|
|
(19,957
|
)
|
|
|
(19,957
|
)
|
Net change in
insurance collateral
|
|
|
|
|
|
|
|
|
|
8,630
|
|
6,226
|
|
14,856
|
|
Net change in
deposits and other assets
|
|
|
|
|
|
|
|
|
|
2,628
|
|
|
|
2,628
|
|
Net cash provided
by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
(18,659
|
)
|
6,226
|
|
(12,433
|
)
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMSC issuance of
class A common stock
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Repayments of
capital lease obligations and other debt
|
|
|
|
|
|
|
|
|
|
(16,721
|
)
|
|
|
(16,721
|
)
|
Increase in bank
overdrafts
|
|
|
|
|
|
|
|
|
|
3,835
|
|
|
|
3,835
|
|
Borrowings under
revolving credit facility
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
|
14,000
|
|
Net intercompany
borrowings (payments)
|
|
(45
|
)
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Net cash provided
by financing activities
|
|
|
|
|
|
|
|
|
|
1,159
|
|
|
|
1,159
|
|
Change in cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
36,994
|
|
7,111
|
|
44,105
|
|
Cash and cash
equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
24,987
|
|
3,927
|
|
28,914
|
|
Cash and cash
equivalents, end of period
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
61,981
|
|
$
|
11,038
|
|
$
|
73,019
|
|
Condensed
Consolidating Statement of Cash Flows
For
the six months ended June 30, 2007
|
|
|
|
|
|
Issuer
|
|
Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR
|
|
EmCare
|
|
Subsidiary
|
|
Subsidiary
|
|
|
|
|
|
EMSC
|
|
EMS LP
|
|
HoldCo Inc.
|
|
HoldCo Inc.
|
|
Guarantors
|
|
Non-guarantors
|
|
Total
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by operating activities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
14,956
|
|
$
|
4,324
|
|
$
|
19,280
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
property, plant and equipment
|
|
|
|
|
|
|
|
|
|
(22,743
|
)
|
|
|
(22,743
|
)
|
Proceeds from
sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
291
|
|
|
|
291
|
|
Acquisition of
businesses, net of cash received
|
|
|
|
|
|
|
|
|
|
(477
|
)
|
|
|
(477
|
)
|
Net change in
insurance collateral
|
|
|
|
|
|
|
|
|
|
1,135
|
|
(4,168
|
)
|
(3,033
|
)
|
Net change in
deposits and other assets
|
|
|
|
|
|
|
|
|
|
2,715
|
|
|
|
2,715
|
|
Net cash used in
investing activities
|
|
|
|
|
|
|
|
|
|
(19,079
|
)
|
(4,168
|
)
|
(23,247
|
)
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of EMSC
equity
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
249
|
|
Repayments of
capital lease obligations and other debt
|
|
|
|
|
|
|
|
|
|
(3,391
|
)
|
|
|
(3,391
|
)
|
Net intercompany
borrowings (payments)
|
|
(249
|
)
|
|
|
|
|
|
|
249
|
|
|
|
|
|
Decrease in bank
overdrafts
|
|
|
|
|
|
|
|
|
|
(2,743
|
)
|
|
|
(2,743
|
)
|
Net cash used in
financing activities
|
|
|
|
|
|
|
|
|
|
(5,885
|
)
|
|
|
(5,885
|
)
|
Change in cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
(10,008
|
)
|
156
|
|
(9,852
|
)
|
Cash and cash
equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
39,329
|
|
7
|
|
39,336
|
|
Cash and cash
equivalents, end of period
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
29,321
|
|
$
|
163
|
|
$
|
29,484
|
|
18
Table
of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements and Factors That May Affect Results
Certain statements and
information herein may be deemed to be forward-looking statements within the
meaning of the Federal Private Securities Litigation Reform Act of 1995.
Forward-looking statements may include, but are not limited to, statements
relating to our objectives, plans and strategies, and all statements (other
than statements of historical facts) that address activities, events or
developments that we intend, expect, project, believe or anticipate will or may
occur in the future. Any forward-looking statements herein are made as of the
date this Quarterly Report on Form 10-Q is filed with the Securities and
Exchange Commission, and EMSC undertakes no duty to update or revise any such
statements. 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 EMSCs filings with the SEC from
time to time, including in the section entitled Risk Factors in the Companys
most recent Annual Report on Form 10-K and in subsequent Quarterly Reports
on Form 10-Q. Among the factors that could cause future results to differ
materially from those provided in this Quarterly Report on Form 10-Q are:
the impact on our revenue of changes in transport volume, mix of insured and
uninsured patients, and third party reimbursement rates and methods; the
adequacy of our insurance coverage and insurance reserves; potential penalties
or changes to our operations if we fail to comply with extensive and complex
government regulation of our industry, both as it exists now and as it may
change in the future; our ability to recruit and retain qualified physicians
and other healthcare professionals, and enforce our non-compete agreements with
our physicians; the loss of one or more members of our senior management team;
the outcome of government investigations of certain of our business practices;
our ability to generate cash flow to service our debt obligations and fund the
cost of capital expenditures to maintain and upgrade our vehicle fleet and
medical equipment; and the loss of existing contracts and the accuracy of our
assessment of costs under new contracts.
All references to we, our,
us or EMSC refer to Emergency Medical Services Corporation and its
subsidiaries, including Emergency Medical Services L.P., or EMS LP. The Companys
business is conducted primarily through two operating subsidiaries, American
Medical Response, Inc., or AMR, and EmCare Holdings Inc., or EmCare.
This Report should be
read in conjunction with the Companys consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K filed with the
SEC on February 27, 2008.
Company Overview
We are a leading provider
of emergency medical services in the United States. We operate our business and
market our services under the AMR and EmCare brands. We believe that AMR, over
its more than 50 years of operating history, has become the leading provider of
ambulance transport services in the United States. We believe that EmCare, over
its more than 30 years of operating history, has become the leading provider of
outsourced emergency department staffing and management services in the United
States.
Key Factors and Measures We Use to Evaluate Our Business
The key factors and
measures we use to evaluate our business focus on the number of patients we
treat and transport and the costs we incur to provide the necessary care and transportation
for each of our patients.
We evaluate our revenue
net of provisions for contractual payor discounts and provisions for
uncompensated care. Medicaid, Medicare and certain other payors receive
discounts from our standard charges, which we refer to as contractual
discounts. In addition, individuals we treat and transport may be personally
responsible for a deductible or co-pay under their third party payor coverage,
and most of our contracts require us to treat and transport patients who have no
insurance or other third party payor coverage. Due to the uncertainty regarding
collectability of charges associated with services we provide to these
patients, which we refer to as uncompensated care, our net revenue recognition
is based on expected cash collections. Our net revenue is gross billings after
provisions for contractual discounts and estimated uncompensated care.
Provisions for contractual discounts and uncompensated care have
19
Table of Contents
increased historically
primarily as a result of increases in gross billing rates.
The table below
summarizes our approximate payor mix as a percentage of both net revenue and
total transports and patient visits for the three and six months ended June 30,
2008 and 2007. In determining the net revenue payor mix, we use cash
collections in the period as an approximation of net revenue recorded.
|
|
Percentage of Net Revenue
|
|
Percentage of Total Volume
|
|
|
|
Quarter ended
June 30,
|
|
Six months ended
June 30,
|
|
Quarter ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Medicare
|
|
24.5
|
%
|
24.4
|
%
|
24.7
|
%
|
24.4
|
%
|
25.7
|
%
|
26.0
|
%
|
26.2
|
%
|
26.4
|
%
|
Medicaid
|
|
4.6
|
%
|
4.5
|
%
|
4.6
|
%
|
4.6
|
%
|
10.9
|
%
|
10.4
|
%
|
10.7
|
%
|
10.5
|
%
|
Commercial
insurance and managed care
|
|
49.7
|
%
|
49.2
|
%
|
49.6
|
%
|
49.4
|
%
|
42.1
|
%
|
41.2
|
%
|
42.0
|
%
|
41.2
|
%
|
Self-pay
|
|
4.4
|
%
|
4.9
|
%
|
4.5
|
%
|
4.7
|
%
|
21.3
|
%
|
22.4
|
%
|
21.1
|
%
|
21.9
|
%
|
Subsidies &
fees
|
|
16.8
|
%
|
17.0
|
%
|
16.6
|
%
|
16.9
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
In addition to
continually monitoring our payor mix, we also analyze certain measures in each
of our business segments.
AMR
Approximately 57% of AMRs
net revenue for the six months ended June 30, 2008 was generated from
emergency 9-1-1 ambulance transport services. Non-emergency ambulance transport
services, including critical care transfers, wheelchair transports and other
interfacility transports, or IFTs, accounted for 30% of AMRs net revenue for
the same period, with the balance generated from fixed wing medical
transportation services, Medicaid managed transportation services, and the
provision of training, dispatch and other services to communities and public
safety agencies. AMRs measures for net revenue include transports
(segregated into ambulance and wheelchair transports and in certain analyses
weighted) and net revenue per transport.
The change from period to
period in the number of transports is influenced by increases in transports in
existing markets from both new and existing facilities we serve for
non-emergency transports, the effects of general community conditions for
emergency transports and the impact of newly acquired businesses.
The costs we incur in our
AMR business segment consist primarily of compensation and benefits for medical
crews and support personnel, direct and indirect operating costs to provide
transportation services, and costs related to accident and insurance claims. AMRs
key cost measures include unit hours and cost per unit hour (to measure
compensation-related costs and the efficiency of our ambulance deployment),
operating costs per transport, and accident and insurance claims.
We have focused our risk
mitigation efforts on employee training for proper patient handling techniques,
development of clinical and medical equipment protocols, driving safety,
implementation of technology to reduce auto incidents and other risk mitigation
processes which we believe have resulted in a reduction in the frequency,
severity and development of claims. We continue to see positive trends in our
claims costs but cannot provide assurance that these trends will continue.
EmCare
Of EmCares net revenue
for the six months ended June 30, 2008, approximately 99% was derived from
our hospital contracts for emergency department staffing, hospitalist and
radiology services and other management services. Of this revenue,
approximately 79% was generated from billings to third party payors and
patients for patient visits and approximately 21% was generated from billings
to hospitals and affiliated physician groups for professional services. EmCares
key net revenue measures are patient visits, net revenue per patient visit, and
20
Table
of Contents
number of contracts.
The change from period to
period in the number of patient visits under our same store contracts is influenced
by general community conditions as well as hospital-specific elements, many of
which are beyond our direct control.
The costs incurred in our
EmCare business segment consist primarily of compensation and benefits for
physicians and other professional providers, professional liability costs, and
contract and other support costs. EmCares key cost measures include provider
compensation per patient visit and professional liability costs.
We have developed
extensive professional liability risk mitigation processes, including risk
assessments on medical professionals and hospitals, extensive incident
reporting and tracking processes, clinical fail-safe programs, training and
education and other risk mitigation programs which we believe have resulted in
a continued reduction in the frequency, severity and development of claims. We
continue to see positive trends in our claims costs but cannot provide
assurance that these trends will continue.
Recent Developments
The Company adopted SFAS No. 157
Fair value measurement
(SFAS 157)
effective January 1, 2008, which among other things, requires additional
disclosures about investments that are reported at fair value. SFAS 157
establishes a hierarchal disclosure framework which ranks the level of market
price observability used in measuring investments at fair value. Market price
observability is impacted by a number of factors, including the type of
investment and the characteristics specific to the investment.
Investments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree
of market price observability and a lesser degree of judgment used in measuring
fair value.
Factors Affecting Operating Results
Changes
in Net New Contracts
Our operating results are
affected directly by the number of net new contracts and related volumes we
have in a period, reflecting the effects of both new contracts and contract
expirations. We regularly bid for new contracts, frequently in a formal
competitive bidding process that often requires written responses to a Request
for Proposal, or RFP, and, in any fiscal period, certain of our contracts will
expire. We may elect not to seek extension or renewal of a contract, or may
reduce certain services, if we determine that we cannot continue to provide
such services on favorable terms. With respect to expiring contracts we would
like to renew, we may be required to seek renewal through an RFP, and we may
not be successful in retaining any such contracts, or retaining them on terms
that are as favorable as present terms.
Inflation
Certain of our expenses,
such as wages and benefits, insurance, fuel and equipment repair and
maintenance costs, are subject to normal inflationary pressures. Fuel expense
represented 16.1% and 12.0% of AMRs operating expenses for the three months
ended June 30, 2008 and 2007, respectively, and 14.6% and 11.3% for the
six months ended June 30, 2008 and 2007, respectively. Although we have generally been able to
offset inflationary and other cost increases through increased operating
efficiencies and successful negotiation of fees and subsidies, we can provide
no assurance that we will be able to offset any future fuel and inflationary
cost increases through similar efficiencies and fee changes.
Critical Accounting Policies
Revenue
Recognition
Management regularly
analyzes the ultimate collectability of accounts receivable after certain
stages of the collection cycle using a look-back analysis to determine the amount
of receivables subsequently collected. Retroactive adjustments recorded
in the first six months of the year, which increased revenue, were 0.4% of
21
Table
of Contents
consolidated net revenue
for the six months ended June 30, 2008 compared to 2.0% of consolidated
net revenue for the six months ended June 30, 2007.
Results
of Operations
Three
and Six Months Ended June 30, 2008 Compared to the Three and Six Months
Ended June 30, 2007
The following tables
present a comparison of financial data from our unaudited consolidated
statements of operations for the three and six months ended June 30, 2008
and 2007 for EMSC and our two operating segments.
Non-GAAP
Measures
Adjusted
EBITDA.
Adjusted EBITDA is defined as net income before
equity in earnings of unconsolidated subsidiary, income tax expense, interest
and other income, realized gain on investments, interest expense and depreciation
and amortization. Adjusted EBITDA is commonly used by management and
investors as a performance measure and liquidity indicator. Adjusted EBITDA is
not considered a measure of financial performance under U.S. generally accepted
accounting principles, or GAAP, and the items excluded from Adjusted EBITDA are
significant components in understanding and assessing our financial
performance. Adjusted EBITDA should not be considered in isolation or as an
alternative to such GAAP measures as net income, cash flows provided by or used
in operating, investing or financing activities or other financial statement
data presented in our financial statements as an indicator of financial
performance or liquidity. Since Adjusted EBITDA is not a measure determined in
accordance with GAAP and is susceptible to varying calculations, Adjusted
EBITDA, as presented, may not be comparable to other similarly titled measures
of other companies. The tables set forth a reconciliation of Adjusted EBITDA to
net income and cash flows provided by operating activities.
Unaudited
Consolidated Results of Operations and as a Percentage of Net Revenue
(dollars
in thousands)
EMSC
|
|
Quarter ended
June 30, 2008
|
|
Quarter ended
June 30, 2007
|
|
Six months ended
June 30, 2008
|
|
Six months ended
June 30, 2007
|
|
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
Net revenue
|
|
$
|
571,079
|
|
100.0
|
%
|
$
|
516,712
|
|
100.0
|
%
|
$
|
1,136,865
|
|
100.0
|
%
|
$
|
1,040,031
|
|
100.0
|
%
|
Compensation and
benefits
|
|
400,501
|
|
70.1
|
|
357,309
|
|
69.2
|
|
794,852
|
|
69.9
|
|
712,241
|
|
68.5
|
|
Operating
expenses
|
|
83,704
|
|
14.7
|
|
76,262
|
|
14.8
|
|
166,927
|
|
14.7
|
|
156,258
|
|
15.0
|
|
Insurance
expense
|
|
17,568
|
|
3.1
|
|
17,476
|
|
3.4
|
|
38,531
|
|
3.4
|
|
37,777
|
|
3.6
|
|
Selling, general
and administrative expenses
|
|
15,520
|
|
2.7
|
|
14,901
|
|
2.9
|
|
30,112
|
|
2.6
|
|
28,206
|
|
2.7
|
|
Restructuring
charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,242
|
|
0.2
|
|
Interest income
from restricted assets
|
|
(1,735
|
)
|
(0.3
|
)
|
(1,660
|
)
|
(0.3
|
)
|
(3,490
|
)
|
(0.3
|
)
|
(3,375
|
)
|
(0.3
|
)
|
Adjusted EBITDA
|
|
55,521
|
|
9.7
|
|
52,424
|
|
10.1
|
|
109,933
|
|
9.7
|
|
106,682
|
|
10.3
|
|
Depreciation and
amortization expenses
|
|
(17,446
|
)
|
(3.1
|
)
|
(17,577
|
)
|
(3.4
|
)
|
(35,163
|
)
|
(3.1
|
)
|
(34,356
|
)
|
(3.3
|
)
|
Interest expense
|
|
(10,354
|
)
|
(1.8
|
)
|
(11,395
|
)
|
(2.2
|
)
|
(20,270
|
)
|
(1.8
|
)
|
(22,629
|
)
|
(2.2
|
)
|
Realized gain on
investments
|
|
1,571
|
|
0.3
|
|
22
|
|
0.0
|
|
2,243
|
|
0.2
|
|
59
|
|
0.0
|
|
Interest and
other income
|
|
287
|
|
0.1
|
|
532
|
|
0.1
|
|
589
|
|
0.1
|
|
1,189
|
|
0.1
|
|
Income tax
expense
|
|
(11,348
|
)
|
(2.0
|
)
|
(9,012
|
)
|
(1.7
|
)
|
(22,032
|
)
|
(1.9
|
)
|
(19,474
|
)
|
(1.9
|
)
|
Equity in
earnings of unconsolidated subsidiary
|
|
104
|
|
0.0
|
|
101
|
|
0.0
|
|
54
|
|
0.0
|
|
255
|
|
0.0
|
|
Net income
|
|
$
|
18,335
|
|
3.2
|
%
|
$
|
15,095
|
|
2.9
|
%
|
$
|
35,354
|
|
3.1
|
%
|
$
|
31,726
|
|
3.1
|
%
|
22
Table
of Contents
Unaudited
Reconciliation of Adjusted EBITDA to Cash Flows Provided by Operating
Activities
(dollars
in thousands)
|
|
For the six months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Adjusted EBITDA
|
|
$
|
109,933
|
|
$
|
106,682
|
|
Interest paid
|
|
(19,164
|
)
|
(21,609
|
)
|
Change in
accounts receivable
|
|
(13,752
|
)
|
(63,934
|
)
|
Change in other
operating assets/liabilities
|
|
(22,081
|
)
|
(3,718
|
)
|
Equity based
compensation
|
|
1,124
|
|
800
|
|
Other
|
|
(681
|
)
|
1,059
|
|
Cash flows
provided by operating activities
|
|
$
|
55,379
|
|
$
|
19,280
|
|
Unaudited
Segment Results of Operations and as a Percentage of Net Revenue
(dollars
in thousands)
AMR
|
|
Quarter ended
June 30, 2008
|
|
Quarter ended
June 30, 2007
|
|
Six months ended
June 30, 2008
|
|
Six months ended
June 30, 2007
|
|
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
Net revenue
|
|
$
|
323,672
|
|
100.0
|
%
|
$
|
295,304
|
|
100.0
|
%
|
$
|
649,988
|
|
100.0
|
%
|
$
|
603,412
|
|
100.0
|
%
|
Compensation and
benefits
|
|
204,110
|
|
63.1
|
|
187,608
|
|
63.5
|
|
408,089
|
|
62.8
|
|
380,009
|
|
63.0
|
|
Operating
expenses
|
|
75,691
|
|
23.4
|
|
65,955
|
|
22.3
|
|
149,782
|
|
23.0
|
|
135,607
|
|
22.5
|
|
Insurance
expense
|
|
8,912
|
|
2.8
|
|
8,951
|
|
3.0
|
|
20,100
|
|
3.1
|
|
19,293
|
|
3.2
|
|
Selling, general
and administrative expenses
|
|
9,665
|
|
3.0
|
|
10,145
|
|
3.4
|
|
19,007
|
|
2.9
|
|
19,392
|
|
3.2
|
|
Restructuring
charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,242
|
|
0.4
|
|
Interest income
from restricted assets
|
|
(682
|
)
|
(0.2
|
)
|
(719
|
)
|
(0.2
|
)
|
(1,364
|
)
|
(0.2
|
)
|
(1,440
|
)
|
(0.2
|
)
|
Adjusted EBITDA
|
|
25,976
|
|
8.0
|
|
23,364
|
|
7.9
|
|
54,374
|
|
8.4
|
|
48,309
|
|
8.0
|
|
Reconciliation
of Adjusted EBITDA to income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
25,976
|
|
8.0
|
|
23,364
|
|
7.9
|
|
54,374
|
|
8.4
|
|
48,309
|
|
8.0
|
|
Depreciation and
amortization expense
|
|
(14,118
|
)
|
(4.4
|
)
|
(13,711
|
)
|
(4.6
|
)
|
(28,504
|
)
|
(4.4
|
)
|
(27,461
|
)
|
(4.6
|
)
|
Interest income
from restricted assets
|
|
(682
|
)
|
(0.2
|
)
|
(719
|
)
|
(0.2
|
)
|
(1,364
|
)
|
(0.2
|
)
|
(1,440
|
)
|
(0.2
|
)
|
Income from
operations
|
|
$
|
11,176
|
|
3.5
|
%
|
$
|
8,934
|
|
3.0
|
%
|
$
|
24,506
|
|
3.8
|
%
|
$
|
19,408
|
|
3.2
|
%
|
23
Table of Contents
EmCare
|
|
Quarter ended
June 30, 2008
|
|
Quarter ended
June 30, 2007
|
|
Six months ended
June 30, 2008
|
|
Six months ended
June 30, 2007
|
|
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
|
|
% of net
revenue
|
|
Net revenue
|
|
$
|
247,407
|
|
100.0
|
%
|
$
|
221,408
|
|
100.0
|
%
|
$
|
486,877
|
|
100.0
|
%
|
$
|
436,619
|
|
100.0
|
%
|
Compensation and
benefits
|
|
196,391
|
|
79.4
|
|
169,701
|
|
76.6
|
|
386,763
|
|
79.4
|
|
332,232
|
|
76.1
|
|
Operating
expenses
|
|
8,013
|
|
3.2
|
|
10,307
|
|
4.7
|
|
17,145
|
|
3.5
|
|
20,651
|
|
4.7
|
|
Insurance
expense
|
|
8,656
|
|
3.5
|
|
8,525
|
|
3.9
|
|
18,431
|
|
3.8
|
|
18,484
|
|
4.2
|
|
Selling, general
and administrative expenses
|
|
5,855
|
|
2.4
|
|
4,756
|
|
2.1
|
|
11,105
|
|
2.3
|
|
8,814
|
|
2.0
|
|
Interest income
from restricted assets
|
|
(1,053
|
)
|
(0.4
|
)
|
(941
|
)
|
(0.4
|
)
|
(2,126
|
)
|
(0.4
|
)
|
(1,935
|
)
|
(0.4
|
)
|
Adjusted EBITDA
|
|
29,545
|
|
11.9
|
|
29,060
|
|
13.1
|
|
55,559
|
|
11.4
|
|
58,373
|
|
13.4
|
|
Reconciliation
of Adjusted EBITDA to income from
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
29,545
|
|
11.9
|
|
29,060
|
|
13.1
|
|
55,559
|
|
11.4
|
|
58,373
|
|
13.4
|
|
Depreciation and
amortization expenses
|
|
(3,328
|
)
|
(1.3
|
)
|
(3,866
|
)
|
(1.7
|
)
|
(6,659
|
)
|
(1.4
|
)
|
(6,895
|
)
|
(1.6
|
)
|
Interest income
from restricted assets
|
|
(1,053
|
)
|
(0.4
|
)
|
(941
|
)
|
(0.4
|
)
|
(2,126
|
)
|
(0.4
|
)
|
(1,935
|
)
|
(0.4
|
)
|
Income from
operations
|
|
$
|
25,164
|
|
10.2
|
%
|
$
|
24,253
|
|
11.0
|
%
|
$
|
46,774
|
|
9.6
|
%
|
$
|
49,543
|
|
11.3
|
%
|
Quarter ended June 30, 2008 compared to the quarter
ended June 30, 2007
Consolidated
Our results for the three
months ended June 30, 2008 reflect an increase in net revenue of $54.4
million and an increase in net income of $3.2 million compared to the three
months ended June 30, 2007. The increase in net income is
attributable primarily to growth in income from operations, increase in
realized gain on investments and a decrease in interest expense partially
offset by increased income tax expense. Basic and diluted earnings per
share were $0.44 and $0.43, respectively, for the three months ended June 30,
2008. Basic and diluted earnings per share were $0.36 and $0.35,
respectively, for the same period in 2007.
Net
revenue.
For the three months ended June 30, 2008,
we generated net revenue of $571.1 million compared to $516.7 million for the
three months ended June 30, 2007, representing an increase of 10.5%.
The increase is attributable primarily to increases in rates and volumes on
existing contracts and increased volume from net new contracts and
acquisitions.
Adjusted
EBITDA.
Adjusted EBITDA was $55.5 million, or 9.7% of net
revenue, for the three months ended June 30, 2008 compared to $52.4
million, or 10.1% of net revenue for the three months ended June 30,
2007. The 2007 period included
additional positive revenue adjustments with an Adjusted EBITDA impact of
approximately $1.9 million.
Interest
expense.
Interest expense for the three months ended June 30,
2008 was $10.4 million compared to $11.4 million for the three months ended June 30,
2007. The decrease is attributable primarily to our interest rate swap
agreement, which became effective in the fourth quarter of 2007. The swap
agreement converts $200.0 million of variable rate debt to fixed rate debt with
an effective rate of 6.3%.
Income
tax expense.
Income tax expense for the three months
ended June 30, 2008 was $11.3 million compared to $9.0 million for the
same period in 2007. Our effective tax rate for the three months ended June 30,
2008 was 38.4%, and 37.5% for the same period in 2007. The increase is due to growth in income from
operations, increase in realized gain on investments and lower interest
expense.
24
Table
of Contents
AMR
Net
revenue.
Net revenue for the three months ended June 30,
2008 was $323.7 million, an increase of $28.4 million, or 9.6%, from $295.3
million for the same period in 2007. The
increase in net revenue was due primarily to an increase in net revenue per weighted
transport of 5.0%, or $14.7 million, and an increase of 4.6%, or $13.7 million,
in weighted transport volume. The increase in net revenue per transport
is attributable primarily to rate increases in several markets including
adjustments for increased fuel costs. Weighted transports increased
33,100 from the same quarter last year. The change was due to an increase
in weighted transports of 43,000 from acquisitions and an increase in transport
volume in existing markets of 0.8% partially offset by a decrease in weighted
transports of 15,200 from the restructuring and exit of certain of our
operations.
Compensation
and benefits.
Compensation and benefit costs for the
three months ended June 30, 2008 were $204.1 million, or 63.1% of net
revenue, compared to $187.6 million, or 63.5% of net revenue, for the same
period last year. Ambulance crew wages per ambulance unit hour increased by
approximately 3.6%, or $3.9 million primarily attributable to annual wage rate
increases. Ambulance unit hours increased period over period by
4.3%, or $4.5 million. The increase is due to our recent acquisitions and
increased transport volume in existing markets partially offset by the
restructuring and exit of certain of our operations in 2007. Non-crew
wages increased $4.7 million primarily due to additional compensation expenses
from acquisitions of $2.8 million and annual salary increases of 3.9%.
Benefit costs increased by $3.6 million for the three months ended June 30,
2008 compared to the same period in 2007. The change is attributable to
additional benefit costs of $1.2 million related to our acquisitions and
increased health insurance costs.
Operating
expenses.
Operating expenses for the three months ended June 30,
2008 were $75.7 million, or 23.4% of net revenue, compared to $66.0 million, or
22.3% of net revenue, for the three months ended June 30, 2007. Operating expenses per weighted transport
increased 9.7% in the three months ended June 30, 2008 compared to the
same period in 2007. The change is primarily due to increased fuel costs
of $3.6 million and additional operating expenses of $4.3 million from our
acquisitions.
Insurance
expense.
Insurance expense for the three months ended June 30,
2008 was $8.9 million, or 2.8% of net revenue, compared to $9.0 million, or
3.0% of net revenue, for the same period in 2007. We recorded a reduction
of prior year insurance provisions of $1.7 million during the three months
ended June 30, 2008 and $4.1 million during the three months ended June 30,
2007.
Selling,
general and administrative.
Selling, general and
administrative expense for the three months ended June 30, 2008 was $9.7
million, or 3.0% of net revenue, compared to $10.1 million, or 3.4% of net
revenue, for the three months ended June 30, 2007.
Depreciation
and amortization.
Depreciation and amortization expense
for the three months ended June 30, 2008 was $14.1 million, or 4.4% of net
revenue, compared to $13.7 million, or 4.6% of net revenue, for the same period
in 2007.
EmCare
Net
revenue.
Net revenue for the three months ended June 30,
2008 was $247.4 million, an increase of $26.0 million, or 11.7%, from $221.4
million for the three months ended June 30, 2007. The increase was due
primarily to an increase in patient visits from net new hospital contracts and
net revenue increases in existing contracts. Following March 31, 2007, we
added 37 net new contracts which accounted for a net revenue increase of $18.2
million for the three months ended June 30, 2008. Of the 37 net new
contracts added since March 31, 2007, 17 were added in 2007 resulting in
an incremental increase in 2008 net revenue of $5.5 million. During the
three months ended June 30, 2008, EmCare added 24 new contracts and
terminated 10 contracts resulting in an increase in net revenue of $12.7
million. Net revenue under our same store contracts (contracts in
existence for the entirety of both periods) increased $7.8 million, or 4.1%,
for the three months ended June 30, 2008. The change is due to a
0.1% decrease (3.5% increase excluding retroactive revenue adjustments
discussed below) in revenue per visit and an increase in same store patient
visits of 4.2% over the prior period. Retroactive adjustments, which
increased revenue for the three months ended June 30, 2008 and 2007, were
approximately 0.2% and 3.9% of EmCares net revenue, respectively.
25
Table of Contents
Compensation
and benefits.
Compensation and benefits costs for the
three months ended June 30, 2008 were $196.4 million, or 79.4% of net
revenue, compared to $169.7 million, or 76.6% of net revenue, for the same
period in 2007. Provider compensation and benefits costs increased $16.0
million from net new contract additions. Same store provider compensation and
benefits costs were $9.1 million over prior period due to a 3.2% increase in
provider compensation per patient visit attributable primarily to higher net
revenue and patient visits.
Operating
expenses.
Operating expenses for the three months ended June 30,
2008 were $8.0 million, or 3.2% of net revenue, compared to $10.3 million, or
4.7% of net revenue, for the same period in 2007. Operating expenses
decreased primarily due to reduced off-hours radiology coverage, lower
collection agency fees, and bank fees of approximately $0.7 million, which are
now included in selling, general and administrative expenses.
Insurance
expense.
Professional liability insurance expense for
the three months ended June 30, 2008 was $8.7 million, or 3.5% of net
revenue, compared to $8.5 million, or 3.9% of net revenue, for the three months
ended June 30, 2007. The decrease as a percent of revenue is due to
a reduction in current year reserves, offset by a $2.9 million decrease of
prior year insurance provision reductions.
Insurance expense for the 2008 and 2007 periods includes reductions of
prior year insurance provisions of $1.7 million and $4.6 million, respectively.
Selling,
general and administrative.
Selling, general and
administrative expense for the three months ended June 30, 2008 was $5.9
million, or 2.4% of net revenue, compared to $4.8 million, or 2.1% of net
revenue, for the three months ended June 30, 2007. The increase is
due primarily to an increase in regional travel expense associated with the
increase in contracts during the period and bank fees of approximately $0.7
million, which bank fees were included in operating expenses.
Depreciation
and amortization.
Depreciation and amortization expense
for the three months ended June 30, 2008 was $3.3 million, or 1.3% of net
revenue, compared to $3.9 million, or 1.7% of net revenue, for the three months
ended June 30, 2007.
Six months ended June 30, 2008 compared to the six
months ended June 30, 2007
Consolidated
Our results for the six
months ended June 30, 2008 reflect an increase in net revenue of $96.8
million and an increase in net income of $3.6 million compared to the six
months ended June 30, 2007. The increase in net income is attributable
primarily to growth in income from operations, higher realized gains on
investments and a decrease in interest expense partially offset by increased
income tax expense. Basic and diluted
earnings per share were $0.85 and $0.82, respectively, for the six months ended
June 30, 2008. Basic and diluted earnings per share were $0.76 and $0.74,
respectively, for the same period in 2007.
Net
revenue.
For the six months ended June 30, 2008,
net revenue was $1,136.9 million compared to $1,040.0 million for the six
months ended June 30, 2007, representing an increase of 9.3%. The increase
is attributable primarily to increases in rates and volumes on existing
contracts and increased volume from net new contracts and acquisitions.
Adjusted
EBITDA.
Adjusted EBITDA was $109.9 million, or 9.7% of
net revenue, for the six months ended June 30, 2008 compared to $106.7
million, or 10.3% of net revenue for the six months ended June 30, 2007.
The six months ended June 30, 2007 included incremental positive revenue
adjustments with an Adjusted EBITDA impact of $9.9 million.
Interest
expense.
Interest expense for the six months ended June 30,
2008 was $20.3 million compared to $22.6 million for the six months ended June 30,
2007. The decrease is attributable primarily to our interest rate
swap agreement, which became effective in the fourth quarter of 2007. The
swap agreement converts $200.0 million of variable rate debt to fixed rate debt
with an effective rate of 6.3%.
Income
tax expense.
Income tax expense increased $2.6 million
for the six months ended June 30, 2008, compared to the same period in
2007, resulting primarily from increased operating income, increased realized
gain
26
Table
of Contents
on investments and lower
interest expense. Our effective tax rate for the six months ended June 30,
2008 was 38.4% compared with 38.2% for the same period in 2007.
AMR
Net
revenue.
Net revenue for the six months ended June 30,
2008 was $650.0 million, an increase of $46.6 million, or 7.7%, from $603.4
million for the same period in 2007. The increase in net revenue was due
primarily to an increase in our net revenue per weighted transport of 3.9%, or
$23.8 million, and an increase of 3.8%, or $22.8 million, in weighted
transport volume. The increase in net
revenue per transport is attributable primarily to rate increases in several
markets including adjustments for increased fuel costs. Weighted
transports increased 55,000 from the same period last year. The change
was due to an increase in weighted transports of 84,600 from acquisitions and
an increase in transport volume in existing markets of 0.9%, partially offset
by a decrease in weighted transports of 42,000 from the restructuring and exit
of certain of our operations.
Compensation
and benefits.
Compensation and benefit costs for the six
months ended June 30, 2008 were $408.1 million, or 62.8% of net revenue,
compared to $380.0 million, or 63.0% of net revenue, for the six months ended June 30,
2007. Ambulance crew wages per ambulance unit hour increased by approximately
3.3%, or $7.3 million, principally from annual wage rate increases.
Ambulance unit hours increased period over period by 2.8% or $6.0
million. The increase is due to our recent acquisitions and increased
transport volume in existing markets partially offset by the restructuring of
certain of our operations and exit of other markets in 2007. Non-crew wages increased $8.8 million
primarily due to additional compensation expenses from acquisitions of $5.1
million and annual salary increases of 3.6%. Benefit costs increased by
$6.7 million for the six months ended June 30, 2008 primarily due to
increased benefit expense of $2.7 million from our acquisitions and increased
health insurance costs.
Operating
expenses.
Operating expenses for the six months ended June 30,
2008 were $149.8 million, or 23.0% of net revenue, compared to $135.6 million,
or 22.5% of net revenue, for the six months ended June 30, 2007. Operating
expenses per weighted transport increased 6.4% in the six months ended June 30,
2008 compared to the same period in 2007. This change is due primarily to
increased fuel costs of $5.6 million and additional operating expenses of $7.6
million from our acquisitions.
Insurance
expense.
Insurance expense for the six months ended June 30,
2008 was $20.1 million, or 3.1% of net revenue, compared to $19.3 million, or
3.2% of net revenue, for the same period in 2007. We recorded a reduction of prior year
insurance provisions of $3.6 million during the six months ended June 30,
2008 and $7.3 million during the six months ended June 30, 2007.
Selling,
general and administrative.
Selling, general and
administrative expense for the six months ended June 30, 2008 was $19.0
million, or 2.9% of net revenue, compared to $19.4 million, or 3.2% of net
revenue, for the six months ended June 30, 2007.
Restructuring
charges.
Restructuring charges of $2.2 million were
recorded during the six months ended June 30, 2007, related to the closure
of one of our billing offices and restructuring our operations in Los Angeles
and Orange Counties in California.
Depreciation
and amortization.
Depreciation and amortization expense
for the six months ended June 30, 2008 was $28.5 million, or 4.4% of net
revenue, compared to $27.5 million, or 4.6% of net revenue, for the same period
in 2007. The increase is attributable
primarily to amortization expense on additional contract intangible assets
recorded on acquisitions since June 30, 2007.
EmCare
Net
revenue.
Net
revenue for the six months ended June 30, 2008 was $486.9 million, an
increase of $50.3 million, or 11.5%, from $436.6 million for the six months
ended June 30, 2007. The increase was due primarily to an increase in
patient visits from net new hospital contracts and net revenue increases in
existing contracts.
27
Table
of Contents
Following
December 31, 2006, we added 37 net new contracts which accounted for a net
revenue increase of $31.5 million. Of the 37 net new contracts added
since December 31, 2006, 17 were added in 2007 resulting in an increase in
2008 net revenue of $15.4 million. For the six months ended June 30,
2008, EmCare added 45 new contracts and terminated 25 contracts resulting in an
incremental increase in net revenue of $16.1 million. Net revenue under
our same store contracts increased $18.7 million, or 5.0%, for the period ended
June 30, 2008 due to a 0.1% increase (4.3% increase excluding retroactive
revenue adjustments discussed below) in revenue per visit and an increase in
same store patient visits of 4.9% over the prior period. Retroactive adjustments, which increased
revenue for the six months ended June 30, 2008 and 2007, were
approximately 0.9% and 4.8% of EmCares net revenue, respectively.
Compensation
and benefits.
Compensation
and benefits costs for the six months ended June 30, 2008 were $386.8
million, or 79.4% of net revenue, compared to $332.2 million, or 76.1% of net
revenue for the same period in 2007. Provider compensation and benefits costs
increased $29.9 million from net new contract additions. Same store provider
compensation and benefits costs were $21.3 million over the prior period due to
a 4.2% increase in provider compensation per patient visit primarily due to
increases in net revenue per patient visit. The remaining variance is
related primarily to increased staffing due to higher patient volumes.
Operating
expenses.
Operating
expenses for the six months ended June 30, 2008 were $17.1 million, or
3.5% of net revenue, compared to $20.7 million, or 4.7% of net revenue, for the
same period in 2007. Operating expenses decreased due primarily to
reduced off-hours radiology coverage, lower collection agency fees, and bank
fees of approximately $1.4 million, which are now included in selling, general
and administrative expenses.
Insurance
expense.
Professional
liability insurance expense for the six months ended June 30, 2008 was
$18.4 million, or 3.8% of net revenue, compared to $18.5 million, or 4.2% of
net revenue, for the six months ended June 30, 2007. The decrease as a
percentage of net revenue is due to the continued improvement in current year
ultimate claims costs. A reduction of prior year insurance provisions of
$2.6 million was recorded during the six months ended June 30, 2008 and a
reduction of $6.6 million was recorded for the six months ended June 30,
2007.
Selling,
general and administrative.
Selling, general and administrative expense for the six months
ended June 30, 2008 was $11.1 million, or 2.3% of net revenue, compared to
$8.8 million, or 2.0% of net revenue, for the six months ended June 30,
2007. The increase is due primarily to
an increase in regional travel expense associated with the increase in
contracts during the period and increased bank fees of approximately $1.4
million, which bank fees were previously included in operating expenses.
Depreciation
and amortization.
Depreciation
and amortization expense for the six months ended June 30, 2008 was $6.7
million, or 1.4% of net revenue, compared to $6.9 million, or 1.6% of net
revenue, for the six months ended June 30, 2007.
Critical
Accounting Policies
For a discussion of
accounting policies that we consider critical to our business operations and
the understanding of our results of operations that affect the more significant
judgments and estimates used in the preparation of our unaudited condensed
consolidated financial statements, please refer to Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies contained in our annual report on Form 10-K
for the year ended December 31, 2007 and incorporated by reference herein.
As of June 30, 2008, there were no significant changes in our critical accounting
policies or estimation procedures.
Liquidity
and Capital Resources
Our primary source of
liquidity is cash flows provided by our operating activities. We can also use
our revolving senior secured credit facility, described below, to supplement cash
flows provided by our operating activities if we decide to do so for strategic
or operating reasons. Our liquidity needs are primarily to service long-term
debt and to fund working capital requirements, capital expenditures related to
the acquisition of vehicles and medical equipment, technology-related assets
and insurance-related deposits.
28
Table
of Contents
We believe our cash and
cash equivalents, net cash from our operating activities, and amounts available
under our senior secured credit facility will meet the liquidity requirements
of our business through at least the next 12 months. We have available to us,
upon compliance with customary conditions, $100.0 million under the revolving
credit facility, less outstanding letters of credit of $34.5 million at June 30,
2008. Further, we have a conditional right under our senior secured credit
facility to request new or existing lenders to provide up to an additional
$100.0 million of term debt (in $20.0 million increments).
Cash
Flow
The table below
summarizes cash flow information derived from our statements of cash flows for
the periods indicated, amounts in thousands.
|
|
Six months ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Net cash
provided by (used in):
|
|
|
|
|
|
Operating
activities
|
|
$
|
55,379
|
|
$
|
19,280
|
|
Investing
activities
|
|
(12,433
|
)
|
(23,247
|
)
|
Financing
activities
|
|
1,159
|
|
(5,885
|
)
|
|
|
|
|
|
|
|
|
Operating
activities
. Net cash provided by operating activities was
$55.4 million for the six months ended June 30, 2008 compared to $19.3
million for the same period last year. Increases in accounts receivable
decreased operating cash flows by $13.8 million for the six months ended June 30,
2008 compared to $63.9 million for the same period in 2007. The accounts
receivable changes are related primarily to the billing system conversion and
enrollment delays discussed below. Accounts receivable increased during
2008 due to revenue growth, offset by increased collections for receivables
delayed in 2007 for billing system conversions and for delays in obtaining
provider numbers. Accounts payable and
accrued liabilities decreased operating cash flows by $10.3 million in 2008
compared to an increase of $0.2 million in 2007. The decrease is attributable primarily to
payment timing differences in accounts payable.
We regularly analyze days
sales outstanding, or DSO, which is calculated by taking our net revenue for
the period divided by the number of days in the period. The result is
divided into net accounts receivable at the end of the period. DSO
provides us with a gauge to measure receivables, revenue and collection
activities. The following table outlines our DSO by segment and in total:
|
|
Q2 2008
|
|
Q1 2008
|
|
Q4 2007
|
|
Q3 2007
|
|
Q2 2007
|
|
Q1 2007
|
|
AMR
|
|
86
|
|
87
|
|
89
|
|
89
|
|
90
|
|
82
|
|
EmCare
|
|
76
|
|
79
|
|
79
|
|
81
|
|
78
|
|
69
|
|
EMSC
|
|
82
|
|
84
|
|
85
|
|
86
|
|
85
|
|
77
|
|
EMSCs DSO decreased 3
days for the six months ended June 30, 2008. The AMR DSO decrease of 3 days
for the six months ended June 30, 2008 was primarily from the collection
of receivables delayed as a result of the billing system conversion in several
markets during 2007. AMR DSO increased 8 days in 2007, of which 6 days were
related to this conversion. We expect to collect the remaining net
receivables related to the system conversion by the end of 2008.
EmCares DSO declined 3
days for the six months ended June 30, 2008. The reduction was due to improved cash
collections and from the collection of Medicare and Medicaid billings which had
been delayed as a result of the time required to obtain provider numbers. During the six months ended June 30,
2008, the total enrollment delayed amount decreased by approximately 26% and
has been negatively affected by recent contract starts. The Company expects to
collect these Medicare and Medicaid receivables, which currently represent
approximately 5 days of EmCares DSO.
Investing
activities
. Net cash used in investing activities was
$12.4 million for the six months ended June 30, 2008 compared to $23.2
million for the same period in 2007. The decrease in cash flows used in
investing activities relates to reduced insurance collateral requirements of
$14.9 million during 2008 compared to an increase in cash required for
insurance collateral of $3.0 million during the 2007 period. Net capital expenditure spending was $10.0
29
Table
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million during the six
months ended June 30, 2008 compared to $22.5 million for the same period
last year due primarily to the timing of capital purchases and the completion
of system upgrades in the first half of 2007.
Cash used in the acquisition of businesses during the six months ended June 30,
2008 was $20.0 million compared to $0.5 million during the same period in 2007.
Financing
activities.
For the six months ended June 30, 2008, net
cash provided by financing activities was $1.2 million compared to cash used in
financing activities of $5.9 million for the six months ended June 30,
2007. Net cash from financing activities for the six months ended June 30,
2008 includes an increase in bank overdrafts of $3.8 million offset by net debt
repayments of $2.7 million. At June 30, 2008 there were no amounts
outstanding under our revolving credit facility.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to
market risk consists of changes in interest rates on certain of our borrowings
and changes in fuel prices. We have not entered into hedging transactions or
used derivative instruments for speculative or trading purposes to mitigate our
exposure to fluctuations in fuel prices.
We monitor the risk from
changing interest rates and evaluate ways to mitigate possible exposures, as
appropriate, using derivative and hedging instruments. Our use of derivative instruments is limited
to highly effective fixed interest rate swap agreements used to manage
well-defined interest rate risk exposures.
At June 30, 2008, we were party to one interest rate swap
agreement. The swap agreement is with
major financial institutions and amounts to $200 million of our variable rate
debt. This swap agreement effectively
converts $200 million of variable rate debt to fixed rate debt with an
effective rate of 6.3%. The Company continues to make interest payments
based on the variable rate associated with the debt (based on LIBOR which had
an average rate of 3% at June 30, 2008) and periodically settles with its
counterparties for the difference between the rate paid and the fixed
rate. The swap agreement expires in December 2009.
As of June 30, 2008,
we had $474.8 million of debt excluding capital leases, of which $23.0 million
was variable rate debt under our senior secured credit facility ($200 million
of which was fixed through an interest rate swap which expires in December 2009)
and the balance was fixed rate debt, including $250.0 million aggregate
principal amount of our senior subordinated notes. An increase or decrease in
interest rates of 0.125% will change our interest costs on our senior secured
credit facility by less than $0.1 million per year based on outstanding
indebtedness at June 30, 2008.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act))
that are designed to ensure that information required to be disclosed in the
reports that we file under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or furnishes
under the Exchange Act is accumulated and communicated to the issuers management,
including its principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Based on their evaluation
of our disclosure controls and procedures conducted within 90 days of the date
of filing this Report on Form 10-Q, our principal executive officer and
our principal financial officer have concluded that, as of the date of their
evaluation, our disclosure controls and procedures (as defined in Rules 13a
-15(e) and 15d -15(e) promulgated under the Exchange Act) are
effective.
30
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Changes in Internal Control Over Financial Reporting
There were no changes in
our internal control over financial reporting that occurred during our fiscal
quarter ended June 30, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
31
Table
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EMERGENCY
MEDICAL SERVICES CORPORATION
PART II. OTHER INFORMATION
FOR
THE THREE AND SIX MONTHS ENDED
JUNE
30, 2008
ITEM 1.
LEGAL PROCEEDINGS
For additional
information regarding legal proceedings, please refer to note 6, under the
caption Commitments and Contingencies of the notes accompanying the
consolidated financial statements included herein, to our Annual Report on Form 10-K
filed with the SEC on February 27, 2008 and to our Quarterly Report on Form 10-Q
filed with the SEC on May 9, 2008.
ITEM
1A. RISK FACTORS
There have been no
material changes from the risk factors disclosed in the Risk Factors section
of the Companys Annual Report on Form 10-K for the year ended December 31,
2007.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our 2008 annual meeting
of stockholders was held on May 28, 2008 in Englewood, Colorado. The matters submitted for a vote at the
meeting and the related election results were as follows:
1.
Election
of one Class III director, Michael L. Smith, to our Board of Directors:
For: 327,291,538;
Withheld: 524,659
The
other directors whose terms of office continued after the meeting were: William
A. Sanger, Robert M. Le Blanc, Steven B. Epstein, Paul B. Iannini and James T.
Kelly.
2.
Approval
of the Amended and Restated 2007 Long-Term Incentive Plan:
For: 322,978,953;
Against: 4,257,091; Abstain: 9,801; Broker Non-Vote: 570,352
3.
Ratification
of the appointment of Ernst & Young LLP as the Companys independent
registered public accounting firm for the fiscal year ending December 31,
2008:
For: 327,803,284; Against: 9,097; Abstain: 3,816;
Broker Non-Vote: 0
The amendments reflected in the Amended and Restated 2007 Long-Term
Incentive Plan permit certain independent contractors associated with us or our
subsidiaries to be eligible to receive stock awards under such Plan. The material terms of the Amended and
Restated 2007 Long-Term Incentive Plan and additional information regarding the
matters approved at our 2008 annual meeting of stockholders are set forth in
our definitive proxy statement filed with the Securities and Exchange
Commission on April 29, 2008.
32
Table
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ITEM 6.
EXHIBITS
10.16.2
|
|
Amended and Restated
2007 Long-Term Incentive Plan (incorporated by reference to Annex A to the
Companys Proxy Statement for its Annual Stockholders Meeting filed with the
Securities and Exchange Commission on April 29, 2008).
|
|
|
|
31.1
|
|
Certification of the
Chief Executive Officer of Emergency Medical Services Corporation pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.2
|
|
Certification of the
Chief Executive Officer of Emergency Medical Services Corporation, as general
partner of Emergency Medical Services L.P., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.3
|
|
Certification of the
Chief Financial Officer of Emergency Medical Services Corporation pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.4
|
|
Certification of the
Chief Financial Officer of Emergency Medical Services Corporation, as general
partner of Emergency Medical Services L.P., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.1
|
|
Certification of the
Chief Executive Officer and the Chief Financial Officer of Emergency Medical
Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.2
|
|
Certification of the
Chief Executive Officer and the Chief Financial Officer of Emergency Medical
Services Corporation, as general partner of Emergency Medical Services L.P.
pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
* Filed with this report
33
Table of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrants have duly
caused this report to be signed on their behalf by the undersigned, thereunto
duly authorized.
|
EMERGENCY
MEDICAL SERVICES CORPORATION
|
|
|
|
(registrant)
|
|
|
|
August 7, 2008
|
|
By:
|
/s/ William A. Sanger
|
Date
|
|
William A. Sanger
|
|
|
Chairman and Chief Executive Officer
|
|
|
|
|
EMERGENCY
MEDICAL SERVICES L.P.
|
|
(registrant)
|
|
|
|
|
By:
|
Emergency Medical
Services Corporation, its General
Partner
|
|
|
|
August 7, 2008
|
|
By:
|
/s/ William A. Sanger
|
Date
|
|
William A. Sanger
|
|
|
Chairman and Chief Executive Officer
|
34
Table of Contents
EXHIBIT
INDEX
10.16.2
|
|
Amended and Restated
2007 Long-Term Incentive Plan (incorporated by reference to Annex A to the
Companys Proxy Statement for its Annual Stockholders Meeting filed with the
Securities and Exchange Commission on April 29, 2008).
|
|
|
|
31.1
|
|
Certification of the
Chief Executive Officer of Emergency Medical Services Corporation pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.2
|
|
Certification of the
Chief Executive Officer of Emergency Medical Services Corporation, as general
partner of Emergency Medical Services L.P., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.3
|
|
Certification of the
Chief Financial Officer of Emergency Medical Services Corporation pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.4
|
|
Certification of the
Chief Financial Officer of Emergency Medical Services Corporation, as general
partner of Emergency Medical Services L.P., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.1
|
|
Certification of the
Chief Executive Officer and the Chief Financial Officer of Emergency Medical
Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.2
|
|
Certification of the
Chief Executive Officer and the Chief Financial Officer of Emergency Medical
Services Corporation, as general partner of Emergency Medical Services L.P.
pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
* Filed with this report
35
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