**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-K**

**Mark one:**

**x**                                 ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**For the year ended December 31, 2006**

**Or**

**o**                                   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**For the transition period from               to              **

**Commissionfile numbers:**

**001-32701333-127115**

**EMERGENCYMEDICAL SERVICES CORPORATIONEMERGENCY MEDICAL SERVICES L.P.**

(Exactname of Registrant as Specified in its Charter)

| **Delaware**                                                    |   | **20-3738384  20-2076535**            |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification Number) |
| **6200 S. Syracuse Way**                                        |   | ** **                            |
| **Suite 200**                                              |   | ** **                            |
| **Greenwood Village, CO**                                       |   | **80111**                             |
| (Address of principal executive offices)                        |   | (Zip Code)                            |

 

**Registrant’stelephone number, including area code:** 303-495-1200

**Securities registered pursuant to Section 12(b) ofthe Act:**

| **Title  of each class**                  |   | **Name of each exchange on which registered** |
|-------------------------------------------|--------|-----------------------------------------------|
| Class A Common Stock, $.01 par value |   | New York Stock Exchange                       |

 

**Securitiesregistered pursuant to Section 12(g) of the Act:** None

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.   Yes o  No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or 15(d) of the Act.   Yes  o  No x

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-Kor any amendment of this Form 10-K. o

Indicateby check mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):

| Large accelerated filer o | Accelerated filerx | Non-accelerated filer o |
|---------------------------|--------------------|-------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes  o  No x

Asof December 31, 2006, 9,262,853 shares of the Company’s class A commonstock, par value $0.01 per share, were outstanding. As of December 31,2006, the aggregate market value of the voting and non-voting common equityheld by non-affiliates of the Company, computed by reference to the closingprice for the registrant’s class A common stock on the New York StockExchange on such date was approximately $194.3 million (9,262,853 sharesat a closing price per share of $20.98).

Sharesof class A common stock outstanding at March 5, 2007—9,273,911;shares of class B common stock outstanding at March 5, 2007—142,545; LPexchangeable units outstanding at March 5, 2007—32,107,500.

**DOCUMENTS INCORPORATED BY REFERENCE**

Certain portions of the registrant’s definitiveproxy statement to be used in connection with its 2007 Annual Meeting ofStockholders and to be filed within 120 days of December 31, 2006 areincorporated by reference into Part III, Items 10-14, of this Form 10-K.

 

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**EMERGENCY MEDICALSERVICES CORPORATION**

**INDEX TO ANNUALREPORTON FORM 10-K**

**FORTHE YEAR ENDEDDECEMBER 31, 2006**

|                                                                      | ** ** | ** **                                                                                                          | ** ** | **Page** |
|----------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------|
| FORWARD-LOOKING  STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS |       | 3                                                                                                                   |       |
| PART I.                                                         |       |                                                                                                                |       |     |   |
| ITEM 1.                                                              |       | BUSINESS                                                                                                            |       | 4        |   |
| ITEM 1A.                                                        |       | RISK FACTORS                                                                                                        |       | 36       |   |
| ITEM 1B.                                                             |       | UNRESOLVED  STAFF COMMENTS                                                                                          |       | 51       |   |
| ITEM 2.                                                              |       | PROPERTIES                                                                                                          |       | 51       |   |
| ITEM 3.                                                              |       | LEGAL  PROCEEDINGS                                                                                                  |       | 52       |   |
| ITEM 4.                                                              |       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |       | 53       |   |
| PART II.                                                        |       |                                                                                                                |       |     |   |
| ITEM 5.                                                              |       | MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES |       | 54       |   |
| ITEM 6.                                                              |       | SELECTED  FINANCIAL DATA                                                                                            |       | 57       |   |
| ITEM 7.                                                              |       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         |       | 59       |   |
| ITEM 7A.                                                             |       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |       | 83       |   |
| ITEM 8.                                                              |       | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        |       | 84       |   |
| ITEM 9.                                                              |       | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |       | 84       |   |
| ITEM 9A.                                                             |       | CONTROLS  AND PROCEDURES                                                                                            |       | 84       |   |
| ITEM 9B.                                                             |       | OTHER  INFORMATION                                                                                                  |       | 84       |   |
| PART III.                                                       |       |                                                                                                                |       |     |   |
| ITEM 10.                                                        |       | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                 |       | 85       |   |
| ITEM 11.                                                        |       | EXECUTIVE  COMPENSATION                                                                                             |       | 85       |   |
| ITEM 12.                                                        |       | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    |       | 85       |   |
| ITEM 13.                                                        |       | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                     |       | 85       |   |
| ITEM 14.                                                        |       | PRINCIPAL  ACCOUNTING FEES AND SERVICES                                                                             |       | 85       |   |
| PART IV.                                                        |       |                                                                                                                |       |     |   |
| ITEM 15.                                                             |       | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES                                                                         |       | 85       |   |
| SIGNATURES                                                           |       | 90                                                                                                                  |       |

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**ANNUALREPORT ON FORM 10-K**

**FORWARD-LOOKINGSTATEMENTS AND FACTORS THAT MAY AFFECT RESULTS**

This Annual Report on Form 10-K contains “forward-lookingstatements.” Forward-looking statements give our current expectations orforecasts of future events. Forward-looking statements generally can beidentified by the use of forward-looking terminology such as “may,” “will,” “expect,”“intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” orother similar words. These statements reflect management’s current views withrespect to future events and are subject to risks and uncertainties, both knownand unknown. Our actual results may vary materially from those anticipated inforward-looking statements. We caution investors not to place undue reliance onany forward-looking statements.

Important factorsthat could cause actual results to differ materially from forward-lookingstatements include, but are not limited to:

·       theimpact on our revenue of changes in transport volume, mix of insured anduninsured patients, and third party reimbursement rates,

·       theadequacy of our insurance coverage and insurance reserves,

·       potentialpenalties or changes to our operations if we fail to comply with extensive andcomplex government regulation of our industry,

·       ourability to recruit and retain qualified physicians and other healthcareprofessionals, and enforce our non-compete agreements with our physicians,

·       ourability to generate cash flow to service our debt obligations,

·       thecost of capital expenditures to maintain and upgrade our vehicle fleet andmedical equipment,

·       theloss of services of one or more members of our senior management team,

·       theoutcome of government investigations of certain of our business practices,

·       ourability to successfully restructure our operations to comply with futurechanges in government regulation,

·       theloss of existing contracts and the accuracy of our assessment of costs undernew contracts,

·       thehigh level of competition in our industry,

·       ourability to maintain or implement complex information systems,

·       ourability to implement our business strategy,

·       ourability to successfully integrate strategic acquisitions, and

·       ourability to comply with the terms of our settlement agreements with thegovernment.

These factors are not exhaustive, and new factors mayemerge or changes to the foregoing factors may occur that could impact ourbusiness. Except to the extent required by law, we undertake no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

Readers should review carefully Item 1A, “RiskFactors” and Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in this Annual Report on Form 10-Kfor a more complete discussion of these and other factors that may affect ourbusiness.

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**PART I.**

**ITEM 1.**                BUSINESS

***Company Overview***

Emergency Medical Services Corporation (“EMSC”, “we”, “us”,“our”, or the “Company”) is a leading provider of emergency medical services inthe United States. We operate our business and market our services under theAMR and EmCare brands, which represent American Medical Response, Inc. andEmCare Holdings Inc., respectively. AMR, with more than 50 years of operatinghistory, is the leading provider of ambulance services in the United Statesbased on net revenue and number of transports. EmCare, with more than 30 yearsof operating history, is the leading provider of outsourced emergencydepartment staffing and related management services in the United States, basedon number of contracts with hospitals and affiliated physician groups.Approximately 87% of our net revenue for the twelve months ended December 31,2006 (referred to herein as “fiscal 2006”) was generated under exclusivecontracts. During fiscal 2006, we provided emergency medical services toapproximately 10 million patients in more than 2,000 communitiesnationwide and generated net revenue of $1.934 billion, of which AMR and EmCarerepresented 61% and 39%, respectively. All references in this Item to number ofcontracts and employees are as of December 31, 2006.

Weoffer a broad range of essential emergency medical services through our twobusiness segments:
|                                                | ** ** | **AMR**                                           | ** ** | **EmCare**                                                     |
|------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------------------|
| Core Services:                                 |       | Pre- and  post-hospital medical transportation    |       | Hospital-based  physician services

                      |
|                                           |       | Emergency (“911”)  ambulance transports |       | Emergency  department staffing and related management services |
|                                           |       | Non-emergency  ambulance transports               |       | Hospitalist,  radiology and inpatient services                 |
| Customers:                                     |       | Communities                                       |       | Hospitals                                                      |
|                                           |       | Government agencies                               |       | Independent physician groups                                   |
|                                           |       | Healthcare facilities                             |       | Attending medical staff                                        |
|                                           |       | Insurers                                          |       |                                                           |
| National Market Position:                      |       | #1 provider of ambulance  transports              |       | #1 provider of  outsourced emergency department services       |
|                                           |       | 8% share of total ambulance market                |       | 7% share of emergency department services market               |
|                                           |       | 21% of private provider ambulance market          |       | 10% of outsourced emergency department services  market        |
| Number of Contracts at December 31, 2006: |       | 157 “911” contracts                     |       | 378 hospital contracts                                         |
|                                           |       | 2,900 non-emergency  transport arrangements       |       |                                                           |
| Volume for year ended December 31, 2006:  |       | 3.5 million transports                            |       | 6.5 million patient visits                                     |

 

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***General Development of our Business***

**Company History**

American Medical Response, Inc., or AMR, wasfounded in 1992 through the consolidation of several well-established regionalambulance companies, and since then has grown through more than 200 acquisitions.In February 1997, AMR merged with another leading ambulance company andbecame the largest ambulance service provider in the United States.

EmCare Holdings Inc., or EmCare, was founded inDallas, Texas, in 1972 and initially grew by providing emergency departmentstaffing and related management services to larger hospitals in the Texasmarketplace. EmCare then expanded its presence nationally, primarily through aseries of acquisitions in the 1990’s.

AMR and EmCare were acquired by Laidlaw International, Inc.,previously Laidlaw Inc. (“Laidlaw”), in 1997 and became wholly-ownedsubsidiaries.

Effective January 31, 2005, an investor group ledby Onex Partners LP and Onex Corporation (“Onex”), and including members of ourmanagement, purchased our operating subsidiaries—AMR and EmCare—from Laidlawthrough a holding company, Emergency Medical Services L.P., or EMS LP, a limitedpartnership formed at the time of this acquisition. See Note 1—to theConsolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

From the completion of ouracquisition of AMR and EmCare, we operated through the holding company, EMS LP,until the formation of EMSC, which is a Delaware corporation. A re-organizationwas effected concurrently with our initial public offering of common stock on December 21,2005, which resulted in AMR, EmCare and EMS LP becoming subsidiaries of EMSC, andEMSC controlling 100% of the voting power of EMS LP. We own 22.7%, and Onexowns 77.3%, of the equity in EMS LP. Onex’s equity interest is held through LPexchangeable units that are immediately exchangeable for, and substantiallyequivalent to, our class B common stock.

***Description of our Business***

***Emergency Medical Services Industry***

We operate in theambulance and emergency department services markets, two large and growingsegments of the emergency medical services market. By law, most communities arerequired to provide emergency ambulance services and most hospitals arerequired to provide emergency department services. Emergency medical servicesare a core component of the range of care a patient could potentially receivein the pre-hospital and hospital-based settings. Accordingly, we believe thatexpenditures for emergency medical services will continue to correlate closelyto growth in the U.S. hospital market and that the following key factors willcontinue to drive growth in our emergency medical services markets:

·       *Increase in outsourcing.*   Communities, governmentagencies and healthcare facilities are under significant pressure both toimprove the quality and to reduce the cost of care. The outsourcing of certainmedical services has become a preferred means to alleviate these pressures.

·       *Favorable demographics.*   The growth and aging of thepopulation will be a significant demand driver for healthcare services, and webelieve it will result in an increase in ambulance transports, emergency departmentvisits and hospital admissions.

·        TheU.S. Census Bureau estimates that the number of Americans over 65 will increaseto 39 million by 2010 from 31 million in 1990. It is also expectedthat Americans over the age of 65 will increase from one in eight Americans in2000 to one in five by 2030.

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·       *Increased federal funding for disaster preparedness and other federalprograms.*   The United States government has increased its focuson our nation’s ability to respond quickly and effectively to emergencies,including both terrorist attacks and natural disasters. Federal programs, suchas Homeland Security, FEMA and funding for services for undocumented aliens,have made increased funding available for emergency services.

Additional factors thatmay affect the emergency medical services industry are described elsewhere inthis report. See Item 1A, “Risk Factors—Risk Factors Related to HealthcareRegulation” and “Business—Regulatory Matters.”

***Ambulance Services***

We believe the ambulance services market representsannual expenditures of approximately $13 billion. The ambulance servicesmarket is highly fragmented, with more than 14,000 private, public andnot-for-profit service providers accounting for an estimated 36 millionambulance transports in 2004. There are a limited number of regional ambulanceproviders and we are one of only two national ambulance providers.

Ambulance services encompass both 911 emergencyresponse and non-emergency transport services, including critical caretransfers, wheelchair transports and other inter-facility transports. Emergencyresponse services include the dispatch of ambulances equipped with life supportequipment and staffed with paramedics and/or emergency medical technicians, orEMTs, to provide immediate medical care to injured or ill patients.Non-emergency services utilize paramedics and/or EMTs to transport patientsbetween healthcare facilities or between facilities and patient residences.Given demographic trends, we expect the total number of ambulance transports tocontinue to grow at a steady rate of 1% to 2% per year.

911 emergency responseservices are provided primarily under long-term contracts with communities andgovernment agencies. Non-emergency services generally are provided pursuant tonon-exclusive contracts with healthcare facilities, managed care and insurancecompanies. Usage tends to be controlled by the facility discharge planners,nurses and physicians who are responsible for requesting transport services.Non-emergency services are provided primarily by private ambulance companies.Quality of service, dependability and name recognition are critical factors inwinning non-emergency business.

***Emergency Department Services***

We believe the physician reimbursement component ofthe emergency department services market represents annual expenditures ofapproximately $10 billion. There are approximately 4,725 hospitals in theUnited States that operate emergency departments, of which approximately 67% ofthese hospitals outsource their physician staffing and management for thisdepartment. The market for outsourced emergency department staffing and relatedmanagement services is highly fragmented, with more than 800 national,regional and local providers. We believe we are one of only five nationalproviders.

Between 1994 and 2004, thetotal number of patient visits to hospital emergency departments increased from93.4 million to 110.2 million, an increase of 18%. At the same time,the number of hospital emergency departments declined 12%. As a result, theaverage number of patient visits per hospital emergency department increasedsubstantially during that period. We believe these trends are resulting in anincreased focus by hospitals on their emergency departments. As the perhospital demand for emergency department visits continues to increase, webelieve that more hospitals will turn to well-established providers, such asEmCare, which have a demonstrated track record of improving productivity andefficiency while providing high quality care.

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**Business Segmentsand Services**

We operate our business and market our services underour two business segments: AMR and EmCare. We provide ambulance transportservices in 36 states and the District of Columbia and provide services toemergency department and hospitalist programs in 39 states.

The following is adetailed business description for our two business segments.

**AMERICAN MEDICALRESPONSE**

American Medical Response, Inc., or AMR, is theleading provider of ambulance services in the United States. AMR and ourpredecessor companies have a long history in emergency medical services, havingprovided services to some communities for more than 50 years. As of December 31,2006 we had an 8% share of the total ambulance services market and a 21% shareof the private provider ambulance market. During fiscal 2006, AMR treated andtransported approximately 3.5 million patients in 36 states utilizing morethan 4,400 vehicles that operated out of more than 200 sites. AMR hasapproximately 3,100 contracts with communities, government agencies,healthcare providers and insurers to provide ambulance transport services. AMR’sbroad geographic footprint enables us to contract on a national and regionalbasis with managed care and insurance companies.

For fiscal 2006, approximately 58% of AMR’s netrevenue was generated from emergency 911 ambulance services, which includetreating and stabilizing patients, transporting the patient to a hospital orother healthcare facility and providing attendant medical care en-route.Non-emergency ambulance services, including critical care transfer, wheelchairtransports and other interfacility transports, accounted for 31% of AMR’s netrevenue for the same period, with the balance generated from the provision oftraining, dispatch centers and other services to communities and public safetyagencies.

Asderived from our annual consolidated or combined financial statements found elsewherein this report, AMR’s revenues, income from operations, and total assets wereas follows for each of the periods indicated (amounts in thousands):

| ** **              | ** ** | **As of and for the** | ** ** |
|-------------------------|------------|-------------------------------------------|------------|
| ** **              | ** ** | **Year**                                  | ** ** | **Eleven months** | ** ** | **Five months** | ** ** | **Year** | ** ** |
| ** **              | ** ** | **ended**                                 | ** ** | **ended** | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **              | ** ** | **December 31,**                     | ** ** | **December 31,** | ** ** | **January 31,** | ** ** | **August 31,** | ** ** |
| ** **              | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net revenue             |       |                                      | $          | 1,189,447 |   |   |   | $ | 1,059,725 |   |   |   | $ | 455,059 |   |   | $ | 1,054,800 |   |
| Income from  operations |       |                                      | 37,647     |   |   |   | 49,314 |   |   |   | 17,465 |   |   | 41,928 |   |
| Total assets            |       |                                      | 817,715    |   |   |   | 807,874 |   |   |   | 645,441 |   |   | 628,635 |   |
|                         |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See Item 7, “Management’s Discussion and Analysisof Financial Condition and Results of Operations” for further information onAMR’s financial results.

We provide substantiallyall of our ambulance services under our AMR brand name. We operate under othernames when required to do so by local statute or contractual agreement.

***Services***

We provide a full range of emergency and non-emergencyambulance transport and related services, which include:

*EmergencyResponse Services (911).**  *Weprovide emergency response services primarily under long-term exclusivecontracts with communities and hospitals. Our contracts typically stipulatethat we must respond to 911 calls in the designated area within aspecified response time. We utilize two types of ambulance units—Advanced LifeSupport, or ALS, units and Basic Life Support, or BLS, units. ALS units, 

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which are staffed by twoparamedics or one paramedic and an emergency medical technician, or EMT, areequipped with high-acuity life support equipment such as cardiac monitors,defibrillators and oxygen delivery systems, and carry pharmaceutical andmedical supplies. BLS units are generally staffed by two EMTs and are outfittedwith medical supplies and equipment necessary to administer first aid and basicmedical treatment. The decision to dispatch an ALS or BLS unit is determined byour contractual requirements, as well as by the nature of the patient’s medicalsituation.

Under certain of our 911 emergency response contracts,we are the first responder to an emergency scene. However, under most of our911 contracts, the local fire department is the first responder. In thesesituations, the fire department typically begins stabilization of the patient.Upon our arrival, we continue stabilization through the provision of attendantmedical care and transport the patient to the closest appropriate healthcarefacility. In certain communities where the fire department historically hasbeen responsible for both first response and emergency services, we seek to developpublic/private partnerships with fire departments rather than compete with themto provide the emergency transport service. These partnerships emphasizecollaboration with the fire departments and afford us the opportunity toprovide 911 emergency services in communities that, for a variety of reasons,may not otherwise have outsourced this service to a private provider. In mostinstances, the provision of emergency services under our partnerships closelyresembles that of our most common 911 contracts described above. Thepublic/private partnerships lower our costs by reducing the number of full-timeparamedics we would otherwise require. We estimate that the 911 contracts thatencompass these public/private partnerships represented approximately 17% ofAMR’s net revenue for fiscal 2006.

*Non-EmergencyTransport Services.*   We provide transportation topatients requiring ambulance or wheelchair transport with varying degrees ofmedical care needs between healthcare facilities or between healthcarefacilities and their homes. Unlike emergency response services, which typicallyare provided by communities or private providers under exclusive orsemi-exclusive contracts, non-emergency transportation usually involvesmultiple contract providers at a given facility, with one or more of thecompetitors designated as the “preferred” provider. Non-emergency transportbusiness generally is awarded by a healthcare facility, such as a hospital ornursing home, or a healthcare payor, such as an HMO, managed care organizationor insurance company.

Non-emergencytransport services include: (i) inter-facility critical care transport, (ii) wheelchairand stretcher-car transports, and (iii) other inter-facility transports.

·       Criticalcare transports are provided to medically unstable patients (such as cardiacpatients and neonatal patients) who require critical care while beingtransported between healthcare facilities. Critical care services differ fromALS services in that the ambulance may be equipped with additional medicalequipment and may be staffed by one of our medical specialists or by anemployee of a healthcare facility to attend to a patient’s specific medicalneeds.

·       Wheelchairand stretcher-car transports are non-medical transportation provided tohandicapped and certain non-ambulatory persons in some service areas. Inproviding this service, we use vans that contain hydraulic wheelchair lifts orramps operated by drivers who generally are trained in cardiopulmonaryresuscitation, or CPR.

·       Otherinter-facility transports, that require advanced or basic levels of medicalsupervision during transfer, may be provided when a home-bound patient requiresexamination or treatment at a healthcare facility or when a hospital inpatientrequires tests or treatments (such as magnetic resonance imaging, or MRI,testing, CAT scans, dialysis or chemotherapy treatment) available at anotherfacility. We use ALS or BLS ambulance units to provide general ambulanceservices depending on the patient’s needs.

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*Other Services.*   Inaddition to our 911 emergency and non-emergency ambulance services, we providethe following services:

·       *Dispatch Services.*   Our dispatch centers manage our owncalls and, in certain communities, also manage dispatch centers for publicsafety agencies, such as police and fire departments, aeromedical transportprograms and others.

·       *Event Medical Services.*   We provide medical stand-bysupport for concerts, athletic events, parades, conventions, internationalconferences and VIP appearances in conjunction with local and federal lawenforcement and fire protection agencies. We have contracts to provide stand-bysupport for numerous sports franchises, as well as for various NASCAR events,Hollywood production studios and other specialty events.

·       *Managed Transportation Services.*   Managed careorganizations and insurance companies contract with us to manage various oftheir medical transportation-related needs, including call-taking andscheduling, management of a network of transportation providers and billing andreporting through our internally developed systems.

·       *Paramedic Training.*   We own and operate NationalCollege of Technical Instruction, or NCTI, the largest paramedic trainingschool in the United States and the only accredited institution of its size,with over 500 graduates each year.

·       *Air Ambulance Services.*   We own Air AmbulanceSpecialists, Inc., a company that arranges world-wide air ambulancetransportation.

***Medical Personnel and Quality Assurance***

Approximately 72% of our 18,000 employees have dailycontact with patients, including approximately 5,100 paramedics, 7,600 EMTs and300 nurses. Paramedics and EMTs must be state-certified to transport patientsand perform emergency care services. Certification as an EMT requirescompletion of a minimum of 140 hours of training in a program designated by theUnited States Department of Transportation, such as those offered at ourtraining institute, NCTI. Once this program is completed, state-certified EMTsare then eligible to participate in a state-certified paramedic trainingprogram. The average paramedic program involves over 1,000 hours of academictraining in advanced life support and assessment skills.

In most communities, local physician advisory boardsdevelop medical protocols to be followed by paramedics and EMTs in a servicearea. In addition, instructions are conveyed on a case-by-case basis throughdirect communications between the ambulance crew and hospital emergency roomphysicians during the administration of advanced life support procedures. Bothparamedics and EMTs must complete continuing education programs and, in somecases, state supervised refresher training examinations to maintain theircertifications.

We maintain a commitment to provide high quality pre-and post-hospital emergency medical care. In each location in which we provideservices, a physician associated with a hospital we serve monitors adherence tomedical protocol and conducts periodic audits of the care provided. Inaddition, we hold retrospective care audits with our employees to evaluatecompliance with medical and performance standards.

Our commitment to qualityis reflected in the fact that 16 of our dispatch centers across the country areaccredited by the Commission on Accreditation of Ambulance Services, or CAAS,representing 15% of the total CAAS accredited centers. CAAS is a joint programbetween the American Ambulance Association and the American College ofEmergency Physicians. The accreditation process is voluntary and evaluatesnumerous qualitative factors in the delivery of services. We believecommunities and managed care providers increasingly consider accreditation asone of the criteria in awarding contracts.

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***Billing and Collections***

Our internalpatient billing services, or PBS, offices located across the United States invoiceand collect for our services. We receive payment from the following sources:

·       thefederal and state governments, primarily under the Medicare and Medicaidprograms,

·       healthmaintenance organizations and private insurers,

·       individualpatients, and

·       communitysubsidies and fees.

Thetable below presents the approximate percentages of AMR’s net revenue from thefollowing sources:

| ** **                          | ** ** | **Percentage of AMR  Net Revenue** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|
| ** **                          | ** ** | **Year**                                          | ** ** | **Eleven months** | ** ** | **Year** | ** ** |
| ** **                          | ** ** | **ended**                                         | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **                          | ** ** | **December 31,**                             | ** ** | **December 31,** | ** ** | **August 31,** | ** ** |
| ** **                          | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Medicare                            |       |                                              | 31         | % |   |   | 31 | % |   |   | 33 | % |   |
| Medicaid                            |       |                                              | 6          |   |   |   | 6 |   |   |   | 6 |   |   |
| Commercial  insurance/ managed care |       |                                              | 47         |   |   |   | 47 |   |   |   | 45 |   |   |
| Self-pay                            |       |                                              | 5          |   |   |   | 5 |   |   |   | 5 |   |   |
| Subsidies/ fees                     |       |                                              | 11         |   |   |   | 11 |   |   |   | 11 |   |   |
| Total net revenue                   |       |                                              | 100        | % |   |   | 100 | % |   |   | 100 | % |   |

 

See “Business—Regulatory Matters—Medicare, Medicaidand Other Government Program Reimbursement” for additional information onreimbursement from Medicare, Medicaid and other government-sponsored programs.

We have substantial experience in processing claims tothird party payors and employ a billing staff trained in third party coverageand reimbursement procedures. Our integrated billing and collection systemsallow us to tailor the submission of claims to Medicare, Medicaid and certainother third party payors and has the capability to electronically submit claimsto the extent third party payors’ systems permit. This system also provides fortracking of accounts receivable and status pending payment.

Companies in the ambulance services industry maintainsignificant provisions for doubtful accounts compared to companies in otherindustries. Collection of complete and accurate patient billing informationduring an emergency service call is sometimes difficult, and incompleteinformation hinders post-service collection efforts. In addition, we cannotevaluate the creditworthiness of patients requiring emergency transportservices. Our allowance for doubtful accounts generally is higher fortransports resulting from emergency ambulance calls than for non-emergencyambulance requests. See Item 1A, “Risk Factors—Risk Factors Related toHealthcare Regulation—Changes in the rates or methods of third partyreimbursements may adversely affect our revenue and operations.”

State licensing requirements, as well as contractswith communities and healthcare facilities, typically require us to provideambulance services without regard to a patient’s insurance coverage or abilityto pay. As a result, we often receive partial or no compensation for servicesprovided to patients who are not covered by Medicare, Medicaid or privateinsurance. The anticipated level of uncompensated care and uncollectibleaccounts is considered in negotiating a government-paid subsidy to provide foruncompensated care, and permitted rates under contracts with a community orgovernment agency.

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A significant portion of our ambulance transportrevenue is derived from Medicare payments. The Balanced Budget Act of 1997, orBBA, modified Medicare reimbursement rates for emergency transportation withthe introduction of a national fee schedule. The BBA provided for a phase-in ofthe national fee schedule by blending the new national fee schedule rates withambulance service suppliers’ pre-existing “reasonable charge” reimbursementrates. The BBA provided for this phase-in period to begin on April 1,2002, and full transition to the national fee schedule rates became effectiveon January 1, 2006. In some regions, the national fee schedule would haveresulted in a decrease in Medicare reimbursement rates of approximately 25% bythe end of the phase-in period. Partially in response to the dramatic decreasein rates dictated by the BBA in some regions, the Medicare Prescription DrugImprovement and Modernization Act of 2003, or the Medicare Modernization Act,established regional rates, certain of which are higher than the BBA’s nationalrates, and provided for the blending of the regional and national rates until January 1,2010. Other rate provisions included in the Medicare Modernization Act providedfurther temporary mitigation of the impact of the BBA decreases, including aprovision that provided for 1% to 2% increases for blended rates for the periodfrom January 1, 2004 through December 31, 2006. Because the MedicareModernization Act relief is of limited duration, we will continue to pursuestrategies to offset the decreases mandated by the BBA, including seeking feeand subsidy increases.

We estimate that the impact of the ambulance servicerate decreases under the national fee schedule mandated under the BBA, asmodified by the phase-in provisions of the Medicare Modernization Act, resultedin a decrease in AMR’s net revenue for the fiscal year ended August 31,2004, of approximately $11 million, resulted in an increase in AMR’s netrevenue of approximately $16 million during calendar year 2005, and in adecrease in AMR’s net revenue of approximately $17 million in 2006. Based uponthe current Medicare transport mix, we expect a further decrease in our netrevenue totaling approximately $2 million for the period 2007 through2010. We have been able to substantially mitigate the phase-in reductions ofthe BBA through additional fee and subsidy increases. As a 911 emergencyresponse provider, we are uniquely positioned to offset changes inreimbursement by requesting increases in the rates we are permitted to chargefor 911 services from the communities we serve. In response, these communitiesoften permit us to increase rates for ambulance services from patients andtheir third party payors in order to ensure the maintenance of requiredcommunity-wide 911 emergency response services. While these rate increases donot result in higher payments from Medicare and certain other public or privatepayors, overall they increase our revenue.

See “Regulatory Matters—Medicare,Medicaid and Other Government Program Reimbursement” for additional informationon reimbursement from Medicare, Medicaid and other government-sponsoredprograms.

***Contracts***

*EmergencyTransport.**  *As of December 31,2006, we had 157 contracts with communities and government agencies to provide911 emergency response services. Contracts with communities to provideemergency transport services are typically exclusive, three to five years inlength and generally are obtained through a competitive bidding process. Insome instances where we are the existing provider, communities elect torenegotiate existing contracts rather than initiate new bidding processes. Our911 contracts often contain options for earned extensions or evergreenprovisions. We have improved our contract retention rate to 99% for fiscal 2006compared to 81% in fiscal 2001. In fiscal year ended December 31, 2006,our top ten 911 contracts accounted for approximately $301 million, or 25% ofAMR’s net revenue. We have served these ten customers on a continual basis foran average of 29 years.

Our 911 emergency response arrangements typicallyspecify maximum fees we may charge and set forth minimum requirements, such asresponse times, staffing levels, types of vehicles and equipment, qualityassurance and insurance coverage. Communities and government agencies may alsorequire us to provide a performance bond or other assurances of financialresponsibility. The rates we are permitted to 

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charge for services undera contract for emergency ambulance services and the amount of the subsidy, ifany, we receive from a community or government agency depend in large part onthe nature of the services we provide, payor mix and performance requirements.

*Non-Emergency Transport.**  *We have approximately 2,900 arrangements to providenon-emergency ambulance services with hospitals, nursing homes and otherhealthcare facilities that require a stable and reliable source of medicaltransportation for their patients. These contracts typically designate us asthe preferred ambulance service provider of non-emergency ambulance services tothose facilities and permit us to charge a base fee, mileage reimbursement, andadditional fees for the use of particular medical equipment and supplies. Wehave historically provided a significant portion of our non-emergencytransports to facilities and organizations in competitive markets withoutspecific contracts.

Non-emergency transports often are provided to managedcare or insurance plan members who are stabilized at the closest availablehospital and are then moved to facilities within their health plan’s network.We believe the increased prevalence of managed care benefits larger ambulanceservice providers, which can service a higher percentage of a managed careprovider’s members. This allows the managed care provider to reduce its numberof vendors, thus reducing administrative costs and allowing it to negotiatemore favorable rates with healthcare facilities. Our scale and broad geographicfootprint enable us to contract on a national and regional basis with managedcare and insurance companies. We have contracts with large healthcare networksand insurers including Kaiser, Aetna, Healthnet, Cigna and SummaCare.

We believe thatcommunities, government agencies, healthcare facilities, managed care companiesand insurers consider the quality of care, historical response time performanceand total cost to be among the most important factors in awarding and renewingcontracts.

***Dispatch and Communications***

Dispatch centers control the deployment and dispatchof ambulances in response to calls through the use of sophisticatedcommunications equipment 24 hours a day, seven days a week. In many operatingsites, we communicate with our vehicles over dedicated radio frequencieslicensed by the Federal Communications Commission. In certain service areaswith a large volume of calls, we analyze data on traffic patterns,demographics, usage frequency and similar factors with the aid of System StatusManagement, or SSM technology, to help determine optimal ambulance deploymentand selection. In addition to dispatching our own ambulances, we also providedispatching service for 53 communities where we are not an ambulance serviceprovider. Our dispatch centers are staffed by EMTs and other experiencedpersonnel who use local medical protocols to analyze and triage a medicalsituation and determine the best mode of transport.

*EmergencyTransport.*   Depending on the emergency medicaldispatch system used in a designated service area, the public authority thatreceives 911 emergency medical calls either dispatches our ambulances directlyfrom the public control center or communicates information regarding thelocation and type of medical emergency to our control center which, in turn,dispatches ambulances to the scene. While the ambulance is en-route to thescene, the ambulance receives information concerning the patient’s conditionprior to the ambulance’s arrival at the scene. Our communication systems allowthe ambulance crew to communicate directly with the destination hospital toalert hospital medical personnel of the arrival of the patient and the patient’scondition and to receive instructions directly from emergency room personnel onspecific pre-hospital medical treatment. These systems also facilitate closeand direct coordination with other emergency service providers, such as theappropriate police and fire departments, that also may be responding to a call.

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*Non-Emergency Transport.*   Requestsfor non-emergency transports typically are made by physicians, nurses, casemanagers and hospital discharge coordinators who are interested primarily inprompt ambulance arrival at the requested pick-up time. We are also offeringon-line, web-enabled transportation ordering to certain facilities. We use ourMillennium software to track and manage requests for transportation servicesfor large healthcare facilities and managed care companies.

***Management Information Systems***

We support our operations with integrated informationsystems and standardized procedures that enable us to efficiently manage thebilling and collections processes and financial support functions. Our recentlydeveloped technology solutions provide information for operations personnel,including real-time operating statistics, tracking of strategic planinitiatives, electronic purchasing and inventory management solutions.

We have three managementinformation systems that we believe have significantly enhanced our operations—oure-PCR technology, an electronic record-keeping system; our Millenniumcall-taking system, a call-taking application that tracks and manages requestsfor transportation services for large healthcare facilities and managed carecompanies; and our SSM ambulance positioning system, a technology which enablesus to use historical data on fleet usage patterns to predict where ouremergency transport services are likely to be required.

***Sales and Marketing***

Our 60-person sales and marketing teamis focused on contract retention as well as generating new sales. Manynew sales opportunities occur through referrals from our existing clientbase. These team members are frequently former paramedics or EMTs whobegan their careers in the emergency transportation industry and are thereforewell-qualified to understand the needs of our customers. Our sales force isincentivized through a compensation package that includes base salary and bonuspotential based on achieving specified performance targets.

We respond to requests forproposals that generally include demographic information of the community orfacilities, response time parameters, vehicle and equipment requirements, thelength of the contract, the minimum qualifications of bidders, billing information,selection criteria and the format to be followed in the bid. Prior toresponding to a request for proposal, AMR’s management team ensures that theproposal is in line with certain financial and service parameters. Managementevaluates all aspects of each proposal, including financial projections,staffing models, resource requirements and competition, to determine how tobest achieve our business objectives and the customer goals.

***Risk Management***

We train and educate all new employees about our safetyprograms including, among others, emergency vehicle operations, various medicalprotocols, use of equipment and patient focused care and advocacy. Our safetytraining also involves continuing education programs and a monthly safetyawareness campaign. We also work directly with manufacturers to designequipment modifications that enhance both patient and clinician safety.

Our safety and risk management team develops andexecutes strategic planning initiatives focused on mitigating the factors thatdrive losses in our operations. We aggressively investigate and respond to allincidents we believe may result in a claim. Operations supervisors submitdocumentation of such incidents to the third party administrator handling theclaim. We have a dedicated liability unit with our third party administratorwhich actively engages with our staff to gain valuable information for closureof claims. Information from the claims database is an important resource foridentifying trends and developing future safety initiatives.

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We utilize an on-boardmonitoring system, RoadSafety, which measures operator performance against oursafe driving standards. Our operations using RoadSafety have experiencedimproved driving behaviors within 90 days of installation. RoadSafety has beenimplemented in approximately 60% of our vehicles in emergency response markets.

***Competition***

Our predominant competitors are fire departments, withapproximately 40% of the ambulance transport services market. Firefighters havetraditionally acted as the first responders during emergencies, and in manycommunities provide emergency medical care and transport as well. In manycommunities we have established public/private partnerships, in which weintegrate our transport services with the first responder services of the localfire department. We believe these public/private partnerships provide a modelfor us to collaborate with fire departments to increase the number ofcommunities we serve.

Competition in theambulance transport market is based primarily on:

·       pricing,

·       theability to improve customer service, such as on-time performance and efficientcall intake,

·       theability to recruit, train and motivate employees, particularly ambulance crewswho have direct contact with patients and healthcare personnel, and

·       billingand reimbursement expertise.

Our largest competitor,Rural/Metro Corporation, is the only other national provider of ambulancetransport services and generates ambulance transport revenue less than half ofAMR’s net revenue. Other private provider competitors include SouthwestAmbulance in Arizona and New Mexico, Acadian Ambulance Service in Louisiana andsmall, locally owned operators that principally serve the inter-facilitytransport market.

***Insurance***

*WorkersCompensation, Auto and General Liability.*   Wehave retained liability for the first $1 million to $2 million of the lossunder these programs since September 1, 2001, managed either through ACEAmerican Insurance Co. or Laidlaw’s captive insurance program. Generally, ourumbrella policies covering claims that exceed our deductible levels have anannual cap of approximately $100 million. For periods prior to September 1,2001, we were fully insured for our workers compensation, auto and generalliability programs through Laidlaw’s captive insurance program.

*Professional Liability.*   SinceApril 15, 2001, we have a self-insured retention for our professionalliability coverage, which covers the first $2 million for the policy yearending April 15, 2002, and covers the first $5 to $5.5 million for policyperiods after April 15, 2002. We have umbrella policies with third partyinsurers covering claims exceeding these retention levels with an aggregate capof $10 million for each separate policy period. For periods prior to April 15,2001, we are insured for our professional liability claims through third partyinsurers.

***Environmental Matters***

We are subject to federal, state and local laws andregulations relating to the presence of hazardous materials and pollution andthe protection of the environment, including those governing emissions to air,discharges to water, storage, treatment and disposal of wastes, includingmedical waste, remediation of contaminated sites, and protection of workerhealth and safety. We believe our current operations are in substantialcompliance with all applicable environmental requirements and that we maintainall material permits required to operate our business.

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Certain environmental lawsimpose strict, and under certain circumstances joint and several, liability forinvestigation and remediation of the release of regulated substances into theenvironment. Such liability can be imposed on current or former owners oroperators of contaminated sites, or on persons who dispose or arrange fordisposal of wastes at a contaminated site. Releases have occurred at a few ofthe facilities we lease as a result of historical practices of the owners orformer operators. Based on available information, we do not believe that anyknown compliance obligations, releases or investigations under environmental lawsor regulations will have a material adverse effect on our business, financialposition and results of operations. However, there can be no guarantee thatthese releases or newly discovered information, more stringent enforcement ofor changes in environmental requirements, or our inability to enforce availableindemnification agreements will not result in significant costs.

***Employees***

Thefollowing is the break down of our employees by job classification as of December 31,2006.

| **Job Classification**    | ** ** | ** ** | ** ** | **Full-time** | ** ** | **Part-time** | ** ** | **Total** | ** ** |
|--------------------------------|------------|------------|------------|---------------|------------|---------------|------------|-----------|------------|
| Paramedics                     |       |       | 3,290      |          |       |          | 1,818      |      |       | 5,108 |   |
| Emergency medical  technicians |       |       | 5,021      |          |       |          | 2,538      |      |       | 7,559 |   |
| Nurses                         |       |       | 154        |          |       |          | 193        |      |       | 347 |   |
| Support personnel              |       |       | 4,383      |          |       |          | 641        |      |       | 5,024 |   |
| Total                          |       |       | 12,848     |          |       |          | 5,190      |      |       | 18,038 |   |

 

Approximately 48% of our employeesare represented by 42 collective bargaining agreements. Twenty-five of thesecollective bargaining agreements, representing approximately 3,700 employees,are subject to renegotiation in 2007. We believe we have a good relationshipwith our employees and have never experienced any union-related work stoppages.

**EMCARE**

EmCare is the largest provider of outsourced emergencydepartment staffing and related management services to healthcare facilities inthe United States. As of December 31, 2006, EmCare had a 7% share of thetotal emergency department services market and a 10% share of the outsourcedemergency department services market. During the fiscal year ended December 31,2006, EmCare had approximately 6.5 million patient visits in 39 states. EmCarehas 378 contracts with hospitals and independent physician groups to provideemergency department and hospitalist staffing, management and otheradministrative services. We believe that EmCare’s successful physicianrecruitment and retention, high level of customer service and advanced riskmanagement programs have resulted in an improvement in our contract retentionrate from 74% in 2001 to 88% in fiscal 2006. We have added 127 net newcontracts since 2001.

EmCare primarily provides emergency departmentstaffing and related management services to healthcare facilities. We recruitand hire or subcontract with physicians and other healthcare professionals, whothen provide professional services to the hospitals with whom we contract. Wealso have practice support agreements with independent physician groups andhospitals pursuant to which we provide unbundled management services such asbilling and collection, recruiting, risk management and certain otheradministrative services.

In addition, we have become one of the leadingproviders of hospitalist services. A hospitalist is a physician who specializesin the care of acutely ill patients in an in-patient setting. While we haveprovided limited hospitalist services for the past 11 years, it is only in thelast 3 years that we have focused on expanding this program, including throughour acquisition in November 2006 of Clinical Staffing Solutions, or CSS,physician in-patient business serving 14 facilities in Pennsylvania and NewJersey. We have increased our hospitalist programs from 8 contracts as of August 31,2003 to 51 contracts as of 

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December 31, 2006,increasing our net revenue for this program from approximately $7.2 million infiscal 2001 to approximately $41 million, or approximately 5.5% of EmCare’s netrevenue, for fiscal 2006. As of December 31, 2006, we independentlycontracted with or employed 397 hospitalist physicians.

Asderived from our annual consolidated or combined financial statements foundelsewhere in this report, EmCare’s revenues, income from operations, and totalassets were as follows for each of the periods indicated (amounts inthousands):

| ** **              | ** ** | **As of and for the** | ** ** |
|-------------------------|------------|-------------------------------------------|------------|
| ** **              | ** ** | **Year**                                  | ** ** | **Eleven months** | ** ** | **Five months** | ** ** | **Year** | ** ** |
| ** **              | ** ** | **Ended**                                 | ** ** | **ended** | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **              | ** ** | **December 31,**                     | ** ** | **December 31,** | ** ** | **January 31,** | ** ** | **August 31,** | ** ** |
| ** **              | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net revenue             |       |                                      | $744,758   |   |   |   | $595,760 |   |   |   | $241,120 |   |   | $549,798 |   |
| Income from  operations |       |                                      | 70,056     |   |   |   | 34,065 |   |   |   | 3,225 |   |   | 28,046 |   |
| Total assets            |       |                                      | 446,590    |   |   |   | 443,435 |   |   |   | 338,069 |   |   | 320,964 |   |

 

See Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” forfurther information on EmCare’s financial results.

***Services***

We provide a full range of outsourced physicianstaffing and related management services for emergency department andhospitalist programs, which include:

*ContractManagement.*   We utilize an integrated approach tocontract management that involves physicians, non-clinical business experts,and operational and quality assurance specialists. An on-site medical directoris responsible for the day-to-day oversight of the operation, includingclinical quality, and works closely with the hospital’s management indeveloping strategic initiatives and objectives. The regional director ofoperations, which is a clinical position, provides systems analysis andimprovement plans. A quality manager develops site-specific quality improvementprograms, and a practice improvement staff focuses on chart documentation andphysician utilization patterns. The regional-based management staff providessupport for these efforts and ensures that each customer’s expectations areidentified, that service plans are developed and executed to meet thoseexpectations, and that the Company’s and the customer’s financial objectivesare achieved.

*Staffing.*   Weprovide a full range of staffing services to meet the unique needs of eachhealthcare facility. Our dedicated clinical teams include qualified,career-oriented physicians and other healthcare professionals responsible forthe delivery of high quality, cost-effective care. These teams also rely onmanagerial personnel, many of whom have clinical experience, who oversee theadministration and operations of the clinical area. Ensuring that each contractis staffed with the appropriately qualified physicians and that coverage isprovided without any service deficiencies is critical to the success of thecontract. We believe that our approach to recruiting, staffing and schedulingprovides us with a unique advantage in achieving these objectives.

*Recruiting.*   Manyhealthcare facilities lack the dedicated resources necessary to identify andattract specialized, career-oriented physicians. We have committed significantresources to the development of EmSource, a proprietary national physiciandatabase that we utilize in our recruiting programs across the country. Our marketingand recruiting staff continuously updates our database of more than 800,000physicians with relevant data and contact information to allow us to matchpotential physician candidates to specific openings based upon personalpreferences. This targeted recruiting method increases the success andefficiency of our recruiters, and we believe significantly increases ourphysician retention rates. We actively recruit physicians through various mediaoptions including telemarketing, direct mail, conventions, journal advertisingand our internet site.

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*Scheduling.*   Ourscheduling departments assist our medical directors in scheduling physiciansand other healthcare professionals in accordance with the coverage model ateach facility. We provide 24-hour service to ensure that unscheduledshift vacancies, due to situations such as physician illness and personalemergencies, are filled with alternative coverage.

*Payroll Administration andBenefits.*   We provide payroll administrationservices for the physicians and other healthcare professionals with whom wecontract to provide services at customer sites. Additionally, healthcarefacilities benefit from the elimination of the overhead costs associated withthe administration of payroll and, where applicable, employee benefits.

*Customer SatisfactionPrograms.*   We design and implement customizedpatient satisfaction programs for our hospital customers. These programs aredesigned to improve patient satisfaction through the use of communication,family inclusion and hospitality techniques. These programs are delivered tothe clinical and non-clinical members of the hospital emergency department.

*Other Services.*   Weprovide a substantial portion of our services to hospitals through ouraffiliate physician groups. There are situations in which hospitals andphysicians are interested in receiving stand-alone management services such asbilling and collection, scheduling, recruitment and risk management, and attimes we unbundle our services to meet this need. Pursuant to these practicesupport agreements, which generally will have a term of one to three years, weprovide these services to independent physician groups and healthcarefacilities. During 2006, we had 16 practice support agreements which generated$10.3 million in net revenue.

*Operational Assessments.*   Weundertake operational assessments for our hospital customers that includecomprehensive reviews of critical operational matrices, including turnaroundtimes, triage systems, “left without being seen,” throughput times andoperating systems. These assessments establish baseline values, develop andimplement process improvement programs, and then we monitor the success of theinitiatives. This is an ongoing process that we continually monitor and modify.

*Practice Improvement.*   Weprovide ongoing comprehensive documentation review and training for ouraffiliated physicians. We review certain statistical indicators that allow usto provide specific training to individual physicians regarding documentation,and we tailor training for broader groups of physicians as we see trendsdeveloping in documentation-related areas. Our training focuses on thecompleteness of the medical record or chart, specific payor requirements, andgovernment rules and regulations.

***Risk Management***

We utilize our riskmanagement department, senior medical leadership and on-site medical directorsto conduct aggressive risk management and quality assurance programs. We take aproactive role in promoting early reporting, evaluation and resolution ofincidents that may evolve into claims. Our risk management function is designedto mitigate risk associated with the delivery of care and to prevent orminimize costs associated with medical professional liability claims andincludes:

*Incident ReportingSystems.*   We have established a comprehensivesupport system for medical professionals. Our Risk Management Hotline provideseach physician with the ability to discuss medical issues with a peer. In theevent of a negative patient outcome, the physician may discuss legal andmedical issues in anticipation of litigation directly with an EmCare attorneyexperienced with medical malpractice issues.

*Tracking and TrendingClaims.*   We have an extensive claims databasedeveloped from our experience in the emergency department setting. From thisdatabase, we track multiple data points on each professional liability claim.We utilize the database to identify claim trends and risk factors so that wecan better target our risk management initiatives. Each year, we target the medicalconditions associated with our most frequent professional liability claims, andprovide detailed education to assist our affiliated medical professionals intreating these medical conditions.

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*ProfessionalRisk Assessment.*   We conduct risk assessments ofour medical professionals. Typically, a risk assessment includes a thoroughreview of professional liability claims against the professional, assessment ofissues raised by hospital risk management and identification of areas whereadditional education may be advantageous for the professional.

*HospitalRisk Assessment.*   We conduct risk assessments ofpotential hospital customers in conjunction with our sales and contractingprocess. As part of the risk assessment, registered nurses or physiciansemployed by us conduct a detailed analysis of the hospital’s operationsaffecting the emergency department or hospitalist services, including thetriage procedures, on-call coverage, transfer procedures, nursing staffing andrelated matters in an effort to address risk factors contractually duringnegotiations with potential customer hospitals.

*ClinicalFail-Safe Programs.*   We review and identify keyrisk areas which we believe may result in increased incidence of patientinjuries and resulting claims against us and our affiliated medicalprofessionals. We continue to develop “fail-safe” clinical tools and make themavailable to our affiliated physicians for use in conjunction with theirpractice and to our customer hospitals for use as a part of their peer reviewprocess. These “fail-safe” tools assist physicians in identifying commonpatient attributes and complaints that may identify the patient as being athigh risk for certain conditions (e.g., a heart attack).

*QualityImprovement Programs.*   Our medical directors areactively engaged in their respective hospital’s quality improvement committeesand initiatives. In addition, we provide tools that provide guidance to themedical directors on how to conduct quality reviews of their physicians andhelp them track their physicians’ medical practices.

*PhysicianEducation Programs.*   Our wholly owned subsidiary,Emergency Medical Education Systems, Inc. (“EMEDS”), conducts physicianeducation through risk management and board review conferences and on-lineteaching modules. Our affiliated medical professionals can access EMEDS toobtain valuable medical information. Our internal continuing education servicesare fully accredited by the Accreditation Council for Continuing MedicalEducation. This allows us to grant our physicians and nurses continuingeducation credits for internally developed educational programs at a lower costthan if such credits were earned through external programs. Our risk managementdepartment also provides other forms of education, including articles in thecompany newsletter that highlight current medical literature on importantemergency medicine topics.

*Proactive ProfessionalLiability Claims Handling.*   We utilize a thirdparty claims administrator to manage professional liability claims againstcompanies and medical professionals covered under our insurance program. Foreach case, detailed reports are reviewed to ensure proactively that the defenseis comprehensive and aggressive. Each professional liability claim brought againstan EmCare affiliated medical professional or EmCare affiliated company isreviewed by EmCare’s Claims Committee, consisting of physicians, attorneys andcompany executives, before any resolution of the claim. The Claims Committeeperiodically instructs EmCare’s risk management department to undertake ananalysis of particular physicians or hospital locations associated with a givenclaim.

***Billing and Collections***

We receive paymentfor patient services from:

·       thefederal and state governments, primarily under the Medicare and Medicaidprograms,

·       healthmaintenance organizations, preferred provider organizations and privateinsurers,

·       hospitals,and

·       individualpatients.

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Thetable below presents the approximate percentages of EmCare’s net revenue from thefollowing sources:

| ** **                          | ** ** | **Percentage of EmCare  Net Revenue** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **Year  ended  December 31,  2006**             | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| Medicare                            |       |                                                 | 18         | % |   |   | 18 | % |   |   | 17 | % |   |
| Medicaid                            |       |                                                 | 3          |   |   |   | 3 |   |   |   | 3 |   |   |
| Commercial  insurance/ managed care |       |                                                 | 53         |   |   |   | 54 |   |   |   | 53 |   |   |
| Self-pay                            |       |                                                 | 4          |   |   |   | 3 |   |   |   | 2 |   |   |
| Subsidies/ fees                     |       |                                                 | 22         |   |   |   | 22 |   |   |   | 25 |   |   |
| Total net revenue                   |       |                                                 | 100        | % |   |   | 100 | % |   |   | 100 | % |   |

 

See “Business—Regulatory Matters—Medicare, Medicaidand Other Government Program Reimbursement” for additional information on reimbursementfrom Medicare, Medicaid and other government-sponsored programs.

We code and bill for physician services through ourwholly-owned subsidiary, Reimbursement Technologies, Inc. We utilizestate-of-the-art document imaging and paperless workflow processes to expeditethe billing cycle and improve compliance and customer service. Currently, at58% of our customer locations, medical records and emergency department logsare scanned and transmitted electronically to us. We are in the process of transitioningadditional customers to on-site scanning.

We do substantially all ofthe billing for our affiliated physicians, and we have extensive experience inprocessing claims to third party payors. We employ a billing staff ofapproximately****680 employees who are trained inthird party coverage and reimbursement procedures. Our integrated billing andcollection system uses proprietary software to tailor the submission of claimsto Medicare, Medicaid and certain other third party payors and has thecapability to electronically submit most claims to the third party payors’systems. We forward uncollected accounts electronically to two outsidecollection agencies automatically, based on established parameters. Each ofthese collection agencies have on-site employees working at our in-housebilling company to assist in providing patients with quality customer service.

***Contracts***

We have contracts with (i) hospital customers toprovide professional staffing and related management services, (ii) healthcarefacilities and independent physician groups to provide management services, and(iii) affiliated physician groups and medical professionals to providemanagement services and various benefits.

We deliver services to our hospital customers andtheir patients through two principal types of contractual arrangements. EmCareor a subsidiary most frequently contracts directly with the hospital to providephysician staffing and management services. In some instances, aphysician-owned professional corporation contracts with the hospital to providephysician staffing and management services, and the professional corporation,in turn, contracts with us for a wide range of management and administrativeservices, including billing, scheduling support, accounting and other services.The professional corporation pays our management fee out of the fees itcollects from patients, third party payors and, in some cases, the hospitalcustomer. Our physicians and other healthcare professionals who provideservices under these hospital contracts do so pursuant to independentcontractor or employment agreements with us, or pursuant to arrangements with theprofessional corporation that has a management agreement with us. We 

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refer to all of thesephysicians as our affiliated physicians, and these physicians and otherindividuals as our healthcare professionals.

*Hospitaland Practice Support Contracts.*   As of December 31,2006, EmCare provides services under 378 contracts. Generally, the agreementswith the hospitals are awarded on a competitive basis, and have an initial termof three years with one-year automatic renewals and termination by either partyon specified notice. We have improved our contract retention rate to 88% forthe fiscal year ended December 31, 2006, up from 74% in fiscal 2001.

Our contracts withhospitals provide for one of three payment models:

·       webill patients and third party payors directly for physician fees,

·       webill patients and third party payors directly for physician fees, with thehospital paying us an additional pre-arranged fee for our services, and

·       webill the hospitals directly for the services of the physicians.

In all cases, the hospitals are responsible forbilling and collecting for non-physician-related services.

We have established long-term relationships with someof the largest healthcare service providers. None of these customers representrevenue that amounts to 10% of our total net revenue for the year ended December 31,2006, or fiscal years ended December 31, 2005 or August 31, 2004. Ourtop ten hospital emergency department contracts represent $84.8 million, or11%, of EmCare’s net revenue for the year ended December 31, 2006. We havemaintained our relationships with these customers for an average of 16 years.

*AffiliatedPhysician Group Contracts.*   In most states, wecontract directly with our hospital customers to provide physician staffing andrelated management services. We, in turn, contract with a professionalcorporation that is wholly-owned by one or more physicians, which we refer toas an affiliated physician group, or with independent contractor physicians. Itis these physicians who provide the medical professional services. We thenprovide comprehensive management services to the physicians. We typicallyprovide professional liability and workers compensation coverage to ouraffiliated physicians.

Certain states have laws that prohibit or restrictunlicensed persons or business entities from practicing medicine. The laws varyin scope and application from state to state. Some of these states may prohibitus from contracting directly with hospitals or physicians to provideprofessional medical services. In those states, the affiliated physician groupscontract with the hospital, as well as all medical professionals. We providemanagement services to the affiliated physician groups.

*MedicalProfessional Contracts.*   We contract withhealthcare professionals as either independent contractors or employees toprovide services to our customers. The healthcare professionals generally arepaid an hourly rate for each hour of coverage, a variable rate based uponproductivity or other objective criteria, or a combination of both a fixedhourly rate and a variable rate component. We typically arrange forprofessional liability and workers compensation coverage for our healthcareprofessionals.

The contracts withhealthcare professionals typically have one-year terms with automatic renewalclauses for additional one-year terms. The contracts can be terminated withcause for various reasons, and usually contain provisions allowing fortermination without cause by either party upon 90 days’ notice. Agreements withphysicians generally contain a non-compete or non-solicitation provision and,in the case of medical directors, a non-compete provision. The enforceabilityof these provisions varies from state to state.

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***Management Information Systems***

We have invested inscalable information systems and proprietary software packages designed toallow us to grow efficiently and to deliver and implement our “best practice”procedures nationally, while retaining local and regional flexibility. We havedeveloped and implemented several proprietary applications that we believeprovide us with a competitive advantage in our operations.

***Sales and Marketing***

Contracts for outsourced emergency department andhospitalist services are obtained through strategic marketing programs andresponses to requests for proposals. EmCare’s business development teamincludes Practice Development representatives located throughout the UnitedStates who are responsible for developing sales and acquisition opportunitiesfor the operating group in his or her territory. A significant portion of thecompensation program for these sales professionals is commission-based, basedon the profitability of the contracts they sell. Leads are generated throughregular marketing efforts by our business development group, our website,journal advertising and a lead referral program. Each Practice Developmentrepresentative is responsible for working with the regional chief executiveofficer to structure and provide customer proposals for new prospects in theirrespective regions.

Emergency medicinepractices vary among healthcare facilities. A healthcare facility request forproposal generally will include demographic information of the facilitydepartment, a list of services to be performed, the length of the contract, theminimum qualifications of bidders, billing information, selection criteria andthe format to be followed in the bid. Prior to responding to a request forproposal, EmCare’s senior management ensures that the proposal is consistentwith certain financial parameters. Senior management evaluates all aspects ofeach proposal, including financial projections, staffing model, resourcerequirements and competition, to determine how to best achieve our businessobjectives and the customer goals.

***Competition***

The market for outsourced emergency departmentstaffing and related management services is highly fragmented, with more than800 national, regional and local providers handling an estimated115 million patient visits in 2004. There are more than 4,725 hospitals inthe United States with emergency departments, of which approximately 67%currently outsource physician services. Of these hospitals that outsource, webelieve approximately 53% contract with a local provider, 21% contract with aregional provider and 26% contract with a national provider.

Team Health is our largestcompetitor and has the second largest share of the emergency departmentservices market with an approximately 5% share. The other national providers ofoutsourced emergency department services are Sterling Healthcare, NationalEmergency Service and the Schumacher Group.

***Insurance***

*ProfessionalLiability Program.*   For the period January 1,2001 through December 31, 2006, our professional liability insuranceprogram provided claims made insurance coverage with limits of $1 million perloss event, with a $3 million annual per physician aggregate, for all medicalprofessionals whom we have agreed to cover under our professional liabilityinsurance program. Our subsidiaries and affiliated corporate entities areprovided with coverage of $1 million per loss event and share a $10million annual corporate aggregate.

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For the 2001 calendar year, Lexington InsuranceCompany provided the majority of the professional liability insurance coveragecovering claims occurring and reported during the 2001 calendar year, subjectto an aggregate policy limit of $10 million.

For the 2002 through 2006 calendar years, ColumbiaCasualty Company and Continental Casualty Company, collectively referred to asCCC, provided our professional liability insurance coverage. The CCC policieshave a retroactive date of January 1, 2001, thereby covering all claimsoccurring during the 2001 calendar year but reported in each of the 2002through 2005 calendar years. We also procured coverage on a regional basisunder separate policies of insurance for the calendar years 2001 through 2006,and have comparable coverage in calendar year 2007.

*CaptiveInsurance Arrangement.*   On December 10,2001, we formed EMCA Insurance Company, Ltd., or EMCA, as a wholly ownedsubsidiary under the Companies Law of the Cayman Islands. EMCA reinsures CCCfor all losses associated with the CCC insurance policies under theprofessional liability insurance program, and provides collateral for thereinsurance arrangement through a trust agreement.

*WorkersCompensation Program.*   For the period September 1,2002 through August 31, 2004, we procured workers compensation insurancecoverage for employees of EmCare and affiliated physician groups throughContinental Casualty Company. Continental reinsures a portion of this workerscompensation exposure, on both a per claim and an aggregate basis, with EMCA.

From September 1,2004, EmCare has insured, and continues to insure, its workers compensationexposure through The Travelers Indemnity Company, which reinsures a portion ofthe exposure with EMCA.

***Employees and Independent Contractors***

Thefollowing is the break down of our active affiliated physicians, independentcontractors and employees by job classification as of December 31, 2006.

| **Job Classification** | ** ** | ** ** | ** ** | **Full-time** | ** ** | **Part-time** | ** ** | **Total** | ** ** |
|-----------------------------|------------|------------|------------|---------------|------------|---------------|------------|-----------|------------|
| Physicians                  |       |       | 1,124      |          |       |          | 1,559      |      |       | 2,683 |   |
| Physician  assistants       |       |       | 187        |          |       |          | 161        |      |       | 348 |   |
| Nurse  practitioners        |       |       | 97         |          |       |          | 108        |      |       | 205 |   |
| Non-clinical  employees     |       |       | 1,119      |          |       |          | 193        |      |       | 1,312 |   |
| Total                       |       |       | 2,527      |          |       |          | 2,021      |      |       | 4,548 |   |

 

We believe that our relations with our employees andindependent contractors are good. None of our physicians, physician assistants,nurse practitioners or non-clinical employees are subject to any collectivebargaining agreement.

We offer our physicianssubstantial flexibility in terms of type of facility, scheduling of work hours,benefit packages, opportunities for relocation and career development. Thisflexibility, combined with fewer administrative burdens, improves physicianretention rates and stabilizes our contract base.

**EMSC CompetitiveStrengths**

We believe the following competitive strengthsposition our Company to capitalize on the favorable trends occurring within thehealthcare industry and the emergency medical services markets.

*Leading, EstablishedProvider of Emergency Medical Services.*   We are aleading provider of emergency medical services in the United States. We believeour track record of consistently meeting or exceeding our customers’ serviceexpectations, coupled with our ability to leverage our infrastructure andtechnology to 

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drive increasedproductivity and efficiency, have contributed to our ability to retain existingand win new contracts.

*Significant Scale andGeographic Presence.*   We believe our significantscale and broad geographic presence provide a competitive advantage over localand regional providers in most areas, including our cost efficiencies and broadprogram offerings, our ability to enter into national and regional contractswith managed care organizations and insurance companies, and our ability torecruit and retain quality personnel.

*Long-Term Relationshipswith Existing Customers.*   We believe ourlong-term, well-established relationships with communities and healthcarefacilities enhance our ability to retain existing customers and win newcontracts. AMR and EmCare have maintained relationships with their ten largestcustomers for an average of 29****and 16 years,respectively, and during that time have continually demonstrated an ability tomeet and exceed contractual commitments.

*Strong FinancialPerformance.*   One of the key factors ourpotential customers evaluate is financial stability. We believe the quality andbreadth of our service offerings has allowed us to increase our net revenue ata faster rate than the market for emergency medical services. We believe ourability to demonstrate consistently strong financial performance will continueto differentiate our Company and provide a competitive advantage in winning newcontracts and renewing existing contracts.

*Focus on Risk Management.*   Ourrisk management initiatives are enhanced by the use of our professionalliability claims database and comprehensive claims management. We analyze thisdata to demonstrate claim trends on a national, hospital, physician andprocedure level, helping to manage and mitigate risk exposure. AMR’srisk/safety program is aimed at reducing worker injuries through training andimproved equipment, and increasing vehicle safety through the use oftechnology.

*Investment in CoreTechnologies.*   We utilize technology as a meansto enhance the quality, reduce the cost of our service offerings, moreeffectively manage risk and improve our profitability. AMR uses proprietarytechnology to improve chart documentation, determine transportation servicelevels and track response times and other data for hospitals. EmCare usesproprietary physician recruitment software to improve recruitment efficiencyand retention rates.

**Business Strategy**

*Increase Revenue fromExisting Customers.*   We believe our long trackrecord of delivering excellent service and quality patient care, as well as thebreadth of our services, creates opportunities for us to increase revenue fromour existing customer base. We have established strategies aimed at assistingcommunities and facilities to manage their cost of emergency medical services.

*Grow Our Customer Base.*   Webelieve we have a unique competency in the treatment, management and billing ofepisodic and unscheduled care. We believe our long operating history,significant scope and scale and leading market position provide us with new andexpanded opportunities to grow our customer base.

*Pursue Select AcquisitionOpportunities.*   The emergency medical servicesindustry is highly fragmented, with only a few large national providers, andpresents opportunities for consolidation. We plan to pursue select acquisitionsin our existing business segments, including acquisitions to enhance ourpresence in existing markets and our entry into new geographic markets. We willalso explore the acquisition of complementary businesses and seek opportunitiesto expand the scope of services in which we can leverage our core competencies.

*UtilizeTechnology to Differentiate Our Services and Improve Operating Efficiencies.*   Weintend to continue to invest in technologies that broaden our services in themarketplace, improve patient care, enhance our billing efficiencies andincrease our profitability.

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*Continued Focus on RiskManagement.*   We will continue to conductaggressive risk management programs for loss prevention and early intervention.We will continue to develop and utilize clinical “fail safes” and usetechnology in our ambulances to reduce vehicular incidents.

*Implement CostRationalization Initiatives.*   We will continue torationalize our cost structure by aligning compensation with productivity,developing risk management initiatives that are focused on mitigating riskexposures, and eliminating costs in our national and regional corporate supportstructure.

**Regulatory Matters**

As a participant in thehealthcare industry, our operations and relationships with healthcare providerssuch as hospitals, other healthcare facilities and healthcare professionals aresubject to extensive and increasing regulation by numerous federal and stategovernment entities as well as local government agencies. Specifically, butwithout limitation, we are subject to the following laws and regulations.

***Medicare, Medicaidand Other Government Reimbursement Programs***

We derive a significant portionof our revenue from services rendered to beneficiaries of Medicare, Medicaidand other government-sponsored healthcare programs. For fiscal 2006, wereceived approximately 26% of our net revenue from Medicare and 5% fromMedicaid. To participate in these programs, we must comply with stringent andoften complex enrollment and reimbursement requirements from the federal andstate governments. We are subject to governmental reviews and audits of ourbills and claims for reimbursement. Retroactive adjustments to amountspreviously reimbursed from these programs can and do occur on a regular basisas a result of these reviews and audits. In addition, these programs aresubject to statutory and regulatory changes, administrative rulings,interpretations and determinations, all of which may materially increase ordecrease the payments we receive for our services as well as affect the cost ofproviding services. In recent years, Congress has consistently attempted tocurb federal spending on such programs.

Reimbursementto us typically is conditioned on our providing the correct procedure anddiagnosis codes and properly documenting both the service itself and themedical necessity for the service. Incorrect or incomplete documentation andbilling information, or the incorrect selection of codes for the level ofservice provided, could result in non-payment for services rendered or lead toallegations of billing fraud. Moreover, third party payors may disallow, inwhole or in part, requests for reimbursement based on determinations thatcertain amounts are not reimbursable, they were for services provided that werenot medically necessary, there was a lack of sufficient supportingdocumentation, or for a number of other reasons. Retroactive adjustments,recoupments or refund demands may change amounts realized from third partypayors. Additional factors that could complicate our billing include:

·       disputesbetween payors as to which party is responsible for payment,

·       thedifficulty of adherence to specific compliance requirements, diagnosis codingand various other procedures mandated by the government, and

·       failureto obtain proper physician credentialing and documentation in order to billgovernmental payors.

Due to the nature of ourbusiness and our participation in the Medicare and Medicaid reimbursementprograms, we are involved from time to time in regulatory reviews, audits orinvestigations by government agencies of matters such as compliance withbilling regulations and rules. We may be required to repay these agencies if afinding is made that we were incorrectly reimbursed, or we may lose eligibilityfor certain programs in the event of certain types of non-compliance. Delaysand uncertainties in the reimbursement process adversely affect our level of accountsreceivable, increase the overall cost of collection, and may adversely affectour working capital and cause us to incur additional borrowing costs.Unfavorable resolutions of pending or future regulatory reviews orinvestigations, either individually or in 

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theaggregate, could have a material adverse effect on our business, financialcondition and results of operations.

We establish an allowance for discounts applicable toMedicare, Medicaid and other third party payors and for doubtful accounts basedon credit risk applicable to certain types of payors, historical trends, andother relevant information. We review our allowance for doubtful accounts on anongoing basis and may increase or decrease such allowance from time to time,including in those instances when we determine that the level of effort andcost of collection of certain accounts receivable is unacceptable.

We believe that regulatory trends in cost containmentwill continue. We cannot assure you that we will be able to offset reduced operatingmargins through cost reductions, increased volume, the introduction ofadditional procedures or otherwise.

*AmbulanceServices Fee Schedule.*   In February 2002,the Health Care Financing Administration, now renamed the Centers for Medicareand Medicaid Services, or CMS, issued the Medicare Ambulance Fee Schedule FinalRule, or Final Rule, that revised Medicare policy on the coverage of ambulancetransport services, effective April 1, 2002. The Final Rule was theresult of a mandate under the Balanced Budget Act of 1997, or BBA, to establisha national fee schedule for payment of ambulance transport services that wouldcontrol increases in expenditures under Part B of the Medicare program,establish definitions for ambulance transport services that link payments tothe type of services furnished, consider appropriate regional and operationaldifferences and consider adjustments to account for inflation, among other provisions.

The Final Rule provided for a five-year phase-inof a national fee schedule, beginning April 1, 2002. Prior to that date,Medicare used a charge-based reimbursement system for ambulance transportservices and reimbursed 80% of charges determined to be reasonable, subject tothe limits fixed for the particular geographic area. The patient wasresponsible for co-pay amounts, deductibles and the remaining balance of thetransport cost, if we did not accept the assigned reimbursement, and Medicarerequired us to expend reasonable efforts to collect the balance. In determiningreasonable charges, Medicare considered and applied the lowest of variouscharge factors, including the actual charge, the customary charge, theprevailing charge in the same locality, the amount of reimbursement forcomparable services, and the inflation-indexed charge limit.

On April 1, 2002, the Final Rule becameeffective. The Final Rule categorizes seven levels of ground ambulanceservices, ranging from basic life support to specialty care transport, and twocategories of air ambulance services. Ground providers are paid based on a baserate conversion factor multiplied by the number of relative value unitsassigned to each level of transport, plus an additional amount for each mile ofpatient transport. The base rate conversion factor for services to Medicarepatients is adjusted each year by the Consumer Price Index. Additionaladjustments to the base rate conversion factor are included to recognizedifferences in relative practice costs among geographic areas, and highertransportation costs that may be incurred by ambulance providers in rural areaswith low population density. The Final Rule requires ambulance providersto accept assignment on Medicare claims, which means a provider must acceptMedicare’s allowed reimbursement rate as full payment. Medicare typicallyreimburses 80% of that rate and the remaining 20% is collectible from asecondary insurance or the patient. Originally, the Final Rule called fora five-year phase-in period to allow providers time to adjust to the newpayment rates. The national fee schedule was to be phased in at 20% incrementseach year, with payments being made at 100% of the national fee schedule in2006 and thereafter.

With the passage of the Medicare Modernization Act,temporary modifications were made to the amounts payable under the ambulancefee schedule in order to mitigate decreases in reimbursement in some regionscaused by the Final Rule. The Medicare Modernization Act established regionalfee schedules based on historic costs in each region. Effective July 1,2004, in those regions where the regional fee schedule exceeds the national feeschedule, the regional fee schedule is blended with the national fee 

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schedule on a temporarybasis, until 2010. In addition to the regional fee schedule change, theMedicare Modernization Act included other provisions for additionalreimbursement for ambulance transport services provided to Medicare patients.Among other relief, the Medicare Modernization Act provided for a 1% increasein reimbursement for urban transports and a 2% increase for rural transportsfor the remainder of the original phase-in period of the national ambulance feeschedule, through December 31, 2006.

We estimate that the impact of the ambulance servicerate decreases under the national fee schedule, as modified by the provisionsof the Medicare Modernization Act, resulted in a decrease in AMR’s net revenuefor the fiscal year ended August 31, 2004 of approximately $11 million,resulted in an increase in AMR’s net revenue of approximately $16 millionduring calendar year 2005, and resulted in a decrease in AMR’s net revenue ofapproximately $17 million in 2006. Based upon the current Medicare transportmix, we expect a further decrease in our net revenue totaling approximately $2million for the period 2007 through 2010. We cannot predict whether Congressmay make further refinements and technical corrections to the law or pass a newcost containment statute in a manner and in a form that could adversely impactour business.

*LocalAmbulance Rate Regulation.*   State or localgovernment regulations or administrative policies regulate rate structures insome states in which we provide ambulance transport services. For example, incertain service areas in which we are the exclusive provider of ambulancetransport services, the community sets the rates for emergency ambulanceservices pursuant to an ordinance or master contract and may also establish therates for general ambulance services that we are permitted to charge. We may beunable to receive ambulance service rate increases on a timely basis whererates are regulated or to establish or maintain satisfactory rate structureswhere rates are not regulated.

*MedicarePhysician Fee Schedule.*   Medicare pays for allphysician services based upon a national fee schedule, or Fee Schedule, whichcontains a list of uniform rates. The payment rates under the Fee Schedule aredetermined based on: (1) national uniform relative value units for theservices provided, (2) a geographic adjustment factor and (3) aconversion factor. Payment rates under the Fee Schedule are updated annually.The initial element in each year’s update calculation is the Medicare EconomicIndex, or MEI, which is a government index of practice cost inflation. Theupdate is then adjusted up or down from the MEI based on a target-settingformula system called the Sustainable Growth Rate, or SGR. The SGR is a targetrate of growth in spending for physician services which is intended to controlthe growth of Medicare expenditures for physicians’ services. The Fee Scheduleupdate is adjusted to reflect the comparison of actual expenditures to targetexpenditures. Because one of the factors for calculating the SGR system islinked to the U.S. gross domestic product, the SGR formula may result in anegative payment update if growth in Medicare beneficiaries’ use of servicesexceeds GDP growth. Since 2002, the SGR formula has resulted in negativepayment updates under the Fee Schedule which required Congress to takelegislative action to reverse the scheduled payment cuts. In late 2006,Congress passed legislation to prevent a scheduled 5 percent cut in 2007Medicare physician payments, and instead froze payment rates for one year. TheCongressional Budget Office has predicted that Medicare physician payment rateswould be reduced 10 percent in 2008 and the 2006 Medicare Trustees reportpredicts a total of nearly 40 percent in cuts by 2015. Unless Congress takesadditional action in the future to modify or reform the mechanism by which the FeeSchedule payment rates are updated, significant reductions in Medicarereimbursement will continue to occur annually, and these reductions could havea material adverse effect on our business, financial condition or results ofoperations.

*MedicareReassignment.*   The Medicare program prohibits thereassignment of Medicare payments due to a physician or other healthcareprovider to any other person or entity unless the billing arrangement betweenthat physician or other healthcare provider and the other person or entityfalls within an enumerated exception to the Medicare reassignment prohibition.Historically, there was no exception that allowed us to receive directlyMedicare payments related to the services of independent contractor 

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physicians. However, theMedicare Modernization Act amended the Medicare reassignment statute as of December 8,2003 and now permits our independent contractor physicians to reassign theirMedicare receivables to us under certain circumstances. In 2004, CMSpromulgated regulations implementing this statutory change. The regulationsimpose two additional program integrity safeguard requirements on reassignmentsmade under the independent contractor exception. These require that both theentity receiving payment and the physician be jointly and severally responsiblefor any Medicare overpayment to that entity; and the physician haveunrestricted access to claims submitted by an entity for services provided bythe physician. We have taken steps to ensure all reassignments by independentcontractor physicians comply with these regulatory requirements.

*Rules Applicableto Midlevel Practitioners.*   EmCare utilizesphysician assistants and nurse practitioners, sometimes referred tocollectively as “midlevel practitioners,” to provide care under the supervisionof our physicians. State and federal laws require that such supervision beperformed and documented using specific procedures. For example, in some statessome or all of the midlevel practitioner’s chart entries must be countersigned.Under applicable Medicare rules, in certain cases, a midlevel practitioner’sservices are reimbursed at a rate equal to 85% of the physician fee scheduleamount and we do not bill separately for the supervising physician’s services.However, when a midlevel practitioner assists a physician who is directly andpersonally involved in the patient’s care, we often bill for the services ofthe physician at the full physician fee schedule rates and do not billseparately for the midlevel practitioner’s services. We believe our billing anddocumentation practices related to our use of midlevel practitioners complywith applicable state and federal laws, but we cannot assure you thatenforcement authorities will not find that our practices violate such laws.

*AmbulanceRates Payable by Medicare HMOs.*   One of thechanges made by ambulance fee schedule Final Rule was to require ambulanceproviders to “accept assignment” from Medicare and Medicare HMOs. Medicare HMOsare private insurance companies which operate managed care plans that enrollMedicare beneficiaries who elect to enroll in a plan in lieu of regularMedicare coverage. When a provider accepts assignment, it agrees to accept therate established by Medicare as payment in full for services covered byMedicare or the Medicare HMO and to write off the balance of its charges. Priorto the implementation of the Final Rule, ambulance providers were not requiredto accept assignment and could obtain payment from Medicare patients orMedicare HMOs for the provider’s full charges, which typically are higher thanthe Medicare rate. When the requirement to accept assignment became effectiveon April 1, 2002, many Medicare HMOs continued to pay ambulance providerstheir full charges, even though they could have paid them the Medicare rate.Many Medicare HMOs subsequently have taken the position that the amount paid tosuch providers in excess of the Medicare rate constituted an overpayment thatmust be refunded by the provider. We have received such refund demands fromsome Medicare HMOs and, in order to minimize litigation costs, have agreed topartial repayment of amounts received from the plans in excess of the Medicarerate. We have no reason to believe that additional HMOs will make such demands,but we cannot assure you that there will be no further demands.

*TheSNF Prospective Payment System.*   Under theMedicare prospective payment system, or PPS, applicable to skilled nursingfacilities (“SNF”), SNF’s are financially responsible for some ancillaryservices, including certain ambulance transports, or PPS transports, renderedto certain of their Medicare patients. Ambulance companies must bill the SNF,rather than Medicare, for PPS transports, but may bill Medicare for othercovered transports provided to the SNF’s Medicare patients. Ambulance companiesare responsible for obtaining sufficient information from the SNF to determinewhich transports are PPS transports and which ones may be billed toMedicare. The Office of Inspector General of the Department of Health and HumanServices, or the OIG, has issued two industry-wide audit reports indicatingthat, in many cases, SNFs do not provide, or ambulance companies and otherancillary service providers do not obtain, sufficient information to make thisdetermination accurately. As a result, the OIG asserts that some PPStransports that should have been billed by ambulance providers to SNFs have 

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been improperly billed toMedicare. The OIG has recommended that Medicare recoup the amounts paid toancillary service providers, including ambulance companies, for such services.Although we believe AMR currently has procedures in place to correctly identifyand bill for PPS transports, we cannot assure you that AMR will not be subjectto such recoupments and other possible penalties.

*ParamedicIntercepts.*   Medicare regulations permitambulance transport providers to subcontract with other organizations forparamedic services. Generally, only the transport provider may bill Medicare,and the paramedic services subcontractor must receive any payment to which itis entitled from that provider. Based on these rules, in some jurisdictions wehave established “paramedic intercept” arrangements in which we may provideparamedic services to a municipal or volunteer transport provider. Oursubsidiary, AMR of South Dakota, previously entered into a settlement agreementwith the United States government arising from allegations that we improperlybilled Medicare for a small number of transports for which we performedparamedic intercept services, even though we were not the transport provider.Although we believe AMR currently has procedures in place to assure that we donot bill Medicare directly for paramedic intercept services we provide, wecannot assure you that enforcement agencies will not find that we have failedto comply with these requirements.

*PatientSignatures.*   Medicare regulations require thatproviders obtain the signature of the patient or, if the patient is unable toprovide a signature, the signature of a representative, prior to submitting aclaim for payment from Medicare. An exception exists for situations where it isnot reasonably possible to do so, provided that the reason for the exception isclearly documented. This requirement historically has been difficult forambulance companies and other emergency medical services providers to meet,because even when the patient is competent, the exigency of the situation oftenmakes it impracticable to obtain a signature. Although we believe AMR currentlyhas procedures in place to assure that these signature requirements are met, wecannot assure you that enforcement agencies will not find that we have failedto comply with these requirements.

*PhysicianCertification Statements.*   Under applicableMedicare rules, ambulance providers are required to obtain a certification ofmedical necessity from the ordering physician in order to bill Medicare forrepetitive non-emergency transports provided to patients with chronicconditions, such as end-stage renal disease. For certain other non-emergencytransports, ambulance providers are required to attempt to obtain a certificationof medical necessity from a physician or certain other practitioners. In theevent the provider is not able to obtain such certification within 21 days, itmay submit a claim for the transport if it can document reasonable attempts toobtain the certification. Acceptable documentation includes any U.S. postaldocument (e.g., signed return receipt or Postal Service Proof of Service Form)showing that the ordering practitioner was sent a request for thecertification. Although we believe AMR currently has procedures in place toassure we are in compliance with these requirements, we cannot assure you thatenforcement agencies will not find that we have failed to comply.

*Coordinationof Benefits Rules.*   When our services are coveredby multiple third party payors, such as a primary and a secondary payor,financial responsibility must be allocated among the multiple payors in aprocess known as “coordination of benefits,” or COB. The rules governingCOB are complex, particularly when one of the payors is Medicare or anothergovernment program. Under these rules, in some cases Medicare or othergovernment payors can be billed as a “secondary payor” only after recourse to aprimary payor (e.g., a liability insurer) has been exhausted. In someinstances, multiple payors may reimburse us an amount which, in the aggregate,exceeds the amount to which we are entitled. In such cases, we are obligated toprocess a refund. If we improperly bill Medicare or other government payors asthe primary payor when that program should be billed as the secondary payor, orif we fail to process a refund when required, we may be subject to civil orcriminal penalties. Although we believe we currently have procedures in placeto assure that we comply with applicable COB rules, and that we process refundswhen we receive overpayments, we cannot assure you that payors or enforcementagencies will not find that we have violated these requirements.

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*Consequences of Noncompliance.*   In the event any of our billing andcollection practices, including but not limited to those described above,violate applicable laws such as those described below, we could be subject torefund demands and recoupments. If our violations are deemed to be willful,knowing or reckless, we may be subject to civil and criminal penalties underthe False Claims Act or other statutes, including exclusion from federal andstate healthcare programs. To the extent that the complexity associated withbilling for our services causes delays in our cash collections, we assume thefinancial risk of increased carrying costs associated with the aging of ouraccounts receivable as well as increased potential for bad debts which couldhave a material adverse effect on our revenue, provision for uncompensated careand cash flow.

***Federal False Claims Act***

Both federal and state government agencies havecontinued civil and criminal enforcement efforts as part of numerous ongoinginvestigations of healthcare companies, and their executives and managers.Although there are a number of civil and criminal statutes that can be appliedto healthcare providers, a significant number of these investigations involvethe federal False Claims Act. These investigations can be initiated not only bythe government but also by a private party asserting direct knowledge of fraud.These “qui tam” whistleblower lawsuits may be initiated against any person orentity alleging such person or entity has knowingly or recklessly presented, orcaused to be presented, a false or fraudulent request for payment from thefederal government, or has made a false statement or used a false record to geta claim approved. Penalties for False Claims Act violations include finesranging from $5,500 to $11,000 for each false claim, plus up to three times theamount of damages sustained by the federal government. A False Claims Actviolation may provide the basis for exclusion from the federally-fundedhealthcare programs. In addition, some states have adopted similar insurancefraud, whistleblower and false claims provisions.

The government and somecourts have taken the position that claims presented in violation of thevarious statutes, including the federal Anti-Kickback Statute and the StarkLaw, described below, can be considered a violation of the federal False ClaimsAct based on the contention that a provider impliedly certifies compliance withall applicable laws, regulations and other rules when submitting claimsfor reimbursement.

***Federal Anti-Kickback Statute***

We are subject to the federal Anti-Kickback Statute.The Anti-Kickback Statute is broadly worded and prohibits the knowing andwillful offer, payment, solicitation or receipt of any form of remuneration inreturn for, or to induce, (1) the referral of a person covered byMedicare, Medicaid or other governmental programs, (2) the furnishing orarranging for the furnishing of items or services reimbursable under Medicare,Medicaid or other governmental programs or (3) the purchasing, leasing orordering or arranging or recommending purchasing, leasing or ordering of anyitem or service reimbursable under Medicare, Medicaid or other governmentalprograms. Certain federal courts have held that the Anti-Kickback Statute canbe violated if “one purpose” of a payment is to induce referrals. Violations ofthe Anti-Kickback Statute can result in exclusion from Medicare, Medicaid orother governmental programs as well as civil and criminal penalties, includingfines of up to $50,000 per violation and three times the amount of the unlawfulremuneration. Imposition of any of these remedies could have a material adverseeffect on our business, financial condition and results of operations. Inaddition to a few statutory exceptions, the OIG has published safe harborregulations that outline categories of activities that are deemed protectedfrom prosecution under the Anti-Kickback Statute provided all applicablecriteria are met. The failure of a financial relationship to meet all of theapplicable safe harbor criteria does not necessarily mean that the particulararrangement violates the Anti-Kickback Statute. In order to obtain additionalclarification on arrangements that may not be subject to a statutory exceptionor may not satisfy 

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the criteria of a safeharbor, Congress established a process under the Health Insurance Portabilityand Accountability Act of 1996 in which parties can seek an advisory opinionfrom the OIG.

We and others in the healthcare community have takenadvantage of the advisory opinion process, and a number of advisory opinionshave addressed issues that pertain to our various operations, such asdiscounted ambulance services being provided to skilled nursing facilities,patient co-payment responsibilities, compensation methodologies under amanagement services arrangement, and ambulance restocking arrangements. In anumber of these advisory opinions the government concluded that sucharrangements could be problematic if the requisite intent were present.Although advisory opinions are binding only on HHS and the requesting party orparties, when new advisory opinions are issued, regardless of the requestor, wereview them and their application to our operations as part of our ongoingcorporate compliance program and endeavor to make appropriate changes where weperceive the need to do so. See “—Corporate Compliance Program and CorporateIntegrity Obligations.”

Health facilities such as hospitals and nursing homesrefer two categories of ambulance transports to us and other ambulancecompanies: (1) transports for which the facility must pay the ambulancecompany, and (2) transports which the ambulance company can bill directlyto Medicare or other public or private payors. In Advisory Opinion 99-2,which we requested, the OIG addressed the issue of whether substantialcontractual discounts provided to nursing homes on the transports for which thenursing homes are financially responsible may violate the Anti-Kickback Statutewhen the ambulance company also receives referrals of Medicare and othergovernment-funded transports. The OIG opined that such discounts implicate theAnti-Kickback Statute if even one purpose of the discounts is to induce thereferral of the transports paid for by Medicare and other federal programs. TheOIG further indicated that a violation may exist even if there is nocontractual obligation on the part of the facility to refer federally fundedpatients, and even if similar discounts are provided by other ambulancecompanies in the same marketplace. Following our receipt of this AdvisoryOpinion in March of 1999, we took steps to bring our contracts with healthfacilities into compliance with the OIG’s views. In 2006, we entered into asettlement with the U.S. Department of Justice and a Corporate Integrity Agreementto settle allegations that certain of our hospital and nursing home contractsin effect in Texas in periods prior to 2002 contained discounts in violation ofthe federal Anti-Kickback Statute. See Item 3, “Legal Proceedings”.

The OIG has also addressedpotential violations of the Anti-Kickback Statute (as well as other risk areas)in its Compliance Program Guidance for Ambulance Suppliers. In addition todiscount arrangements with health facilities, the OIG notes that arrangementsbetween local governmental agencies that control 911 patient referrals andambulance companies which receive such referrals may violate the Anti-KickbackStatute if the ambulance companies provide inappropriate remuneration inexchange for such referrals. Although we believe we have structured ourarrangements with local agencies in a manner which complies with theAnti-Kickback Statute, we cannot assure you that enforcement agencies will notfind that some of those arrangements violate that statute.

***Fee-Splitting; Corporate Practice of Medicine***

EmCare employs orcontracts with physicians or physician-owned professional corporations todeliver services to our hospital customers and their patients. We frequentlyenter into management services contracts with these physicians and professionalcorporations pursuant to which we provide them with billing, scheduling and awide range of other services, and they pay us for those services out of thefees they collect from patients and third-party payors. These activities aresubject to various state laws that prohibit the practice of medicine bycorporations and are intended to prevent unlicensed persons from interferingwith or influencing the physician’s professional judgment and the sharing ofprofessional services income with nonprofessional or business interests.Activities other than those directly related to the delivery of healthcare maybe considered an element of the practice of medicine in many states. Under thecorporate practice of medicine restrictions of certain states, decisions andactivities such as scheduling, contracting, 

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settingrates and the hiring and management of non-clinical personnel may implicate therestrictions on corporate practice of medicine. In such states, we maintainlong-term management contracts with affiliated physician groups, which employor contract with physicians to provide physician services. We believe that weare in material compliance with applicable state laws relating to the corporatepractice of medicine and fee-splitting. However, regulatory authorities orother parties, including our affiliated physicians, may assert that, despitethese arrangements, we are engaged in the corporate practice of medicine orthat our contractual arrangements with affiliated physician groups constituteunlawful fee-splitting. In this event, we could be subject to adverse judicialor administrative interpretations, to civil or criminal penalties, ourcontracts could be found legally invalid and unenforceable or we could berequired to restructure our contractual arrangements with our affiliatedphysician groups.

***Federal Stark Law***

We are also subject to aprovision of the Social Security Act, commonly known as the “Stark Law.” Whereapplicable, this law prohibits a physician from referring Medicare patients to anentity providing “designated health services” if the physician or a member ofsuch physician’s immediate family has a “financial relationship” with theentity, unless an exception applies. The penalties for violating the Stark Lawinclude the denial of payment for services ordered in violation of the statute,mandatory refunds of any sums paid for such services, civil penalties of up to$15,000 for each violation and twice the dollar value of each such service andpossible exclusion from future participation in the federally-funded healthcareprograms. A person who engages in a scheme to circumvent the Stark Law’sprohibitions may be fined up to $100,000 for each applicable arrangement orscheme. Although we believe that we have structured our agreements withphysicians so as to not violate the Stark Law and related regulations, adetermination of liability under the Stark Law could have an adverse effect onour business, financial condition and results of operations.

***Other Federal Healthcare Fraud and Abuse Laws***

We are also subject to other federal healthcare fraudand abuse laws. Under the Health Insurance Portability and Accountability Actof 1996, there are two additional federal crimes that could have an impact onour business: “Healthcare Fraud” and “False Statements Relating to HealthcareMatters.” The Healthcare Fraud statute prohibits knowingly and recklesslyexecuting a scheme or artifice to defraud any healthcare benefit program,including private payors. A violation of this statute is a felony and mayresult in fines, imprisonment and/or exclusion from government-sponsoredprograms. The False Statements Relating to Healthcare Matters statute prohibitsknowingly and willfully falsifying, concealing or covering up a material factby any trick, scheme or device or making any materially false, fictitious orfraudulent statement in connection with the delivery of or payment forhealthcare benefits, items or services. A violation of this statute is a felonyand may result in fines and/or imprisonment. This statute could be used by thegovernment to assert criminal liability if a healthcare provider knowinglyfails to refund an overpayment.

Another statute, commonly referred to as the CivilMonetary Penalties Law, imposes civil administrative sanctions for, among otherviolations, inappropriate billing of services to federally funded healthcareprograms, inappropriately reducing hospital care lengths of stay for suchpatients, and employing or contracting with individuals or entities who areexcluded from participation in federally funded healthcare programs.

Although we intend andendeavor to conduct our business in compliance with all applicable fraud andabuse laws, we cannot assure you that our arrangements or business practiceswill not be subject to government scrutiny or be found to violate applicablefraud and abuse laws.

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***Administrative Simplification Provisions of the HealthInsurance Portability and Accountability Act of 1996***

The Administrative Simplification Provisions of theHealth Insurance Portability and Accountability Act of 1996, or HIPAA, requiredthe Department of Health and Human Services, or HHS, to adopt standards toprotect the privacy and security of health-related information. All healthcareproviders were required to be compliant with the new federal privacyrequirements enacted by HHS no later than April 14, 2003. We believe wehave taken reasonable measures to comply with these requirements.

The HIPAA privacy requirements contain detailedrequirements regarding the use and disclosure of individually identifiablehealth information. Improper use or disclosure of identifiable healthinformation covered by the HIPAA privacy regulations can result in thefollowing civil and criminal penalties: (1) civil money penalties forHIPAA privacy violations are $100 per incident, to a maximum of $25,000, perperson, per year, per standard violated; (2) a person who knowingly and inviolation of the HIPAA privacy regulations obtains individually identifiablehealth information or discloses such information to another person may be finedup to $50,000 and imprisoned up to one year, or both; (3) if the offenseis committed under false pretenses, the fine may be up to $100,000 andimprisonment for up to five years; and (4) if the offense is done with theintent to sell, transfer or use individually identifiable health informationfor commercial advantage, personal gain or malicious harm, the fine may be upto $250,000 and imprisonment for up to ten years.

In addition to enacting the foregoing privacyrequirements, HHS issued a final rule creating security requirements forhealthcare providers and other covered entities on February 20, 2003. Thefinal security rule required covered entities to meet specified standardsby April 25, 2005. The security standards contained in the final rule donot require the use of specific technologies (e.g., no specific hardware orsoftware is required), but instead require healthcare providers and othercovered entities to comply with certain minimum security procedures in order toprotect data integrity, confidentiality and availability. We believe we havetaken reasonable steps to comply with these standards.

HIPAA also required HHS toadopt national standards establishing electronic transaction standards that allhealthcare providers must use when submitting or receiving certain healthcaretransactions electronically. Although these standards were to become effective October 2002,Congress extended the compliance deadline until October 2003 fororganizations, such as ours, that submitted a request for an extension. Webelieve we have taken reasonable steps to comply with these standards.

***Fair Debt Collection Practices Act***

Some of our operations maybe subject to compliance with certain provisions of the Fair Debt CollectionPractices Act and comparable statutes in many states. Under the Fair DebtCollection Practices Act, a third party collection company is restricted in themethods it uses to contact consumer debtors and elicit payments with respect toplaced accounts. Requirements under state collection agency statutes vary, withmost requiring compliance similar to that required under the Fair DebtCollection Practices Act. We believe we are in substantial compliance with theFair Debt Collection Practices Act and comparable state statutes whereapplicable.

***State Fraud and Abuse Provisions***

We are subject to state fraud and abuse statutes andregulations. Most of the states in which we operate have adopted a form ofanti-kickback law, almost all of those states also have adopted self-referrallaws and some have adopted separate false claims or insurance fraud provisions.The scope of these laws and the interpretations of them vary from state tostate and are enforced by state courts and regulatory authorities, each with broaddiscretion. Generally, state laws cover all healthcare services and not justthose covered under a federally-funded healthcare program. A determination ofliability under such laws could result in fines and penalties and restrictionson our ability to operate in these jurisdictions.

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Although we intend andendeavor to conduct our business in compliance with all applicable fraud andabuse laws, we cannot assure you that our arrangements or business practiceswill not be subject to government scrutiny or be found to violate applicablefraud and abuse laws.

***Licensing, Certification, Accreditation and RelatedLaws and Guidelines***

In certain jurisdictions, changes in our ownershipstructure require pre- or post-notification to governmental licensing and certificationagencies. Relevant laws and regulations may also require reapplication andapproval to maintain or renew our operating authorities or require formalapplication and approval to continue providing services under certaingovernment contracts. For example, in connection with our acquisition of AMRfrom Laidlaw, two of our subsidiaries were required to apply for state andlocal ambulance operating authority in New York. See Item 1A, “RiskFactors—Risk Factors Related to Healthcare Regulation—Changes in our ownershipstructure and operations require us to comply with numerous notification andreapplication requirements in order to maintain our licensure, certification orother authority to operate, and failure to do so, or an allegation that we havefailed to do so, can result in payment delays, forfeiture of payment or civiland criminal penalties.”

We and our affiliated physicians are subject tovarious federal, state and local licensing and certification laws andregulations and accreditation standards and other laws, relating to, amongother things, the adequacy of medical care, equipment, personnel and operatingpolicies and procedures. We are also subject to periodic inspection bygovernmental and other authorities to assure continued compliance with thevarious standards necessary for licensing and accreditations. Failure to complywith these laws and regulations could result in our services being found to benon reimbursable or prior payments being subject to recoupment, and can giverise to civil or criminal penalties. We have taken steps we believe wererequired to retain or obtain all requisite licensure and operating authorities.While we have made reasonable efforts to substantially comply with federal,state and local licensing and certification laws and regulations and standardsas we interpret them, we cannot assure you that agencies that administer theseprograms will not find that we have failed to comply in some material respects.

Because we perform services at hospitals and othertypes of healthcare facilities, we and our affiliated physicians may be subjectto laws which are applicable to those entities. For example, our operations areimpacted by the Emergency Medical Treatment and Active Labor Act of 1986, whichprohibits “patient dumping” by requiring hospitals and hospital emergencydepartments and others to assess and stabilize any patient presenting to thehospital’s emergency department or urgent care center requesting care for anemergency medical condition, regardless of the patient’s ability to pay. Manystates in which we operate have similar state law provisions concerning patientdumping. Violations of the Emergency Medical Treatment and Active Labor Act of1986 can result in civil penalties and exclusion of the offending physicianfrom the Medicare and Medicaid programs.

In addition to the Emergency Medical Treatment andActive Labor Act of 1986 and its state law equivalents, significant aspects ofour operations are affected by state and federal statutes and regulationsgoverning workplace health and safety, dispensing of controlled substances andthe disposal of medical waste. Changes in ethical guidelines and operatingstandards of professional and trade associations and private accreditationcommissions such as the American Medical Association and the Joint Commissionon Accreditation of Healthcare Organizations may also affect our operations. Webelieve our operations as currently conducted are in substantial compliancewith these laws and guidelines.

EmCare’s professionalliability insurance program, under which insurance is provided for most of ouraffiliated medical professionals and professional and corporate entities, isreinsured through our wholly-owned subsidiary, EMCA Insurance Company, Ltd. Theactivities associated with the business of insurance, and the companiesinvolved in such activities, are closely regulated. Failure to comply withapplicable laws and regulations can result in civil and criminal fines andpenalties and loss of licensure. 

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While wehave made reasonable efforts to substantially comply with these laws andregulations, and utilize licensed insurance professionals where necessary andappropriate, we cannot assure you that we will not be found to have violatedthese laws and regulations in some material respects.

***Antitrust Laws***

Antitrust laws such as theSherman Act and state counterparts prohibit anticompetitive conduct by separatecompetitors, such as price fixing or the division of markets. Our physiciancontracts include contracts with individual physicians and with physiciansorganized as separate legal professional entities (e.g., professional medicalcorporations). Antitrust laws may deem each such physician/entity to beseparate, both from EmCare and from each other and, accordingly, each suchphysician/practice is subject to antitrust laws that prohibit anti-competitiveconduct between or among separate legal entities or individuals. Although webelieve we have structured our physician contracts to substantially comply withthese laws, we cannot assure you that antitrust regulatory agencies or a courtwould not find us to be non-compliant.

***Corporate Compliance Program and Corporate IntegrityObligations***

We have developed acorporate compliance program in an effort to monitor compliance with federaland state laws and regulations applicable to healthcare entities, to ensurethat we maintain high standards of conduct in the operation of our business andto implement policies and procedures so that employees act in compliance withall applicable laws, regulations and Company policies. Our program alsoattempts to monitor compliance with our Corporate Compliance Plan, whichdetails our standards for: (1) business ethics, (2) compliance withapplicable federal, state and local laws, and (3) business conduct. Wehave an Ethics and Compliance Department whose focus is to prevent, detect andmitigate regulatory risks. We attempt to accomplish this mission through:

·       providingguidance, education and proper controls based on the regulatory risksassociated with our business model and strategic plan,

·       conductinginternal audits and reviews to identify any improper practices that may beoccurring,

·       resolvingregulatory matters, and

·       enhancingthe ethical culture and leadership of the organization.

The OIG has issueda series of Compliance Program Guidance documents in which the OIG has set outthe elements of an effective compliance program. We believe our complianceprogram has been structured appropriately in light of this guidance. Theprimary compliance program components recommended by the OIG, all of which wehave attempted to implement, include:

·       formalpolicies and written procedures,

·       designationof a Compliance Officer,

·       educationand training programs,

·       internalmonitoring and reviews,

·       respondingappropriately to detected misconduct,

·       openlines of communication, and

·       disciplineand accountability.

Our corporate compliance program is based on theoverall goal of promoting a culture that encourages employees to conduct activitieswith integrity, dignity and care for those we serve, and in 

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compliance with allapplicable laws and policies. Notwithstanding the foregoing, we auditcompliance with our compliance program on a sample basis. Although such anapproach reflects a reasonable and accepted approach in the industry, we cannotassure you that our program will detect and rectify all compliance issues inall markets and for all time periods.

As do other healthcare companies which operateeffective compliance programs, from time to time we identify practices that mayhave resulted in Medicare or Medicaid overpayments or other regulatory issues.For example, we have previously identified situations in which we may haveinadvertently utilized incorrect billing codes for some of the services we havebilled to government programs such as Medicare or Medicaid, or billed forservices which may not meet medical necessity guidelines. In such cases, ifappropriate, it is our practice to disclose the issue to the affectedgovernment programs and to refund any resulting overpayments. The governmentusually accepts such disclosures and repayments without taking furtherenforcement action, and we generally expect that to be the case with respect toour past and future disclosures and repayments. However, it is possible thatsuch disclosures or repayments will result in allegations by the governmentthat we have violated the False Claims Act or other laws, leading toinvestigations and possibly civil or criminal enforcement actions.

When the United States government settles a caseinvolving allegations of billing misconduct with a healthcare provider, ittypically requires the provider to enter into a Corporate Integrity Agreement,or CIA, with the OIG for a set period of years. As a condition to settlement ofgovernment investigations, certain of our operations are subject to twoseparate CIAs with the OIG for the period July 2004 through September 2011.As part of these CIAs, AMR is required to establish and maintain a complianceprogram that includes the following elements: (1) a compliance officer andcommittee, (2) written standards including a code of conduct and policiesand procedures, (3) general and specific training and education, (4) claimsreview by an independent review organization, (5) disclosure program forreporting of compliance issues or questions, (6) screening and removalprocesses for ineligible persons, (7) notification of governmentinvestigations or legal proceedings, (8) establishment of safeguards applicableto our contracting processes and (9) reporting of overpayments and other “reportableevents.” In addition to these CIAs, one of our other operations recentlycompleted the term of a three year CIA.

If we fail or if we are accused of failing to complywith the terms of our existing CIAs, we may be subject to additional litigationor other government actions, including being excluded from participating in theMedicare program and other federal healthcare programs. If we enter into anysettlements with the U.S. government in the future we may be required to enterinto additional CIAs.

See Item 1A, “RiskFactors—Risk Factors Related to Healthcare Regulation” for additionalinformation related to regulatory matters.

**Internet Website**

Our website address is*www.emsc.net*. Under the “Investor Relations” heading on our websitewe make available, free of charge, our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,registration statements, proxy statements, and amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of theSecurities and Exchange Act of 1934 (“Exchange Act”) as soon as reasonablypracticable after such forms are electronically filed with or furnished to theSEC. The SEC maintains an internet website, www.sec.gov, that contains reports,proxy and information statements, and other information regarding issuers thatfile electronically with the SEC. Copies of materials that we file with the SECcan also be obtained at the SEC’s Public Reference Room at 100 F Street,N.E., Washington, D.C. 20549. Information on the operation of the SEC’s PublicReference Room can be obtained by calling the SEC at 1-800-SEC-0330.

Copies of our key corporate governance documents, codeof ethics, and charters of our audit, compensation, compliance, and corporategovernance and nominating committees are also available on 

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our website*www.emsc.net* under the headings “CorporateGovernance” and “Code of Business Conduct and Ethics.”

The website addresses for our business segments are*www.amr.net* and*www.emcare.com*.

Information contained onthese websites is not part of this Annual Report on Form 10-K and isnot incorporated in this Report by reference.

**ITEM 1A.**        RISKFACTORS

You should carefullyconsider the factors described below, in addition to the other information setforth in this Annual Report, when evaluating us and our business. Additionalrisks and uncertainties not presently known to us or that we currently believeto be immaterial may also materially and adversely affect our businessoperations. Any of the following risks could materially adversely affect ourbusiness, financial condition or results of operations.

**Risk FactorsRelated to our Capital Structure**

***The interests of our controlling stockholders may conflictwith interests of other stockholders.***

Onex Partners LP and otherentities affiliated with Onex Corporation, which we refer to together as theOnex entities, own all of our outstanding LP exchangeable units, which areexchangeable at any time, at the option of the holder, for our class B commonstock. Our class A common stock has one vote per share, while our class Bcommon stock has ten votes per share (reducing to one vote per share undercertain limited circumstances), on all matters to be voted on by ourstockholders. Prior to the exchange for class B common stock, the holders ofthe LP exchangeable units will be able to exercise the same voting rights withrespect to Emergency Medical Services as they would have after the exchangethrough a share of class B special voting stock. As a result, the Onex entitiescontrol approximately 97% of our combined voting power. Accordingly, the Onexentities exercise a controlling influence over our business and affairs andhave the power to determine all matters submitted to a vote of ourstockholders, including the election of directors, the removal of directors,and approval of significant corporate transactions such as amendments to ourcertificate of incorporation, mergers and the sale of all or substantially allof our assets. The Onex entities could cause corporate actions to be taken evenif the interests of these entities conflict with the interests of our otherstockholders. This concentration of voting power could have the effect ofdeterring or preventing a change in control of Emergency Medical Services thatmight otherwise be beneficial to our stockholders. Gerald W. Schwartz, theChairman, President and Chief Executive Officer of Onex Corporation, ownsshares representing a majority of the voting rights of the shares of OnexCorporation.

***Onex has the votingpower to elect our entire board of directors and to remove any director or ourentire board without cause.***

Although our current boardincludes “independent directors”, so long as the Onex entities control morethan 50% of our combined voting power we are exempt from the NYSE rule thatrequires that a board be comprised of a majority of “independent directors”.Onex may have a controlling influence over our board, as Onex has sufficientvoting power to elect the entire board, and our certificate of incorporationpermits stockholders to remove directors at any time with or without cause.

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***As a holdingcompany, our only material asset is our equity interest in EMS LP and our onlysource of revenue is distributions from EMS LP. Because the Onex entities havethe voting power to control our board of directors, they could influence us, asthe general partner of EMS LP, to take action at the level of EMS LP that wouldbenefit the Onex entities and conflict with the interest of our class Astockholders.***

We are a holding company, and we have no materialassets other than our direct ownership of a 22.7% equity interest in EMS LP.EMS LP is our only source of cash flow from operations. The Onex entities holdtheir equity interest in us through LP exchangeable units of EMS LP. As ourcontrolling stockholder, Onex could limit distributions to us from EMS LP, andcause us to amend the EMS LP partnership agreement in a manner that would bebeneficial to the Onex entities, as limited partners of EMS LP, and detrimentalto our class A stockholders.

Any decrease in our distributions from EMS LP wouldhave a negative effect on our cash flow. In order to minimize this conflict,the EMS LP partnership agreement requires that the partnership reimburse us forall of our expenses, including all employee costs and the expenses we incur asa public company, and provides further that no distributions may be made to theOnex entities, as the holders of LP exchangeable units, unless we pay aneconomically equivalent dividend to all holders of our common stock.

The EMS LP partnershipagreement provides that amendments to that agreement may only be proposed andauthorized by us, as the general partner. The Onex entities could seek to influenceour board’s action with respect to any amendment and we, as the general partnerof EMS LP, owe a fiduciary duty to the limited partners of the partnership. Ourboard also owes a fiduciary duty to our common stockholders. Because of theinherent conflict of interest we face between our fiduciary duty to ourstockholders, including our class A stockholders, and the Onex entities, aslimited partners in EMS LP, the EMS LP partnership agreement provides that, ifthere is any conflict of interest of the limited partners and our commonstockholders, our board may, in the exercise of its business judgment, cause usto act in the best interests of our stockholders.

***We are party to amanagement agreement with an affiliate of Onex which permits us to increase substantiallythe fee we pay to that affiliate.***

The management agreementbetween our subsidiaries, AMR and EmCare, and an Onex affiliate provides thatthe annual fee may be increased from $1.0 million to $2.0 million, which amountrepresents a significant percentage of our net income. Such an increase wouldbe detrimental to the interest of our class A stockholders if the fee weredisproportionate to the benefit we derive from the services the Onex affiliateperforms. In order to minimize this potential conflict of interest, theagreement requires that any increase in the fee be approved by a majority ofthe members of the boards of AMR and EmCare who are not affiliated with Onex.As long as the Onex entities control more than 50% of our combined voting power,they may be able to exercise a controlling influence over the election of theboards of AMR and EmCare.

***Our substantialindebtedness could adversely affect our financial condition and our ability tooperate our business.***

We have a substantial amount of debt. At December 31,2006, we had total debt of $479.8 million, including $226.5 million ofborrowings under the term loan portion of our senior secured credit facility,$250.0 million of our senior subordinated notes and $1.5 million of capitallease obligations. We had no borrowings outstanding under our revolving creditfacility and we had $29.9 million of letters of credit outstanding. Inaddition, subject to restrictions in the indenture governing our notes and thecredit agreement governing our senior secured credit facility, we may incuradditional debt.

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Our substantialdebt could have important consequences to you, including the following:

·       itmay be difficult for us to satisfy our obligations, including debt servicerequirements under our outstanding debt,

·       ourability to obtain additional financing for working capital, capitalexpenditures, debt service requirements or other general corporate purposes maybe impaired,

·       wemust use a significant portion of our cash flow for payments on our debt, whichwill reduce the funds available to us for other purposes,

·       weare more vulnerable to economic downturns and adverse industry conditions andour flexibility to plan for, or react to, changes in our business or industryis more limited,

·       ourability to capitalize on business opportunities and to react to competitivepressures, as compared to our competitors, may be compromised due to our highlevel of debt, and

·       ourability to borrow additional funds or to refinance debt may be limited.

Furthermore, all of ourdebt under our senior secured credit facility bears interest at variable rates.If these rates were to increase significantly, our ability to borrow additionalfunds may be reduced and the risks related to our substantial debt wouldintensify.

***Servicing our debtwill require a significant amount of cash. Our ability to generate sufficientcash depends on numerous factors beyond our control, and we may be unable togenerate sufficient cash flow to service our debt obligations.***

Our business may not generate sufficient cash flowfrom operating activities. The cash we require to meet contractual obligationsin 2007, including our debt service, will total approximately $87****million. Our ability to make payments on and to refinanceour debt and to fund planned capital expenditures will depend on our ability togenerate cash in the future. To some extent, this is subject to generaleconomic, financial, competitive, legislative, regulatory and other factorsthat are beyond our control. Lower net revenues, or higher provision foruncollectibles, generally will reduce our cash flow.

If we are unable togenerate sufficient cash flow to service our debt and meet our othercommitments, we may need to refinance all or a portion of our debt, sellmaterial assets or operations or raise additional debt or equity capital. Wecannot assure you that we could effect any of these actions on a timely basis,on commercially reasonable terms or at all, or that these actions would besufficient to meet our capital requirements. In addition, the terms of ourexisting or future debt agreements may restrict us from effecting any of thesealternatives.

***Restrictivecovenants in our senior secured credit facility and the indenture governing oursenior subordinated notes may restrict our ability to pursue our businessstrategies.***

Our senior securedcredit facility and the indenture governing our senior subordinated notes limitour ability, among other things, to:

·       incuradditional debt or issue certain preferred stock,

·       paydividends or make distributions to our stockholders,

·       repurchaseor redeem our capital,

·       makeinvestments,

·       incurliens,

·       makecapital expenditures,

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·       enterinto transactions with our stockholders and affiliates,

·       sellcertain assets,

·       acquirethe assets of, or merge or consolidate with, other companies, and

·       incurrestrictions on the ability of our subsidiaries to make distributions ortransfer assets to us.

Our ability to comply with these covenants may beaffected by events beyond our control, and any material deviations from ourforecasts could require us to seek waivers or amendments of covenants,alternative sources of financing or reductions in expenditures. We cannotassure you that such waivers, amendments or alternative financings could beobtained, or, if obtained, would be on terms acceptable to us.

In addition, the credit agreement governing our seniorsecured credit facility requires us to meet certain financial ratios andrestricts our ability to make capital expenditures or prepay certain other debt.We may not be able to maintain these ratios, and the restrictions could limitour ability to plan for or react to market conditions or meet extraordinarycapital needs or otherwise restrict corporate activities.

If a breach of anycovenant or restriction contained in our financing agreements results in anevent of default, those lenders could discontinue lending, accelerate therelated debt (which would accelerate other debt) and declare all borrowingsoutstanding thereunder to be due and payable. In addition, the lenders couldterminate any commitments they had made to supply us with additional funds. Inthe event of an acceleration of our debt, we may not have or be able to obtainsufficient funds to make any accelerated debt payments.

***Our obligationsunder our senior secured credit facility are secured by substantially all ofour assets.***

Our obligations under oursenior secured credit facility are secured by liens on substantially all of ourassets, and the guarantees of our subsidiaries under our senior secured creditfacility are secured by liens on substantially all of those subsidiaries’assets. If we become insolvent or are liquidated, or if payment under oursenior secured credit facility or of other secured obligations are accelerated,the lenders under our senior secured credit facility or the obligees withrespect to the other secured obligations will be entitled to exercise theremedies available to a secured lender under applicable law and the applicableagreements and instruments, including the right to foreclose on all of ourassets.

**Risk FactorsRelated to Our Business**

***We could be subject to lawsuits for which we are notfully reserved.***

In recent years, physicians, hospitals and otherparticipants in the healthcare industry have become subject to an increasingnumber of lawsuits alleging medical malpractice and related legal theories suchas negligent hiring, supervision and credentialing. Similarly, ambulancetransport services may result in lawsuits concerning vehicle collisions and personalinjuries, patient care incidents and employee job-related injuries. Some ofthese lawsuits may involve large claim amounts and substantial defense costs.

EmCare procures professional liability insurancecoverage for most of its affiliated medical professionals and professional andcorporate entities. Beginning January 1, 2002, this insurance coverage hasbeen provided by affiliates of CNA Insurance Company, which then reinsure theentire program, primarily through EmCare’s wholly-owned subsidiary, EMCA InsuranceCompany, Ltd., or EMCA. Workers compensation coverage for EmCare’s employeesand applicable affiliated medical professionals is provided under a similarstructure for the period. From September 1, 2004 to the closing date ofour acquisition of AMR and EmCare, AMR obtained insurance coverage for losseswith respect to workers compensation, auto and general liability claims throughLaidlaw’s captive insurance company. AMR currently has a self-insurance programfronted by an unrelated third party. AMR retains the risk of loss 

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under this coverage. Underthese insurance programs, we establish reserves, using actuarial estimates, forall losses covered under the policies. Moreover, in the normal course of ourbusiness, we are involved in lawsuits, claims, audits and investigations,including those arising out of our billing and marketing practices, employmentdisputes, contractual claims and other business disputes for which we may haveno insurance coverage, and which are not subject to actuarial estimates. Theoutcome of these matters could have a material effect on our results ofoperations in the period when we identify the matter, and the ultimate outcomecould have a material adverse effect on our financial position, results ofoperations, or cash flows.

Our liability to pay forEmCare’s insurance program losses is collateralized by funds held through EMCAand, to the extent these losses exceed the collateral and assets of EMCA or thelimits of our insurance policies, will have to be funded by us. Should our AMRlosses with respect to such claims exceed the collateral held by Laidlaw inconnection with our self-insurance program or the limits of our insurancepolicies, we will have to fund such amounts. See Item 1, “Business—AmericanMedical Response—Insurance” and “Business—EmCare—Insurance.”

***The reserves weestablish with respect to our losses covered under our insurance programs aresubject to inherent uncertainties.***

In connection with ourinsurance programs, we establish reserves for losses and related expenses,which represent estimates involving actuarial and statistical projections, at agiven point in time, of our expectations of the ultimate resolution andadministration costs of losses we have incurred in respect of our liabilityrisks. Insurance reserves inherently are subject to uncertainty. Our reservesare based on historical claims, demographic factors, industry trends, severityand exposure factors and other actuarial assumptions calculated by anindependent actuary firm. The independent actuary firm performs studies ofprojected ultimate losses on an annual basis and provides quarterly updates tothose projections. We use these actuarial estimates to determine appropriatereserves. Our reserves could be significantly affected if current and futureoccurrences differ from historical claim trends and expectations. While wemonitor claims closely when we estimate reserves, the complexity of the claimsand the wide range of potential outcomes may hamper timely adjustments to theassumptions we use in these estimates. Actual losses and related expenses maydeviate, individually and in the aggregate, from the reserve estimatesreflected in our financial statements. If we determine that our estimatedreserves are inadequate, we will be required to increase reserves at the timeof the determination, which would result in a reduction in our net income inthe period in which the deficiency is determined. See Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—CriticalAccounting Policies—Claims Liability and Professional Liability Reserves” andnote 16 of the notes to our financial statements included in Item 8.

***Insurance coveragefor some of our losses may be inadequate and may be subject to the credit riskof commercial insurance companies.***

Some of our insurancecoverage, for periods prior to the initiation of our self-insurance programs aswell as portions of our current insurance coverage, is through various thirdparty insurers. To the extent we hold policies to cover certain groups ofclaims, but either did not obtain sufficient insurance limits, did not buy anextended reporting period policy, where applicable, or the issuing insurancecompany is no longer viable, we may be responsible for losses attributable tosuch claims. Furthermore, for our losses that are insured or reinsured throughcommercial insurance companies, we are subject to the “credit risk” of thoseinsurance companies. While we believe our commercial insurance companyproviders currently are creditworthy, there can be no assurance that suchinsurance companies will remain so in the future.

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***We are subject todecreases in our revenue and profit margin under our fee-for-service contracts,where we bear the risk of changes in volume, payor mix and third partyreimbursement rates.***

In our fee-for-service arrangements, which generatedapproximately 83% of our net revenue for the fiscal year ended December 31,2006, we, or our affiliated physicians, collect the fees for transports andphysician services.Under these arrangements, we assume financial risks related to changes in themix of insured and uninsured patients and patients covered bygovernment-sponsored healthcare programs, third party reimbursement rates andtransports and patient volume. In some cases our revenue decreases if ourvolume or reimbursement decreases, but our expenses may not decreaseproportionately. See “—Risk Factors Related to Healthcare Regulation—Changes inthe rates or methods of third party reimbursements may adversely affect ourrevenue and operations.” In addition, fee-for-service contracts have lessfavorable cash flow characteristics in the start-up phase than traditionalflat-rate contracts due to longer collection periods.

We collect a smallerportion of our fees for services rendered to uninsured patients than forservices rendered to insured patients. Our credit risk related to servicesprovided to uninsured individuals is exacerbated because the law requirescommunities to provide 911 emergency response services and hospital emergencydepartments to treat all patients presenting to the emergency departmentseeking care for an emergency medical condition regardless of their ability topay. We also believe uninsured patients are more likely to seek care athospital emergency departments because they frequently do not have a primarycare physician with whom to consult.

***We may not be ableto successfully recruit and retain physicians and other healthcareprofessionals with the qualifications and attributes desired by us and ourcustomers.***

Our ability to recruit andretain affiliated physicians and other healthcare professionals significantlyaffects our performance under our contracts. In the recent past, our customerhospitals have increasingly demanded a greater degree of specialized skills,training and experience in the healthcare professionals providing servicesunder their contracts with us. This decreases the number of healthcareprofessionals who may be permitted to staff our contracts. Moreover, because ofthe scope of the geographic and demographic diversity of the hospitals andother facilities with which we contract, we must recruit healthcareprofessionals, and particularly physicians, to staff a broad spectrum ofcontracts. We have had difficulty in the past recruiting physicians to staffcontracts in some regions of the country and at some less economicallyadvantaged hospitals. Moreover, we compete with other entities to recruit andretain qualified physicians and other healthcare professionals to deliver clinicalservices. Our future success in retaining and winning new hospital contractsdepends on our ability to recruit and retain healthcare professionals tomaintain and expand our operations.

***Our non-competeagreements and other restrictive covenants involving physicians may not beenforceable.***

We have contracts withphysicians and professional corporations in many states. Some of thesecontracts, as well as our contracts with hospitals, include provisionspreventing these physicians and professional corporations from competing withus both during and after the term of our relationship with them. The lawgoverning non-compete agreements and other forms of restrictive covenantsvaries from state to state. Some states are reluctant to strictly enforce non-competeagreements and restrictive covenants applicable to physicians. There can be noassurance that our non-compete agreements related to affiliated physicians andprofessional corporations will not be successfully challenged as unenforceablein certain states. In such event, we would be unable to prevent formeraffiliated physicians and professional corporations from competing with us,potentially resulting in the loss of some of our hospital contracts.

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***We are required tomake significant capital expenditures for our ambulance services business inorder to remain competitive.***

Our capital expenditurerequirements primarily relate to maintaining and upgrading our vehicle fleetand medical equipment to serve our customers and remain competitive. The agingof our vehicle fleet requires us to make regular capital expenditures tomaintain our current level of service. Our capital expenditures totaled $60.4million in the year ended December 31, 2006, and $48.9 million in theeleven months ended December 31, 2005. In addition, changing competitiveconditions or the emergence of any significant advances in medical technologycould require us to invest significant capital in additional equipment orcapacity in order to remain competitive. If we are unable to fund any suchinvestment or otherwise fail to invest in new vehicles or medical equipment,our business, financial condition or results of operations could be materiallyand adversely affected.

***We depend on oursenior management and may not be able to retain those employees or recruitadditional qualified personnel.***

We depend on our seniormanagement. The loss of services of any of the members of our senior managementcould adversely affect our business until a suitable replacement can be found.There may be a limited number of persons with the requisite skills to serve inthese positions, and we cannot assure you that we would be able to identify oremploy such qualified personnel on acceptable terms.

***Our revenue wouldbe adversely affected if we lose existing contracts.***

A significant portion ofour growth historically has resulted from increases in the number of emergencyand non-emergency transports, and the number of patient visits and fees forservices we provide under existing contracts, and the addition of new contracts.Substantially all of our net revenue in the twelve months ended December 31,2006 was generated under contracts, including exclusive contracts thataccounted for approximately 87% of our fiscal 2006 net revenue. Our contractswith hospitals generally have terms of three years and the term of ourcontracts with communities to provide 911 services generally ranges from threeto five years. Most of our contracts are terminable by either of the partiesupon notice of as little as 30 days. Any of our contracts may not be renewedor, if renewed, may contain terms that are not as favorable to us as ourcurrent contracts. We cannot assure you that we will be successful in retainingour existing contracts or that any loss of contracts would not have a materialadverse effect on our business, financial condition and results of operations.Furthermore, certain of our contracts will expire during each fiscal period,and we may be required to seek renewal of these contracts through a formalbidding process that often requires written responses to a Request for Proposal(“RFP”). We cannot assure you that we will be successful in retaining suchcontracts or that we will retain them on terms that are as favorable as presentterms.

***We may notaccurately assess the costs we will incur under new contracts.***

Our new contractsincreasingly involve a competitive bidding process. When we obtain newcontracts, we must accurately assess the costs we will incur in providingservices in order to realize adequate profit margins and otherwise meet ourfinancial and strategic objectives. Increasing pressures from healthcare payorsto restrict or reduce reimbursement rates at a time when the costs of providingmedical services continue to increase make assessing the costs associated withthe pricing of new contracts, as well as maintenance of existing contracts,more difficult. In addition, integrating new contracts, particularly those innew geographic locations, could prove more costly, and could require moremanagement time, than we anticipate. Our failure to accurately predict costs orto negotiate an adequate profit margin could have a material adverse effect onour business, financial condition and results of operations.

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***The high level of competition in our segments of themarket for emergency medical services could adversely affect our contract andrevenue base.***

*AMR.*   Themarket for providing ambulance transport services to municipalities, otherhealthcare providers and third party payors is highly competitive. In providingambulance transport services, we compete with governmental entities (includingcities and fire districts), hospitals, local and volunteer private providers,and with several large national and regional providers, such as Rural/MetroCorporation, Southwest Ambulance and Acadian Ambulance. In many communities,our most important competitors are the local fire departments, which in manycases have acted traditionally as the first response providers during emergencies,and have been able to expand their scope of services to include emergencyambulance transport and do not wish to give up their franchises to a privatecompetitor.

*EmCare.*   Themarket for providing outsourced physician staffing and related managementservices to hospitals and clinics is highly competitive. Such competition couldadversely affect our ability to obtain new contracts, retain existing contractsand increase or maintain profit margins. We compete with both national andregional enterprises such as Team Health, Sterling Healthcare, The SchumacherGroup and National Emergency Services Healthcare Group, some of which may havegreater financial and other resources available to them, greater access tophysicians and/or greater access to potential customers. We also competeagainst local physician groups and self-operated hospital emergency departmentsfor satisfying staffing and scheduling needs.

***Our business depends on numerous complex informationsystems, and any failure to successfully maintain these systems or implementnew systems could materially harm our operations.***

We depend on complex,integrated information systems and standardized procedures for operational andfinancial information and our billing operations. We may not have the necessaryresources to enhance existing information systems or implement new systemswhere necessary to handle our volume and changing needs. Furthermore, we mayexperience unanticipated delays, complications and expenses in implementing,integrating and operating our systems, including the integration of our AMR andEmCare systems. Any interruptions in operations during periods ofimplementation would adversely affect our ability to properly allocateresources and process billing information in a timely manner, which couldresult in customer dissatisfaction and delayed cash flow. We also use thedevelopment and implementation of sophisticated and specialized technology todifferentiate our services from our competitors and improve our profitability.The failure to successfully implement and maintain operational, financial andbilling information systems could have an adverse effect on our ability toobtain new business, retain existing business and maintain or increase ourprofit margins.

***If we fail to implement our business strategy, ourfinancial performance and our growth could be materially and adverselyaffected.***

Our future financialperformance and success are dependent in large part upon our ability toimplement our business strategy successfully. Our business strategy envisionsseveral initiatives, including increasing revenue from existing customers,growing our customer base, pursuing select acquisitions, implementing costrationalization initiatives, focusing on risk mitigation and utilizing technologyto differentiate our services and improve profitability. We may not be able toimplement our business strategy successfully or achieve the anticipatedbenefits of our business plan. If we are unable to do so, our long-term growthand profitability may be adversely affected. Even if we are able to implementsome or all of the initiatives of our business plan successfully, our operatingresults may not improve to the extent we anticipate, or at all.

Implementation of ourbusiness strategy could also be affected by a number of factors beyond ourcontrol, such as increased competition, legal developments, governmentregulation, general economic conditions or increased operating costs orexpenses. In addition, to the extent we have misjudged the 

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natureand extent of industry trends or our competition, we may have difficulty inachieving our strategic objectives. Any failure to implement our businessstrategy successfully may adversely affect our business, financial conditionand results of operations and thus our ability to service our debt. Inaddition, we may decide to alter or discontinue certain aspects of our businessstrategy at any time.

***A successful challenge by tax authorities to ourtreatment of certain physicians as independent contractors could require us topay past taxes and penalties.***

As of December 31,2006, we contracted with approximately 1,300 physicians as independentcontractors to fulfill our contractual obligations to customers. Because wetreat them as independent contractors rather than as employees, we do not (i) withholdfederal or state income or other employment related taxes from the compensationthat we pay to them, (ii) make federal or state unemployment tax orFederal Insurance Contributions Act payments (except as described below), (iii) provideworkers compensation insurance with respect to such affiliated physicians(except in states that require us to do so even for independent contractors),or (iv) allow them to participate in benefits and retirement programsavailable to employed physicians. Our contracts with our independent contractorphysicians obligate these physicians to pay these taxes and other costs. Whetherthese physicians are properly classified as independent contractors dependsupon the facts and circumstances of our relationship with them. It is possiblethat the nature of our relationship with these physicians would support achallenge to our classification of them. If such a challenge by federal orstate taxing authorities were successful, and the physicians at issue wereinstead treated as employees, we could be adversely affected and liable forpast taxes and penalties to the extent that the physicians did not fulfilltheir contractual obligations to pay those taxes. Under current federal taxlaw, however, even if our treatment were successfully challenged, if ourcurrent treatment were found to be consistent with a long-standing practice ofa significant segment of our industry and we meet certain other requirements,it is possible (but not certain) that our treatment of the physicians wouldqualify under a “safe harbor” and, consequently, we would be protected from theimposition of past taxes and penalties. In the recent past, however, there havebeen proposals to eliminate the safe harbor and similar proposals could be madein the future.

***We may make acquisitions which could divert theattention of management and which may not be integrated successfully into ourexisting business.***

We may pursue acquisitionsto increase our market penetration, enter new geographic markets and expand thescope of services we provide. We cannot assure you that we will identifysuitable acquisition candidates, that acquisitions will be completed onacceptable terms, that our due diligence process will uncover all potentialliabilities or issues affecting our integration process, or that we will beable to integrate successfully the operations of any acquired business into ourexisting business. Furthermore, acquisitions into new geographic markets andservices may require us to comply with new and unfamiliar legal and regulatoryrequirements, which could impose substantial obligations on us and ourmanagement, cause us to expend additional time and resources, and increase ourexposure to penalties or fines for non-compliance with such requirements. Theacquisitions could be of significant size and involve operations in multiplejurisdictions. The acquisition and integration of another business would divertmanagement attention from other business activities. This diversion, togetherwith other difficulties we may incur in integrating an acquired business, couldhave a material adverse effect on our business, financial condition and resultsof operations. In addition, we may borrow money or issue capital stock tofinance acquisitions. Such borrowings might not be available on terms asfavorable to us as our current borrowing terms and may increase our leverage,and the issuance of capital stock could dilute the interests of ourstockholders.

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***If Laidlaw is unwilling or unable to satisfy any indemnificationclaims made by us pursuant to the purchase agreements relating to theacquisition of AMR and EmCare, we will be forced to satisfy such claimsourselves.***

Laidlaw has agreed toindemnify us for certain claims or legal actions brought against us arising outof the operations of AMR and EmCare prior to the closing date of theacquisition. If we make a claim against Laidlaw, and Laidlaw is unwilling orunable to satisfy such claim, we would be required to satisfy the claimourselves and, as a result, our financial condition may be adversely affected.

***Many of our employees are represented by labor unionsand any work stoppage could adversely affect our business.***

Approximately 48% of AMR’semployees are represented by 42 collective bargaining agreements. Twenty-fiveof these collective bargaining agreements, representing approximately 3,700employees, are subject to renegotiation in 2007. Although we believe ourrelations with our employees are good, we cannot assure you that we will beable to negotiate a satisfactory renewal of these collective bargainingagreements or that our employee relations will remain stable.

**Risk Factors Related to Healthcare Regulation**

***We conduct business in a heavily regulated industryand if we fail to comply with these laws and government regulations, we couldincur penalties or be required to make significant changes to our operations.***

The healthcare industry isheavily regulated and closely scrutinized by federal, state and localgovernments. Comprehensive statutes and regulations govern the manner in whichwe provide and bill for services, our contractual relationships with ourphysicians and customers, our marketing activities and other aspects of ouroperations. Failure to comply with these laws can result in civil and criminalpenalties such as fines, damages and exclusion from the Medicare and Medicaidprograms. The risk of our being found in violation of these laws andregulations is increased by the fact that many of them have not been fullyinterpreted by the regulatory authorities or the courts, and their provisionsare sometimes open to a variety of interpretations. Any action against us forviolation of these laws or regulations, even if we successfully defend againstit, could cause us to incur significant legal expenses and divert ourmanagement’s attention from the operation of our business.

Our practitioners and ourcustomers are also subject to ethical guidelines and operating standards ofprofessional and trade associations and private accreditation agencies.Compliance with these guidelines and standards is often required by ourcontracts with our customers or to maintain our reputation.

The laws, regulations andstandards governing the provision of healthcare services may changesignificantly in the future. We cannot assure you that any new or changedhealthcare laws, regulations or standards will not materially adversely affectour business. We cannot assure you that a review of our business by judicial,law enforcement, regulatory or accreditation authorities will not result in adetermination that could adversely affect our operations.

***We are subject to comprehensive and complex laws and rules thatgovern the manner in which we bill and are paid for our services by third partypayors, and the failure to comply with these rules, or allegations that we havefailed to do so, can result in civil or criminal sanctions, including exclusionfrom federal and state healthcare programs.***

Like most healthcareproviders, the majority of our services are paid for by private andgovernmental third party payors, such as Medicare and Medicaid. These thirdparty payors typically have differing and complex billing and documentationrequirements that we must meet in order to receive payment for our services.Reimbursement to us is typically conditioned on our providing the correctprocedure and diagnostic codes and properly documenting the servicesthemselves, including the level of service provided, the medical necessity forthe services, and the identity of the practitioner who provided the service.

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We must also comply withnumerous other laws applicable to our documentation and the claims we submitfor payment, including but not limited to (1) ”coordination of benefits” rules thatdictate which payor we must bill first when a patient has potential coveragefrom multiple payors; (2) requirements that we obtain the signature of thepatient or patient representative, when possible, or document why we are unableto do so, prior to submitting a claim; (3) requirements that we make repaymentto any payor which pays us more than the amount to which we are entitled; (4) requirementsthat we bill a hospital or nursing home, rather than Medicare, for certainambulance transports provided to Medicare patients of such facilities; (5) ”reassignment”rules governing our ability to bill and collect professional fees onbehalf of our physicians; (6) requirements that our electronic claims forpayment be submitted using certain standardized transaction codes and formats;and (7) laws requiring us to handle all health and financial informationof our patients in a manner that complies with specified security and privacystandards. See Item 1, “Business—Regulatory Matters—Medicare, Medicaid andOther Government Reimbursement Programs.”

Governmental and privatethird party payors and other enforcement agencies carefully audit and monitorour compliance with these and other applicable rules, and in some cases in thepast have found that we were not in compliance. We have received in the past,and expect to receive in the future, repayment demands from third party payorsbased on allegations that our services were not medically necessary, werebilled at an improper level, or otherwise violated applicable billingrequirements. See Item 3, “Legal Proceedings.” Our failure to comply withthe billing and other rules applicable to us could result in non-paymentfor services rendered or refunds of amounts previously paid for such services.In addition, non-compliance with these rules may cause us to incur civiland criminal penalties, including fines, imprisonment and exclusion fromgovernment healthcare programs such as Medicare and Medicaid, under a number ofstate and federal laws. These laws include the federal False Claims Act, theHealth Insurance Portability and Accountability Act of 1996, the federalAnti-Kickback Statute, the Balanced Budget Act of 1997 and other provisions offederal, state and local law.

In addition, from time totime we self-identify practices that may have resulted in Medicare or Medicaidoverpayments or other regulatory issues. For example, we have previouslyidentified situations in which we may have inadvertently utilized incorrect billing codes forsome of the services we have billed to government programs such as Medicare orMedicaid. In such cases, if appropriate, it is our practice to disclose theissue to the affected government programs and to refund any resultingoverpayments. Although the government usually accepts such disclosures andrepayments without taking further enforcement action, it is possible that suchdisclosures or repayments will result in allegations by the government that wehave violated the False Claims Act or other laws, leading to investigations andpossibly civil or criminal enforcement actions. See Item 1, “Business—RegulatoryMatters—Corporate Compliance Program and Corporate Integrity Obligations.”

If our operations arefound to be in violation of these or any of the other laws which govern ouractivities, any resulting penalties, damages, fines or other sanctions couldadversely affect our ability to operate our business and our financial results.See Item 1, “Business—Regulatory Matters—Federal False Claims Act” and “Business—OtherHealthcare Fraud and Abuse Laws.”

***Changes in the rates or methods of third partyreimbursements may adversely affect our revenue and operations.***

We derive a majority ofour revenue from direct billings to patients and third party payors such asMedicare, Medicaid and private health insurance companies. As a result, anychanges in the rates or methods of reimbursement for the services we providecould have a significant adverse impact on our revenue and financial results.

Government funding forhealthcare programs is subject to statutory and regulatory changes,administrative rulings, interpretations of policy and determinations byintermediaries and governmental funding restrictions, all of which couldmaterially impact program coverage and reimbursements for both 

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ambulanceand physician services. In recent years, Congress has consistently attempted tocurb spending on Medicare, Medicaid and other programs funded in whole or partby the federal government. State and local governments have also attempted tocurb spending on those programs for which they are wholly or partly responsible.This has resulted in cost containment measures such as the imposition of newfee schedules that have lowered reimbursement for some of our services andrestricted the rate of increase for others, and new utilization controls thatlimit coverage of our services. For example, we estimate that the impact of anational fee schedule promulgated in 2002, as modified by subsequentlegislation, resulted in a decrease in AMR’s net revenue for fiscal 2004 ofapproximately $11 million, resulted in an increase in AMR’s net revenue ofapproximately $16 million for calendar 2005, and resulted in a decrease in AMR’snet revenue of approximately $17 million in 2006. Based upon the currentMedicare transport mix, we expect a further decrease in our net revenue totalingapproximately $2 million for the period 2007 through 2010. See Item 1, “Business—RegulatoryMatters—Medicare, Medicaid and Other Government Reimbursement Programs.”

In addition, state andlocal government regulations or administrative policies regulate ambulance ratestructures in some jurisdictions in which we conduct transport services. We maybe unable to receive ambulance service rate increases on a timely basis whererates are regulated, or to establish or maintain satisfactory rate structureswhere rates are not regulated.

We believe that regulatorytrends in cost containment will continue. We cannot assure you that we will beable to offset reduced operating margins through cost reductions, increasedvolume, the introduction of additional procedures or otherwise. In addition, wecannot assure you that federal, state and local governments will not imposereductions in the fee schedules or rate regulations applicable to our servicesin the future. Any such reductions could have a material adverse effect on ourbusiness, financial condition or results of operations.

***If current or future laws or regulations force us torestructure our arrangements with physicians, professional corporations andhospitals, we may incur additional costs, lose contracts and suffer a reductionin net revenue under existing contracts, and we may need to refinance our debtor obtain debt holder consent.***

A number of laws bear onour contractual relationships with our physicians. There is a risk that stateauthorities in some jurisdictions may find that these contractual relationshipsviolate laws prohibiting the corporate practice of medicine and fee-splittingprohibitions. These laws prohibit the practice of medicine by general businesscorporations and are intended to prevent unlicensed persons or entities frominterfering with or inappropriately influencing the physician’s professionaljudgment. They may also prevent the sharing of professional services incomewith non-professional or business interests. From time to time, includingrecently, we have been involved in litigation in which private litigants haveraised these issues. See Item 1, “Business—Regulatory Matters—Fee-Splitting;Corporate Practice of Medicine.”

Our physician contractsinclude contracts with individual physicians and with physicians organized asseparate legal professional entities (*e.g.,*professional medical corporations). Antitrust laws may deem each suchphysician/entity to be separate, both from EmCare and from each other and,accordingly, each such physician/practice is subject to a wide range of lawsthat prohibit anti-competitive conduct between or among separate legal entitiesor individuals. A review or action by regulatory authorities or the courtscould force us to terminate or modify our contractual relationships withphysicians and affiliated medical groups or revise them in a manner that couldbe materially adverse to our business. See Item 1, “Business—RegulatoryMatters—Antitrust Laws.”

Various licensing andcertification laws, regulations and standards apply to us, our affiliatedphysicians and our relationships with our affiliated physicians. Failure tocomply with these laws and regulations could result in our services being foundto be non-reimbursable or prior payments being subject to recoupment, and cangive rise to civil or criminal penalties. We are pursuing steps we believe wemust take to retain or obtain all requisite licensure and operatingauthorities. While we have made 

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reasonableefforts to substantially comply with federal, state and local licensing andcertification laws and regulations and standards as we interpret them, wecannot assure you that agencies that administer these programs will not findthat we have failed to comply in some material respects.

EmCare’s professional liabilityinsurance program, under which insurance is provided for most of our affiliatedmedical professionals and professional and corporate entities, is reinsuredthrough our wholly-owned subsidiary, EMCA Insurance Company, Ltd. Theactivities associated with the business of insurance, and the companiesinvolved in such activities, are closely regulated. Failure to comply with thelaws and regulations can result in civil and criminal fines and penalties andloss of licensure. While we have made reasonable efforts to substantiallycomply with these laws and regulations, and utilize licensed insuranceprofessionals where necessary and appropriate, we cannot assure you that wewill not be found to have violated these laws and regulations in some materialrespects.

Adverse judicial oradministrative interpretations could result in a finding that we are not incompliance with one or more of these laws and rules that affect ourrelationships with our physicians.

These laws and rules, andtheir interpretations, may also change in the future. Any adverseinterpretations or changes could force us to restructure our relationships withphysicians, professional corporations or our hospital customers, or torestructure our operations. This could cause our operating costs to increasesignificantly. A restructuring could also result in a loss of contracts or areduction in revenue under existing contracts. Moreover, if we are required tomodify our structure and organization to comply with these laws and rules, ourfinancing agreements may prohibit such modifications and require us to obtainthe consent of the holders of such debt or require the refinancing of suchdebt.

***Our contracts with healthcare facilities and marketingpractices are subject to the federal Anti-Kickback Statute, and we recentlyentered into a settlement for alleged violations of that statute.***

We are subject to thefederal Anti-Kickback Statute, which prohibits the knowing and willful offer,payment, solicitation or receipt of any form of “remuneration” in return for,or to induce, the referral of business or ordering of services paid for byMedicare or other federal programs. “Remuneration” potentially includesdiscounts and in-kind goods or services, as well as cash. Certain federalcourts have held that the Anti-Kickback Statute can be violated if “one purpose”of a payment is to induce referrals. Violations of the Anti-Kickback Statutecan result in imprisonment, civil or criminal fines or exclusion from Medicareand other governmental programs.

In 1999, the Office ofInspector General of the Department of Health and Human Services, or the OIG,issued an Advisory Opinion indicating that discounts provided to healthfacilities on the transports for which they are financially responsiblepotentially violate the Anti-Kickback Statute when the ambulance company alsoreceives referrals of Medicare and other government-funded transports from thefacility. The OIG has clarified that not all discounts violate theAnti-Kickback Statute, but that the statute may be violated if part of thepurpose of the discount is to induce the referral of the transports paid for byMedicare or other federal programs, and the discount does not meet certain “safeharbor” conditions. In the Advisory Opinion and subsequent pronouncements, theOIG has provided guidance to ambulance companies to help them avoid unlawfuldiscounts. See Item 1, “Business—Regulatory Matters—Federal Anti-KickbackStatute.”

Like other ambulancecompanies, we have provided discounts to our healthcare facility customers(nursing home and hospital) in certain circumstances. We have attempted tocomply with applicable law when such discounts are provided. However, thegovernment alleged that certain of our hospital and nursing home contracts ineffect in Texas in periods prior to 2002 contained discounts in violation ofthe federal Anti-Kickback Statute, and in 2006 we entered into a settlementwith the government regarding these allegations. The settlement included a CIA.

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There can be no assurancethat other investigations or legal action related to our contracting practiceswill not be pursued against AMR in other jurisdictions or for different timeframes. See Item 1, “Business—American Medical Response—Legal Matters.” Ifwe are found to have violated the Anti-Kickback Statute, we may be subject tocivil or criminal penalties, including exclusion from the Medicare or Medicaidprograms, or may be required to enter into settlement agreements with thegovernment to avoid such sanctions. Typically, such settlement agreementsrequire substantial payments to the government in exchange for the governmentto release its claims, and may also require us to enter into a CIA. SeeItem 1, “Business—Regulatory Matters—Corporate Compliance Program andCorporate Integrity Obligations.”

In addition to AMR’scontracts with healthcare facilities, other marketing practices or transactionsentered into by AMR and EmCare may implicate the Anti-Kickback Statute.Although we have attempted to structure our past and current marketinginitiatives and business relationships to comply with the Anti-KickbackStatute, we cannot assure you that the OIG or other authorities will not findthat our marketing practices and relationships violate the statute.

***Changes in our ownership structure and operationsrequire us to comply with numerous notification and reapplication requirementsin order to maintain our licensure, certification or other authority tooperate, and failure to do so, or an allegation that we have failed to do so,can result in payment delays, forfeiture of payment or civil and criminalpenalties.***

We and our affiliatedphysicians are subject to various federal, state and local licensing andcertification laws with which we must comply in order to maintain authorizationto provide, or receive payment for, our services. For example, Medicare and Medicaid require thatwe complete and periodically update enrollment forms in order to obtain andmaintain certification to participate in programs. Compliance with these requirementsis complicated by the fact that they differ from jurisdiction to jurisdiction,and in some cases are not uniformly applied or interpreted even within the samejurisdiction. Failure to comply with these requirements can lead not only todelays in payment and refund requests, but in extreme cases can give rise tocivil or criminal penalties.

In certain jurisdictions,changes in our ownership structure require pre- or post-notification togovernmental licensing and certification agencies, or agencies with which wehave contracts. Relevant laws in some jurisdictions may also requirere-application or re-enrollment and approval to maintain or renew ourlicensure, certification, contracts or other operating authority. The change incorporate structure and ownership in connection with our initial publicoffering required us to give notice, re-enroll or make other applications forauthority to continue operating in various jurisdictions or to continuereceiving payment from their Medicaid or other payment programs.

While we have madereasonable efforts to substantially comply with these requirements, we cannotassure you that the agencies that administer these programs or have awarded uscontracts will not find that we have failed to comply in some materialrespects. A finding of non-compliance and any resulting payment delays, refunddemands or other sanctions could have a material adverse effect on ourbusiness, financial condition or results of operations.

***If we fail to comply with the terms of our settlementagreements with the government, we could be subject to additional litigation orother governmental actions which could be harmful to our business.***

In the last four years, wehave entered into five settlement agreements with the United States government.In June 2002, one of our subsidiaries, AMR of Massachusetts, entered intoa settlement agreement to resolve a number of allegations, includingallegations related to billing and documentation practices. In February 2003,another subsidiary, AMR of South Dakota, entered into a settlement agreement toresolve allegations that it incorrectly billed for transports performed byother providers when an AMR paramedic accompanied the patient during transport,and that it billed for certain non-emergency 

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transportsusing emergency codes. In July 2004, our subsidiary, American MedicalResponse West, entered into a settlement agreement in connection with billingmatters related to emergency transports and specialized services. In August 2004,AMR entered into a settlement agreement on behalf of a subsidiary, RegionalEmergency Services LP, or RES, to resolve allegations of violations of theFalse Claims Act by RES and a hospital system based on the absence ofcertificates of medical necessity and other non-compliant billing practices. InSeptember 2006, AMR entered into a settlement agreement to resolveallegations that AMR subsidiaries provided discounts to healthcare facilitiesin Texas in periods prior to 2002 in violation of the Federal Anti-KickbackStatute. See Item 3, “Legal Proceedings.”

As part of the settlementAMR West entered into with the government, we entered into a CorporateIntegrity Agreement, or CIA, which is still in effect. Pursuant to this CIA, weare required to establish and maintain a compliance program which includes,among other elements, the appointment of a compliance officer and committee,review by an independent review organization, and reporting of overpayments andother “reportable events.” In connection with the September 2006settlement for AMR, we also entered into a CIA which requires us to maintain acompliance program which includes the training of employees and safeguards involvingour contracting process nationwide (including tracking of contractual arrangementsin Texas). AMR of Massachusetts entered into a CIA in connection with its June 2002settlement, the term of which has expired. See Item 1, “Business—RegulatoryMatters—Corporate Compliance Program and Corporate Integrity Obligations.”

We cannot assure you thatthe CIAs or the compliance program we have initiated has prevented, or willprevent, any repetition of the conduct or allegations that were the subject ofthese settlement agreements, or that the government will not raise similarallegations in other jurisdictions or for other periods of time. If suchallegations are raised, or if we fail to comply with the terms of the CIAs, wemay be subject to fines and other contractual and regulatory remedies specifiedin the CIAs or by applicable laws, including exclusion from the Medicareprogram and other federal and state healthcare programs. Such actions couldhave a material adverse effect on the conduct of our business, our financialcondition or our results of operations.

***If we are unable to effectively adapt to changes inthe healthcare industry, our business may be harmed.***

Political, economic andregulatory influences are subjecting the healthcare industry in the United Statesto fundamental change. We anticipate that Congress and state legislatures maycontinue to review and assess alternative healthcare delivery and paymentsystems and may in the future propose and adopt legislation effectingfundamental changes in the healthcare delivery system.

We cannot assure you as tothe ultimate content, timing or effect of changes, nor is it possible at thistime to estimate the impact of potential legislation. Further, it is possiblethat future legislation enacted by Congress or state legislatures couldadversely affect our business or could change the operating environment of ourcustomers. It is possible that changes to the Medicare or other government reimbursementprograms may serve as precedent to similar changes in other payors’reimbursement policies in a manner adverse to us. Similarly, changes in privatepayor reimbursement programs could lead to adverse changes in Medicare andother government payor programs which could have a material adverse effect onour business, financial condition or results of operations.

**Risk Factors Related to Our Corporate Governance**

***Our certificate of incorporation and our by-lawscontain provisions that could discourage another company from acquiring us andmay prevent attempts by our stockholders to replace or remove our currentmanagement.***

Provisionsof our certificate of incorporation and our by-laws may discourage, delay orprevent a merger or acquisition that stockholders may consider favorable,including transactions in which you might otherwise receive a premium for yourshares. In addition, these provisions may frustrate or prevent any 

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attempts by our stockholders to replace or remove ourcurrent management by making it more difficult for stockholders to replace orremove our current board of directors. These provisions include:

·       providingfor a classified board of directors with staggered terms,

·       providingfor the class B special voting stock which will be voted as directed by theOnex entities,

·       providingfor multi-vote shares of common stock which, upon exchange of LP exchangeableunits, will be owned by the Onex entities,

·       establishingadvance notice requirements for nominations for election to the board ofdirectors or for proposing matters that can be acted on by stockholders atstockholder meetings, and

·       the authority of the boardof directors to issue, without stockholder approval, up to 20 millionshares of preferred stock with such terms as the Board of Directors maydetermine and an additional 54 million shares of common stock.

***We are a “controlled company” within the meaning ofthe New York Stock Exchange rules and, as a result, qualify for, andintend to rely on, exemptions from certain corporate governance requirements.***

Because the Onex entitiesown more than 50% of our combined voting power, we are deemed a “controlledcompany” under the rules of the New York Stock Exchange, or the NYSE. As aresult, we qualify for, and rely upon, the “controlled company” exception tothe board of directors and committee composition requirements under the rules ofthe NYSE. Pursuant to this exception, we are exempt from rules that wouldotherwise require that our board of directors be comprised of a majority of “independentdirectors,” and that our compensation committee and corporate governance andnominating committee be comprised solely of “independent directors” (as definedunder the rules of the NYSE), so long as the Onex entities continue to ownmore than 50% of our combined voting power.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

Not applicable.

**ITEM 2.**                PROPERTIES

We lease approximately****73,000 square feet in an office building at 6200 S.Syracuse Way, Greenwood Village, Colorado for the AMR and EMSC corporateheadquarters and which also serves as one of AMR’s billing offices. Our leasesfor our business segments are described below.

**AMR**

*Facilities.*   Inaddition to the corporate headquarters, we also lease approximately 500administrative facilities and other facilities used principally for ambulancebasing, garaging and maintenance in those areas in which we provide ambulanceservices. We own 14 facilities used principally for administrative services andstationing for our ambulances. We believe our present facilities are sufficientto meet our current and projected needs, and that suitable space is readilyavailable should our need for space increase. Our leases expire at variousdates through 2017.

*Vehicle Fleet.*   Weoperate approximately 4,400 vehicles. Of these, 3,300 are ambulances, 600 arewheelchair vans and 500 are support vehicles. As of December 31, 2006, weowned approximately 90% of our vehicles and leased the balance. We replaceambulances based upon age and usage, but generally every eight to ten years.The average age of our existing ambulance fleet is approximately five years. Weprimarily use in-house maintenance services to maintain our fleet. In thoseoperations where our fleet is small and quality external maintenance servicesthat agree to maintain our fleet in accordance with AMR standards areavailable, we utilize these maintenance services. We are exploring ways todecrease our 

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overall capitalexpenditures for vehicles, including major refurbishing and overhaul of ourvehicles to extend their useful life.

**EmCare**

*Facilities.*   Welease approximately 39,000 square feet in an office building at 1717 MainStreet, Dallas, Texas, for certain of EmCare’s key support functions andregional operations. We also lease 22 facilities to house administrative,billing and other support functions for other regional operations. We believeour present facilities are sufficient to meet our current and projected needs,and that suitable space is readily available should our need for spaceincrease. Our leases expire at various dates through 2014.

We leaseapproximately 106,000 square feet in a business park locatedat 1000 River Road, Conshohocken, Pennsylvania, for certainkey billing and support functions. We believe our present facilities aresufficient to meet our current and projected needs, and that suitable space isreadily available should our need for space increase. Our primary leaseexpires in 2009 with the right to renew for two additional terms of fiveyears each.

**ITEM 3.**                LEGALPROCEEDINGS

We are subject tolitigation arising in the ordinary course of our business, including litigationprincipally relating to professional liability, auto accident and workerscompensation claims. There can be no assurance that our insurance coverage willbe adequate to cover all liabilities occurring out of such claims. In theopinion of management, we are not engaged in any legal proceedings that weexpect will have a material adverse effect on our business, financial condition,cash flows or results of our operations other than as set forth below.

From time to time, in theordinary course of business and like others in the industry, we receiverequests for information from government agencies in connection with theirregulatory or investigational authority. Such requests can include subpoenas ordemand letters for documents to assist the government in audits orinvestigations. We review such requests and notices and take appropriateaction. We have been subject to certain requests for information andinvestigations in the past and could be subject to such requests forinformation and investigations in the future.

We are subject to theMedicare and Medicaid fraud and abuse laws, which prohibit, among other things,any false claims, or any bribe, kick-back, rebate or other remuneration, incash or in kind, in return for the referral of Medicare and Medicaid patients.Violation of these prohibitions may result in civil and criminal penalties andexclusion from participation in the Medicare and Medicaid programs. We haveimplemented policies and procedures that management believes will assure thatwe are in substantial compliance with these laws, but we cannot assure you thatthe government or a court will not find that some of our business practicesviolate these laws.

During the first quarterof fiscal 2004 we were advised by the DOJ that it was investigating certainbusiness practices at AMR including whether discounts in violation of thefederal Anti-Kickback Statute were provided by AMR in exchange for referralsinvolving Medicare eligible patients. Specifically, the government alleged thatcertain of our hospital and nursing home contracts in effect in Texas inperiods prior to 2002 contained discounts in violation of the federalAnti-Kickback Statute. We negotiated a settlement with the government pursuantto which we paid $9 million and obtained a release from the U.S. Governmentof all claims related to such conduct alleged to have occurred in Texas inperiods prior to 2002. In connection with the settlement, we entered into aCorporate Integrity Agreement, or CIA, which will be effective for a period offive years beginning September 12, 2006. Pursuant to the CIA, we arerequired to maintain a compliance program which includes, among other elements,the appointment of a compliance officer and committee; training of employeesnationwide; safeguards for our contracting processes nationwide, includingtracking of contractual arrangements in Texas; review by an independent 

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revieworganization and reporting of certain reportable events. Under the provisionsof our purchase agreement for the acquisition of AMR, we and Laidlaw sharedresponsibility for the settlement amount and certain of the costs associatedwith the CIA. There can be no assurance that other investigations or legalaction related to our contracting practices will not be pursued against AMR inother jurisdictions or for different time frames.

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 allegesthat AMR billed patients and third party payors for transports it conductedbetween 1998 and 2005 at a higher level than contractually permitted. The courthas certified a class in this case, but the size and membership of the classhas not yet been determined.****At this time,AMR does not believe that any incorrect billings are material in amount.

AMR and the City ofStockton, California are parties to litigation regarding the terms andenforceability of a memorandum of understanding and a related joint ventureagreement between the parties to present a joint bid in response to a requestfor proposals to provide emergency ambulance services in the County of SanJoaquin, California. The suit was filed on June 28, 2005, in the UnitedStates District Court for the Eastern District of California. The parties wereunable to agree on the final terms of a joint bid. AMR has been awarded the SanJoaquin contract. While we are unable at this time to estimate the amount ofpotential damages, we believe that Stockton may claim as damages a portion ofour profit on the contract or the profit Stockton might have realized had thejoint venture proceeded.

On April 17, 2006,the Office of Inspector General for the United States Department of Health andHuman Services, or OIG, finalized its draft report requesting that an AMRMassachusetts subsidiary reimburse the Medicare program for approximately $1.8million in alleged overpayments from Medicare for services performed between July 1,2002 and December 31, 2002. The OIG claims that these overpayments weremade for services that did not meet Medicare medical necessity andreimbursement requirements. On December 10, 2006, we paid the $1.8 millionin alleged overpayments. However, we continue to disagree with the OIG’sfinding and we have filed an administrative appeal. If we are successful in theadministrative appeal we may be entitled to repayment of all or part of the$1.8 million.

EmCare entered into asettlement agreement with respect to June Belt, et al. v. EmCare, Inc.,et al., (U.S. Ct. App.—5th Cir.), brought by a number of nurse practitionersand physician assistants under the Fair Labor Standards Act. Pursuant to thesettlement agreement, which the Court approved in January 2007, EmCarewill pay $1.7 million in satisfaction of all claims in the lawsuit, which wasaccrued.

In December 2006, AMRreceived a subpoena from the United States Department of Justice, or DOJ. Thesubpoena requested copies of documents for the period from January 2000through the present. The subpoena required us to produce a broad range ofdocuments relating to the operations of certain AMR affiliates in NewYork. We are in the process of producing documents in response to the subpoena.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of securityholders during the fourth quarter of the fiscal year ended December 31,2006.

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**PART II.**

**ITEM 5.**                MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

Sharesof our class A common stock have been trading on the New York Stock Exchange (“NYSE”),under the symbol “EMS”, since our initial public offering of such stock on December 16,2005. There is no established market for our class B common stock or our LPexchangeable units. The following table details the high and low sales pricesof our class A common stock during the year ended December 31, 2006.

| ** **                          | ** ** | **HIGH** | ** ** | **LOW** | ** ** |
|-------------------------------------|------------|----------|------------|---------|------------|
| Year ended  December 31, 2006: |       |     |       |    |       |
| Fourth Quarter                      |       | $21.81   |       | $16.10  |       |
| Third Quarter                       |       | 16.67    |       | 11.57   |       |
| Second Quarter                      |       | 13.86    |       | 11.00   |       |
| First Quarter                       |       | 14.40    |       | 12.17   |       |

 

On March 5, 2007, the last sale price of ourclass A common stock as reported by the NYSE was $25.10 and there wereapproximately 200 holders of record of our class A common stock, 3 holders ofrecord of our class B common stock and 5 holders of record of our LPexchangeable units.

We refer you to ourRegistration Statement filed on Form S-1 under the Securities Act of1933 with the Securities and Exchange Commission on December 15, 2005under the caption “Description of Capital Stock” for a further description ofour capital stock.

***Dividend Policy***

We currently intend toretain any future earnings to support our operations and to fund thedevelopment and growth of our business. In addition, the payment of dividendsby us to holders of our common stock is limited by our senior secured creditfacility. See Item 7, “Management Discussion and Analysis of FinancialCondition and Results of Operations” and Item 8, “Financial Statements andSupplementary Data.” Our future dividend policy will depend on the requirementsof financing agreements to which we may be a party. We did not pay dividends in2006 or 2005 and do not intend to pay cash dividends on our common stock in theforeseeable future. Any future determination to pay dividends will be at thediscretion of our board of directors and will depend upon, among other factors,our results of operations, financial condition, capital requirements andcontractual restrictions.

***Recent Sales of Unregistered Securities***

Other than as disclosed inPart II, Item 2 of the Form 10-Q/A for the fiscal quarterended June 30, 2006, the Company had no sales of unregistered securitiesin the fiscal year ended December 31, 2006.

***Issuer Purchases of Equity Securities***

We did not repurchase anyshares of our common stock during the year ended December 31, 2006.

***Summary of Equity Compensation Plans***

We adopted our equity option plan approved by securityholders in 2005 in connection with the acquisition of AMR and EmCare. Thecompensation committee of our board of directors, or the board itself if thereis no committee, administers the equity option plan.

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Thefollowing table presents information pertaining to our equity option plan at December 31,2006:

| ** **                                                 | ** ** | **Number of securities  to be issued upon  exercise of outstanding  warrants and rights** | ** ** | **Weighted average  price of outstanding  options, warrants  and rights** | ** ** | **Number of  securities remaining  available for future  issuance under equity  compensation plans** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan  Category**                                         | ** ** |                                                                                                                                   | ** ** | ** **                                                                                         |       |                                                                                                                                    | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Equity  compensation plan approved by security holders     |       |                                                                                                                                   | 3,357,907  | ** **                                                                                         |       |                                                                                                                                    | $          | 6.77 | ** ** |   |   | 702,403 |   |   |
| Equity  compensation plan not approved by security holders |       |                                                                                                                                   | 32,000     | ** **                                                                                         |       |                                                                                                                                    | —     | ** ** |   |   | — | * |   |
| Total                                                      |       |                                                                                                                                   | 3,389,907  | ** **                                                                                         |       |                                                                                                                                    | $          | 6.77 | ** ** |   |   | 702,403 |   |   |

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*                    Under theterms of the equity compensation plan not approved by security holders, eachnon-employee director will be entitled to receive Restricted Stock Unitsrepresenting $100,000 in class A common stock subject to the conditionsdescribed under our Non-Employee Director Compensation Program. The number ofshares is therefore indeterminable.

The equity option plan to purchase shares of our classA common stock and approved by security holders have the following terms:

·       exerciseprice of $6.67 per share, except for options to purchase 37,500 shares with anexercise price of $16.00 per share,

·       vestingratably on each of the first four anniversaries of the grant date (the firsteight 6-month anniversaries in the case of Mr. Sanger), provided,that the exercisability of one-half of the options granted to each employee issubject to the further condition that Onex has realized a 15% internal rate ofreturn, as defined, or, on the fourth anniversary of the grant date, we haveachieved an aggregate EBITDA, as defined, of not less than $617.4 million,subject to certain adjustments, for the four fiscal years endingDecember 31, 2008,

·       eachoption expires on the tenth anniversary of the grant date unless the employee’semployment is terminated earlier, in which case the options will expire asfollows: (i) upon the termination of employment if the termination is for“cause”, (ii) 30 days after the termination of employment, or such otherdate as determined by the compensation committee, following termination by theemployee for “good reason” or by us without “cause” or due to retirement, or(iii) 90 days after termination of employment due to death or disability,and

·       upon(i) a sale of the equity of Emergency Medical Services whereby any personother than existing equity holders as of the grant date acquires voting powerto elect a majority of our board of directors or (ii) a sale of all or substantiallyall of our assets, all options granted to each employee will accelerate(although still subject to the performance target) and will terminate if notexercised in accordance with the terms of the option agreement.

All options andEmergency Medical Services equity held by our senior management are governed byagreements which:

·       restricttransfer of their equity until the fifth anniversary of purchase, and

·       grant“piggyback” registration rights.

See “Description ofCapital Stock—Equityholder Agreements” and “—Registration Agreement” in ourRegistration Statement under the Securities Act of 1933 filed on Form S-1with the Securities and Exchange Commission on December 15, 2005 for adescription of the transfer restrictions and “piggyback” registration rights.

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**ManagementInvestment and Equity Purchase Plan**

In connection with ouracquisition of AMR and EmCare, our named executive officers and other membersof management purchased an aggregate of 915,750 shares of class A common stock.Approximately 160 employees and affiliated physicians, physician assistants andnurse practitioners purchased in the aggregate an additional 231,450 shares ofclass A common stock pursuant to our equity purchase plan. The 1,147,200 sharesheld by these investors, including our named executive officers, are governedby equityholders agreements. These agreements contain restrictions on transferof the equity. See “Description of Capital Stock—Equityholder Agreements” inour Registration Statement under the Securities Act of 1933 filed on Form S-1with the Securities and Exchange Commission on December 15, 2005 for adescription of the transfer restrictions and “piggyback” registration rights.

**Non-EmployeeDirector Compensation Program**

On June 1, 2006, on the recommendation of ourCorporate Governance and Nominating Committee, our board of directors adopted anon-employee director compensation program, effective as of June 1, 2006.

Under the terms of the plan, in addition to an annualcash retainer of $50,000, each non-employee director (other than RobertM. Le Blanc, our Lead Director) was awarded a grant of 8,000 restrictedstock units, or RSUs, each RSU representing one share of our class A commonstock. Commencing with the 2007 annual meeting, effective immediately followingeach annual meeting of stockholders, each continuing non-employee director willreceive a grant of a number of RSUs having a fair market value of $100,000,based on the closing price of our class A common stock on the business dayimmediately preceding the grant date. The RSUs will vest on the date of thenext following annual meeting of stockholders, immediately prior to the votefor directors, and will be paid in shares of our class A common stock (oneshare for each RSU). The number of RSUs granted to a non-employee directorjoining the board other than at an annual meeting of stockholders will bepro-rated based on the amount of time remaining until the next annual meetingof stockholders. This equity component of the non-employee director compensationprogram became effective as of June 1, 2006, subject to stockholderapproval at the 2007 annual meeting of stockholders. If such approval is notobtained, the June 1, 2006 grants will be void and the RSUs will not veston the meeting date.

Generally, a non-employee director will forfeit hisannual compensation (both the cash and the equity components) if he does notattend at least 75% of the meetings held by the board of directors and theboard committees on which he serves. The board of directors may waive thisrequirement if it determines that extenuating circumstances precluded suchattendance. There will be no compensation paid to directors for attendance atindividual meetings, for service on committees of the board of directors or forserving as Chair of any such committee.

Robert Le Blanc will notreceive any compensation for his service as a director of the Company. Employeedirectors do not receive any additional compensation for their service asdirectors of the Company.

***Offer to Provide Form 10-K***

Stockholders may request acomplimentary copy of our Annual Report on Form 10-K by mailaddressed to our Investor Relations Department at the following address:Emergency Medical Services Corporation, 6200 South Syracuse Way, GreenwoodVillage, CO 80111.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

The following table sets forth our selected financialdata derived from our combined or consolidated financial statements for each ofthe periods indicated. The selected financial data presented below should beread in conjunction with Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our audited financialstatements and notes thereto appearing in Item 8 of this Report.

Effective as of January 31, 2005, we acquired AMRand EmCare from Laidlaw and, in connection with the acquisition, we changed ourfiscal year to December 31 from August 31. For all periods prior tothe acquisition, the AMR and EmCare businesses formerly owned by Laidlaw arereferred to as the “Predecessor.”

The comparability of our selected historical financialdata has been affected by a number of significant events and transactions. In2001, AMR’s and EmCare’s former parent, Laidlaw, and certain of its affiliatesfiled voluntary petitions for reorganization under Chapter 11 of the U.S.Bankruptcy Code. Although subsidiaries of Laidlaw, neither AMR nor EmCare wasincluded in the bankruptcy filing. Laidlaw emerged from bankruptcy protectionin June 2003. Laidlaw applied fresh-start accounting as of June 1,2003 to AMR and EmCare and pushed down to us our share of the fresh-startaccounting adjustments. As a result of the fresh-start change in the basis ofaccounting for our underlying assets and liabilities, our results of operationsand cash flows have been separated as pre-June 1, 2003 and post-May 31,2003.

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Financial data forthe years ended August 31, 2002 (Pre Fresh-Start Predecessor), August 31,2003 (Predecessor) and August 31, 2004 (Predecessor) and the five monthsended January 31, 2005 (Predecessor) are derived from our audited combinedfinancial statements. Financial data as of and for the eleven months ended December 31,2005 and as of and for the year ended December 31, 2006 are derived fromour audited consolidated financial statements included in Item 8 of thisReport.

| ** **                                                                                         | ** ** | ** **                                                                         | ** ** | ** **                | ** ** | **Predecessor**         | ** ** | **Pre Fresh-Start  Predecessor** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|---------------------------------------|------------|
| ** **                                                                                         | ** ** | **As of and for the**                                          | ** ** |
| ** **                                                                                         | ** ** | **Year  ended**                                                                    | ** ** | **Eleven  months  ended** | ** ** | **Five  months  ended** | ** ** | **Year  ended**                       | ** ** | **Three  months  ended** | ** ** | **Nine  months  ended** | ** ** | **Year  ended** | ** ** |
| ** **                                                                                         | ** ** | **December 31,**                                                              | ** ** | **January 31,**      | ** ** | **August 31,**     | ** ** | **May 31,**                      | ** ** | **August 31,** | ** ** |
| ** **                                                                                         | ** ** | **2006**                                                                           | ** ** | **2005**                  | ** ** | **2005**                | ** ** | **2004**                              | ** ** | **2003** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                         | ** ** | **(dollars in thousands, except per share amounts)** | ** ** |
| **Statement of Operations Data:**                                                                  | ** ** | ** **                                                                         | ** ** | ** **                | ** ** |                    | ** ** | ** **                            |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Net revenue                                                                                        |       | $                                                                                  | 1,934,205  |                      | $          | 1,655,485               |       |                                  | $          | 696,179 |   |   |   | $ | 1,604,598 |   |   | $ | 384,461 |   | $ | 1,103,335 |   |   | $ | 1,415,786 |   |   |
| Compensation and  benefits                                                                         |       | 1,333,648                                                                          |       | 1,146,055                 |       |                    | 481,305    |                                  |       |   | 1,117,890 |   |   | 264,604 |   | 757,183 |   |   | 960,590 |   |   |
| Operating expenses                                                                                 |       | 294,806                                                                            |       | 233,087                   |       |                    | 94,882     |                                  |       |   | 218,277 |   |   | 55,212 |   | 163,447 |   |   | 219,321 |   |   |
| Insurance expenses                                                                                 |       | 68,271                                                                             |       | 82,800                    |       |                    | 39,002     |                                  |       |   | 80,255 |   |   | 34,671 |   | 69,576 |   |   | 66,479 |   |   |
| Selling, general  and administrative expenses                                                      |       | 57,403                                                                             |       | 54,262                    |       |                    | 21,635     |                                  |       |   | 47,899 |   |   | 12,017 |   | 37,867 |   |   | 61,455 |   |   |
| Depreciation and  amortization expenses                                                            |       | 66,005                                                                             |       | 54,143                    |       |                    | 18,808     |                                  |       |   | 52,739 |   |   | 12,560 |   | 32,144 |   |   | 67,183 |   |   |
| Restructuring  charges                                                                             |       | 6,369                                                                              |       | 1,781                     |       |                    | —     |                                  |       |   | 2,115 |   |   | 1,449 |   | 1,288 |   |   | 3,777 |   |   |
| Impairment losses                                                                                  |       | —                                                                             |       | —                    |       |                    | —     |                                  |       |   | — |   |   | — |   | — |   |   | 262,780 |   |   |
| Laidlaw fees and  compensation charges                                                             |       | —                                                                             |       | —                    |       |                    | 19,857     |                                  |       |   | 15,449 |   |   | 1,350 |   | 4,050 |   |   | 5,400 |   |   |
| Laidlaw  reorganization charges                                                                    |       | —                                                                             |       | —                    |       |                    | —     |                                  |       |   | — |   |   | — |   | 3,650 |   |   | 8,761 |   |   |
| Income (loss) from  operations                                                                     |       | 107,703                                                                            |       | 83,357                    |       |                    | 20,690     |                                  |       |   | 69,974 |   |   | 2,598 |   | 34,130 |   |   | (239,960 | ) |   |
| Interest expense                                                                                   |       | (45,605                                                                            | )          | (47,813                   | )          |                    | (5,644     | )                                     |       |   | (9,961 | ) |   | (908 | ) | (4,691 | ) |   | (6,418 | ) |   |
| Realized gain  (loss) on investments                                                               |       | (467                                                                               | )          | (164                      | )          |                    | —     |                                  |       |   | (1,140 | ) |   | 90 |   | — |   |   | — |   |   |
| Interest and other  income                                                                         |       | 2,346                                                                              |       | 1,040                     |       |                    | 714        |                                  |       |   | 240 |   |   | 22 |   | 304 |   |   | 369 |   |   |
| Loss on early debt  extinguishment                                                                 |       | (377                                                                               | )          | (2,040                    | )          |                    | —     |                                  |       |   | — |   |   | — |   | — |   |   | — |   |   |
| Fresh-start  accounting adjustments(1)                                                             |       | —                                                                             |       | —                    |       |                    | —     |                                  |       |   | — |   |   | — |   | 46,416 |   |   | — |   |   |
| Income (loss)  before income taxes and cumulative effect of a change in accounting  principle |       | 63,600                                                                             |       | 34,380                    |       |                    | 15,760     |                                  |       |   | 59,113 |   |   | 1,802 |   | 76,159 |   |   | (246,009 | ) |   |
| Income tax expense                                                                                 |       | (24,961                                                                            | )          | (14,372                   | )          |                    | (6,278     | )                                     |       |   | (21,764 | ) |   | (8,633 | ) | (829 | ) |   | (1,374 | ) |   |
| Income (loss)  before cumulative effect of a change in accounting principle                        |       | 38,639                                                                             |       | 20,008                    |       |                    | 9,482      |                                  |       |   | 37,349 |   |   | (6,831 | ) | 75,330 |   |   | (247,383 | ) |   |
| Cumulative effect  of a change in accounting principle(2)                                          |       | —                                                                             |       | —                    |       |                    | —     |                                  |       |   | — |   |   | — |   | (223,721 | ) |   | — |   |   |
| Equity in earnings  of unconsolidated subsidiary                                                   |       | 432                                                                                |       | 59                        |       |                    | —     |                                  |       |   | — |   |   | — |   | — |   |   | — |   |   |
| Net income (loss)                                                                                  |       | $                                                                                  | 39,071     |                      | $          | 20,067                  |       |                                  | $          | 9,482 |   |   |   | $ | 37,349 |   |   | $ | (6,831 | ) | $ | (148,391 | ) |   | $ | (247,383 | ) |   |
| Net income per share:                                                                              |       |                                                                               |       |                      |       |                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                              |       | $                                                                                  | 0.94       |                      | $          | 0.56                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                            |       | $                                                                                  | 0.92       |                      | $          | 0.55                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common shares outstanding:                                              |       |                                                                               |       |                      |       |                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                              |       | 41,502,632                                                                         |       | 33,621,542                |       |                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                            |       | 42,528,885                                                                         |       | 34,282,176                |       |                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other Financial Data:**                                                                          | ** ** | ** **                                                                         | ** ** | ** **                | ** ** |                    | ** ** | ** **                            |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Cash flows provided by (used in):                                                                  |       |                                                                               |       |                      |       |                    |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  activities                                                                              |       | $                                                                                  | 165,742    |                      | $          | 109,963                 |       |                                  | $          | 15,966 |   |   |   | $ | 127,679 |   |   | $ | 30,009 |   | $ | 58,769 |   |   | $ | 156,544 |   |   |
| Investing  activities                                                                              |       | (113,127                                                                           | )          | (909,629                  | )          |                    | (21,667    | )                                     |       |   | (81,516 | ) |   | (15,136 | ) | (98,835 | ) |   | (57,347 | ) |   |
| Financing  activities                                                                              |       | (31,327                                                                            | )          | 803,083                   |       |                    | 10,856     |                                  |       |   | (47,328 | ) |   | (47,222 | ) | (8,060 | ) |   | (36,066 | ) |   |
| Cash and cash  equivalents                                                                         |       | 39,336                                                                             |       | 18,048                    |       |                    | 14,631     |                                  |       |   | 9,476 |   |   | 10,641 |   | 42,990 |   |   |   |   |   |
| Total assets                                                                                       |       | 1,318,217                                                                          |       | 1,267,028                 |       |                    | 983,510    |                                  |       |   | 949,599 |   |   | 914,746 |   |   |   |   |   |   |   |
| Long-term debt and  capital lease obligations, including current maturities                        |       | 479,775                                                                            |       | 502,184                   |       |                    | 11,497     |                                  |       |   | 15,480 |   |   | 24,057 |   |   |   |   |   |   |   |
| Shareholders’ or  Combined Equity                                                             |       | 386,040                                                                            |       | 344,984                   |       |                    | 598,277    |                                  |       |   | 573,840 |   |   | 560,539 |   |   |   |   |   |   |   |

----

(1)             Reflects the impact of push-down accounting adjustmentson the combined companies of Laidlaw’s emergence from bankruptcy.

(2)             Reflects an impairment of goodwillrecorded in connection with the adoption of SFAS No. 142.

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***Quarterly Results***

Thefollowing table summarizes our unaudited results for each quarter in the yearended December 31, 2006 and the eleven month period endedDecember 31, 2005 (in thousands, except per share amounts).

| ** **                           | ** ** | **2006**                                           | ** ** |
|--------------------------------------|------------|----------------------------------------------------|------------|
| ** **                           | ** ** | **For the three months ended** | ** ** |
| ** **                           | ** ** | **March 31,**                                 | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| Net revenue                          |       | $                                                  | 469,124    |   | $ | 478,451 |   |   | $ | 485,697 |   |   |   | $ | 500,933 |   |   |
| Income from  operations              |       | 23,033                                             |       | 28,668 |   |   | 27,899 |   |   |   | 28,103 |   |   |
| Net income                           |       | 7,261                                              |       | 10,718 |   |   | 10,284 |   |   |   | 10,808 |   |   |
| Basic net income  per common share   |       | 0.17                                               |       | 0.26 |   |   | 0.25 |   |   |   | 0.26 |   |   |
| Diluted net income per  common share |       | 0.17                                               |       | 0.25 |   |   | 0.24 |   |   |   | 0.25 |   |   |
|                                      |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                           | ** ** | **2005**                                     | ** ** |
|--------------------------------------|------------|----------------------------------------------|------------|
| ** **                           | ** ** | **For the two  months ended** | ** ** | **For the three months ended** | ** ** |
| ** **                           | ** ** | **March 31,**                           | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| Net revenue                          |       |                                         | $          | 286,389 |   |   | $ | 445,019 |   |   | $ | 456,245 |   |   |   | $ | 467,832 |   |   |
| Income from  operations              |       |                                         | 17,047     |   |   | 22,618 |   |   | 19,252 |   |   |   | 24,440 |   |   |
| Net income                           |       |                                         | 4,535      |   |   | 6,461 |   |   | 3,006 |   |   |   | 6,065 |   |   |
| Basic net income  per common share   |       |                                         | 0.14       |   |   | 0.14 |   |   | 0.11 |   |   |   | 0.17 |   |   |
| Diluted net income per  common share |       |                                         | 0.14       |   |   | 0.14 |   |   | 0.11 |   |   |   | 0.17 |   |   |
|                                      |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial conditionand results of operations should be read in conjunction with the auditedfinancial statements and the notes to the audited financial statements includedin Item 8 of this Report and the “Selected Financial Data” included inItem 6 of this Report. The following discussion includes periods beforethe acquisition of AMR and EmCare. Accordingly, the discussion and analysis ofhistorical periods do not fully reflect the impact the acquisition of AMR andEmCare have had on us. In addition, this discussion contains forward-lookingstatements and involves numerous risks and uncertainties, including, but notlimited to, those described in the “Risk Factors” section in Item 1A ofthis Report. Our results may differ materially from those anticipated in anyforward-looking statements.

Our financial statements referred to in thisItem 7 are included in Item 8 of this Annual Report, except for theunaudited eleven months ended December 31, 2004.

Effective as of January 31, 2005, we acquiredEmCare and AMR from Laidlaw and in connection with the acquisition we changedour fiscal year to December 31 from August 31. For all periods priorto the acquisition, the AMR and EmCare businesses formerly owned by Laidlaw arereferred to as the “Predecessor.”

The financial informationreferred to in this discussion includes our consolidated results of operationssubsequent to the acquisition of AMR and EmCare and our combined results ofoperations prior to the acquisition of AMR and EmCare. This information hasbeen derived from: (1) our audited consolidated statement of operationsfor the year ended December 31, 2006, (2) the combination of ouraudited consolidated statement of operations for the eleven months ended December 31,2005 and the unaudited combined statement of operations of the Predecessor forthe one month ended January 31, 2005, (3) our audited consolidatedstatement of operations for the eleven months ended December 31, 2005, and(4) the 

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unauditedcombined statements of operations of the Predecessor for the eleven monthsended December 31, 2004.

***Company Overview***

We are a leading providerof emergency medical services in the United States. We operate our business andmarket our services under the AMR and EmCare brands. AMR is the leadingprovider of medical transport services in the United States. EmCare is theleading provider of outsourced emergency department staffing and managementservices in the United States. Approximately 87% of our net revenue for theyear ended December 31, 2006 was generated under exclusive contracts.During 2006, we provided emergency medical, ambulance and other transportservices to approximately 10.0 million patients in more than 2,000communities nationwide. For the year ended December 31, 2006, we generatednet revenue of $1.934 billion, of which AMR and EmCare representedapproximately 61% and 39%, respectively.

**American MedicalResponse**

Over its more than 50years of operating history, AMR has developed the largest network of ambulancetransport services in the United States based on net revenue and number oftransports. AMR has an 8% share of the total ambulance services market and a21% share of the private provider ambulance market. During the year ended December 31,2006, AMR treated and transported approximately 3.5 million patients in 36states. As of December 31, 2006, AMR had approximately 3,100 contractswith communities, government agencies, healthcare providers and insurers toprovide ambulance services. For the year ended December 31, 2006,approximately 58% of AMR’s net revenue was generated from emergency 911ambulance transport services. Non-emergency ambulance transport services,including critical care transfer, wheelchair transports and other interfacilitytransports, or IFTs, accounted for 31% of AMR’s net revenue for the same period.The balance of net revenue for 2006 was generated from the provision oftraining, dispatch centers and other services to communities and public safetyagencies and from revenue associated with the recent acquisition of AirAmbulance Specialists, Inc., or AASI, which operates in the fixed-wingmedical transportation services business. For the year ended December 31,2006, AMR generated net revenue of $1.19 billion.

**EmCare**

Over its more than 30 years of operating history,EmCare has become the largest provider of outsourced emergency departmentstaffing and related management services to healthcare facilities based onnumber of contracts with hospitals and affiliated physician groups. EmCare hasa 7% share of the total emergency department services market and a 10% share ofthe outsourced emergency department services market. In addition, EmCare hasbecome one of the leading providers of hospitalist services, with hospitalistrelated net revenue increasing from $7.2 million in fiscal 2001 to $41.0million in the year ended December 31, 2006. A hospitalist is a physicianwho specializes in the care of acutely ill patients in an in-patient setting.In the fourth quarter of 2006, EmCare acquired Clinical Staffing Solutions, orCSS, to expand our hospitalist and in-patient business. During the year ended December 31,2006, EmCare had approximately 6.5 million patient visits in 39 states.

EmCare primarily providesemergency department staffing and related management services to healthcarefacilities. EmCare recruits and hires or subcontracts with physicians and otherhealthcare professionals, who then provide professional services within thehealthcare facilities with which we contract. We also provide billing andcollection, risk management and other administrative services to our healthcareprofessionals and to independent physicians. EmCare has 378 contracts withhospitals and independent physician groups to provide emergency department,hospitalist and radiology staffing, and related management and otheradministrative services. For the year ended December 31, 2006, EmCaregenerated net revenue of $744.8 million.

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***Key Factors and Measures We Use to Evaluate OurBusiness***

The key factors and measures we use to evaluate ourbusiness focus on the number of patients we treat and transport and the costswe incur to provide the necessary care and transportation for each of ourpatients.

Weevaluate our revenue net of provisions for contractual payor discounts andprovisions for uncompensated care. Medicaid, Medicare and certain other payorsreceive discounts from our standard charges, which we refer to as contractualdiscounts. In addition, individuals we treat and transport may be personallyresponsible 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 haveno insurance or other third party payor coverage. Due to the uncertaintyregarding collectibility of charges associated with services we provide tothese patients, which we refer to as uncompensated care, our net revenuerecognition is based on expected cash collections. Our net revenue is grossbillings after provisions for contractual discounts and estimated uncompensatedcare. Provisions for contractual discounts and uncompensated care haveincreased historically primarily as a result of increases in gross billingrates. The table below summarizes our approximate payor mix as a percentage ofboth net revenue and total transports and patient visits for the year ended December 31,2006 and for the eleven months ended December 31, 2005.

| ** **                             | ** ** | **Percentage of  Net Revenue** | ** ** | **Percentage of Total  Volume**              | ** ** |
|----------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                             | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** |
| Medicare                               |       |                                     | 25.6       | %                                                      |       |   | 26.3 | % |   |   | 26.5 | % |   |   | 25.7 | % |   |
| Medicaid                               |       |                                     | 4.8        |                                                   |       |   | 5.0 |   |   |   | 10.8 |   |   |   | 12.5 |   |   |
| Commercial  insurance and managed care |       |                                     | 49.4       |                                                   |       |   | 49.8 |   |   |   | 41.0 |   |   |   | 41.1 |   |   |
| Self-pay                               |       |                                     | 4.8        |                                                   |       |   | 4.4 |   |   |   | 21.7 |   |   |   | 20.7 |   |   |
| Subsidies and  fees                    |       |                                     | 15.4       |                                                   |       |   | 14.5 |   |   |   | — |   |   |   | — |   |   |
| Total                                  |       |                                     | 100.0      | %                                                      |       |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |   |

 

In addition to continuallymonitoring our payor mix, we also analyze the following measures in each of ourbusiness segments:

**AMR**

Approximately 89%of AMR’s net revenue for the year ended December 31, 2006 was transportrevenue derived from the treatment and transportation of patients based onbillings to third party payors, healthcare facilities and patients. The balanceof AMR’s net revenue is derived from direct billings to communities andgovernment agencies for the provision of training, dispatch center and otherservices. AMR’s measures for transport net revenue include:

·       *Transports.*   We utilize transportdata, including the number and types of transports, to evaluate net revenue andas the basis by which we measure certain costs of the business. We segregatetransports into two main categories—ambulance transports (including emergency,as well as non-emergency critical care and other interfacility transports) andwheelchair transports—due to the significant differences in reimbursement andthe associated costs of providing ambulance and wheelchair transports. As aresult of these differences, in certain analyses we weight our transportnumbers according to category in an effort to better measure net revenue andcosts.

·       *Net revenue per transport.*   Netrevenue per transport reflects the expected net revenue for each transportbased on gross billings less all estimated provisions for contractual discountsand 

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uncompensated care. Inorder to better understand the trends across business segments and in ourtransport rates, we analyze our net revenue per transport based on weightedtransports to reflect the differences in our transportation mix.

The change from period to period in the number oftransports is influenced by increases in transports in existing markets fromboth new and existing facilities we serve for non-emergency transports, and theeffects of general community conditions for emergency transports. The generalcommunity conditions may include (1) the timing, location and severity ofinfluenza, allergens and other annually recurring viruses, (2) severeweather that affects a region’s health status and/or infrastructure and (3) community-specificdemographic changes.

The costs we incurin our AMR business segment consist primarily of compensation and benefits forambulance crews and support personnel, direct and indirect operating costs toprovide transportation services, and costs related to accident and insuranceclaims. AMR’s key cost measures include:

·       *Unit hours and cost per unit hour.*   Ourmeasurement of a unit hour is based on a fully staffed ambulance or wheelchairvan for one operating hour. We use unit hours and cost per unit hour to measurecompensation-related costs and the efficiency of our deployed resources. Wemonitor unit hours and cost per unit hour on a combined basis, as well as on asegregated basis between ambulance and wheelchair transports.

·       *Operating costs per transport.*   Operatingcosts per transport is comprised of certain direct operating costs, includingvehicle operating costs, medical supplies and other transport-related costs,but excluding compensation-related costs. Monitoring operating costs pertransport allows us to better evaluate cost trends and operating practices ofour regional and local management teams.

·       *Accident and insurance claims.*   Wemonitor the number and magnitude of all accident and insurance claims in orderto measure the effectiveness of our risk management programs. Depending on thetype of claim (workers compensation, auto, general or professional liability),we monitor our performance by utilizing various bases of measurement, such asnet revenue, miles driven, number of vehicles operated, compensation dollars,and number of transports.

We have focused our risk mitigation efforts onemployee training for proper patient handling techniques, development ofclinical and medical equipment protocols, driving safety, implementation oftechnology to reduce auto incidents and other risk mitigation processes whichwe believe has resulted in a reduction in the frequency, severity and developmentof claims.

Depreciation expenserelates primarily to charges for usage of vehicles, computer hardware andsoftware, equipment and other technologies. Amortization expense relates primarilyto intangibles recorded for customer relationships.

**EmCare**

Of EmCare’s netrevenue for the year ended December 31, 2006, approximately 99% wasderived from our hospital contracts for emergency department staffing,hospitalist and radiology services and other management services. Of thisrevenue, approximately 75% was generated from billings to third party payorsand patients for patient visits and approximately 25% was generated frombillings to hospitals and affiliated physician groups for professionalservices. EmCare’s key net revenue measures are:

·       *Number of contracts.*   This reflectsthe number of contractual relationships we have for outsourced emergencydepartment staffing and related management services, hospitalist services andother management services. We analyze the change in our number of contractsfrom period to period based on “net new contracts,” which is the differencebetween total new contracts and contracts that have terminated.

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·       *Revenue per patient visit.*   Thisreflects the expected net revenue for each patient visit based on grossbillings less all estimated provisions for contractual discounts anduncompensated care. Net revenue per patient visit also includes net revenuefrom billings to third party payors and hospitals.

The change from period to period in the number ofpatient visits under our “same store” contracts is influenced by generalcommunity conditions as well as hospital-specific elements, many of which arebeyond our direct control. The general community conditions include (1) thetiming, location and severity of influenza, allergens and other annuallyrecurring viruses and (2) severe weather that affects a region’s healthstatus and/or infrastructure. Hospital-specific elements include the timing andextent of facility renovations, hospital staffing issues and regulations thataffect patient flow through the hospital.

The costs incurredin our EmCare business segment consist primarily of compensation and benefitsfor physicians and other professional providers, professional liability costs,and contract and other support costs. EmCare’s key cost measures include:

·       *Provider compensation per patient visit.*   Providercompensation per patient visit includes all compensation and benefit costs forall professional providers, including physicians, physician assistants andnurse practitioners, during each patient visit. Providers include allfull-time, part-time and independently contracted providers. Analyzing providercompensation per patient visit enables us to monitor our most significant costin performing under our contracts.

·       *Professional liability costs.*   Thesecosts include provisions for estimated losses for actual claims, and claimslikely to be incurred in the period, within our self-insurance limits based onour past loss experience, as well as actual direct costs, includinginvestigation and defense costs, claims payments, reinsurance costs and othercosts related to provider professional liability.

Depreciation expenserelates primarily to charges for usage of medical equipment, computer hardwareand software, and other technologies. Amortization expense relates primarily tointangibles recorded for customer relationships.

**Non-GAAP Measures**

***Earnings Before Interest, Taxes, Depreciation andAmortization (“EBITDA”)***

EBITDA is defined as operating income plusdepreciation and amortization expense. EBITDA is commonly used by managementand investors as a measure of leverage capacity, debt service ability andliquidity. EBITDA is not considered a measure of financial performance underU.S. generally accepted accounting principles (“GAAP”), and the items excludedfrom EBITDA are significant components in understanding and assessing ourfinancial performance. EBITDA should not be considered in isolation or as analternative to such GAAP measures as net income, cash flows provided by or usedin operating, investing or financing activities or other financial statementdata presented in our financial statements as an indicator of financialperformance or liquidity. Since EBITDA is not a measure determined inaccordance with GAAP and is susceptible to varying calculations, EBITDA, aspresented, may not be comparable to other similarly titled measures of othercompanies.

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The following table setsforth a reconciliation of EBITDA to income from operations and to net incomefor our company, and reconciliations of EBITDA to income from operations forour two operating segments, using data derived from our financial statementsfor the periods indicated (amounts in thousands):

| ** **                                             | ** ** | **Year ended  December 31,** | ** ** | **Eleven months  ended  December 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                               | ** ** | **2005**                                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | ** **                             | ** ** | **(unaudited)**                                  | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
| ***Consolidated/Combined***                            |       |                                   |       |                                             |       |   |   |   |   |   |   |   |   |
| EBITDA                                                 |       | $                                      | 173,708    |                                             |       | $ | 132,418 |   |   | $ | 137,500 |   |   | $ | 118,168 |   |   |
| Less:  Depreciation and amortization expense           |       | 66,005                                 |       |                                             | 58,037     |   |   | 54,143 |   |   | 45,593 |   |   |
| Income from  operations                                |       | 107,703                                |       |                                             | 74,381     |   |   | 83,357 |   |   | 72,575 |   |   |
| Less: Interest  expense                                |       | 45,605                                 |       |                                             | 48,982     |   |   | 47,813 |   |   | 11,963 |   |   |
|  Realized loss  on investments                    |       | 467                                    |       |                                             | 151        |   |   | 164 |   |   | 955 |   |   |
|  Interest and  other income                       |       | (2,346                                 | )          |                                             | (1,036     | ) |   | (1,040 | ) |   | (728 | ) |   |
|  Loss on debt  extinguishment                     |       | 377                                    |       |                                             | 2,040      |   |   | 2,040 |   |   | — |   |   |
|  Equity in  earnings of unconsolidated subsidiary |       | (432                                   | )          |                                             | (59        | ) |   | (59 | ) |   | — |   |   |
|  Income tax  expense                              |       | 24,961                                 |       |                                             | 10,312     |   |   | 14,372 |   |   | 23,550 |   |   |
| Net income                                             |       | $                                      | 39,071     |                                             |       | $ | 13,991 |   |   | $ | 20,067 |   |   | $ | 36,835 |   |   |
| ***AMR***                                              |       |                                   |       |                                             |       |   |   |   |   |   |   |   |   |
| EBITDA                                                 |       | $                                      | 90,671     |                                             |       | $ | 94,478 |   |   | $ | 93,404 |   |   | $ | 84,851 |   |   |
| Less:  Depreciation and amortization expense           |       | 53,024                                 |       |                                             | 47,508     |   |   | 44,090 |   |   | 38,348 |   |   |
| Income from operations                                 |       | $                                      | 37,647     |                                             |       | $ | 46,970 |   |   | $ | 49,314 |   |   | $ | 46,503 |   |   |
| ***EmCare***                                           |       |                                   |       |                                             |       |   |   |   |   |   |   |   |   |
| EBITDA                                                 |       | $                                      | 83,037     |                                             |       | $ | 37,940 |   |   | $ | 44,096 |   |   | $ | 33,317 |   |   |
| Less:  Depreciation and amortization expense           |       | 12,981                                 |       |                                             | 10,507     |   |   | 10,031 |   |   | 7,245 |   |   |
| Income from operations                                 |       | $                                      | 70,056     |                                             |       | $ | 27,433 |   |   | $ | 34,065 |   |   | $ | 26,072 |   |   |

 

***Factors Affecting Operating Results***

**Re-CapitalizationActivities**

On February 10, 2005, an investor group led byOnex Partners LP and Onex Corporation, and including members of our management,purchased our operating subsidiaries, AMR and EmCare, from LaidlawInternational, Inc. To fund the $828.8 million purchase price of theseacquisitions, we received equity contributions of $219.2 million, issued andsold $250.0 million principal amount of senior subordinated notes, and enteredinto a $450.0 million senior secured credit agreement comprised of a $100.0million revolving credit facility and a $350.0 million term loan. We borrowedthe full amount of the term loan and $20.2 million under the revolving creditfacility to fund our acquisition of AMR and EmCare, including the payment ofrelated fees and expenses, and we have used balances outstanding from time totime under the revolving credit facility for working capital purposes. Theincrease in the outstanding balance of long-term debt in February 2005resulted in a corresponding increase in interest expense.

On December 21, 2005,Emergency Medical Services Corporation completed its initial public offering of8,100,000 shares of class A common stock; trading of those shares commenced onthe New York Stock Exchange on December 16, 2005. We used a significantportion of the net proceeds of $101.9 million from this initial public offeringto repay $99.1 million of debt outstanding under our senior secured creditfacility and we used the balance for working capital, capital expenditures andother general corporate purposes. 

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Thisreduction to the outstanding balance of long-term debt in December 2005,and additional debt repayments made in 2006 of $19.4 million, will result in acorresponding decrease in our future interest costs.

**Rate Changes byGovernment Sponsored Programs**

In February 2002, the Health Care FinancingAdministration, now renamed the Centers for Medicare and Medicaid Services,issued the Medicare Ambulance Fee Schedule Final Rule, or Final Rule, thatrevised Medicare policy on the coverage of ambulance transport services,effective April 1, 2002. The Final Rule was the result of a mandateunder the Balanced Budget Act of 1997, or BBA, to establish a national feeschedule for payment of ambulance transport services that would controlincreases in expenditures under Part B of the Medicare program, establishdefinitions for ambulance transport services that link payments to the type ofservices furnished, consider appropriate regional and operational differencesand consider adjustments to account for inflation, among other provisions. TheFinal Rule provided for a five-year phase-in of a national fee schedule,beginning April 1, 2002. We estimate that the impact of the ambulanceservice rate decreases under the national fee schedule mandated under the BBA,as modified by the phase-in provisions of the Medicare Modernization Act,resulted in a decrease in AMR’s net revenue for the fiscal year ended August 31,2004 of approximately $11 million, resulted in an increase in AMR’s net revenueof approximately $16 million during calendar year 2005, and resulted in adecrease in AMR’s net revenue of approximately $17 million in 2006. Based uponthe current Medicare transport mix, we expect a further decrease in our netrevenue totaling approximately $2 million for the period 2007 through 2010.Although we have been able to substantially mitigate the phased-in reductionsof the BBA through additional fee and subsidy increases, we may not be able tocontinue to do so.

Medicare pays for allEmCare physicians’ services based upon a national fee schedule. The rateformula may result in significant yearly fluctuations which may be unrelated tochanges in the actual cost of providing physician services.

**Changes in Net NewContracts**

Our operating results areaffected directly by the number of net new contracts we have in a period,reflecting the effects of both new contracts and contract expirations. Weregularly bid for new contracts, frequently in a formal competitive biddingprocess that often requires written responses to a Request for Proposal, orRFP, and, in any fiscal period, certain of our contracts will expire. We mayelect not to seek extension or renewal of a contract if we determine that wecannot do so on favorable terms. With respect to expiring contracts we would liketo renew, we may be required to seek renewal through an RFP, and we may not besuccessful in retaining any such contracts, or retaining them on terms that areas favorable as present terms.

**Hurricane Katrinaand our Gulf Coast Operations**

AMR provides ambulance services in Gulfport andBiloxi, Mississippi and several other Gulf Coast communities. Although ourdispatch center was damaged by hurricane Katrina and we had damage to a smallnumber of vehicles, we were able to maintain communications through our use ofback-up generators and other emergency supplies. We worked closely with theFederal Emergency Management Agency, or FEMA, and other federal, state andlocal agencies and deployed additional ambulance transportation resources wherethey were most needed, particularly in the coastal areas of Mississippi,Louisiana and Alabama. For the eleven months ended December 31, 2005,revenue derived from additional hurricane-related services was 0.9% of netrevenue and related expenses were 0.9% of total expenses included in incomefrom operations. During 2006, we recorded approximately $2.2 million inadditional revenue from hurricane-related deployment in 2005.

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EmCare operationsgenerally were unaffected by Katrina, with only one facility in the affectedarea. EmCare deployed additional resources to assist at that facility, and weexperienced a volume increase in certain facilities in adjacent states whereevacuees were relocated.

**Inflation and FuelCosts**

Certain of our expenses, such as wages and benefits,insurance, fuel and equipment repair and maintenance costs, are subject tonormal inflationary pressures. Although we have generally been able to offsetinflationary cost increases through increased operating efficiencies andsuccessful negotiation of fees and subsidies, we can provide no assurance thatwe will be able to offset any future inflationary cost increases throughsimilar efficiencies and fee changes.

AMR’s recent operatingexpenses have been adversely affected by increased fuel costs. Fuel costs representedapproximately 12.2% of AMR’s operating expenses in the year ended December 31,2006, and 12.5% for the same period in 2005. Increases in fuel costs, withoutmitigation through fee and subsidy increases, would continue to adverselyaffect AMR’s operating results.

***Critical Accounting Policies***

The preparation of financial statements requiresmanagement to make estimates and assumptions relating to the reporting ofresults of operations, financial condition and related disclosure of contingentassets and liabilities at the date of the financial statements. Actual resultsmay differ from those estimates under different assumptions or conditions. Thefollowing are our most critical accounting policies, which are those thatrequire management’s most difficult, subjective and complex judgments,requiring the need to make estimates about the effect of matters that areinherently uncertain and may change in subsequent periods.

The following discussionis not intended to represent a comprehensive list of our accounting policies.For a detailed discussion of the application of these and other accountingpolicies, see note 2 to our audited financial statements included inItem 8 of this Report.

**Claims Liabilityand Professional Liability Reserves**

We are self-insured up tocertain limits for costs associated with workers compensation claims,automobile, professional liability claims and general business liabilities.Reserves are established for estimates of the loss that we will ultimatelyincur on claims that have been reported but not paid and claims that have beenincurred but not reported. These reserves are based upon independent actuarialvaluations, which are updated quarterly. Reserves other than general liabilityreserves are discounted at a rate commensurate with the interest rate onmonetary assets that essentially are risk free and have a maturity comparableto the underlying liabilities. The actuarial valuations consider a number offactors, including historical claim payment patterns and changes in case reserves,the assumed rate of increase in healthcare costs and property damage repairs.Historical experience and recent trends in the historical experience are themost significant factors in the determination of these reserves. We believe theuse of actuarial methods to account for these reserves provides a consistentand effective way to measure these subjective accruals. However, given themagnitude of the claims involved and the length of time until the ultimate costis known, the use of any estimation technique in this area is inherentlysensitive. Accordingly, our recorded reserves could differ from our ultimatecosts related to these claims due to changes in our accident reporting, claimspayment and settlement practices or claims reserve practices, as well asdifferences between assumed and future cost increases. Accrued unpaid claimsand expenses that are expected to be paid within the next twelve months areclassified as current liabilities. All other accrued unpaid claims and expensesare classified as non-current liabilities.

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**Trade and Other Accounts Receivable**

Our internal billingoperations have primary responsibility for billing and collecting our accountsreceivable. We utilize various processes and procedures in our collectionefforts depending on the payor classification; these efforts include monthlystatements, written collection notices and telephonic follow-up procedures forcertain accounts. AMR writes off amounts not collected through our internalcollection efforts to our uncompensated care allowance, and sends thesereceivables to third party collection agencies for further follow-up collectionefforts. To simplify the recording of any third party collection agencyrecoveries, EmCare classifies accounts sent to third party collection agenciesas “delinquent” within the billing system and they are written off.Accordingly, we record any subsequent collections through third partycollection efforts as a recovery, in the case of AMR, and record it against our“delinquent” status account, in the case of EmCare.

As we discuss further inour “Revenue Recognition” policy below, we determine our allowances forcontractual discounts and uncompensated care based on sophisticated informationsystems and financial models, including payor reimbursement schedules,historical write-off experience and other economic data. We record ourpatient-related accounts receivable net of estimated allowances for contractualdiscounts and uncompensated care in the period in which we perform services. Werecord gross fee-for-service revenue and related receivables based uponestablished fee schedule prices. We reduce our recorded revenue and receivablesfor estimated discounts to patients covered by contractual insurancearrangements, and reduce these further by our estimate of uncollectibleaccounts.

Our provision andallowance for uncompensated care is based primarily on the historicalcollection and write-off activity of our approximately 10.0 million annualpatient encounters. We extract this data from our billing systems regularly anduse it to compare our accounts receivable balances to estimated ultimatecollections. Our allowance for uncompensated care is related principally toreceivables we record for self-pay patients and is not recorded on specificaccounts due to the volume of individual patient receivables and the thousandsof commercial and managed care contracts.

We also have otherreceivables related to facility and community subsidies and contractualreceivables for providing staffing to communities for special events. We reviewthese other receivables periodically to determine our expected collections andwhether any allowances may be necessary. We write the balance off after we haveexhausted all collection efforts.

**Revenue Recognition**

A significant portion ofour revenue is derived from Medicare, Medicaid and private insurance payorsthat receive discounts from our standard charges, which are referred to ascontractual provisions. Additionally, we are also subject to collection riskfor services provided to uninsured patients or for the deductible or co-payportion of services for insured patients, which are referred to asuncompensated care. We record our healthcare services revenue net of estimatedprovisions for contractual allowances and uncompensated care.

Healthcare reimbursementis complex and may involve lengthy delays. Third party payors are continuingtheir efforts to control expenditures for healthcare and may disallow, in wholeor in part, claims for reimbursement based on determinations that certainamounts are not reimbursable under plan coverage, were for services providedthat were not determined medically necessary, or insufficient supportinginformation was provided. In addition, multiple payors with differentrequirements can be involved with each claim.

Management utilizessophisticated information systems and financial models to estimate theprovisions for contractual allowances and uncompensated care. The estimate forcontractual allowances is determined on a payor-specific basis and ispredominantly based on prior collection experience, adjusted as needed forknown changes in reimbursement rates and recent changes in payor mix andpatient acuity 

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factors.The estimate for uncompensated care is based principally on historicalcollection rates, write-off percentages and accounts receivable agings. Theseestimates are analyzed continually and updated by management by monitoringreimbursement rate trends from governmental and private insurance payors,recent trends in collections from self-pay patients, the ultimate cashcollection patterns from all payors, accounts receivable aging trends,operating statistics and ratios, and the overall trends in accounts receivablewrite-offs.

Management also regularlyanalyzes the ultimate collectibility of accounts receivable after certainstages of the collection cycle using a look-back analysis to determine theamount of receivables subsequently collected. The retroactive adjustments,which increased revenue recorded in 2006, was 1.3% of consolidated net revenuecompared to increased revenue adjustments of 0.6% for the eleven months ended December 31,2005.

The evaluation of thesefactors, as well as the interpretation of governmental regulations and privateinsurance contract provisions, involves complex, subjective judgments. As aresult of the inherent complexity of these calculations, our actual revenuesand net income, and our accounts receivable, could vary from the amountsreported.

**Income Taxes**

We have significant netdeferred tax assets resulting from net operating losses, or NOLs, and interestdeduction carryforwards and other deductible temporary differences that willreduce taxable income in future periods. Statement of Financial AccountingStandards No. 109 *Accounting for IncomeTaxes* requires that a valuation allowance be established when it is “morelikely than not” that all or a portion of net deferred tax assets will not berealized. A review of all available positive and negative evidence needs to beconsidered, including expected reversals of significant deductible temporarydifferences, a company’s recent financial performance, the market environmentin which a company operates, tax planning strategies and the length of the NOLand interest deduction carryforward periods. Furthermore, the weight given tothe potential effect of negative and positive evidence should be commensuratewith the extent to which it can be objectively verified. We routinely monitorthe recoverability of our deferred tax assets. Changes in management’sassessment of recoverability could result in additions to the valuationallowance, and such additions could result in significant charges to ourearnings in the future.

In connection with ouracquisition of AMR and EmCare, we made an Internal Revenue Code section 338(h)(10) electionfor EmCare, which eliminated $67 million of deferred tax assets and permittedus to step-up the tax basis of EmCare’s assets to fair value. Differencesbetween book and tax depreciation and amortization for these assets will createfuture deferred tax assets.

***Goodwill and OtherIntangible Assets***

Goodwill is not amortizedand is required to be tested annually for impairment, or more frequently ifchanges in circumstances, such as an adverse change to our businessenvironment, cause us to believe that goodwill may be impaired. Goodwill isallocated at the reporting unit level. If the fair value of the reporting unitfalls below the book value of the reporting unit at an impairment assessmentdate, an impairment charge would be recorded.

Should our businessenvironment or other factors change, our goodwill may become impaired and mayresult in material charges to our income statement. 

Definite life intangibleassets are subject to impairment reviews when evidence or triggering eventssuggest that an impairment may have occurred. Should such triggering eventsoccur that cause us to review our definite life intangibles and the fair valueof our definite life intangible asset proves to be less than our unamortizedcarrying amount, we would take a charge to earnings for the decline. Shouldfactors affecting the value of our definite life intangibles changesignificantly, such as declining contract retention rates or reducedcontractual cash flows, we may need to record an impairment charge in amountsthat are significant to our financial statements.

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***Results ofOperations***

**Basis of Presentation**

Effective as of January 31,2005, we acquired EmCare and AMR from Laidlaw and in connection with theacquisition we changed our fiscal year to December 31 from August 31.For all periods prior to the acquisition, the AMR and EmCare businessesformerly owned by Laidlaw are referred to as the “Predecessor.”

The following tablespresent, for the periods indicated, consolidated or combined results ofoperations and amounts expressed as a percentage of net revenue. Thisinformation has been derived from: (1) our audited statement of operationsfor the year ended December 31, 2006, (2) the combination of ourstatement of operations for the audited eleven months ended December 31,2005 and the unaudited combined statement of operations of the Predecessor forthe one month ended January 31, 2005, (3) our audited statement ofoperations for the eleven months ended December 31, 2005, and (4) theunaudited combined statements of operations of the Predecessor, which includeboth our AMR and EmCare business segments, for the eleven months ended December 31, 2004.

**Consolidatedand Combined (Predecessor) Results of Operations and as a Percentage of NetRevenue(dollars in thousands)**

| ** **                                           | ** ** | ** **                               | ** ** | **Predecessor/  Successor**              | ** ** | ** **                                             | ** ** | **Predecessor**                                              | ** ** |
|------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                           | ** ** | **Year  ended  December 31,  2006** | ** ** | **Year  ended  December 31,  2005** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | **Eleven months   ended  December 31,  2004** | ** ** |
| ** **                                           | ** ** | ** **                               | ** ** | **(unaudited)**                          | ** ** | ** **                                             | ** ** | **(unaudited)**                                              | ** ** |
| Net revenue                                          |       |                                     | $          | 1,934,205                                |       |                                                   |       | $                                                            | 1,798,554  |   |   |   | $ | 1,655,485 |   |   |   | $ | 1,490,201 |   |   |
| Compensation and  benefits                           |       |                                     | 1,333,648  |                                     |       |                                                   | 1,249,246  |                                                         |       |   | 1,146,055 |   |   |   | 1,034,287 |   |   |
| Operating expenses                                   |       |                                     | 294,806    |                                     |       |                                                   | 251,556    |                                                         |       |   | 233,087 |   |   |   | 204,184 |   |   |
| Insurance expense                                    |       |                                     | 68,271     |                                     |       |                                                   | 90,568     |                                                         |       |   | 82,800 |   |   |   | 74,411 |   |   |
| Selling, general and  administrative  expenses  |       |                                     | 57,403     |                                     |       |                                                   | 58,545     |                                                         |       |   | 54,262 |   |   |   | 44,425 |   |   |
| Depreciation and  amortization expenses              |       |                                     | 66,005     |                                     |       |                                                   | 58,015     |                                                         |       |   | 54,121 |   |   |   | 45,593 |   |   |
| Restructuring charges                                |       |                                     | 6,369      |                                     |       |                                                   | 1,781      |                                                         |       |   | 1,781 |   |   |   | 1,381 |   |   |
| Laidlaw fees and  compensation   charges(1)          |       |                                     | —     |                                     |       |                                                   | 14,440     |                                                         |       |   | — |   |   |   | 13,345 |   |   |
| Segment income from  operations                      |       |                                     | 107,703    |                                     |       |                                                   | 74,403     |                                                         |       |   | 83,379 |   |   |   | 72,575 |   |   |
| EMSC depreciation                                    |       |                                     | —     |                                     |       |                                                   | 22         |                                                         |       |   | 22 |   |   |   | — |   |   |
| Income from operations                               |       |                                     | 107,703    |                                     |       |                                                   | 74,381     |                                                         |       |   | 83,357 |   |   |   | 72,575 |   |   |
| Interest expense                                     |       |                                     | (45,605    | )                                        |       |                                                   | (48,982    | )                                                            |       |   | (47,813 | ) |   |   | (11,963 | ) |   |
| Realized gain (loss) on  investments                 |       |                                     | (467       | )                                        |       |                                                   | (151       | )                                                            |       |   | (164 | ) |   |   | (955 | ) |   |
| Interest and other  income                           |       |                                     | 2,346      |                                     |       |                                                   | 1,036      |                                                         |       |   | 1,040 |   |   |   | 728 |   |   |
| Loss on early debt  extinguishment                   |       |                                     | (377       | )                                        |       |                                                   | (2,040     | )                                                            |       |   | (2,040 | ) |   |   | — |   |   |
| Equity in earnings of  unconsolidated subsidiary     |       |                                     | 432        |                                     |       |                                                   | 59         |                                                         |       |   | 59 |   |   |   | — |   |   |
| Income tax expense                                   |       |                                     | (24,961    | )                                        |       |                                                   | (10,312    | )                                                            |       |   | (14,372 | ) |   |   | (23,550 | ) |   |
| Net income (loss)                                    |       |                                     | $          | 39,071                                   |       |                                                   |       | $                                                            | 13,991     |   |   |   | $ | 20,067 |   |   |   | $ | 36,835 |   |   |

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(1)          Amountsinclude specifically allocated compensation costs and the Laidlaw fees andcompensation charges allocated to AMR and Emcare by Laidlaw pursuant to aformula based upon each company’s share of Laidlaw’s consolidated revenue.

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| ** **                                    | ** ** | ** **                                   | ** ** | **Predecessor/**                             | ** ** | ** **                         | ** ** | **Predecessor**                    | ** ** |
|-----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **                                    | ** ** | ** **                                   | ** ** | **Successor**                                | ** ** | **Eleven months**             | ** ** | **Eleven months**             | ** ** |
| ** **                                    | ** ** | **Year ended  December 31,  2006** | ** ** | **Year ended  December 31,  2005** | ** ** | **ended  December 31,  2005** | ** ** | **ended  December 31,  2004** | ** ** |
| ** **                                    | ** ** | ** **                                   | ** ** | **(unaudited)**                              | ** ** | ** **                         | ** ** | **(unaudited)**                    | ** ** |
| Net revenue                                   |       |                                         | 100.0      | %                                            |       |                               | 100.0      | %                                  |       |   | 100.0 | % |   |   | 100.0 | % |   |
| Compensation and  benefits                    |       |                                         | 69.0       |                                         |       |                               | 69.5       |                               |       |   | 69.2 |   |   |   | 69.4 |   |   |
| Operating expenses                            |       |                                         | 15.2       |                                         |       |                               | 14.0       |                               |       |   | 14.1 |   |   |   | 13.7 |   |   |
| Insurance expenses                            |       |                                         | 3.5        |                                         |       |                               | 5.0        |                               |       |   | 5.0 |   |   |   | 5.0 |   |   |
| Selling, general  and administrative expenses |       |                                         | 3.0        |                                         |       |                               | 3.3        |                               |       |   | 3.3 |   |   |   | 3.0 |   |   |
| Depreciation and  amortization expenses       |       |                                         | 3.4        |                                         |       |                               | 3.2        |                               |       |   | 3.3 |   |   |   | 3.1 |   |   |
| Restructuring  charges                        |       |                                         | 0.3        |                                         |       |                               | 0.1        |                               |       |   | 0.1 |   |   |   | 0.1 |   |   |
| Laidlaw fees and  compensation charges(1)     |       |                                         | —     |                                         |       |                               | 0.8        |                               |       |   | — |   |   |   | 0.9 |   |   |
| Income from operations                        |       |                                         | 5.6        | %                                            |       |                               | 4.1        | %                                  |       |   | 5.0 | % |   |   | 4.9 | % |   |

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(1)          Amountsinclude specifically allocated compensation costs and the Laidlaw fees andcompensation charges allocated to AMR and EmCare by Laidlaw pursuant to aformula based upon each company’s share of Laidlaw’s consolidated revenue.

**AMR**

| ** **                                   | ** ** | ** **            | ** ** | ** **             | ** ** | ** **                | ** ** | ** **             | ** ** | ** ** | ** ** | **Predecessor**        | ** ** |
|----------------------------------------------|------------|-----------------------|------------|------------------------|------------|---------------------------|------------|------------------------|------------|------------|------------|------------------------|------------|
| ** **                                   | ** ** | ** **            | ** ** | ** **             | ** ** | ** **                | ** ** | **Eleven**             | ** ** | **Eleven** | ** ** |
| ** **                                   | ** ** | ** **            | ** ** | ** **             | ** ** | **Predecessor/Successor** | ** ** | **months**             | ** ** | **months** | ** ** |
| ** **                                   | ** ** | **Year ended**   | ** ** | **Year ended**    | ** ** | **ended**                 | ** ** | **ended**              | ** ** |
| ** **                                   | ** ** | **December 31,** | ** ** | **December 31,**  | ** ** | **December 31,**     | ** ** | **December 31,**  | ** ** |
| ** **                                   | ** ** | ** **            | ** ** | **% of Net** | ** ** | ** **                | ** ** | **% of Net** | ** ** | ** ** | ** ** | **% of Net** | ** ** | ** ** | ** ** | **% of Net** | ** ** |
| ** **                                   | ** ** | **2006**              | ** ** | **Revenue**            | ** ** | **2005**                  | ** ** | **Revenue**            | ** ** | **2005**   | ** ** | **Revenue**            | ** ** | **2004** | ** ** | **Revenue** | ** ** |
| ** **                                   | ** ** | ** **            | ** ** | ** **             | ** ** | **(unaudited)**           | ** ** | ** **             | ** ** | ** ** | ** ** | ** **             | ** ** | **(unaudited)** | ** ** | ** ** | ** ** |
| Net revenue                                  |       | $                     | 1,189,447  |                   |       | 100.0                     | %          |                   |       | $          | 1,153,513  |                   |       |   | 100.0 | % |   | $ | 1,059,725 |   |   | 100.0 | % |   |   | $ | 974,115 |   |   |   | 100.0 | % |   |
| Compensation and benefits                    |       | 759,517               |       |                   | 63.9       |                      |       |                   | 741,695    |       |       |                   | 64.3       |   |   | 678,673 |   |   | 64.0 |   |   |   | 626,195 |   |   |   | 64.3 |   |   |
| Operating expenses                           |       | 259,213               |       |                   | 21.8       |                      |       |                   | 223,624    |       |       |                   | 19.4       |   |   | 207,500 |   |   | 19.6 |   |   |   | 181,743 |   |   |   | 18.7 |   |   |
| Insurance expenses                           |       | 33,748                |       |                   | 2.8        |                      |       |                   | 46,178     |       |       |                   | 4.0        |   |   | 41,734 |   |   | 3.9 |   |   |   | 41,968 |   |   |   | 4.3 |   |   |
| Selling, general and administrative expenses |       | 39,929                |       |                   | 3.4        |                      |       |                   | 40,047     |       |       |                   | 3.5        |   |   | 36,781 |   |   | 3.5 |   |   |   | 29,882 |   |   |   | 3.1 |   |   |
| Depreciation and amortization expenses       |       | 53,024                |       |                   | 4.5        |                      |       |                   | 47,508     |       |       |                   | 4.1        |   |   | 44,090 |   |   | 4.2 |   |   |   | 38,348 |   |   |   | 3.9 |   |   |
| Restructuring charges                        |       | 6,369                 |       |                   | 0.5        |                      |       |                   | 1,633      |       |       |                   | 0.1        |   |   | 1,633 |   |   | 0.2 |   |   |   | 1,381 |   |   |   | 0.1 |   |   |
| Laidlaw fees and compensation charges(1)     |       | —                |       |                   | —     |                      |       |                   | 5,858      |       |       |                   | 0.5        |   |   | — |   |   | — |   |   |   | 8,095 |   |   |   | 0.8 |   |   |
| Income from  operations                      |       | $                     | 37,647     |                   |       | 3.2                       | %          |                   |       | $          | 46,970     |                   |       |   | 4.1 | % |   | $ | 49,314 |   |   | 4.7 | % |   |   | $ | 46,503 |   |   |   | 4.8 | % |   |

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(1)           Amounts include specifically allocated compensationcosts and the Laidlaw fees and compensation charges allocated to AMR by Laidlawpursuant to a formula based upon AMR’s share of Laidlaw’s consolidated revenue.

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**EmCare**

| ** ** | ** ** | ** **            | ** ** | ** **                          | ** ** | ** **            | ** ** | ** **             | ** ** | ** ** | ** ** | **Predecessor**        | ** ** |
|------------|------------|-----------------------|------------|-------------------------------------|------------|-----------------------|------------|------------------------|------------|------------|------------|------------------------|------------|
| ** ** | ** ** | ** **            | ** ** | ** **                          | ** ** | ** **            | ** ** | ** **             | ** ** | **Eleven** | ** ** | **Eleven**             | ** ** |
| ** ** | ** ** | ** **            | ** ** | **Predecessor/Successor**           | ** ** | **months**            | ** ** | **months**             | ** ** |
| ** ** | ** ** | **Year ended**   | ** ** | **Year ended**                 | ** ** | **ended**             | ** ** | **ended**              | ** ** |
| ** ** | ** ** | **December 31,** | ** ** | **December 31,**               | ** ** | **December 31,** | ** ** | **December 31,**  | ** ** |
| ** ** | ** ** | ** **            | ** ** | **% of Net**              | ** ** | ** **            | ** ** | **% of Net** | ** ** | ** ** | ** ** | **% of Net** | ** ** | ** ** | ** ** | **% of Net** | ** ** |   |
| ** ** | ** ** | **2006**              | ** ** | **  Revenue  ** | ** ** | **2005**              | ** ** | **Revenue**            | ** ** | **2005**   | ** ** | **Revenue**            | ** ** | **2004** | ** ** | **Revenue** | ** ** |   |
| ** ** | ** ** | ** **            | ** ** | ** **                          | ** ** | **(unaudited)**       | ** ** | ** **             | ** ** | ** ** | ** ** | ** **             | ** ** | **(unaudited)** | ** ** | ** ** | ** ** |   |
|            |            |                       |            |                                     |            |                       |            |                        |            |            |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Net revenue                                  |   | $       | 744,758 |   |   | 100.0  | %      |   |    | $      | 645,041 |   |   |   | 100.0  | %       |   | $      | 595,760 |   |   | 100.0  | %       |   |   | $      | 516,086 |   |   |   | 100.0 | % |   |
|----------------------------------------------|--------|---------|---------|--------|--------|--------|--------|--------|---------|--------|---------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|-------|---|--------|
| Compensation and benefits                    |   | 574,131 |    |   | 77.1   |   |   |   | 507,551 |   |    |   | 78.7   |   |   | 467,382 |   |   | 78.5    |   |   |   | 408,092 |   |   |   | 79.1    |   |   |
| Operating expenses                           |   | 35,593  |    |   | 4.8    |   |   |   | 27,932  |   |    |   | 4.3    |   |   | 25,587  |   |   | 4.3     |   |   |   | 22,441  |   |   |   | 4.3     |   |   |
| Insurance expenses                           |   | 34,523  |    |   | 4.6    |   |   |   | 44,390  |   |    |   | 6.9    |   |   | 41,066  |   |   | 6.9     |   |   |   | 32,443  |   |   |   | 6.3     |   |   |
| Selling, general and administrative expenses |   | 17,474  |    |   | 2.3    |   |   |   | 18,498  |   |    |   | 2.9    |   |   | 17,481  |   |   | 2.9     |   |   |   | 14,543  |   |   |   | 2.8     |   |   |
| Depreciation and amortization  expenses      |   | 12,981  |    |   | 1.7    |   |   |   | 10,507  |   |    |   | 1.6    |   |   | 10,031  |   |   | 1.7     |   |   |   | 7,245   |   |   |   | 1.4     |   |   |
| Restructuring charges                        |   | —  |    |   | — |   |   |   | 148     |   |    |   | 0.0    |   |   | 148     |   |   | 0.0     |   |   |   | —  |   |   |   | —  |   |   |
| Laidlaw fees and compensation charges(1)     |   | —  |    |   | — |   |   |   | 8,582   |   |    |   | 1.3    |   |   | —  |   |   | —  |   |   |   | 5,250   |   |   |   | 1.0     |   |   |
| Income from  operations                      |   | $       | 70,056  |   |   | 9.4    | %      |   |    | $      | 27,433  |   |   |   | 4.3    | %       |   | $      | 34,065  |   |   | 5.7    | %       |   |   | $      | 26,072  |   |   |   | 5.1   | % |   |

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(1)           Amounts include specifically allocatedcompensation costs and the Laidlaw fees and compensation charges allocated toEmCare by Laidlaw pursuant to a formula based upon EmCare’s share of Laidlaw’sconsolidated revenue.

***Year ended December 31, 2006 compared to yearended December 31, 2005***

***Consolidated/Combined***

Our results for the year ended December 31, 2006reflect an increase in net revenue of $135.7 million and an increase in netincome of $25.1 million from the year ended December 31, 2005. Theincrease in net income is attributable primarily to an increase of $33.3million in income from operations partially offset by an increase in income taxexpense. Basic and diluted earnings per share were $0.94 and $0.92,respectively, for the year ended December 31, 2006.

We completed our initialoffering of class A common stock on December 21, 2005; when issued, publictrading of our shares commenced on December 16, 2005.

*Net revenue*

For the year ended December 31,2006 we generated net revenue of $1,934.2 million, compared to net revenue of$1,798.6 million for year ended December 31, 2005, representing anincrease of 7.5%. The increase is attributable primarily to increases in ratesand volumes on existing contracts and increased volume from net new contracts.

*Depreciation andamortization expense*

Depreciation and amortizationexpense for the year ended December 31, 2006 was $66.0 million, or 3.4% ofnet revenue, compared to $58.0 million, or 3.2% of net revenue, for the yearended December 31,2005. The change is attributable to amortization expense on the contract intangibleassets recorded in 

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connectionwith the acquisition of AMR and EmCare, increasing capital expenditures andchanges in the composition and timing of capital expenditures.

*Income fromoperations*

Income from operations was$107.7 million, or 5.6% of net revenue, for the year ended December 31,2006 compared to $74.4 million, or 4.1% of net revenue, for the year ended December 31,2005. The increase is attributable primarily to the elimination of Laidlawacquisition-related compensation charges, continued improvement in insuranceclaims costs and the net impact of revenue growth during the period.

*Interest expense*

Interest expense for theyear ended December 31, 2006 was $45.6 million compared to $49.0 millionfor the year ended December 31, 2005. The decrease relates to therepayment of approximately $99.1 million of our senior secured credit facilityin December 2005 following our initial public offering and unscheduledrepayments of $10.0 million and $9.4 million in May 2006 and July 2006,respectively, offset by rising interest rates.

*Income tax expense*

Income tax expenseincreased by $14.6 million for the year ended December 31, 2006, comparedto the same period in 2005, resulting primarily from increased operatingincome. The one month ended January 31, 2005 included one-timeacquisition-related Laidlaw compensation charges which resulted in an operatingloss for the month and an associated income tax benefit. Our effective tax ratefor 2006 was 39.2%.

***AMR***

*Net revenue*

Net revenue for the yearended December 31, 2006 was $1,189.4 million, an increase of $35.9million, or 3.1%, from $1,153.5 million for the same period in 2005. Theincrease in net revenue was due primarily to an increase in our net revenue perweighted transport of approximately 3.1% (4.1% excluding the net decrease inhurricane-related revenue). Net revenue per weighted transport increased 1.7%due to revenue from our recently acquired fixed wing air transportationservices business and from our Medicaid managed transportation business inTexas. During 2006, AMR was awarded a contract with the Texas Department ofTransportation to provide management of non-emergency transportation servicesfor Medicaid clients in four geographical areas. Net revenue per transport alsoincreased due to rate increases in several markets partially offset by Medicarerate reductions and an increase in our self-pay transport mix in certainmarkets. The loss of a portion of AMR’s 9-1-1 contract with LosAngeles County resulted in a reduction of approximately 60,100 emergencytransports and approximately $23.2 million in net revenue during the year endedDecember 31, 2006 compared with the same period last year. Excluding theimpact of the Los Angeles County reduction, ambulance transport volumeincreased 2.2%, offset by a 2.0% decrease in wheelchair transports for plannedreductions in certain markets, resulting in an increase of approximately 59,900weighted transports compared with the same period last year.

*Compensation andbenefits*

Compensation and benefitscosts for the year ended December 31, 2006 were $759.5 million, or 63.9%of net revenue, compared to $741.7 million, or 64.3% of net revenue, for theyear ended December 31, 2005. Ambulance unit hours increased period overperiod by 0.5%, primarily due to contractual deployment changes, partiallyoffset by the reduction in Los Angeles County volumes and the associateddecrease in ambulance unit hours, increasing compensation costs by $1.9million. Ambulance crew wages 

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perambulance unit hour increased by approximately 4.4%, or $18.1 millionprincipally from annual salary increases and increased overtime due to staffingshortages in certain markets. Wheelchair crew wages decreased by $1.0 millionduring the period due to reduced volumes and associated unit hours. Benefitscosts increased by $0.2 million for the year ended December 31, 2006, butdecreased 0.5% as a percentage of salaries compared to the same period lastyear primarily due to reduced claims costs incurred under our self-insuredhealth plans.

*Operating expenses*

Operating expenses for theyear ended December 31, 2006 were $259.2 million, or 21.8% of net revenue,compared to $223.6 million, or 19.4% of net revenue, for the year ended December 31,2005. Operating expenses per weighted transport increased 15.9% in the yearended December 31, 2006 compared to the same period in 2005. This changeis due to additional operating expenses incurred under our Texas Medicaidmanaged transportation contract and our recently acquired fixed wingtransportation services business, which amounted to $19.8 million for the yearended December 31, 2006. In addition, external provider costs, such asdispatch and first responder fees and provider costs incurred under our Kaisercontract, increased by $4.6 million or 9.2%, which were partially offset byadditional revenue. Fuel costs increased by $3.8 million and other operatingcosts, including medical supplies, occupancy and professional fees increased by$7.4 million.

*Insurance expense*

Insurance expense for theyear ended December 31, 2006 was $33.7 million, or 2.8% of net revenue,compared to $46.2 million, or 4.0% of net revenue, for the same period in 2005.The decrease is due to the continued improvement in current and prior yearultimate claims costs. As a result, a reduction of prior year insuranceprovisions of $13.0 million was recorded during the year ended December 31,2006, compared to a $7.3 million reduction recorded during the same period lastyear.

*Selling, generaland administrative*

Selling, general andadministrative expense for the year ended December 31, 2006 was $39.9million, or 3.4% of net revenue, compared to $40.0 million, or 3.5% of netrevenue, for the year ended December 31, 2005. The decrease relatesprimarily to our ability to better leverage support costs across ouroperations.

*Restructuringcharges*

Restructuring charges of$6.4 million were recorded during the year ended December 31, 2006,related to the re-alignment of regional, billing and certain west coastoperations, and to our exit from the East Michigan market. AMR incurredrestructuring charges during the year ended December 31, 2005 of $1.6million related to the consolidation of two operating regions and thecombination of the AMR and EmCare corporate overhead departments.

*Laidlaw fees andcompensation charges*

AMR did not incur Laidlawcompensation charges subsequent to the acquisition in February 2005.Results for the year ended December 31, 2005 include $5.9 million, or 0.5%of net revenue, for Laidlaw acquisition-related compensation charges incurredin January 2005.

*Depreciation andamortization*

Depreciation andamortization expense for the year ended December 31, 2006 was $53.0million, or 4.5% of net revenue, compared to $47.5 million, or 4.1% of netrevenue, for the same period in 2005. The 

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increaseis attributable to additional amortization expense related to the contractintangible asset we recorded in connection with the acquisition of AMR and anincrease in depreciation expense related to increased capital expenditures andchanges in the composition and timing of capital expenditures.

***EmCare***

*Net revenue*

Net revenue for the yearended December 31, 2006 was $744.8 million, an increase of $99.7 million,or 15.5%, from $645.0 million in 2005. The increase was due primarily to anincrease in patient visits from net new hospital contracts and net revenueincreases in existing contracts. During the two years ended December 31,2006, we added 69 net new contracts, which accounted for a net revenue increaseof $41.9 million for the year ended December 31, 2006. Of the 69 net newcontracts added since December 31, 2004, 26 were added in 2005 resultingin an increase in 2006 net revenue of $17.0 million. Net new contracts added in2006 totaled 43 and increased 2006 net revenue by $24.9 million. Of the 43 netnew contracts added in 2006, 20 were from our acquisition of CSS in November 2006with related net revenue totaling $1.6 million. Net revenue under our “samestore” contracts (contracts in existence for the entirety of both years)increased $57.8 million in the year ended December 31, 2006 due to a 4.5%increase in patient visits and a 6.9% increase in net revenue per patientvisit.

*Compensation andbenefits*

Compensation and benefitscosts for the year ended December 31, 2006 were $574.1 million, or 77.1%of net revenue, compared to $507.6 million, or 78.7% of net revenue, for thesame period in 2005. Provider compensation and benefits costs increased $25.6million from net new contract additions. “Same store” provider compensation andbenefits costs increased $30.7 million due to a 4.5% increase in patient visitsand a 4.8% increase in provider compensation per patient visit. The remainingvariance is due to higher variable compensation costs for our billing functiondue to the increase in patient visits and higher payments onprofitability-based incentive compensation plans for non-clinical employees.

*Operating expenses*

Operating expenses for theyear ended December 31, 2006 were $35.6 million, or 4.8% of net revenue,compared to $27.9 million, or 4.3% of net revenue, for the same period in 2005.Operating expenses increased primarily due to the addition of net newcontracts, increased patient visits at same store contracts, additional offhours radiology coverage for new contracts and increased professional feesrelated to various Company initiatives.

*Insurance expense*

Professional liabilityinsurance expense for the year ended December 31, 2006 was $34.5 million,or 4.6% of net revenue, compared to $44.4 million, or 6.9% of net revenue, forthe year ended December 31, 2005. The decrease is due to the continuedimprovement in current and prior year ultimate claims costs. As a result, areduction of prior year insurance provisions of $3.9 million was recordedduring the year ended December 31, 2006.

*Selling, generaland administrative*

Selling, general andadministrative expense for the year ended December 31, 2006 was $17.5million, or 2.3% of net revenue, compared to $18.5 million, or 2.9% of netrevenue, for the year ended December 31, 2005. The decrease relatesprimarily to our ability to better leverage support costs across ouroperations.

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*Laidlaw fees andcompensation charges*

*EmCaredid not incur Laidlaw compensation charges subsequent to the acquisition in February 2005.Results for the year ended December 31, 2005 include $8.6 million, or 1.3%of net revenue, for Laidlaw acquisition-related compensation charges incurredin January 2005.*

*Depreciation andamortization*

Depreciation andamortization expense for the year ended December 31, 2006 was $13.0million, or 1.7% of net revenue, compared to $10.5 million, or 1.6% of netrevenue, for the year ended December 31, 2005. The increase as apercentage of net revenue is attributable to additional amortization expensefrom the contract intangible we recorded in connection with the acquisition ofEmCare, as well as depreciation expense related to EmCare’s participation inCompany-wide shared services initiatives.

***Eleven months ended December 31, 2005 compared toeleven months ended December 31, 2004 (Predecessor)***

***Consolidated/Combined***

Our results for the eleven months ended December 31,2005 reflect an increase in net revenue of $165.3 million and a reduction innet income of $16.8 million from the same period in 2004. The decrease in netincome is attributable primarily to an increase of $35.9 million in interestexpense, partially offset by an increase of $10.8 million in income fromoperations and a decrease of $9.2 million in income tax expense. Basic anddiluted earnings per share were $0.56 and $0.55, respectively, for the elevenmonths ended December 31, 2005.

We completed our initialoffering of class A common stock on December 21, 2005; when issued publictrading of our shares commenced on December 16, 2005.

*Net revenue*

For the eleven months endedDecember 31, 2005 we generated net revenue of $1,655.5 million, comparedto net revenue of $1,490.2 million for the same period in 2004, representing anincrease of 11.1% (10.2% excluding additional hurricane deployment revenue).This increase is attributable primarily to increases in rates and volumes onexisting contracts and increased volume from net new contracts.

*Depreciation andamortization*

Depreciation andamortization expense for the eleven months ended December 31, 2005 was$54.1 million, or 3.3% of net revenue, compared to $45.6 million, or 3.1% ofnet revenue, for the eleven months ended December 31, 2004. The change is attributableprimarily to amortization expense on the contract intangible assets recorded aspart of the acquisition.

*Income fromoperations*

Income from operationsincreased by $10.8 million, or 14.9%, for the eleven months ended December 31,2005 compared to the same period in 2004. This increase is attributableprimarily to the increase in net revenue coupled with reduced support costsfrom the elimination of Laidlaw fees and compensation expenses, which were$13.3 million for the eleven months ended December 31, 2004, offset by anadditional $5.8 million in costs to replace the Laidlaw support services. Thesecosts were not incurred from Laidlaw in fiscal 2005 due to the acquisition ofAMR and EmCare in February 2005. The effect of the reduction in Laidlawfees and compensation expenses was offset by a $28.9 million, or 14.2%,increase in operating expenses, an increase in selling, general andadministrative expenses of $9.8 million, including the $5.8 million of costs toreplace the Laidlaw support services, or 22.1%, and an increase in insurancecosts of $8.4 million, or 11.3%, due to higher costs for professional liabilityinsurance in 2005 over 2004.

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*Interest expense*

Interest expense for theeleven months ended December 31, 2005 was $47.8 million compared to $12.0million for the same period in 2004, representing an increase of $35.8 million.This increase relates to interest costs during 2005 on the debt we incurred inconnection with our acquisition of AMR and EmCare in February 2005.

*Income tax expense*

Income tax expense for theeleven months ended December 31, 2005 was $14.4 million compared to $23.6million for the same period in 2004. This $9.2 million decrease relatesprimarily to the additional interest expense recorded during 2005, partiallyoffset by an increase in income from operations in 2005 over 2004, resulting ina decrease in taxable income.

***AMR***

*Net revenue*

Net revenue for the elevenmonths ended December 31, 2005 was $1,059.7 million, an increase of $85.6million, or 8.8% (7.5% excluding additional hurricane deployment revenue), from$974.1 million for the same period in 2004. The increase in net revenue was dueprimarily to an increase in our net revenue per weighted transport ofapproximately 7.3% (6.0% excluding additional hurricane deployment revenue).The increase in net revenue per weighted transport was the result of rateincreases in several of our operating markets and Medicare rate increases underthe Medicare Modernization Act. In addition, we had a net increase ofapproximately 36,800 weighted transports. Weighted transports increased byapproximately 108,100, or 4.2%, primarily as a result of growth in ambulancetransports in existing markets. This increase was offset by a decrease ofapproximately 71,300 weighted transports and related net revenue of $14.3million for the eleven months ended December 31, 2005 as a result ofexiting the Pinellas County, Florida market in September 2004.

*Compensation andbenefits*

Compensation and benefitscosts for the eleven months ended December 31, 2005 were $678.7 million,or 64.0% of net revenue, compared to $626.2 million, or 64.3% of net revenue,for the same period in 2004. Total unit hours increased period over period byapproximately 171,500. Total unit hours increased by approximately 325,100, or3.4%, due to the increase in ambulance transport volume and deployment changesrequired as part of several contract rate increases. The exit from the PinellasCounty, Florida market decreased total unit hours by approximately 153,600 andcompensation and benefits costs by $11.3 million in fiscal 2005 compared to thesame period in 2004. In addition, ambulance crew wages per ambulance unit hourincreased by 6.5%, which increased compensation costs by $23.1 million. Theambulance crew wages per ambulance unit hour increase resulted principally fromannual salary increases and increased levels of overtime in connection with theadditional hurricane deployment. Benefits costs increased $10.9 millionprimarily due to increased health benefit claim costs and health insurancepremiums.

*Operating expenses*

Operating expenses for theeleven months ended December 31, 2005 were $207.5 million, or 19.6% of netrevenue, compared to $181.7 million, or 18.7% of net revenue, for the sameperiod in 2004. Operating expenses per weighted transport increased 12.6% infiscal 2005 compared to the prior period. The change is due primarily to additionalfuel and vehicle repair costs of approximately $8.4 million, an increase inmedical supply costs of $3.3 million, an increase in external services costs of$5.3 million and an increase in professional fees of $3.4 million. Medicalsupplies expense grew as a result of increased ambulance 

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transportvolumes and a 12.4% increase in medical supplies per ambulance transportresulting from increased emergency transports. External services grew as aresult of increased ambulance transport volumes and contract modifications. Theincrease in professional fees was related primarily to audit fees andconsulting fees for valuations we incurred in connection with our acquisitionof AMR and our stock offering. Other operating costs, including occupancy,telecommunications and other expenses, increased by approximately $5.3 million,but decreased slightly as a percentage of net revenue compared to the prior period.

*Insurance expense*

Insurance expense for theeleven months ended December 31, 2005 was $41.7 million, or 3.9% of netrevenue, compared to $42.0 million, or 4.3% of net revenue, for the same periodin 2004.

*Selling, generaland administrative*

Selling, general andadministrative expense for the eleven months ended December 31, 2005 was$36.8 million, or 3.5% of net revenue, compared to $29.9 million, or 3.1% ofnet revenue, for the same period in 2004. The eleven months ended December 31,2004 included reductions in expense resulting from a one-time reversal of anaccrued liability of $1.8 million and payroll tax refunds related to priorperiods of approximately $1.6 million. The 2005 period included an expense of$0.4 million for Onex management fees. The remaining increase in the 2005period related primarily to the Company’s growth and implementation of strategicinitiatives.

*Laidlaw fees andcompensation charges*

AMR did not incur Laidlawfees and compensation charges for the eleven months ended December 31,2005 as it was no longer a subsidiary of Laidlaw. For the eleven months ended December 31,2004, these fees and charges were $8.1 million, or 0.8% of net revenue. Costsof $3.7 million that we have incurred to date to replace the servicespreviously performed by Laidlaw are included in the statement of operations forthe eleven months ended December 31, 2005.

*Depreciation andamortization*

Depreciation andamortization expense for the eleven months ended December 31, 2005 was$44.1 million, or 4.2% of net revenue, compared to $38.3 million, or 3.9%of net revenue, for the same period in 2004. Of this increase, $3.1 million isdepreciation expense attributable to increased capital expenditures, and $2.7million is amortization expense related to the contract intangible we recordedin connection with the acquisition.

*Restructuringcharges*

AMR incurred restructuringcharges during the eleven months ended December 31, 2005 of $1.6 millionrelated to the consolidation of two operating regions and the combination ofthe AMR and EmCare corporate overhead departments. Restructuring charges of$1.4 million recorded during the eleven months ended December 31, 2004relate to a reduction in the number of operating regions. In each case,oversight of the affected operations was shifted to the remaining regionalmanagement teams.

***EmCare***

*Net revenue*

Net revenue for the elevenmonths ended December 31, 2005 was $595.8 million, an increase of $79.7 million,or 15.4%, from $516.1 million for the same period in 2004. The increase was dueprimarily to 

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anincrease in patient visits from net new hospital contracts and net revenue increasesin existing contracts. In 2005, we added 26 net new contracts which accountedfor a net revenue increase of $35.6 million for the eleven months ended December 31,2005. Net revenue under our “same store” contracts (contracts in existence forthe entirety of both fiscal periods) increased $44.1 million in the elevenmonths ended December 31, 2005 due to a 5.2% increase in patient visitsand a 3.8% increase in net revenue per patient visit.

*Compensation andbenefits*

Compensation and benefitscosts for the eleven months ended December 31, 2005 were $467.4 million,or 78.5% of net revenue, compared to $408.1 million, or 79.1% of net revenue,for the same period in 2004. Provider compensation and benefits costs increased$25.8 million from net new contract additions. “Same store” providercompensation and benefits costs increased $25.9 million primarily related to anincrease in patient visits.

*Operating expenses*

Operating expenses for theeleven months ended December 31, 2005 were $25.6 million, or 4.3% of netrevenue, compared to $22.4 million, or 4.3% of net revenue, for the same periodin 2004. Operating expenses increased due to net new contract additions andremained consistent as a percentage of net revenue.

*Insurance expense*

Professional liability insuranceexpense for the eleven months ended December 31, 2005 was $41.1 million,or 6.9% of net revenue, compared to $32.4 million, or 6.3% of net revenue, forthe eleven months ended December 31, 2004. The increase as a percent ofnet revenue is primarily due to the impact of $3.3 million of favorable claimsdevelopment in the 2004 period.

*Selling, generaland administrative*

Selling, general andadministrative expense for the eleven months ended December 31, 2005 was$17.5 million, or 2.9% of net revenue, compared to $14.5 million, or 2.8% ofnet revenue, for the eleven months ended December 31, 2004.

*Laidlaw fees andcompensation charges*

EmCare did not incurLaidlaw fees and compensation charges for the eleven months ended December 31,2005 as it was no longer a subsidiary of Laidlaw. For the eleven months ended December 31,2004, these fees and charges were $5.3 million, or 1.0% of net revenue. Costsof $2.1 million that we have incurred to date to replace the servicespreviously performed by Laidlaw are included in the statement of operations for2005.

*Depreciation andamortization*

Depreciation andamortization expense for the eleven months ended December 31, 2005 was$10.0 million, or 1.7% of net revenue, compared to $7.3 million, or 1.4% of netrevenue, for the eleven months ended December 31, 2004. The change isattributable primarily to amortization expense on the contract intangible werecorded in connection with the acquisition.

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***Liquidity and Capital Resources***

Our primary sources of liquidity are cash flowprovided by our operating activities and, prior to the acquisition of AMR andEmCare in 2005, related party advances from Laidlaw. We can also use ourrevolving senior secured credit facility, described below, to supplement cashflows provided by our operating activities if we decide to do so for strategicor operating reasons. Our liquidity needs are primarily to service long-termdebt and to fund working capital requirements, capital expenditures related tothe acquisition of vehicles and medical equipment, technology-related assetsand insurance-related deposits. See the discussion in Item 1A, “RiskFactors” for circumstances that could affect our sources of liquidity.

We have available to us,upon compliance with customary conditions, $100.0 million under the revolvingcredit facility, less any letters of credit outstanding. Outstanding letters ofcredit at December 31, 2006 were $29.9 million. Further, we have aconditional right under our senior secured credit facility to request new orexisting lenders to provide up to an additional $100.0 million of term debt (in$20.0 million increments).

***Cash Flow***

Thetable below summarizes cash flow information derived from our statements ofcash flows for the periods indicated, amounts in thousands:

| ** **                    | ** ** | ** **                             | ** ** | **Predecessor/**                       | ** ** | ** **                   | ** ** | **Predecessor**                      | ** ** |
|-------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------------------------|------------|--------------------------------------|------------|
| ** **                    | ** ** | ** **                             | ** ** | **Successor**                          | ** ** | **Eleven months**       | ** ** | ** **                           | ** ** | **Five months** | ** ** |
| ** **                    | ** ** | **Year ended  December 31,** | ** ** | **Year ended  December 31,** | ** ** | **ended  December 31,** | ** ** | **Year ended  August 31,** | ** ** | **ended  January 31,** | ** ** |
| ** **                    | ** ** | **2006**                               | ** ** | **2005**                               | ** ** | **2005**                     | ** ** | **2004**                             | ** ** | **2005** | ** ** |
| ** **                    | ** ** | ** **                             | ** ** | **(unaudited)**                        | ** ** | ** **                   | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net cash provided (used)  by: |       |                                   |       |                                   |       |                         |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating activities          |       |                                   | $          | 165,742                                |       |                         |       | $                                    | 105,283    |   |   |   | $ | 109,963 |   |   |   | $ | 127,679 |   |   |   | $ | 15,966 |   |   |   |
| Investing activities          |       |                                   | (113,127   | )                                      |       |                         | (902,813   | )                                    |       |   | (909,629 | ) |   |   | (81,516 | ) |   |   | (21,667 | ) |   |   |
| Financing  activities         |       |                                   | $          | (31,327                                | )          |                         |       | $                                    | 811,715    |   |   |   | $ | 803,083 |   |   |   | $ | (47,328 | ) |   |   | $ | 10,856 |   |   |   |

 

***Operating Activities***

For the years ended December 31, 2006 and 2005,we generated cash flow from operating activities of $165.7 million and $105.3million, respectively. Operating cash flows were positively affected byincreased net income, utilization of deferred tax assets, and timingdifferences on insurance premium and employee compensation payments. For theyear ended December 31, 2006, we had net income of $39.1 million, comparedto $14.0 million for the year ended December 31, 2005. Changes in workingcapital contributed $24.9 million for the year ended December 31, 2006,which included a $4.7 million decrease in accounts receivable, and a $30.7million increase in accounts payable and accrued liabilities. Working capitaluses in operating cash flow were $20.3 million for the year ended December 31,2005 including an increase in accounts receivable of $57.4 million, primarilyrelated to hurricane revenue and income tax refunds, offset in part byincreases in accrued liabilities of $36.3 million.

For the eleven months ended December 31, 2005 andfiscal year ended August 31, 2004, we generated cash flow from operatingactivities of $110.0 million and $127.7 million, respectively. For the elevenmonths ended December 31, 2005, we had net income of $20.1 million,compared to $37.3 million for fiscal 2004. The decrease in net income wasprimarily due to an increase in interest and amortization expense incurred in2005 in connection with the acquisition from Laidlaw. Working capital uses inoperating cash flow were $5.7 million for the eleven months ended December 31,2005, which included a $36.6 million decrease in accounts receivable, partiallyoffset by a $24.0 million increase in accounts payable and accrued liabilities,including a $12.3 million increase in accrued interest. Working capital uses inoperating cash 

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flow were $6.2 million forthe year ended August 31, 2004 including an increase in accountsreceivable of $23.8 million, offset in part by increases in accrued liabilitiesof $12.8 million.

Certain governmentprograms, including Medicare and Medicaid programs, require notice orre-enrollment when certain ownership changes occur. In certain jurisdictionssuch changes require pre- or post-notification to governmental licensing andcertification agencies, agencies with which we have contracts. If the payorrequires us to complete the re-enrollment process prior to submittingreimbursement requests, we may be delayed in payment, receive refund requestsor be subject to recoupment for services we provide in the interim.

***Investing Activities***

Net cash used in investing activities was $113.1million for the year ended December 31, 2006, compared to $902.8 millionfor the year ended December 31, 2005. The $789.7 million decrease wasattributable principally to our net cash outflow of $828.8 million to fund theacquisition of AMR and EmCare. We also had net cash outflows to fund ourinsurance related programs of $28.4 million in fiscal 2006 and $27.4million for the year ended December 31, 2005. Capital expenditures were$60.4 million in fiscal 2006 and $52.8 million for the year ended December 31,2005. Cash outflows to fund acquisitions of businesses were $23.6 million in2006.

Net cash used in investingactivities was $909.6 million for the eleven months ended December 31,2005, compared to $81.5 million for the fiscal year ended August 31, 2004.The $828.1 million increase was attributable principally to our net cashoutflow of $828.8 million to fund the acquisition of AMR and EmCare. We alsohad net cash outflows to fund our insurance related programs of $39.6 millionin fiscal 2004 and $32.6 million for the eleven months ended December 31,2005. Capital expenditures were $42.8 million in fiscal 2004 and $48.9 millionfor the eleven months ended December 31, 2005.

***Financing Activities***

For the year ended December 31, 2006, net cashused in financing activities was $31.3 million, compared to net cash providedby financing activities of $811.7 million for the year ended December 31,2006. The decrease in net cash provided by financing activities relatesprimarily to borrowings under our senior secured credit facility and ourissuance of senior subordinated notes in 2005. For the year ended December 31,2005, net cash used in financing activities included financing costs of $18.3million and repayments of debt, including capital lease and senior securedcredit facility obligations totaling $134.4 million. Repayments of debt in theyear ended December 31, 2006 were $27.1 million and included earlyrepayments of $19.4 million.

For the eleven monthsended December 31, 2005, net cash provided by financing activities was$803.1 million, compared to net cash used in financing activities of $47.3million for the fiscal year ended August 31, 2004. The increase in netcash provided by financing activities relates primarily to borrowings under oursenior secured credit facility and our issuance of senior subordinated notes.For fiscal 2005, net cash used in financing activities included financing costsof $18.3 million and repayments of debt, including capital lease and seniorsecured credit facility obligations totaling $132.3 million.

**Debt Facilities**

The acquisition of AMR and EmCare resulted in asignificant increase in the level of our outstanding debt. We have a $450.0million senior secured credit facility bearing interest at variable rates atspecified margins above either the agent bank’s alternate base rate or itsLIBOR rate. The senior secured credit facility consists of a $100.0 million,six-year revolving credit facility and a $350.0 million, seven-year term loan.We borrowed the full amount of the term loan, and $20.2 million under therevolving credit facility, on February 10, 2005 to fund the acquisition ofAMR and EmCare and pay related fees and expenses. On 

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February 10, 2005, wealso issued $250.0 million principal amount of 10% senior subordinated notesdue 2015. We used the net proceeds of this notes issuance to fund theacquisition.

In December 2005, we used a significant portionof the proceeds from our initial public offering of common stock to prepay$99.1 million of the term loan. We did not incur a prepayment penalty or anysimilar charges in connection with this prepayment. This amount is notavailable for future borrowings. We prepaid $19.4 million of the term loan in2006.

Our $350.0 million term loan initially carriedinterest at the alternate base rate, plus a margin of 1.75%, or the LIBOR rate,plus a margin of 2.75%. We refinanced this term loan on March 29, 2005 fora term loan with identical terms except that the margins were reduced by 0.25%.The term loan is subject to quarterly amortization of principal (in quarterlyinstallments), with 1% of the aggregate principal payable in each of the firstsix years, with the remaining balance due in the final year. Our $100.0 millionrevolving credit facility initially bears interest at the alternate base rate,plus a margin of 1.75%, or the LIBOR rate, plus a margin of 2.75%. We had nooutstanding borrowings under the revolving credit facility at December 31,2006 and 2005. Under the terms of our senior secured credit facility, ourletters of credit outstanding reduce our available borrowings under therevolving credit facility. At December 31, 2006, our outstanding lettersof credit totaled $29.9 million, including $16.0 million to support ourself-insurance program and $13.9 million, primarily related to secure ourperformance under certain 911 emergency response contracts.

All amountsborrowed under our senior secured credit facility are collateralized by, amongother things:

·       substantiallyall present and future shares of the capital stock of EMSCManagement, Inc., and EmCare HoldCo, Inc., our wholly-ownedsubsidiaries which are the co-borrowers, and each of their present and futuredomestic subsidiaries and 65% of the capital stock of controlled foreigncorporations (we refer in this Form 10-K to “EMSC Management, Inc.” or“EMSC Management, Inc., f/k/a AMR HoldCo, Inc.”; while the name change from AMRHoldCo, Inc. to EMSC Management, Inc. has subsequently been voided, we havecontinued to use these references in this Form 10-K since the voiding ofthe name was made after December 31, 2006);

·       substantiallyall present and future intercompany debt of the co-borrowers and eachguarantor; and

·       substantiallyall of the present and future property and assets, real and personal, of theco-borrowers and each guarantor.

The agreements governing our senior secured creditfacility contains customary affirmative and negative covenants, including,among other things, restrictions on indebtedness, liens, mergers andconsolidations, sales of assets, loans, acquisitions, joint ventures,restricted payments, transactions with affiliates, dividends and other paymentrestrictions affecting subsidiaries, a change in control of the company andother matters customarily restricted in such agreements. The agreementgoverning our senior secured credit facility also contains financial covenants,including a maximum total leverage ratio (4.75 to 1.00 as of December 31,2006), maximum senior leverage ratio (2.75 to 1.00 as of December 31,2006), a minimum fixed charge coverage ratio (1.05 to 1.00 as of December 31,2006) and a maximum capital expenditure amount ($65.0 million as of December 31,2006). The financial covenant ratios are based on adjusted EBITDA, which is theamount of our income (loss) from operations before depreciation andamortization expenses and other specifically identified exclusions. These ratiosare to be calculated each quarter based on the financial data for the fourfiscal quarters then ending. Each financial covenant ratio and capitalexpenditure amount adjusts over time as set forth in our senior secured creditfacility. Our failure to meet any of these financial covenants could be anevent of default under our senior secured credit facility.

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On March 7, 2007, we entered into Waiver andAmendment No. 2, or the Second Amendment, to our senior secured creditfacility. The Second Amendment increased the threshold consideration requiringus to provide financial information to the lenders prior to an acquisition,eliminated the annual and aggregate maximum amounts we are permitted to spendon acquisitions, and extended our deadlines to provide lenders with financialforecasts of EMS LP and its subsidiaries for the immediately following fiscalyear. In addition, the Second Amendment waived any potential technicalnon-compliance with the senior secured credit facility arising from a namechange related to AMR HoldCo, Inc.

Thecalculated ratios and amounts for the fiscal year ended December 31, 2006were as follows (dollars in thousands):

| ** **                          | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| ***Total  Leverage Ratio:***        |       |                        | 2.72       |   |   |
| Consolidated  Indebtedness/         |       |                        | $          | 479,775 |   |   |
| Adjusted LTM EBITDA(1)              |       |                        | $          | 176,104 |   |   |
| ***Senior  Leverage Ratio:***       |       |                        | 1.3        |   |   |
| Senior  Indebtedness/               |       |                        | $          | 229,775 |   |   |
| Adjusted LTM  EBITDA(1)             |       |                        | $          | 176,104 |   |   |
| ***Fixed  Charge Coverage Ratio:*** |       |                        | 3.03       |   |   |
| Fixed Charge  Numerator(2)          |       |                        | $          | 115,689 |   |   |
| Fixed Charge  Denominator(3)        |       |                        | $          | 38,204 |   |   |
| ***Capital  Expenditures:***        |       |                        | $          | 59,513 |   |   |

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(1)          “Adjusted LTM EBITDA” iscalculated as set forth in our senior secured credit facility: our consolidatedEBITDA for the four fiscal quarters ended December 31, 2006, adding backall management fees, and other specifically identified exclusions.

(2)          The numerator for thefixed charge ratio is calculated as set forth in our senior secured creditfacility: Adjusted EBITDA, less capital expenditures, for the four fiscalquarters ended December 31, 2006.

(3)          The denominator for thefixed charge ratio is calculated as set forth in our senior secured creditfacility: the sum of our consolidated interest expense, cash income taxes andprincipal amount of all scheduled amortization payments on all Indebtedness (asdefined), including pro forma annual principal payments on our senior securedcredit facility, for the four fiscal quarters ended December 31, 2006.

The indenture governingour senior subordinated notes contains a number of covenants that, among otherthings, restrict our ability and the ability of our subsidiaries, subject tocertain exceptions, to sell assets, incur additional debt or issue preferredstock, repay other debt, pay dividends and distributions or repurchase ourcapital stock, create liens on assets, make investments, loans or advances,make certain acquisitions, engage in mergers or consolidations and engage incertain transactions with affiliates. We do not expect to be in violation ofour debt covenants in 2007.

***Off-Balance Sheet Arrangements***

We do not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,established for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes. Accordingly, we are notmaterially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

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***Tabular Disclosureof Contractual Obligations and other Commitments***

Thefollowing table reflects a summary of obligations and commitments outstandingas of December 31, 2006, including our borrowings under our senior securedcredit facility and our senior subordinated notes.

| ** **                                                                       | ** **   | **Less than  1 Year** | ** **   | **1-3 Years** | ** **   | **3-5 Years** | ** **   | **More than  5 Years** | ** **   | **Total**    | ** **   |
|----------------------------------------------------------------------------------|--------------|---------------------------------|--------------|--------------------|--------------|--------------------|--------------|----------------------------------|--------------|--------------|--------------|
| ** **                                                                       | ** **   | **(in thousands)**         | ** **   |
| ***Contractual  obligations***                                                   | *** *** |                            | *** *** | *** ***       |         | *** ***       | *** *** | *** ***                     | *** *** | *** *** | *** *** | *** *** | *** *** |
| ***(Payments  Due by Period):***                                                 | *** *** |                            | *** *** | *** ***       |         | *** ***       | *** *** | *** ***                     | *** *** | *** *** | *** *** | *** *** | *** *** |
| Long-term debt(1)                                                                |         |                            | $            | 261                | *** *** |               | $            | 530                              |         | $            | 467          |   | $ | 598 |   | $ | 1,856 |   |
| Senior secured credit facility(2)                                                |         |                            | 2,305        | *** ***       |         | 4,610              |         | 165,388                          |         | 54,169       |         | 226,472 |   |
| Capital lease  obligations                                                       |         |                            | 1,447        | *** ***       |         | —             |         | —                           |         | —       |         | 1,447 |   |
| Senior subordinated  notes                                                       |         |                            | —       | *** ***       |         | —             |         | —                           |         | 250,000      |         | 250,000 |   |
| Interest on debt(3)                                                              |         |                            | 41,948       | *** ***       |         | 83,942             |         | 83,896                           |         | 79,682       |         | 289,468 |   |
| Operating lease  obligations                                                     |         |                            | 29,063       | *** ***       |         | 36,224             |         | 25,654                           |         | 28,860       |         | 119,801 |   |
| Other contractual  obligations(4)                                                |         |                            | 11,810       | *** ***       |         | 12,409             |         | 4,807                            |         | 803          |         | 29,829 |   |
| Subtotal                                                                         |         |                            | 86,834       | *** ***       |         | 137,715            |         | 280,212                          |         | 414,112      |         | 918,873 |   |
| ***Other  commitments (Amount of Commitment Expiration Per Period):*** | *** *** |                            | *** *** | *** ***       |         | *** ***       | *** *** | *** ***                     | *** *** | *** *** | *** *** | *** *** | *** *** |
| Guarantees of surety  bonds                                                      |         |                            | —       | *** ***       |         | —             |         | —                           |         | 32,694       |         | 32,694 |   |
| Letters of credit(5)                                                             |         |                            | —       | *** ***       |         | —             |         | —                           |         | 29,931       |         | 29,931 |   |
| Subtotal                                                                         |         |                            | —       | *** ***       |         | —             |         | —                           |         | 62,625       |         | 62,625 |   |
| Total obligations and commitments                                                |         |                            | $            | 86,834             | *** *** |               | $            | 137,715                          |         | $            | 280,212      |   | $ | 476,737 |   | $ | 981,498 |   |

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(1)          Excludescapital lease obligations.

(2)          Excludesinterest on our senior secured credit facility and senior subordinated notes.

(3)          Intereston our floating rate debt was calculated for all years using the effective rateas of December 31, 2006 of 7.38%. See the discussion in Item 7A,“Quantitative and Qualitative Disclosures of Market Risk”, for situations thatcould result in changes to interest costs on our variable interest rate debt.

(4)          IncludesOnex management fees, dispatch fees and responder fees, and other purchaseobligations of goods and services.

(5)          Evergreenrenewals are deemed to have expiration dates in excess of 5 years.

We have one capital leaserelating to approximately 450 ambulances. The term of the lease extends to August 2007.

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31,2006, we had $479.8 million of outstanding debt, excluding capital leases, ofwhich $226.5 million was variable rate debt under our senior secured creditfacility and the balance was fixed rate debt, including the $250.0 millionaggregate principal amount of our senior subordinated notes. An increase ordecrease in interest rates will affect our interest costs on variable ratedebt. For comparative purposes, for every 0.125% change in interest rates, ourinterest costs on our senior secured credit facility will change byapproximately $0.3 million per year based on our outstanding indebtedness at December 31, 2006.

We reduced the outstandingbalance of our variable rate debt in fiscal 2006 through two unscheduledprepayments of the outstanding balance totaling $19.4 million.

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We monitor the risk fromchanging interest rates and evaluate ways to mitigate possible exposures, asappropriate.

**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

See index to financialinformation on page F-1.

**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**Evaluation of Disclosure Controls and Procedures**

As required by Rule 13a-15(b) ofthe Securities Exchange Act of 1934, as amended, management carried out anevaluation under the supervision and with the participation of the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures that were ineffect as of the end of the period covered by this report. Our Chief ExecutiveOfficer and Chief Financial Officer each concluded that our disclosure controlsand procedures are effective at a reasonable assurance level as of December 31,2006, the end of the period covered by this report.

**Changes in Internal Control over Financial Reporting**

There have been no changesin our internal controls over financial reporting during our most recent fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

**Management’s Report on Internal Control over FinancialReporting**

Our management isresponsible for establishing and maintaining adequate internal controls overfinancial reporting, as such term is defined in Exchange Act Rule 13a-15(f).The Company’s internal control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

Under the supervision andwith the participation of our management, including our Chief Executive Officerand Chief Financial Officer, the Company conducted an assessment of theeffectiveness of its internal control over financial reporting as of December 31,2006. The assessment was based on criteria established in the framework*Internal Control—Integrated Framework*,issued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on this assessment, management concluded that our internal control overfinancial reporting was effective as of December 31, 2006. Management’sassessment of the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, has been audited by Ernst &Young LLP, an independent registered public accounting firm, as stated in theirreport included herein.

**ITEM 9B.**       OTHERINFORMATION

None.

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**PART III.**

**ITEM 10.**         DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting to befiled with the Securities and Exchange Commission within 120 days afterDecember 31, 2006.

**ITEM 11.EXECUTIVE COMPENSATION**

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting to befiled with the Securities and Exchange Commission within 120 days afterDecember 31, 2006.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting to befiled with the Securities and Exchange Commission within 120 days afterDecember 31, 2006.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting to befiled with the Securities and Exchange Commission within 120 days afterDecember 31, 2006.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

Incorporated by referenceto the Company’s Proxy Statement for its Annual Stockholders Meeting to befiled with the Securities and Exchange Commission within 120 days afterDecember 31, 2006.

**PART IV.**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

***Financial StatementSchedules***

The Consolidated andCombined Financial Statements and Notes thereto filed as part of Form 10-Kcan be found in Item 8, “Financial Statements and Supplementary Data”, ofthis Annual Report.

***Exhibits***

The list of exhibitsrequired by Item 601 of Regulation S-K and filed as part of this AnnualReport on Form 10-K is as follows:

| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                                                                                             | ** ** | **Description** |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 2.1              |       | Stock Purchase Agreement, dated as of December 6,  2004, by and among Laidlaw International, Inc., Laidlaw Medical  Holdings, Inc. and Emergency Medical Services Corporation (incorporated  by reference to Exhibit 2.1 of the Company’s Registration Statement on  Form S-1 filed August 2, 2005).                |
| 2.2              |       | Amendment to Stock  Purchase Agreement, dated February 10, 2005, by and among Laidlaw  International, Inc., Laidlaw Medical Holdings, Inc. and Emergency  Medical Services Corporation (incorporated by reference to Exhibit 2.2  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).       |
| 2.3              |       | Stock Purchase  Agreement, dated as of December 6, 2004, by and among Laidlaw  International, Inc., Laidlaw Medical Holdings, Inc. and Emergency  Medical Services Corporation (incorporated by reference to Exhibit 2.3  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).               |
| 2.4              |       | Amendment to Stock  Purchase Agreement, dated as of February 10, 2005, by and among Laidlaw  International, Inc., Laidlaw Medical Holdings, Inc. and Emergency  Medical Services Corporation (incorporated by reference to Exhibit 2.4  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005). |

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| 2.5 |   | Letter, dated  March 25, 2005, to EMSC Management, Inc. (formerly known as AMR  HoldCo, Inc.) from Laidlaw Medical Holdings, Inc. (incorporated by  reference to Exhibit 2.5 of the Company’s Registration Statement on  Form S-1 filed August 2, 2005).                                                                                 |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1 |   | Amended and Restated  Certificate of Incorporation of Emergency Medical Services Corporation  (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report  on Form 10-K for the eleven months ended December 31, 2005).                                                                                                                         |
| 3.2 |   | Amended and Restated  By-Laws of Emergency Medical Services Corporation (incorporated by reference  to Exhibit 3.2 of the Company’s Annual Report on Form 10-K  for the eleven months ended December 31, 2005).                                                                                                                                              |
| 3.3 |   | Certificate of Formation  of Emergency Medical Services L.P. (incorporated by reference to  Exhibit 3.3 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).                                                                                                                                                                     |
| 3.4 |   | Agreement of Limited  Partnership of Emergency Medical Services L.P., dated February 10, 2005,  by and among Emergency Medical Services Corporation and the persons listed on  Schedule A thereto (incorporated by reference to Exhibit 3.4 of the  Company’s Registration Statement on Form S-1 filed August 2,  2005).                           |
| 3.5 |   | Amendment to Agreement  of Limited Partnership, dated November 27, 2005, by and among Emergency  Medical Services L.P. and the other signatories thereto (incorporated by  reference to Exhibit 3.4.1 of the Company’s Amendment No. 4 to  Registration Statement on Form S-1 filed December 5, 2005).                                             |
| 3.6 |   | Amendment to Agreement  of Limited Partnership, dated December 20, 2005 by and among  EMSC, Inc. and the persons listed on Schedule A thereto  (incorporated by reference to Exhibit 3.6 of the Company’s Annual Report  on Form 10-K for the eleven months ended December 31, 2005).                                                         |
| 3.7 |   | Amended and Restated  Agreement of Limited Partnership of Emergency Medical Services L.P., dated  December 20, 2005, by and among EMSC, Inc. and the persons listed  on Schedule A thereto (incorporated by reference to Exhibit 3.7 of  the Company’s Annual Report on Form 10-K for the eleven months  ended December 31, 2005).            |
| 4.1 |   | Form of  Class A Common Stock Certificate (incorporated by reference to  Exhibit 4.1 of the Company’s Amendment No. 5 to Registration  Statement on Form S-1 filed December 6, 2005).                                                                                                                                                         |
| 4.2 |   | Form of  Class B Common Stock Certificate (incorporated by reference to  Exhibit 4.2 of the Company’s Amendment No. 5 to Registration  Statement on Form S-1 filed December 6, 2005).                                                                                                                                                         |
| 4.3 |   | Investor Equityholders  Agreement, dated February 10, 2005, by and among Emergency Medical  Services L.P., Onex Partners LP and the equityholders listed on the  signature pages thereto (incorporated by reference to Exhibit 4.3  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                          |
| 4.4 |   | Equityholders Agreement,  dated as of February 10, 2005, by and among Emergency Medical  Services L.P., Onex Partners LP and the equityholders listed on the  signature pages thereto (incorporated by reference to Exhibit 4.4  of the Company’s Amendment No. 1 to Registration Statement on  Form S-1 filed September 14, 2005). |
| 4.5 |   | Registration Agreement,  dated February 10, 2005, by and among Emergency Medical  Services L.P. and the persons listed on Schedule A thereto and  amendment thereto (incorporated by reference to Exhibit 4.5 of the  Company’s Amendment No. 1 to Registration Statement on Form S-1  filed September 14, 2005).                        |

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| 4.6  |   | Indenture, dated  February 10, 2005, by and among EMSC Management, Inc. (formerly  known as AMR HoldCo, Inc.), EmCare HoldCo, Inc., the guarantors  named therein and U.S. Bank Trust National Association, as trustee  (incorporated by reference to Exhibit 4.6 of the Company’s Registration  Statement on Form S-1 filed August 2, 2005).                                                                                             |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7  |   | Supplemental Indenture,  dated April 15, 2005, by and among AMR Brockton L.L.C., EMSC  Management, Inc. (formerly known as AMR HoldCo, Inc.), EmCare  HoldCo, Inc., the guarantors named therein and U.S. Bank  Trust National Association, as trustee (incorporated by reference to  Exhibit 4.7 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).                                                             |
| 4.8  |   | Supplemental Indenture  No. 2, effective as of September 30, 2005, by and among Global  Medical Response, Inc., EMSC Management, Inc. (formerly known as  AMR HoldCo, Inc.), EmCare HoldCo, Inc., the guarantors named  therein and U.S. Bank Trust National Association, as trustee (incorporated by  reference to Exhibit 4.8 of the Company’s Amendment No. 3 to  Registration Statement on Form S-1 filed November 14, 2005).    |
| 4.9  |   | Supplemental Indenture  No. 3, effective as of February 23, 2006, by and among Emergency  Medical Services Corporation, EMSC Management, Inc. (formerly known as  AMR HoldCo, Inc.), EmCare HoldCo, Inc., the guarantors named  therein and U.S. Bank Trust National Association, as trustee (incorporated by  reference to Exhibit 4.8 of the Company’s Amendment No. 3 to  Registration Statement on Form S-1 filed November 14, 2005). |
| 4.10 |   | Supplemental Indenture  No. 4, effective as of August 7, 2006, among the Issuers named  therein, the Guarantors named therein and U.S. Bank Trust National  Association, as trustee.*                                                                                                                                                                                                                                                                                             |
| 4.11 |   | Supplemental Indenture  No. 5, effective as of August 7, 2006, among Air Ambulance  Specialists, Inc., a Colorado corporation and successor by merger to  Eagle Acquisition Subsidiary, Inc., the Issuers named therein, the other  Guarantors named therein and U.S. Bank Trust National Association, as  trustee.*                                                                                                                                                    |
| 4.12 |   | Supplemental Indenture  No. 6, effective as of November 28, 2006, among Electrolyte  Acquisition Subsidiary, Inc., the Issuers named therein, the other  Guarantors named therein and U.S. Bank Trust National Association, as  trustee.*                                                                                                                                                                                                                                    |
| 4.13 |   | Registration Rights  Agreement, dated as of February 10, 2005, by and among EMSC  Management, Inc. (formerly known as AMR HoldCo, Inc.), EmCare  HoldCo, Inc., the guarantors named therein, Banc of America Securities  LLC and J.P. Morgan Securities Inc. (incorporated by reference to  Exhibit 4.9 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).                                                            |
| 4.14 |   | Voting and Exchange  Trust Agreement, dated as of December 20, 2005, among Emergency Medical  Services Corporation, Emergency Medical Services L.P. and Onex Corporation (incorporated  by reference to Exhibit 4.11 of the Company’s Annual Report on  Form 10-K for the eleven months ended December 31, 2005).                                                                                                                                                  |
| 4.15 |   | Form of  Indemnification Agreement (incorporated by reference to Exhibit 4.11 of  the Company’s Amendment No. 4 to Registration Statement on Form S-1  filed December 5, 2005).                                                                                                                                                                                                                                                                               |
| 4.16 |   | Form of 10% Senior  Subordinated Note due 2015 (included in Exhibit 4.6).                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.17 |   | Notification of  Guarantee, dated as of February 10, 2005, executed by the guarantors  identified therein (incorporated by reference to Exhibit 4.12 of the  Company’s Registration Statement on Form S-4 filed  October 11, 2005).                                                                                                                                                                                                                                |

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| 9.1     |   | Voting and Exchange  Trust Agreement, dated as of December 20, 2005, among Emergency Medical  Services Corporation, Emergency Medical Services L.P. and Onex Corporation  (included in Exhibit 4.11 and incorporated by reference to  Exhibit 9.1 of the Company’s Annual Report on Form 10-K for  the eleven months ended December 31, 2005).                                                                                                                                                                                                                                                                                              |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1    |   | Employment Agreement,  dated December 6, 2004, between William A. Sanger and Emergency Medical  Services Corporation (incorporated by reference to Exhibit 10.1 of the  Company’s Registration Statement on Form S-1 filed August 2,  2005).                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2    |   | Employment Agreement,  dated as of February 10, 2005, between Don S. Harvey and Emergency  Medical Services L.P., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.2 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                                                                                                                                                                                                                                                                               |
| 10.3    |   | Employment Agreement,  dated as of February 10, 2005, between Randel G. Owen and Emergency  Medical Services L.P., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.3 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                                                                                                                                                                                                                                                                              |
| 10.4    |   | Employment Agreement,  dated as of February 10, 2005, between Todd Zimmerman and Emergency  Medical Services L.P., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.4 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                                                                                                                                                                                                                                                                              |
| 10.5    |   | Employment Agreement,  dated as of April 19, 2005, by and between Emergency Medical Services  L.P. and Dighton Packard, M.D., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.5 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                                                                                                                                                                                                                                                                   |
| 10.6    |   | Emergency Medical  Services L.P. Equity Option Plan (incorporated by reference to  Exhibit 10.6 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.7    |   | Emergency Medical  Services L.P. Equity Purchase Plan (incorporated by reference to  Exhibit 10.7 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.8    |   | Management Agreement,  dated February 10, 2005, by and among Onex Partners Manager LP, EMSC  Management, Inc. (formerly known as AMR HoldCo, Inc.), Inc.  and EmCare HoldCo, Inc. (incorporated by reference to Exhibit 10.8  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                                                                                                                                                                                                                                                                                                                    |
| 10.9    |   | Purchase Agreement,  dated January 27, 2005, among EMSC Management, Inc. (formerly known  as AMR HoldCo, Inc.), EmCare HoldCo, Inc., the Registrant, the  guarantors party thereto, Banc of America LLC Securities and J.P. Morgan  Securities Inc. (incorporated by reference to Exhibit 10.9 of the  Company’s Registration Statement on Form S-1 filed August 2,  2005).                                                                                                                                                                                                                                                  |
| 10.10   |   | Credit Agreement, dated  as of February 10, 2005, among EMSC Management, Inc. (formerly  known as AMR HoldCo, Inc.), EmCare HoldCo, Inc., Emergency Medical  Services L.P., the guarantors party thereto, Bank of America, N.A. and the  other lenders party thereto (incorporated by reference to Exhibit 10.10  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                                                                                                                                                                                                                                     |
| 10.11.1 |   | Amendment No. 1,  dated March 29, 2005, among EMSC Management, Inc. (formerly known  as AMR HoldCo, Inc.), EmCare HoldCo, Emergency Medical Services L.P.,  the guarantors and the lenders party thereto, to the Credit Agreement dated  as of February 10, 2005, among EMSC Management, Inc. (formerly  known as AMR HoldCo, Inc.), EmCare HoldCo, Inc., Emergency Medical  Services L.P., the guarantors party thereto, Bank of America, N.A. and the  other lenders party thereto (incorporated by reference to Exhibit 10.11  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005). |

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| 10.11.2 |   | Waiver and  Amendment No. 2, dated March 7, 2007, among AMR HoldCo, Inc.,  EmCare HoldCo, Inc., Emergency Medical Services L.P., and the guarantors  and lenders party thereto, to the Credit Agreement, dated as of  February 10, 2005.*                                                                                                               |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12   |   | Security Agreement,  dated as of February 10, 2005, made by EMSC Management, Inc.  (formerly known as AMR HoldCo, Inc.), EmCare HoldCo., Inc., the  guarantors party thereto, in favor of Bank of America, N.A. (incorporated by  reference to Exhibit 10.12 of the Company’s Registration Statement on  Form S-1 filed August 2, 2005). |
| 10.13   |   | Assignment, dated as of  December 20, 2005, by and among Emergency Medical Services Corporation,  EMSC Management, Inc. and ClaimCo L.P. (incorporated by reference to  Exhibit 10.13 of the Company’s Annual Report on Form 10-K for  the eleven months ended December 31, 2005).                                                                 |
| 10.14.1 |   | Form of Employee  Equity Option Agreement (incorporated by reference to Exhibit 10.14.1 of  the Company’s Annual Report on Form 10-K for the eleven months  ended December 31, 2005).                                                                                                                                                                   |
| 10.14.2 |   | Form of Director  Equity Option Agreement (incorporated by reference to Exhibit 10.14.2 of  the Company’s Annual Report on Form 10-K for the eleven months  ended December 31, 2005).                                                                                                                                                                   |
| 10.15   |   | EMSC Non-Employee  Director Compensation Program (incorporated by reference to Exhibit 10.1  of the Company's Quarterly Report on Form 10-Q/A for the quarter ended  June 30, 2006).**                                                                                                                                                                            |
| 14.1    |   | Code of Ethics (incorporated  by reference to Exhibit 14.1 of the Company's Annual Report on Form 10-K  for the eleven months ended December 31, 2005).                                                                                                                                                                                                           |
| 21.1    |   | Subsidiaries of  Emergency Medical Services L.P. and Emergency Medical Services Corporation.*                                                                                                                                                                                                                                                                                    |
| 23.1    |   | Consent of Independent  Registered Public Accounting Firm.*                                                                                                                                                                                                                                                                                                                      |
| 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.*                                                                      |

----

*                    Filedwith this Report

**             Identifieseach management compensation plan or arrangement

89

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrants have duly caused this report to be signed on theirbehalf by the undersigned, thereunto duly authorized, on the 8th day of March, 2007.
|        | **EMERGENCY MEDICAL SERVICES CORPORATION** |
|--------|-----------------------------------------------------------|
|   | (registrant)                                              |
|   | By:                                                       | /s/  WILLIAM A. SANGER |
|   |                                                      | **William  A. Sanger** |
|   |                                                      | ***Chairman and Chief Executive Officer*** |
|   | **EMERGENCY  MEDICAL SERVICES L.P.**                      |
|   | (registrant)                                              |
|   | By:                                                       | Emergency Medical  Services Corporation, |
|   |                                                      | its General Partner |
|   | By:                                                       | /s/  WILLIAM A. SANGER |
|   |                                                      | **William  A. Sanger** |
|   |                                                      | ***Chairman  and Chief Executive Officer*** |

 

90

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Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrants and inthe capacities and on the dates indicated.
|                         | **Signature** | ** **                                        | ** ** | ** **         | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-------------------------|---------------|---------------------------------------------------|------------|--------------------|-----------|------------|------------|------------|----------|------------|
| /s/ WILLIAM A.  SANGER  |          | Chairman, Chief  Executive Officer and Director   |       | March 8, 2007 |
| **William A. Sanger**   |          | (Principal Executive  Officer)                    |       |               |
|                    |          |                                              |       |               |
| /s/ RANDEL G.  OWEN     |          | Chief Financial  Officer (Principal Financial and |       | March 8, 2007 |
| **Randel G. Owen**      |          | Accounting Officer)                               |       |               |
|                    |          |                                              |       |               |
| /s/ ROBERT M.  LE BLANC |          | Director                                          |       | March 8, 2007 |
| **Robert M. Le Blanc**  |          |                                              |       |               |
|                    |          |                                              |       |               |
| /s/ STEVEN B.  EPSTEIN  |          | Director                                          |       | March 8, 2007 |
| **Steven B. Epstein**   |          |                                              |       |               |
|                    |          |                                              |       |               |
| /s/ DON S.  HARVEY      |          | Director,  President and Chief Operating Officer  |       | March 8, 2007 |
| **Don S. Harvey**       |          |                                              |       |               |
|                    |          |                                              |       |               |
| /s/ JAMES T.  KELLY     |          | Director                                          |       | March 8, 2007 |
| **James T. Kelly**      |          |                                              |       |               |
|                    |          |                                              |       |               |
| /s/ MICHAEL L.  SMITH   |          | Director                                          |       | March 8, 2007 |
| **Michael  L. Smith**   |          |                                              |       |               |

 

91

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**Exhibit Index**
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                       |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Stock Purchase Agreement, dated as of  December 6, 2004, by and among Laidlaw International, Inc., Laidlaw  Medical Holdings, Inc. and Emergency Medical Services Corporation  (incorporated by reference to Exhibit 2.1 of the Company’s Registration  Statement on Form S-1 filed August 2, 2005).                               |
| 2.2              |       | Amendment to Stock  Purchase Agreement, dated February 10, 2005, by and among Laidlaw  International, Inc., Laidlaw Medical Holdings, Inc. and Emergency  Medical Services Corporation (incorporated by reference to Exhibit 2.2  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                      |
| 2.3              |       | Stock Purchase  Agreement, dated as of December 6, 2004, by and among Laidlaw  International, Inc., Laidlaw Medical Holdings, Inc. and Emergency  Medical Services Corporation (incorporated by reference to Exhibit 2.3  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                              |
| 2.4              |       | Amendment to Stock  Purchase Agreement, dated as of February 10, 2005, by and among Laidlaw  International, Inc., Laidlaw Medical Holdings, Inc. and Emergency  Medical Services Corporation (incorporated by reference to Exhibit 2.4  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                |
| 2.5              |       | Letter, dated  March 25, 2005, to EMSC Management, Inc. (formerly known as AMR  HoldCo, Inc.) from Laidlaw Medical Holdings, Inc. (incorporated by  reference to Exhibit 2.5 of the Company’s Registration Statement on  Form S-1 filed August 2, 2005).                                                                      |
| 3.1              |       | Amended and Restated  Certificate of Incorporation of Emergency Medical Services Corporation  (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report  on Form 10-K for the eleven months ended December 31, 2005).                                                                                                              |
| 3.2              |       | Amended and Restated  By-Laws of Emergency Medical Services Corporation (incorporated by reference  to Exhibit 3.2 of the Company’s Annual Report on Form 10-K  for the eleven months ended December 31, 2005).                                                                                                                                   |
| 3.3              |       | Certificate of Formation  of Emergency Medical Services L.P. (incorporated by reference to  Exhibit 3.3 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).                                                                                                                                                          |
| 3.4              |       | Agreement of Limited  Partnership of Emergency Medical Services L.P., dated February 10, 2005,  by and among Emergency Medical Services Corporation and the persons listed on  Schedule A thereto (incorporated by reference to Exhibit 3.4 of the  Company’s Registration Statement on Form S-1 filed August 2,  2005).                |
| 3.5              |       | Amendment to Agreement  of Limited Partnership, dated November 27, 2005, by and among Emergency  Medical Services L.P. and the other signatories thereto (incorporated by  reference to Exhibit 3.4.1 of the Company’s Amendment No. 4 to  Registration Statement on Form S-1 filed December 5, 2005).                                  |
| 3.6              |       | Amendment to Agreement  of Limited Partnership, dated December 20, 2005 by and among  EMSC, Inc. and the persons listed on Schedule A thereto  (incorporated by reference to Exhibit 3.6 of the Company’s Annual Report  on Form 10-K for the eleven months ended December 31, 2005).                                              |
| 3.7              |       | Amended and Restated  Agreement of Limited Partnership of Emergency Medical Services L.P., dated  December 20, 2005, by and among EMSC, Inc. and the persons listed  on Schedule A thereto (incorporated by reference to Exhibit 3.7 of  the Company’s Annual Report on Form 10-K for the eleven months  ended December 31, 2005). |

92

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| 4.1  |   | Form of Class A Common Stock Certificate  (incorporated by reference to Exhibit 4.1 of the Company’s Amendment  No. 5 to Registration Statement on Form S-1 filed  December 6, 2005).                                                                                                                                                                                                                                                                    |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2  |   | Form of  Class B Common Stock Certificate (incorporated by reference to  Exhibit 4.2 of the Company’s Amendment No. 5 to Registration  Statement on Form S-1 filed December 6, 2005).                                                                                                                                                                                                                                                                    |
| 4.3  |   | Investor Equityholders  Agreement, dated February 10, 2005, by and among Emergency Medical  Services L.P., Onex Partners LP and the equityholders listed on the  signature pages thereto (incorporated by reference to Exhibit 4.3  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                                                                                                                                     |
| 4.4  |   | Equityholders Agreement,  dated as of February 10, 2005, by and among Emergency Medical  Services L.P., Onex Partners LP and the equityholders listed on the  signature pages thereto (incorporated by reference to Exhibit 4.4  of the Company’s Amendment No. 1 to Registration Statement on  Form S-1 filed September 14, 2005).                                                                                                            |
| 4.5  |   | Registration Agreement,  dated February 10, 2005, by and among Emergency Medical  Services L.P. and the persons listed on Schedule A thereto and  amendment thereto (incorporated by reference to Exhibit 4.5 of the  Company’s Amendment No. 1 to Registration Statement on Form S-1  filed September 14, 2005).                                                                                                                                   |
| 4.6  |   | Indenture, dated  February 10, 2005, by and among EMSC Management, Inc. (formerly  known as AMR HoldCo, Inc.), EmCare HoldCo, Inc., the guarantors  named therein and U.S. Bank Trust National Association, as trustee  (incorporated by reference to Exhibit 4.6 of the Company’s Registration  Statement on Form S-1 filed August 2, 2005).                                                                                             |
| 4.7  |   | Supplemental Indenture,  dated April 15, 2005, by and among AMR Brockton L.L.C., EMSC  Management, Inc. (formerly known as AMR HoldCo, Inc.), EmCare  HoldCo, Inc., the guarantors named therein and U.S. Bank  Trust National Association, as trustee (incorporated by reference to  Exhibit 4.7 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).                                                             |
| 4.8  |   | Supplemental Indenture  No. 2, effective as of September 30, 2005, by and among Global  Medical Response, Inc., EMSC Management, Inc. (formerly known as  AMR HoldCo, Inc.), EmCare HoldCo, Inc., the guarantors named  therein and U.S. Bank Trust National Association, as trustee (incorporated by  reference to Exhibit 4.8 of the Company’s Amendment No. 3 to  Registration Statement on Form S-1 filed November 14, 2005).    |
| 4.9  |   | Supplemental Indenture  No. 3, effective as of February 23, 2006, by and among Emergency  Medical Services Corporation, EMSC Management, Inc. (formerly known as  AMR HoldCo, Inc.), EmCare HoldCo, Inc., the guarantors named  therein and U.S. Bank Trust National Association, as trustee (incorporated by  reference to Exhibit 4.8 of the Company’s Amendment No. 3 to  Registration Statement on Form S-1 filed November 14, 2005). |
| 4.10 |   | Supplemental Indenture  No. 4, effective as of August 7, 2006, among the Issuers named  therein, the Guarantors named therein and U.S. Bank Trust National  Association, as trustee.*                                                                                                                                                                                                                                                                                             |
| 4.11 |   | Supplemental Indenture  No. 5, effective as of August 7, 2006, among Air Ambulance  Specialists, Inc., a Colorado corporation and successor by merger to  Eagle Acquisition Subsidiary, Inc., the Issuers named therein, the other  Guarantors named therein and U.S. Bank Trust National Association, as  trustee.*                                                                                                                                                    |

93

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| 4.12 |   | Supplemental Indenture  No. 6, effective as of November 28, 2006, among Electrolyte  Acquisition Subsidiary, Inc., the Issuers named therein, the other  Guarantors named therein and U.S. Bank Trust National Association, as  trustee.*                                                                                                                                                                         |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.13 |   | Registration Rights  Agreement, dated as of February 10, 2005, by and among EMSC  Management, Inc. (formerly known as AMR HoldCo, Inc.), EmCare  HoldCo, Inc., the guarantors named therein, Banc of America Securities  LLC and J.P. Morgan Securities Inc. (incorporated by reference to  Exhibit 4.9 of the Company’s Registration Statement on Form S-1  filed August 2, 2005). |
| 4.14 |   | Voting and Exchange Trust Agreement, dated as of  December 20, 2005, among Emergency Medical Services Corporation,  Emergency Medical Services L.P. and Onex Corporation (incorporated by  reference to Exhibit 4.11 of the Company’s Annual Report on Form 10-K  for the eleven months ended December 31, 2005).                                                                                       |
| 4.15 |   | Form of  Indemnification Agreement (incorporated by reference to Exhibit 4.11 of  the Company’s Amendment No. 4 to Registration Statement on Form S-1  filed December 5, 2005).                                                                                                                                                                                                                    |
| 4.16 |   | Form of 10% Senior  Subordinated Note due 2015 (included in Exhibit 4.6).                                                                                                                                                                                                                                                                                                                                              |
| 4.17 |   | Notification of  Guarantee, dated as of February 10, 2005, executed by the guarantors  identified therein (incorporated by reference to Exhibit 4.12 of the  Company’s Registration Statement on Form S-4 filed  October 11, 2005).                                                                                                                                                                     |
| 9.1  |   | Voting and Exchange  Trust Agreement, dated as of December 20, 2005, among Emergency Medical  Services Corporation, Emergency Medical Services L.P. and Onex Corporation  (included in Exhibit 4.11 and incorporated by reference to  Exhibit 9.1 of the Company’s Annual Report on Form 10-K for  the eleven months ended December 31, 2005).                                                     |
| 10.1 |   | Employment Agreement,  dated December 6, 2004, between William A. Sanger and Emergency Medical  Services Corporation (incorporated by reference to Exhibit 10.1 of the  Company’s Registration Statement on Form S-1 filed August 2,  2005).                                                                                                                                                            |
| 10.2 |   | Employment Agreement,  dated as of February 10, 2005, between Don S. Harvey and Emergency  Medical Services L.P., and assignment to Emergency Medical Services Corporation  (incorporated by reference to Exhibit 10.2 of the Company’s Registration  Statement on Form S-1 filed August 2, 2005).                                                                                                      |
| 10.3 |   | Employment Agreement,  dated as of February 10, 2005, between Randel G. Owen and Emergency  Medical Services L.P., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.3 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                                     |
| 10.4 |   | Employment Agreement,  dated as of February 10, 2005, between Todd Zimmerman and Emergency  Medical Services L.P., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.4 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                                     |
| 10.5 |   | Employment Agreement,  dated as of April 19, 2005, by and between Emergency Medical Services  L.P. and Dighton Packard, M.D., and assignment to Emergency Medical Services  Corporation (incorporated by reference to Exhibit 10.5 of the Company’s  Registration Statement on Form S-1 filed August 2, 2005).                                                                                          |
| 10.6 |   | Emergency Medical  Services L.P. Equity Option Plan (incorporated by reference to  Exhibit 10.6 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).**                                                                                                                                                                                                                                |

94

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| 10.7    |   | Emergency Medical  Services L.P. Equity Purchase Plan (incorporated by reference to  Exhibit 10.7 of the Company’s Registration Statement on Form S-1  filed August 2, 2005).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8    |   | Management Agreement,  dated February 10, 2005, by and among Onex Partners Manager LP, EMSC  Management, Inc. (formerly known as AMR HoldCo, Inc.), Inc.  and EmCare HoldCo, Inc. (incorporated by reference to Exhibit 10.8  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                                                                                                                                                                                                                                                                                                                    |
| 10.9    |   | Purchase Agreement, dated January 27, 2005,  among EMSC Management, Inc. (formerly known as AMR HoldCo, Inc.),  EmCare HoldCo, Inc., the Registrant, the guarantors party thereto, Banc  of America LLC Securities and J.P. Morgan Securities Inc. (incorporated  by reference to Exhibit 10.9 of the Company’s Registration Statement on  Form S-1 filed August 2, 2005).                                                                                                                                                                                                                                                   |
| 10.10   |   | Credit Agreement, dated  as of February 10, 2005, among EMSC Management, Inc. (formerly  known as AMR HoldCo, Inc.), EmCare HoldCo, Inc., Emergency Medical  Services L.P., the guarantors party thereto, Bank of America, N.A. and the  other lenders party thereto (incorporated by reference to Exhibit 10.10  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005).                                                                                                                                                                                                                                     |
| 10.11.1 |   | Amendment No. 1,  dated March 29, 2005, among EMSC Management, Inc. (formerly known  as AMR HoldCo, Inc.), EmCare HoldCo, Emergency Medical Services L.P.,  the guarantors and the lenders party thereto, to the Credit Agreement dated  as of February 10, 2005, among EMSC Management, Inc. (formerly  known as AMR HoldCo, Inc.), EmCare HoldCo, Inc., Emergency Medical  Services L.P., the guarantors party thereto, Bank of America, N.A. and the  other lenders party thereto (incorporated by reference to Exhibit 10.11  of the Company’s Registration Statement on Form S-1 filed  August 2, 2005). |
| 10.11.2 |   | Waiver and Amendment  No. 2, dated March 7, 2007, among AMR HoldCo, Inc., EmCare  HoldCo, Inc., Emergency Medical Services L.P., and the guarantors and  lenders party thereto, to the Credit Agreement, dated as of February 10,  2005.*                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12   |   | Security Agreement,  dated as of February 10, 2005, made by EMSC Management, Inc.  (formerly known as AMR HoldCo, Inc.), EmCare HoldCo., Inc., the  guarantors party thereto, in favor of Bank of America, N.A. (incorporated by  reference to Exhibit 10.12 of the Company’s Registration Statement on  Form S-1 filed August 2, 2005).                                                                                                                                                                                                                                                                                          |
| 10.13   |   | Assignment, dated as of  December 20, 2005, by and among Emergency Medical Services Corporation,  EMSC Management, Inc. and ClaimCo L.P.(incorporated by reference to  Exhibit 10.13 of the Company’s Annual Report on Form 10-K for  the eleven months ended December 31, 2005).                                                                                                                                                                                                                                                                                                                                                           |
| 10.14.1 |   | Form of Employee  Equity Option Agreement (incorporated by reference to Exhibit 10.14.1 of  the Company’s Annual Report on Form 10-K for the eleven months  ended December 31, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.14.2 |   | Form of Director  Equity Option Agreement (incorporated by reference to Exhibit 10.14.2 of  the Company’s Annual Report on Form 10-K for the eleven months  ended December 31, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.15   |   | EMSC Non-Employee  Director Compensation Program (incorporated by reference to Exhibit 10.1  of the Company's Quarterly Report on Form 10-Q/A for the quarter ended  June 30, 2006).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 14.1    |   | Code of Ethics (incorporated  by reference to Exhibit 14.1 of the Company's Annual Report on Form 10-K  for the eleven months ended December 31, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

95

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| 21.1 |   | Subsidiaries of  Emergency Medical Services L.P. and Emergency Medical Services Corporation.*                                                                                                                                                                                                               |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 23.1 |   | Consent of Independent  Registered Public Accounting Firm.*                                                                                                                                                                                                                                                 |
| 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 withthis Report

**             Identifies eachmanagement compensation plan or arrangement

96

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**Index to Financial StatementsEmergency Medical Services Corporation**
| Report of Ernst &  Young LLP, Independent Registered Public Accounting Firm                                                                                                                                          |   | F-2  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------|--------|
| Report of Ernst &  Young LLP, Independent Registered Public Accounting Firm                                                                                                                                          |   | F-3  |   |
| Report of  PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm                                                                                                                                          |   | F-4  |   |
| Report of  PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm                                                                                                                                          |   | F-5  |   |
| Balance Sheets as of December 31, 2006 and  2005                                                                                                                                                                         |   | F-6  |   |
| Statements of Operations for  the year ended December 31, 2006, for the eleven months ended  December 31, 2005, for the five months ended January 31, 2005 and  for the year ended August 31, 2004        |   | F-7  |   |
| Statements of Changes in Equity  for the year ended December 31, 2006, for the eleven months ended  December 31, 2005, for the five months ended January 31, 2005 and  for the year ended August 31, 2004 |   | F-8  |   |
| Statements of Cash Flows for the year  ended December 31, 2006, for the eleven months ended December 31,  2005, for the five months ended January 31, 2005 and for the year ended  August 31, 2004        |   | F-10 |   |
| Notes to Financial Statements                                                                                                                                                                                                 |   | F-11 |   |

 

F-1

----

**Report of Ernst &Young LLP, Independent Registered Public Accounting Firm**

The Board of Directors and Stockholders of Emergency MedicalServices Corporation

We have audited the accompanying consolidated balancesheet of Emergency Medical Services Corporation as of December 31, 2006,and the related consolidated statements of operations and comprehensive income(loss), changes in equity, and cash flows for the year then ended. Theseconsolidated financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these consolidated financialstatements based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Emergency Medical Services Corporation at December 31, 2006,and the consolidated results of its operations and its cash flows for the yearthen ended, in conformity with U.S. generally accepted accounting principles.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of EmergencyMedical Services Corporation’s internal control over financial reporting as of December 31,2006, based on criteria established in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated February 21, 2007 expressed an unqualified opinionthereon.
|  | /s/ Ernst & Young LLP |   |
|--|--------------------------------|--------|

 

Denver, ColoradoFebruary 21, 2007

F-2

----

**Reportof Ernst & Young LLP, Independent Registered Public Accounting Firm**

The Board of Directors andShareholders of Emergency MedicalServices Corporation

We have audited management’sassessment, included in the accompanying Management’s Report on InternalControl Over Financial Reporting that Emergency Medical Services Corporationmaintained effective internal control over financial reporting as of December 31,2006, based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). EmergencyMedical Services Corporation’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the company’s internal control over financialreporting based on our audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

A company’s internalcontrol over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion, management’sassessment that Emergency Medical Services Corporation maintained effectiveinternal control over financial reporting as of December 31, 2006, is fairlystated, in all material respects, based on the COSO criteria. Also, in ouropinion, Emergency Medical Services Corporation maintained, in all materialrespects, effective internal control over financial reporting as of December 31,2006, based on****the COSO criteria**.**

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheet ofEmergency Medical Services Corporation as of December 31, 2006, and therelated consolidated statements of operations and comprehensive income (loss),changes in equity, and cash flows for the year then ended and our report dated February 21,2007 expressed an unqualified opinionthereon.
|  | /s/  Ernst & Young LLP |   |
|--|---------------------------------|--------|

 

Denver, ColoradoFebruary 21, 2007

F-3

----

**Report ofPricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm**

To the Stockholders ofEmergency Medical Services Corporation:

In our opinion, the accompanying consolidated balancesheet and the related consolidated statements of operations and comprehensiveincome (loss), changes in equity and cash flows present fairly, in all materialrespects, the financial position of Emergency Medical Services Corporation andits subsidiaries at December 31, 2005 and the results of their operations andtheir cash flows for the eleven-month period ended December 31, 2005, inconformity with accounting principles generally accepted in the United Statesof America. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit. We conducted our audit of these statements inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLPDenver, ColoradoFebruary 23, 2006

F-4

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**Report ofPricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm**

To the Stockholders of American Medical Response, Inc.and EmCare Holdings, Inc.:

In our opinion, the accompanying combined statementsof operations and comprehensive income (loss) (predecessor basis), changes incombined equity (predecessor basis) and cash flows (predecessor basis) presentfairly, in all material respects, the results of operations and changes incombined equity and cash flows of American Medical Response, Inc. and itssubsidiaries (“AMR”) and EmCare Holdings Inc. and its subsidiaries (“EmCare”)(collectively, the “Company”) for the five-month period ended January 31,2005 and for the year ended August 31, 2004, in conformity with accountingprinciples generally accepted in the United States of America. These combinedfinancial statements are the responsibility of the AMR and EmCare management.Our responsibility is to express an opinion on these financial statements basedon our audits. We conducted our audits of these statements in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

PricewaterhouseCoopers LLPDenver, ColoradoAugust 1, 2005, except as to the information disclosed in Note 22, as towhich the date is October 7, 2005

F-5

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**Emergency MedicalServices CorporationBalance Sheets (dollars in thousands, except shareamounts)**

| ** **                                                                                                                                                  | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **Assets**                                                                                                                                                  | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current assets:                                                                                                                                             |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                                                  |       | $                     | 39,336     |   | $ | 18,048 |   |
| Insurance collateral                                                                                                                                        |       | 29,724                |       | 29,766 |   |
| Trade and other accounts  receivable, net                                                                                                                   |       | 416,450               |       | 411,184 |   |
| Parts and supplies  inventory                                                                                                                               |       | 18,089                |       | 18,449 |   |
| Prepaids and other  current assets                                                                                                                          |       | 16,417                |       | 14,413 |   |
| Current deferred tax  assets                                                                                                                                |       | 12,473                |       | 23,436 |   |
| Total current assets                                                                                                                                        |       | 532,489               |       | 515,296 |   |
| Non-current assets:                                                                                                                                         |       |                  |       |   |   |
| Property, plant and  equipment, net                                                                                                                         |       | 147,162               |       | 138,037 |   |
| Intangible assets, net                                                                                                                                      |       | 66,789                |       | 78,183 |   |
| Non-current deferred tax  assets                                                                                                                            |       | 103,370               |       | 118,408 |   |
| Insurance collateral                                                                                                                                        |       | 163,300               |       | 131,907 |   |
| Goodwill                                                                                                                                                    |       | 272,328               |       | 251,168 |   |
| Other long-term assets                                                                                                                                      |       | 32,779                |       | 34,029 |   |
| Total assets                                                                                                                                                |       | $                     | 1,318,217  |   | $ | 1,267,028 |   |
| **Liabilities and Equity**                                                                                                                                  | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current liabilities:                                                                                                                                        |       |                  |       |   |   |
| Accounts payable                                                                                                                                            |       | $                     | 65,172     |   | $ | 56,290 |   |
| Accrued liabilities                                                                                                                                         |       | 231,631               |       | 214,481 |   |
| Current portion of  long-term debt                                                                                                                          |       | 4,159                 |       | 6,664 |   |
| Total current  liabilities                                                                                                                                  |       | 300,962               |       | 277,435 |   |
| Long-term debt                                                                                                                                              |       | 475,616               |       | 495,520 |   |
| Insurance reserves and  other long-term liabilities                                                                                                         |       | 155,599               |       | 149,089 |   |
| Total liabilities                                                                                                                                           |       | 932,177               |       | 922,044 |   |
| Equity:                                                                                                                                                     |       |                  |       |   |   |
| Preferred stock ($0.01  par value; 20,000,000 shares authorized, 0 issued and outstanding)                                                             |       | —                |       | — |   |
| Class A common  stock ($0.01 par value; 100,000,000 shares authorized, 9,262,853 and  9,247,200 issued and outstanding in 2006 and 2005, respectively) |       | 93                    |       | 92 |   |
| Class B common  stock ($0.01 par value; 40,000,000 shares authorized, 142,545 issued and  outstanding in 2006 and 2005)                                |       | 1                     |       | 1 |   |
| Class B special  voting stock ($0.01 par value; 1 share authorized, issued and outstanding  in 2006 and 2005)                                     |       | —                |       | — |   |
| LP exchangeable units  (32,107,500 shares issued and outstanding in 2006 and 2005)                                                                          |       | 212,361               |       | 212,361 |   |
| Additional paid-in  capital                                                                                                                                 |       | 114,471               |       | 112,937 |   |
| Retained earnings                                                                                                                                           |       | 59,138                |       | 20,067 |   |
| Accumulated other  comprehensive loss                                                                                                                       |       | (24                   | )          | (474 | ) |
| Total equity                                                                                                                                                |       | 386,040               |       | 344,984 |   |
| Total liabilities and equity                                                                                                                                |       | $                     | 1,318,217  |   | $ | 1,267,028 |   |

 

The accompanying notes are an integral part of these financial statements.

F-6

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**EmergencyMedical Services CorporationStatements of Operations and Comprehensive Income (dollars in thousands, except pershare amounts)**

| ** **                                                                           | ** ** | **Consolidated**                         | ** ** | ** **                                             | ** ** | **Predecessor—Combined** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                           | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | ** **                    | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| Net revenue                                                                          |       | $                                        | 1,934,205  |                                                   |       | $                             | 1,655,485  |   |   |   |   |   | $ | 696,179 |   |   | $ | 1,604,598 |   |
| Compensation and benefits                                                            |       | 1,333,648                                |       |                                                   | 1,146,055  |                          |       |   |   |   | 481,305 |   |   | 1,117,890 |   |
| Operating expenses                                                                   |       | 294,806                                  |       |                                                   | 233,087    |                          |       |   |   |   | 94,882 |   |   | 218,277 |   |
| Insurance expense                                                                    |       | 68,271                                   |       |                                                   | 82,800     |                          |       |   |   |   | 39,002 |   |   | 80,255 |   |
| Selling, general and administrative expenses                                         |       | 57,403                                   |       |                                                   | 54,262     |                          |       |   |   |   | 21,635 |   |   | 47,899 |   |
| Depreciation and amortization expense                                                |       | 66,005                                   |       |                                                   | 54,143     |                          |       |   |   |   | 18,808 |   |   | 52,739 |   |
| Restructuring charges                                                                |       | 6,369                                    |       |                                                   | 1,781      |                          |       |   |   |   | — |   |   | 2,115 |   |
| Laidlaw fees and compensation charges                                                |       | —                                   |       |                                                   | —     |                          |       |   |   |   | 19,857 |   |   | 15,449 |   |
| Income from operations                                                               |       | 107,703                                  |       |                                                   | 83,357     |                          |       |   |   |   | 20,690 |   |   | 69,974 |   |
| Interest expense                                                                     |       | (45,605                                  | )          |                                                   | (47,813    | )                             |       |   |   |   | (5,644 | ) |   | (9,961 | ) |
| Realized gain (loss) on investments                                                  |       | (467                                     | )          |                                                   | (164       | )                             |       |   |   |   | — |   |   | (1,140 | ) |
| Interest and other income                                                            |       | 2,346                                    |       |                                                   | 1,040      |                          |       |   |   |   | 714 |   |   | 240 |   |
| Loss on early debt extinguishment                                                    |       | (377                                     | )          |                                                   | (2,040     | )                             |       |   |   |   | — |   |   | — |   |
| Income before income taxes and equity in  earnings of unconsolidated subsidiary |       | 63,600                                   |       |                                                   | 34,380     |                          |       |   |   |   | 15,760 |   |   | 59,113 |   |
| Income tax expense                                                                   |       | (24,961                                  | )          |                                                   | (14,372    | )                             |       |   |   |   | (6,278 | ) |   | (21,764 | ) |
| Income before equity in earnings of  unconsolidated subsidiary                  |       | 38,639                                   |       |                                                   | 20,008     |                          |       |   |   |   | 9,482 |   |   | 37,349 |   |
| Equity in earnings of unconsolidated subsidiary                                      |       | 432                                      |       |                                                   | 59         |                          |       |   |   |   | — |   |   | — |   |
| Net income                                                                           |       | 39,071                                   |       |                                                   | 20,067     |                          |       |   |   |   | 9,482 |   |   | 37,349 |   |
| Other comprehensive  income (loss), net of tax:                                      |       |                                     |       |                                                   |       |                          |       |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) during the  period                                 |       | 450                                      |       |                                                   | (474       | )                             |       |   |   |   | (309 | ) |   | 1,184 |   |
| Comprehensive income                                                                 |       | $                                        | 39,521     |                                                   |       | $                             | 19,593     |   |   |   |   |   | $ | 9,173 |   |   | $ | 38,533 |   |
| Basic net income per common share                                                    |       | $                                        | 0.94       |                                                   |       | $                             | 0.56       |   |   |   |   |   |   |   |   |   |   |
| Diluted net income per common share                                                  |       | $                                        | 0.92       |                                                   |       | $                             | 0.55       |   |   |   |   |   |   |   |   |   |   |
| Average common shares outstanding, basic                                             |       | 41,502,632                               |       |                                                   | 33,621,542 |                          |       |   |   |   |   |   |   |   |   |
| Average common  shares outstanding, diluted                                          |       | 42,528,885                               |       |                                                   | 34,282,176 |                          |       |   |   |   |   |   |   |   |   |
|                                                                                      |            |                                          |            |                                                        |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these financial statements.

F-7

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**Emergency Medical Services Corporation Statements of Changes in Equity(dollars in thousands)**

| ** **                                                                                                    | ** ** | ** **  | ** ** | ** **     | ** ** | **Shares/Units** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|
| ** **                                                                                                    | ** ** | ** **  | ** ** | ** **     | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class B** | ** ** | **LP** | ** ** |
| ** **                                                                                                    | ** ** | **Laidlaw** | ** ** | **Laidlaw**    | ** ** | **Common**       | ** ** | **Common** | ** ** | **Special** | ** ** | **Exchangeable** | ** ** |
| ** **                                                                                                    | ** ** | **Payable** | ** ** | **Investment** | ** ** | **Stock**        | ** ** | **Stock** | ** ** | **Voting Stock** | ** ** | **Units** | ** ** |
| Balances September 1, 2003 (Predecessor)                                                                      |       | $           | 22,416     |           |       | $                | 546,144    |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Dividend to Laidlaw                                                                                           |       | 200,000     |       |           | (200,000   | )                |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net income                                                                                                    |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Fresh-start adjustments                                                                                       |       | —      |       |           | 10,406     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Payments made to Laidlaw, net                                                                                 |       | (35,638     | )          |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Unrealized holding gains                                                                                      |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Balances August 31, 2004 (Predecessor)                                                                        |       | 186,778     |       |           | 356,550    |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net income                                                                                                    |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Advances from Laidlaw, net                                                                                    |       | 15,264      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Unrealized holding losses                                                                                     |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Balances January 31, 2005 (Predecessor)                                                                       |       | $           | 202,042    |           |       | $                | 356,550    |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Balances February 1, 2005                                                                                     |       | $           | —     |           |       | $                | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Partnership units issued on transaction date, net of  issuance costs of $1,726                      |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | 33,090,795 |   |   |
| Partnership units issued during the period, net of issuance  costs of $193                               |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | 306,450 |   |   |
| Exchange of certain partnership units for common  stock                                                       |       | —      |       |           | —     |             |       | 1,147,200 |   |   | 142,545 |   |   |   | 1 |   |   |   | (1,289,745 | ) |   |
| Issuance of class A common stock in initial public offering,  net of issuance costs of $11,525 |       | —      |       |           | —     |             |       | 8,100,000 |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Equity-based compensation                                                                                     |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net income                                                                                                    |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Unrealized holding losses                                                                                     |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Balances December 31, 2005                                                                                    |       | —      |       |           | —     |             |       | 9,247,200 |   |   | 142,545 |   |   |   | 1 |   |   |   | 32,107,500 |   |   |
| Exercise of options                                                                                           |       | —      |       |           | —     |             |       | 15,653 |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Equity-based compensation                                                                                     |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net income                                                                                                    |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Unrealized holding gains                                                                                      |       | —      |       |           | —     |             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Balances December  31, 2006                                                                                   |       | $           | —     |           |       | $                | —     |   |   | 9,262,853 |   |   | 142,545 |   |   |   | 1 |   |   |   | 32,107,500 |   |   |

 

The accompanying notes are an integral part of these financial statements.

F-8

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**Emergency Medical Services Corporation Statements of Changes in Equity (Continued)(dollars in thousands)**

 

| ** **                                                                                               | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **     | ** ** | ** **    | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|----------------|------------|---------------|------------|------------------------|------------|------------|------------|
| ** **                                                                                               | ** ** | **Class A** | ** ** | **Class B** | ** ** | **LP**           | ** ** | **Additional** | ** ** | **Retained**  | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                                                                               | ** ** | **Common**       | ** ** | **Common**       | ** ** | **Exchangeable** | ** ** | **Paid-in**    | ** ** | **Earnings**  | ** ** | **Comprehensive**      | ** ** | **Total**  | ** ** |
| ** **                                                                                               | ** ** | **Stock**        | ** ** | **Stock**        | ** ** | **Units**        | ** ** | **Capital**    | ** ** | **(Deficit)** | ** ** | **Income (Loss)** | ** ** | **Equity** | ** ** |
| Balances September 1, 2003 (Predecessor)                                                                 |       |             | $          | —           |       |             |       | $              | —     |          |       |                   | $          | —     |       |   |   | $ | — |   |   |   | $ | (6,831 | ) |   |   | $ | (1,190 | ) |   | $ | 560,539 |   |
| Dividend to Laidlaw                                                                                      |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | — |   |   | — |   |
| Net income                                                                                               |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | 37,349 |   |   |   | — |   |   | 37,349 |   |
| Fresh-start adjustments                                                                                  |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | — |   |   | 10,406 |   |
| Payments made to Laidlaw,   net                                                                          |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | — |   |   | (35,638 | ) |
| Unrealized holding gains                                                                                 |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | 1,184 |   |   | 1,184 |   |
| Balances August 31, 2004 (Predecessor)                                                                   |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | 30,518 |   |   |   | (6 | ) |   | 573,840 |   |
| Net income                                                                                               |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | 9,482 |   |   |   | — |   |   | 9,482 |   |
| Advances from Laidlaw, net                                                                               |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | — |   |   | 15,264 |   |
| Unrealized holding losses                                                                                |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | (309 | ) |   | (309 | ) |
| Balances January 31, 2005 (Predecessor)                                                                  |       |             | $          | —           |       |             |       | $              | —     |          |       |                   | $          | —     |       |   |   | $ | — |   |   |   | $ | 40,000 |   |   |   | $ | (315 | ) |   | $ | 598,277 |   |
| Balances February 1, 2005                                                                                |       |             | $          | —           |       |             |       | $              | —     |          |       |                   | $          | —     |       |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Partnership units issued on transaction date, net of  issuance costs of $1,726                           |       |             | —     |             |       |             | —     |           |       |          | 218,879    |                   |       |       | —     |   |   |   | — |   |   |   | — |   |   | 218,879 |   |
| Partnership units issued during the period, net  of issuance costs of $193                          |       |             | —     |             |       |             | —     |           |       |          | 1,857      |                   |       |       | —     |   |   |   | — |   |   |   | — |   |   | 1,857 |   |
| Exchange of certain partnership units for common stock                                         |       |             | 11         |             |       |             | 1          |           |       |          | (8,375     | )                      |       |       | 8,363      |   |   |   | — |   |   |   | — |   |   | — |   |
| Issuance of class A common stock in initial public offering, net  of issuance costs of $11,525 |       |             | 81         |             |       |             | —     |           |       |          | —     |                   |       |       | 101,794    |   |   |   | — |   |   |   | — |   |   | 101,875 |   |
| Equity-based compensation                                                                                |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | 2,780      |   |   |   | — |   |   |   | — |   |   | 2,780 |   |
| Net income                                                                                               |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | 20,067 |   |   |   | — |   |   | 20,067 |   |
| Unrealized holding losses                                                                                |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | (474 | ) |   | (474 | ) |
| Balances December 31, 2005                                                                               |       |             | 92         |             |       |             | 1          |           |       |          | 212,361    |                   |       |       | 112,937    |   |   |   | 20,067 |   |   |   | (474 | ) |   | 344,984 |   |
| Exercise of options                                                                                      |       |             | 1          |             |       |             | —     |           |       |          | —     |                   |       |       | 103        |   |   |   | — |   |   |   | — |   |   | 104 |   |
| Equity-based compensation                                                                                |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | 1,431      |   |   |   | — |   |   |   | — |   |   | 1,431 |   |
| Net income                                                                                               |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | 39,071 |   |   |   | — |   |   | 39,071 |   |
| Unrealized holding gains                                                                                 |       |             | —     |             |       |             | —     |           |       |          | —     |                   |       |       | —     |   |   |   | — |   |   |   | 450 |   |   | 450 |   |
| Balances December  31, 2006                                                                              |       |             | $          | 93               |       |             |       | $              | 1          |          |       |                   | $          | 212,361    |       |   |   | $ | 114,471 |   |   |   | $ | 59,138 |   |   |   | $ | (24 | ) |   | $ | 386,040 |   |

 

The accompanying notes are an integral part of these financial statements.

F-9

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**EmergencyMedical Services CorporationStatements of Cash Flows (dollars in thousands)**

| ** **                                                                              | ** ** | **Consolidated**      | ** ** | ** **             | ** ** | **Predecessor—Combined** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                                                              | ** ** | **Year**              | ** ** | **Eleven months** | ** ** | ** **                    | ** ** | **Five months** | ** ** | **Year** | ** ** |
| ** **                                                                              | ** ** | **ended**             | ** ** | **ended**              | ** ** | ** **                    | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **                                                                              | ** ** | **December 31,** | ** ** | **December 31,**  | ** ** | ** **                    | ** ** | **January 31,** | ** ** | **August 31,** | ** ** |
| ** **                                                                              | ** ** | **2006**              | ** ** | **2005**               | ** ** | ** **                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash Flows from Operating Activities**                                                |       |                  |       |                   |       |                          |       |   |   |   |   |   |   | ** ** |   |   | ** ** | ** ** |   |
| Net income                                                                              |       |                  | $          | 39,071                 |       |                          |       | $ | 20,067 |   |   |   |   |   | $ | 9,482 |   |   |   | $ | 37,349 |   |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                  |       |                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                          |       |                  | 68,104     |                   |       |                          | 56,227     |   |   |   |   |   | 18,808 |   |   |   | 53,957 |   |   |
| (Gain) loss on  disposal of property, plant and equipment                               |       |                  | (787       | )                      |       |                          | (553       | ) |   |   |   |   | 145 |   |   |   | (446 | ) |   |
| Equity-based  compensation expense                                                      |       |                  | 1,431      |                   |       |                          | 2,780      |   |   |   |   |   | — |   |   |   | — |   |   |
| Loss on restricted  investments                                                         |       |                  | —     |                   |       |                          | 164        |   |   |   |   |   | 197 |   |   |   | 1,140 |   |   |
| Loss on early debt  extinguishment                                                      |       |                  | 377        |                   |       |                          | 2,040      |   |   |   |   |   | — |   |   |   | — |   |   |
| Equity in earnings  of unconsolidated subsidiary                                        |       |                  | (432       | )                      |       |                          | (59        | ) |   |   |   |   | — |   |   |   | — |   |   |
| Notes payable  discount                                                                 |       |                  | —     |                   |       |                          | —     |   |   |   |   |   | 213 |   |   |   | 132 |   |   |
| Non-cash Laidlaw  allocated expense (income)                                            |       |                  | —     |                   |       |                          | —     |   |   |   |   |   | 14,440 |   |   |   | (4,505 | ) |   |
| Deferred income  taxes                                                                  |       |                  | 24,646     |                   |       |                          | 14,270     |   |   |   |   |   | 6,278 |   |   |   | 21,899 |   |   |
| Changes in operating  assets/liabilities, net of   acquisitions:                        |       |                  |       |                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade and other  accounts receivable                                                    |       |                  | (4,740     | )                      |       |                          | (36,617    | ) |   |   |   |   | (26,057 | ) |   |   | (23,764 | ) |   |
| Parts and supplies  inventory                                                           |       |                  | 360        |                   |       |                          | 50         |   |   |   |   |   | 78 |   |   |   | (1,133 | ) |   |
| Prepaids and other  current assets                                                      |       |                  | (1,418     | )                      |       |                          | 6,900      |   |   |   |   |   | (269 | ) |   |   | 5,892 |   |   |
| Accounts payable  and accrued liabilities                                               |       |                  | 30,716     |                   |       |                          | 23,975     |   |   |   |   |   | (17,299 | ) |   |   | 12,843 |   |   |
| Insurance accruals                                                                      |       |                  | 8,414      |                   |       |                          | 20,719     |   |   |   |   |   | 9,950 |   |   |   | 24,315 |   |   |
| Net cash provided  by operating activities                                              |       |                  | 165,742    |                   |       |                          | 109,963    |   |   |   |   |   | 15,966 |   |   |   | 127,679 |   |   |
| **Cash Flows from Investing Activities**                                                |       |                  |       |                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchases of  property, plant and equipment                                             |       |                  | (60,415    | )                      |       |                          | (48,933    | ) |   |   |   |   | (14,045 | ) |   |   | (42,787 | ) |   |
| Proceeds from sale  of property, plant and equipment                                    |       |                  | 902        |                   |       |                          | 708        |   |   |   |   |   | 175 |   |   |   | 858 |   |   |
| Acquisitions of  businesses, net of cash received                                       |       |                  | (23,555    | )                      |       |                          | —     |   |   |   |   |   | (1,200 | ) |   |   | — |   |   |
| Increase in  insurance collateral                                                       |       |                  | (28,363    | )                      |       |                          | (39,941    | ) |   |   |   |   | (11,677 | ) |   |   | (36,363 | ) |   |
| Other investing  activities                                                             |       |                  | (1,696     | )                      |       |                          | 7,312      |   |   |   |   |   | 3,780 |   |   |   | (3,224 | ) |   |
| Proceeds from sale  of business                                                         |       |                  | —     |                   |       |                          | —     |   |   |   |   |   | 1,300 |   |   |   | — |   |   |
| EMS LP purchase of  AMR and EmCare                                                      |       |                  | —     |                   |       |                          | (828,775   | ) |   |   |   |   | — |   |   |   | — |   |   |
| Net cash used in  investing activities                                                  |       |                  | (113,127   | )                      |       |                          | (909,629   | ) |   |   |   |   | (21,667 | ) |   |   | (81,516 | ) |   |
| **Cash Flows from Financing Activities**                                                |       |                  |       |                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| EMSC issuance of  class A common stock                                                  |       |                  | 104        |                   |       |                          | 113,400    |   |   |   |   |   | — |   |   |   | — |   |   |
| EMSC equity issuance  costs                                                             |       |                  | (2,408     | )                      |       |                          | (9,329     | ) |   |   |   |   | — |   |   |   | — |   |   |
| Repayments of  capital lease obligations and other debt                                 |       |                  | (27,066    | )                      |       |                          | (132,345   | ) |   |   |   |   | (3,992 | ) |   |   | (8,709 | ) |   |
| Increase  (decrease) in bank overdrafts                                                 |       |                  | (1,957     | )                      |       |                          | 3,751      |   |   |   |   |   | 5,866 |   |   |   | (4,544 | ) |   |
| Borrowings under senior  secured credit facility                                        |       |                  | —     |                   |       |                          | 350,000    |   |   |   |   |   | — |   |   |   | — |   |   |
| Proceeds from  issuance of senior subordinated notes                                    |       |                  | —     |                   |       |                          | 250,000    |   |   |   |   |   | — |   |   |   | — |   |   |
| Borrowings under  revolving credit facility                                             |       |                  | —     |                   |       |                          | 25,200     |   |   |   |   |   | — |   |   |   | — |   |   |
| Debt issue costs                                                                        |       |                  | —     |                   |       |                          | (18,330    | ) |   |   |   |   | — |   |   |   | — |   |   |
| EMS LP issuance of  partnership equity                                                  |       |                  | —     |                   |       |                          | 222,655    |   |   |   |   |   | — |   |   |   | — |   |   |
| EMS LP partnership  equity issuance costs                                               |       |                  | —     |                   |       |                          | (1,919     | ) |   |   |   |   | — |   |   |   | — |   |   |
| Advances from  Laidlaw                                                                  |       |                  | —     |                   |       |                          | —     |   |   |   |   |   | 8,982 |   |   |   | (31,133 | ) |   |
| Decrease in other  non-current liabilities                                              |       |                  | —     |                   |       |                          | —     |   |   |   |   |   | — |   |   |   | (2,942 | ) |   |
| Net cash (used in)  provided by financing activities                                    |       |                  | (31,327    | )                      |       |                          | 803,083    |   |   |   |   |   | 10,856 |   |   |   | (47,328 | ) |   |
| Change in cash and  cash equivalents                                                    |       |                  | 21,288     |                   |       |                          | 3,417      |   |   |   |   |   | 5,155 |   |   |   | (1,165 | ) |   |
| Cash and cash  equivalents, beginning of period                                         |       |                  | 18,048     |                   |       |                          | 14,631     |   |   |   |   |   | 9,476 |   |   |   | 10,641 |   |   |
| Cash and cash  equivalents, end of period                                               |       |                  | $          | 39,336                 |       |                          |       | $ | 18,048 |   |   |   |   |   | $ | 14,631 |   |   |   | $ | 9,476 |   |   |
| Cash paid for  interest                                                                 |       |                  | $          | 46,130                 |       |                          |       | $ | 33,307 |   |   |   |   |   | $ | 488 |   |   |   | $ | 556 |   |   |
| Cash paid (refunds  received) for taxes                                                 |       |                  | $          | (15,235                | )          |                          |       | $ | 15,550 |   |   |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

The accompanying notes are an integral part of these financial statements.

F-10

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**Emergency Medical Services Corporation** Notes to Financial Statements (dollars in thousands)

**1.**                 General

***Basis of Presentation of Financial Statements***

These financial statements have been prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)to reflect the consolidated financial position, results of operations and cashflows of Emergency Medical Services Corporation (“EMSC” or the “Company”). Theconsolidated financial statements of EMSC include those of its directsubsidiary, Emergency Medical Services, L.P. (“EMS LP”), a Delawarelimited partnership (see note 2 “Summary of Significant Accounting Policies—EquityStructure”). EMS LP acquired American Medical Response, Inc. and itssubsidiaries (“AMR”) and EmCare Holdings Inc. and its subsidiaries (“EmCare”)from Laidlaw International Inc. (“Laidlaw”) on February 10, 2005 with aneffective transaction date after the close of business January 31, 2005.On December 21, 2005, the Company effected a reorganization and issuedclass A common stock in an initial public offering (see note 12 “Equity”). Forcomparative purposes, the Company has included the combined financial position,results of operations and cash flows of AMR and EmCare for periods prior to andincluding January 31, 2005 (“Predecessor” or “Predecessor Company”).

The purchase price for AMR and EmCare was $828.8million, subject to working capital and other purchase adjustments. To financethe acquisition, EMS LP entered into a $450 million senior secured creditfacility and issued senior subordinated notes for gross proceeds of $250million (see note 8 “Debt”). EMS LP also issued 33.2 million (post-split)partnership units for $221 million. For this reason, the Predecessor financialstatements for periods prior to February 1, 2005 may not be comparable tothe financial statements for periods from and including February 1, 2005.

The Company operates in two segments, AMR in theHealthcare Transportation Service business and EmCare in the EmergencyManagement Service business. AMR operates in 36 states, providing a fullrange of medical transportation services from basic patient transit to the mostadvanced emergency care and pre-hospital assistance. In addition, AMR operatesemergency (911) call and response services for large and small communitiesall across the United States, offers medical staff for large entertainmentvenues like stadiums and arenas, and provides telephone triage, transportationdispatch and demand management services. EmCare provides outsourced businessservices to hospitals primarily for emergency departments, related urgent carecenters and for certain inpatient departments for 378 hospitals in39 states. EmCare recruits physicians, gathers their credentials, arrangescontracts for their services, assists in monitoring their performance andarranges their scheduling. In addition, EmCare assists clients in suchoperational areas as staff coordination, quality assurance, departmentalaccreditation, billing, record-keeping, third-party payment programs, and otheradministrative services.

EMSC and EMS LP adopted a fiscal year ending December 31.The Predecessor had a fiscal year ending August 31. Accordingly, thefinancial statements presented herein include the eleven-month period beginningon the effective date of acquisition and ending December 31, 2005.

Certain prior periodamounts have been reclassified to conform to the current period presentation. Thecurrent portion of Insurance Collateral recorded on the accompanying balancesheet was previously reported as restricted cash and cash equivalents—$12.0million, restricted marketable securities—$1.7 million and as a component ofother current assets—$16.1 million. The long-term portion of InsuranceCollateral was previously reported as restricted long-term investments—$68.0million and as a component of other long-term assets—$63.9 million.

F-11

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**2.**                 Summaryof Significant Accounting Policies

***Consolidation***

The consolidated financialstatements include EMSC, its subsidiary EMS LP, and EMS LP’s subsidiaries, AMRand EmCare. All significant intercompany transactions and balances have beeneliminated.

***Combination***

The combined financialstatements include the accounts of the Predecessor consolidated with all oftheir respective subsidiaries. All significant intracompany transactions andbalances are eliminated.

***Use of Estimates***

The preparation of financialstatements requires management to make estimates and assumptions relating tothe reporting of results of operations, financial condition and relateddisclosure of contingent assets and liabilities at the date of the financialstatements including, but not limited to, estimates and assumptions foraccounts receivable and insurance related reserves. Actual results may differfrom those estimates under different assumptions or conditions.

***Cash and Cash Equivalents***

Cash and cash equivalents are composed of highlyliquid investments with a maturity of three months or less at acquisition, andare recorded at market value.

At December 31, 2006and 2005, bank overdrafts of $23.8 million and $25.7 million, respectively,were included in accounts payable in the accompanying balance sheets.

***Insurance Collateral***

Insurance collateral isprincipally comprised of government and investment grade securities and cashdeposits with third parties and supports the Company’s insurance program andreserves. Certain of these investments, if sold or otherwise liquidated, wouldhave to be replaced by other suitable financial assurances and are, therefore,considered restricted. Investment returns earned on these investments arereported as a component of insurance expense in the statements of operations.

F-12

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

***Trade and Other Accounts Receivable, net***

TheCompany determines its allowances based on payor reimbursement schedules,historical write-off experience and other economic data. Account balances arecharged off against the uncompensated care allowance when it is probable thereceivable will not be recovered. Write-offs to the contractual allowance occurwhen payment is received. The allowance for uncompensated care is relatedprincipally to receivables recorded for self-pay patients. The following tablepresents accounts receivable, net and accounts receivable allowances bysegment:
|                                      | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **Accounts receivable, net**         | ** ** | ** **            | ** ** | ** ** | ** ** |
| AMR                                  |       | $                     | 264,898    |   | $ | 256,382 |   |
| EmCare                               |       | 151,552               |       | 154,802 |   |
| Total                                |       | $                     | 416,450    |   | $ | 411,184 |   |
| **Accounts receivable allowances**   | ** ** | ** **            | ** ** | ** ** | ** ** |
| AMR                                  |       |                  |       |   |   |
| Allowance for  contractual discounts |       | $                     | 159,367    |   | $ | 124,243 |   |
| Allowance for  uncompensated care    |       | 146,305               |       | 128,021 |   |
| Total                                |       | $                     | 305,672    |   | $ | 252,264 |   |
| EmCare                               |       |                  |       |   |   |
| Allowance for  contractual discounts |       | $                     | 540,033    |   | $ | 345,959 |   |
| Allowance for  uncompensated care    |       | 223,227               |       | 208,753 |   |
| Total                                |       | $                     | 763,260    |   | $ | 554,712 |   |

 

The increase in theallowances and provisions for contractual discounts and uncompensated care isprimarily a result of increases in the Company’s gross fee-for-service rateschedules. These gross fee schedules, including any changes to existing feeschedules, generally are negotiated with various contracting entities,including municipalities and facilities. Fee schedule increases are billed forall revenue sources and to all payors under that specific contract; however,reimbursement in the case of certain state and federal payors, includingMedicare and Medicaid, will not change as a result of the change in gross feeschedules. In certain cases, this results in a higher level of contractual anduncompensated care provisions and allowances, requiring a higher percentage ofcontractual discount and uncompensated care provisions compared to grosscharges.

***Parts and Supplies Inventory***

Parts and suppliesinventory is valued at cost, determined on a first-in, first-out basis. Durablemedical supplies, including stretchers, oximeters and other miscellaneousitems, are capitalized as inventory and expensed as used.

***Property, Plant and Equipment, net***

Property,plant and equipment were reflected at their estimated fair value as of February 1,2005. Additions to property, plant and equipment subsequent to this date arerecorded at cost. Maintenance and repairs that do not extend the useful life ofthe property are charged to expense as incurred. Gains and 

F-13

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

losses from dispositions of property, plant andequipment are recorded in the period incurred. Depreciation of property, plantand equipment is provided substantially on a straight-line basis over theirestimated useful lives, which are as follows:

| Buildings                       |   | 35 to 40 years                        |
|---------------------------------|--------|--------------------------------------------|
| Leasehold  improvements         |   | Shorter of expected life  or life of lease |
| Vehicles                        |   | 5 to 7 years                          |
| Computer hardware  and software |   | 3 to 5 years                          |
| Other                           |   | 3 to 10 years                         |

 

***Goodwill***

The acquisition of AMR and EmCare by EMS LP resultedin $252.0 million of goodwill which has been allocated to AMR and EmCare, whichare considered the Company’s reporting units for purposes of Statement ofFinancial Accounting Standard (“SFAS”) No. 142 *Goodwill andOther Intangible Assets*(“SFAS 142”).

SFAS 142 requires the Company to compare the fairvalue of the reporting unit to its carrying amount on an annual basis todetermine if there is potential goodwill impairment. If the fair value of thereporting unit is less than its carrying value, an impairment loss is recordedto the extent that the fair value of the goodwill within the reporting unit isless than its carrying value.

The Company uses anindependent valuation group to determine the fair value of its operating units.The independent valuation group uses a present value technique, corroborated bymarket multiples when available and as appropriate, for each of the reportingunits. We perform our annual goodwill impairment assessment during the thirdquarter each year. No impairment indicators were noted in completing theCompany’s annual impairment assessment.

***Impairment of Long-lived Assets other than Goodwilland Other Definite Lived Intangibles***

Long-lived assets otherthan goodwill and other definite lived intangibles are assessed for impairmentwhenever events or changes in circumstances indicate that the carrying valuemay not be recoverable. Important factors which could trigger impairment reviewinclude significant underperformance relative to historical or projected futureoperating results, significant changes in the use of the acquired assets or thestrategy for the overall business, and significant negative industry oreconomic trends. If indicators of impairment are present, management evaluates thecarrying value of long-lived assets other than goodwill and other definitelived intangibles in relation to the projection of future undiscounted cashflows of the underlying business. Projected cash flows are based on historicalresults adjusted to reflect management’s best estimate of future market andoperating conditions, which may differ from actual cash flows. There were noindicators of impairment in 2006.

***Contract Value***

The Company’s contracts and customer relationships,recorded initially at their estimated fair value, represent the amortized valueof such assets held by the Company. These assets are amortized on astraight-line basis over the average length of the contracts and expectedcontract renewal period, and range from 3 to 8 years depending on the type ofcontract and customer relationship.

F-14

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

The Predecessor recorded acontract value intangible asset which was amortized on a straight-line basisover the average length of the contracts and expected renewal period of 10years. In accordance with the provisions of fresh-start accounting, thereversal of the income tax valuation allowance resulted in a reduction incertain contract assets at August 31, 2004 (see note 6 “Income Taxes”).

***Radio Frequencies***

The radio frequency licenses total $0.6 million at December 31,2006 and 2005. These assets are considered to be indefinite lived intangibleassets and as such are not amortized, but are reviewed for impairment on anannual basis.

The radio frequencylicenses recorded by the Predecessor were also indefinite lived intangibleassets and were not amortized. In accordance with the provisions of fresh-startaccounting, the reversal of the income tax valuation allowance resulted in theradio frequency asset being reduced to zero at August 31, 2004 (see note 6“Income Taxes”).

***Claims Liability and Professional Liability Reserves***

We are self-insured up tocertain limits for costs associated with workers compensation claims,automobile, professional liability claims and general business liabilities.Reserves are established for estimates of the loss that we will ultimatelyincur on claims that have been reported but not paid and claims that have beenincurred but not reported. These reserves are based upon actuarial valuationsthat are prepared by our independent actuaries. The actuarial valuationsconsider a number of factors, including historical claim payment patterns andchanges in case reserves, the assumed rate of increase in healthcare costs andproperty damage repairs. Historical experience and recent trends in thehistorical experience are the most significant factors in the determination ofthese reserves. We believe the use of actuarial methods to account for thesereserves provides a consistent and effective way to measure these subjectiveaccruals. However, given the magnitude of the claims involved and the length oftime until the ultimate cost is known, the use of any estimation technique inthis area is inherently sensitive. Accordingly, our recorded reserves coulddiffer from our ultimate costs related to these claims due to changes in ouraccident reporting, claims payment and settlement practices or claims reservepractices, as well as differences between assumed and future cost increases.Accrued unpaid claims and expenses that are expected to be paid within the nexttwelve months are classified as current liabilities. All other accrued unpaidclaims and expenses are classified as non-current liabilities.

***Equity Structure***

The Company is the general partner of EMS LP and holds22.7% of the equity interests in EMS LP. LP exchangeable units, held bypersons affiliated with the Company’s principal equity holder, represent thebalance of the EMS LP equity. The LP exchangeable units are exchangeable at anytime, at the option of the holder, for shares of the Company’s class B commonstock on a one-for-one basis. The holders of the LP exchangeable units have theright to vote, through the trustee holder of the Company’s class B specialvoting stock, at all stockholder meetings at which holders of the Company’sclass B common stock or class B special voting stock are entitled to vote.

In the EMS LP partnershipagreement, the Company has agreed to maintain the economic equivalency of theLP exchangeable units and the class B common stock, and the holders of the LP 

F-15

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

exchangeableunits have no general voting rights. The LP exchangeable units, when consideredwith the class B special voting stock, have the same rights, privileges andcharacteristics of the Company’s class B common stock. The LP exchangeable unitsare intended to be economically equivalent to the class B common stock of theCompany in that the LP exchangeable units carry the right to vote (by virtue ofthe class B special voting stock) with the holders of class B common stock asif one class, and entitle holders to receive distributions only if theequivalent dividends are declared on the Company’s class B common stock.Accordingly, the Company accounts for the LP exchangeable units as if the LPexchangeable units were shares of its common stock, including reporting the LPexchangeable units in the equity section of the Company’s balance sheet andincluding the number of outstanding LP exchangeable units in both its basic anddiluted earnings per share calculations.

***EmCare Contractual Arrangements***

EmCare structures its contractual arrangements foremergency department management services in various ways. In most states, awholly-owned subsidiary of EmCare (“EmCare Subsidiary”) contracts withhospitals to provide emergency department management services. The EmCareSubsidiary enters into an agreement (“PA Management Agreement”) with aprofessional association or professional corporation (“PA”), whereby the EmCareSubsidiary provides the PA with management services and the PA agrees toprovide physician services for the hospital contract. The PA employs physiciansdirectly or subcontracts with another entity for the physician services. Incertain states, the PA contracts directly with the hospital, but providesphysician services and obtains management services in the same manner asdescribed above. In all arrangements, decisions regarding patient care are madeexclusively by the physicians. In consideration for these services, the EmCareSubsidiary receives a monthly fee that may be adjusted from time to time toreflect industry practice, business conditions, and actual expenses foradministrative costs and uncollectible accounts. In most states, these feesapproximate the excess of the PA’s revenues over its expenses.

Each PA is wholly-owned by a physician who enters intoa Stock Transfer and Option Agreement with EmCare. This agreement gives EmCarethe right to replace the physician owner with another physician in accordancewith the terms of the agreement.

EmCare has determined thatthese management contracts met the requirements of Emerging Issues Task Force 97-2*Application of FASB Statement No. 94 and APBOpinion No. 16 to Physician Practice Entities*, forconsolidation. Upon adoption of FIN 46(R), *Consolidation of VariableInterest Entities,* the Company concluded that these managementcontracts resulted in a variable interest in the PAs and that the Company isthe primary beneficiary. Accordingly, the consolidated financial statements ofEmCare and these financial statements include the accounts of EmCare and itssubsidiaries and the PAs. The financial statements of the PAs are consolidatedwith EmCare and its subsidiaries because EmCare has ultimate control over theassets and business operations of the PAs as described above. Notwithstandingthe lack of technical majority ownership, consolidation of the PAs is necessaryto present fairly the financial position and results of operations of EmCarebecause of the existence of a control relationship by means other than recordownership of the PAs’ voting stock. Control of a PA by EmCare is perpetual andother than temporary because EmCare may replace the physician owner of the PAat any time and thereby continue EmCare’s relationship with the PA.

F-16

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

***Financial Instruments and Concentration of Credit Risk***

The Company’s cash and cash equivalents, accountsreceivable, accounts payable, accrued liabilities, other than current portionof self-insurance estimates, long-term debt and long-term liabilities, otherthan self-insurance estimates, constitute financial instruments. Based onmanagement’s estimates, the carrying value of the Company’s cash and cashequivalents, accounts receivable, accounts payable, accrued liabilities. otherthan current portion of self-insurance estimates, and long-term liabilities,other than self-insurance estimates, approximates their fair value as of December 31,2006 and 2005. Concentration of credit risks in accounts receivable is limited,due to the large number of customers comprising the Company’s customer basethroughout the United States. A significant component of the Company’s revenueis derived from Medicare and Medicaid. Given that these are governmentprograms, the credit risk for these customers is considered low. The Companyperforms ongoing credit evaluations of its other customers, but does notrequire collateral to support customer accounts receivable. The Companyestablishes an allowance for uncompensated care based on the credit riskapplicable to particular customers, historical trends and other relevantinformation. For each of the periods presented, the Company derivedapproximately 30% of its net revenue from Medicare and Medicaid, 65% frominsurance providers and contracted payors, and 5% directly from patients.

The Company estimates thefair value of its fixed rate, senior subordinated notes based on quoted marketprices. The estimated fair value of the senior subordinated notes at December 31,2006 was approximately $271 million with a carrying value of $250 million.

F-17

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

***Revenue Recognition***

Revenueis recognized at the time of service and is recorded net of provisions forcontractual discounts and estimated uncompensated care. Provisions forcontractual discounts and estimated uncompensated care by segment, as apercentage of gross revenue and gross revenue less contractual discountprovisions as indicated, are as follows:
|                                        | ** ** | ** **                               | ** ** | ** **                                             | ** ** | ** ** | ** ** | **Predecessor**                                     | ** ** |
|----------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | ** ** | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| **AMR**                                |       |                                     |       |                                                   |       |       |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Gross revenue                          |       |                                     | 100        | %                                                      |       |       | 100        | %                                                   |       |   |   |   | 100 | % |   |   | 100 | % |   |
| Provision for  contractual discounts   |       |                                     | 38         | %                                                      |       |       | 37         | %                                                   |       |   |   |   | 35 | % |   |   | 35 | % |   |
| Provision for  uncompensated care      |       |                                     | 14         | %                                                      |       |       | 14         | %                                                   |       |   |   |   | 14 | % |   |   | 14 | % |   |
| After contractual discount provisions  |       |                                     | 23         | %                                                      |       |       | 22         | %                                                   |       |   |   |   | 22 | % |   |   | 21 | % |   |
| **EmCare**                             | ** ** |                                     |       |                                                   |       |       |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Gross revenue                          |       |                                     | 100        | %                                                      |       |       | 100        | %                                                   |       |   |   |   | 100 | % |   |   | 100 | % |   |
| Provision for  contractual discounts   |       |                                     | 47         | %                                                      |       |       | 49         | %                                                   |       |   |   |   | 42 | % |   |   | 41 | % |   |
| Provision for  uncompensated care      |       |                                     | 24         | %                                                      |       |       | 20         | %                                                   |       |   |   |   | 25 | % |   |   | 24 | % |   |
| After contractual discount provisions  |       |                                     | 45         | %                                                      |       |       | 39         | %                                                   |       |   |   |   | 44 | % |   |   | 41 | % |   |
| **Total**                              | ** ** |                                     |       |                                                   |       |       |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Gross revenue                          |       |                                     | 100        | %                                                      |       |       | 100        | %                                                   |       |   |   |   | 100 | % |   |   | 100 | % |   |
| Provision for  contractual discounts   |       |                                     | 43         | %                                                      |       |       | 43         | %                                                   |       |   |   |   | 39 | % |   |   | 37 | % |   |
| Provision for  uncompensated care      |       |                                     | 19         | %                                                      |       |       | 17         | %                                                   |       |   |   |   | 19 | % |   |   | 18 | % |   |
| After contractual  discount provisions |       |                                     | 33         | %                                                      |       |       | 29         | %                                                   |       |   |   |   | 31 | % |   |   | 29 | % |   |

 

Healthcare payment is complex and may involve lengthydelays. Third-party payors are continuing their efforts to control expendituresfor healthcare, including proposals to revise reimbursement policies. TheCompany has from time to time experienced delays in payment from third-partypayors. In addition, third-party payors may disallow, in whole or in part,claims for payment based on determinations that certain amounts are not reimbursableunder plan coverage, determinations of medical necessity, or the need foradditional information. Laws and regulations governing the Medicare andMedicaid programs are very complex and subject to interpretation. As a result,there is a reasonable possibility that recorded estimates will changematerially in the short-term. Retroactive adjustments may change the amountsrealized from third-party payors and are considered in the recognition ofrevenue on an estimated basis in the period the related services are rendered.Such amounts are adjusted in future periods, as adjustments become known. Theretroactive adjustments, which increased revenue recorded in 2006, was 1.3% ofconsolidated net revenue compared to increased revenue adjustments of 0.6% forthe eleven months ended December 31, 2005.

Subsidies and fees in connection with communitycontracts at AMR are recognized ratably over the service period the paymentcovers.

F-18

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

The Company also providesservices to patients who have no insurance or other third-party payor coverage.In certain circumstances, federal law requires providers to render services toany patient who requires emergency care regardless of their ability to pay.

***Income Taxes***

The Company accounts for income taxes under SFAS No. 109*Accounting for Income Taxes*. Deferredincome taxes reflect the impact of temporary differences between the reportedamounts of assets and liabilities for financial reporting purposes and suchamounts as measured by tax laws and regulations. The deferred tax assets andliabilities represent the future tax return consequences of those differences,which will either be taxable or deductible when the assets and liabilities arerecovered or settled. A valuation allowance is provided for deferred tax assetswhen management concludes it is more likely than not that some portion of thedeferred tax assets will not be recognized. The respective tax authorities, inthe normal course, audit previous tax filings. It is not possible at this timeto predict the final outcome of these audits or establish a reasonable estimateof possible additional taxes owing, if any.

In connection with the acquisition of AMR and EmCare,the Company made an Internal Revenue Code (“IRC”) section 338(h)(10) electionfor EmCare which eliminated $67 million of deferred tax assets and stepped-upthe tax basis of EmCare’s assets to fair value. Differences between book andtax depreciation and amortization for these assets will create future deferredtax assets or liabilities.

AMR and EmCare were includedin the consolidated U.S. income tax return with other LaidlawU.S. subsidiaries prior to February 1, 2005. The tax allocationagreement calculated tax liability on a separate company basis and provided forreimbursement or payment for utilization of carryovers among members of thegroup. Consequently, AMR and EmCare only received the benefits of net operatingloss and interest carryforwards to the extent utilized in Laidlaw’sconsolidated return.

***Net Income Per Common Share***

The consolidated financialstatements include “basic” and “diluted” per share information. Basic per shareinformation is calculated by dividing net income available to stockholders bythe weighted average number of shares outstanding. Diluted per shareinformation is calculated by also considering the impact of potential commonstock on both net income and the weighted average number of shares outstanding.The weighted average number of shares used in the basic earnings per sharecomputation was 41.5 million for the year ended December 31, 2006 and33.6 million for the eleven months ended December 31, 2005. The onlydifference in the computation of basic and diluted earnings per share is theinclusion of 1.0 million and 0.7 million potential common shares for theperiods ended December 31, 2006 and 2005, respectively.

***Stock Options***

The Company records theexpense of stock option awards over the period in which the options vest,consistent with the provisions of SFAS No. 123(R) *Accounting for Stock-Based Compensation*. Thestock options are valued using the Black-Scholes valuation method on the dateof grant. Prior to January 1, 2006, the Company recorded equity-basedcompensation in accordance with the provisions of SFAS No. 123 *Accounting for Stock-Based Compensation*.

F-19

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

***Recent Accounting Pronouncements***

In July 2006, the FASB issued Interpretation No. 48*Accounting for Uncertainty in Income Taxes,*an interpretation of FASB Statement No. 109 (“FIN 48”), effective forfiscal years beginning after December 15, 2006. FIN 48 creates a singlemodel to address uncertainty in tax positions, prescribes the minimumrecognition threshold, and provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 also has expanded disclosure requirements,which include a tabular rollforward of the beginning and ending aggregateunrecognized tax benefits, as well as specific detail related to taxuncertainties for which it is reasonably possible the amount of unrecognized taxbenefit will significantly increase or decrease within twelve months. Uponadoption of FIN 48, the Company anticipates it will reclassify approximately $34 millionto a long-term liability and increase current deferred tax assets.

In September 2006,the FASB issued SFAS No. 157 *Fair Value Measurement*(“SFAS 157”), which defines fair value, establishes a framework for measuringfair value and expands disclosures about assets and liabilities measured atfair value. The Company will be required to adopt SFAS 157 in the first quarterof fiscal 2008. Management currently is evaluating the requirements of SFAS 157and has not yet determined the impact it will have on the Company’s financialstatements.

**3.**                 Acquisitions

During the year ended December 31,2006, the Company acquired four entities for a total cost of $24.7 million,which was paid primarily in cash. On July 8, 2006, the Company acquiredAir Ambulance Specialists, Inc., a privately held fixed wing air ambulancecompany, with an effective date of July 1, 2006. AASI is based inCentennial, Colorado. On November 13, 2006, the Company acquired ClinicalStaffing Solutions, a Philadelphia-based hospitalist business. The Company alsopurchased two local ambulance service providers. Silver Spring AmbulanceService, Inc., providing services in the Washington D.C. market, wasacquired in July 2006. Lifeline Medical Services, Inc., providingservices in the south Florida market, was acquired in June 2006. TheCompany is in the process of completing the purchase price allocation for theseacquisitions and has preliminarily recorded $20.4 million of goodwill as of December 31,2006.

**4.**                 Property,Plant and Equipment, net

Property,plant and equipment, net consisted of the following at December 31:
|                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Land                                             |       | $        | 2,079      |     | $          | 2,079 |   |
| Building and  leasehold improvements             |       | 19,997   |       | 11,665   |       |
| Vehicles                                         |       | 105,788  |       | 87,082   |       |
| Computer hardware  and software                  |       | 48,792   |       | 33,444   |       |
| Other                                            |       | 66,216   |       | 46,525   |       |
|                                             |       | 242,872  |       | 180,795  |       |
| Less: accumulated  depreciation and amortization |       | (95,710  | )          | (42,758  | )          |
| Property, plant and  equipment, net              |       | $        | 147,162    |     | $          | 138,037 |   |

 

F-20

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Vehicles include certainvehicles held under capital leases with a net book value of $2.1 million and$7.2 million at December 31, 2006 and 2005, respectively. Accumulateddepreciation and amortization at December 31, 2006 and 2005 includes $9.7million and $4.6 million, respectively, relating to such vehicles. Depreciationexpense, which includes amortization of assets under capital leases, was $53.1million for the year ended December 31, 2006, $42.5 million for the elevenmonths ended December 31, 2005, $18.0 million for the five monthsended January 31, 2005 and $43.2 million for the year ended August 31,2004.

**5.**                 IntangibleAssets, net

Intangibleassets, net consisted of the following at December 31:
|                                   | ** ** | **2006**                    | ** ** | ** **                    | ** ** | **2005**   | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-------------------------------|------------|------------|------------|
| ** **                        | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | ** ** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| **Amortized intangible assets**   | ** ** | ** **                  | ** ** |                          | ** ** | ** ** |       |   |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Contract value                    |       | $                           | 90,175     |                          |       | $          | (24,330    | ) |   |   |   | $ | 88,975 |   |   | $ | (11,594 | ) |   |
| Covenant not to compete           |       | 493                         |       |                          | (150       | )          |       |   |   | 274 |   |   | (72 | ) |   |
| Total                             |       | $                           | 90,668     |                          |       | $          | (24,480    | ) |   |   |   | $ | 89,249 |   |   | $ | (11,666 | ) |   |
| **Unamortized intangible assets** |       |                        |       |                          |       |       |       |   |   |   |   |   |   |   |   |
| Radio frequencies                 |       | 601                         |       |                          | —     |       |       |   |   | 601 |   |   | — |   |   |
| Total                             |       | $                           | 91,269     |                          |       | $          | (24,480    | ) |   |   |   | $ | 89,850 |   |   | $ | (11,666 | ) |   |

 

F-21

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Amortizationexpense of intangible assets was $12.8 million for the year ended December 31,2006, $11.7 million for the eleven months ended December 31, 2005,$0.8 million for the five months ended January 31, 2005 and$9.5 million for the year ended August 31, 2004. As a result of thereversal of the separate company tax valuation allowance as of August 31,2004 under fresh-start accounting, AMR reduced its intangible assets to zeroand EmCare reduced its intangible assets to $15.8 million. Estimated annualamortization over each of the next five years is expected to be:

| 2007 |   | $12,942 |   |
|------|--------|---------|--------|
| 2008 |   | 12,625  |   |
| 2009 |   | 11,453  |   |
| 2010 |   | 9,640   |   |
| 2011 |   | 9,468   |   |

 

**6.**                 IncomeTaxes

Deferredincome taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. Significant components of the Company’sdeferred taxes were as follows at December 31:

| ** **                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Current deferred tax  assets (liabilities):   |       |     |       |     |       |
| Accounts receivable                           |       | $        | (5,562     | )        | $          | 7,036 |   |
| Accrued liabilities                           |       | 17, 312  |       | 16,298   |       |
| Credit carryforwards                          |       | 723      |       | 102      |       |
| Net current deferred tax assets               |       | 12,473   |       | 23,436   |       |
| Long-term  deferred tax assets (liabilities): |       |     |       |     |       |
| Intangible assets                             |       | (7,005   | )          | (296     | )          |
| Insurance and other long-term liabilities     |       | 30,982   |       | 42,140   |       |
| Excess of tax over book depreciation          |       | (4,783   | )          | (11,093  | )          |
| Interest carryforwards                        |       | 65,497   |       | 70,820   |       |
| Net operating loss carryforwards              |       | 18,679   |       | 16,837   |       |
|                                          |       | 103,370  |       | 118,408  |       |
| Net deferred tax assets                       |       | $115,843 |       | $141,844 |       |
|                                               |            |          |            |          |            |  |  |

 

The Company has significant net deferred tax assetsresulting from net operating loss (“NOL”) and interest deduction carryforwardsand other deductible temporary differences that will reduce taxable income infuture periods. SFAS 109**requiresthat a valuation allowance be established when it is “more likely than not”that all, or a portion, of net deferred tax assets will not be realized. Areview of all available positive and negative evidence needs to be considered,including expected reversals of significant deductible temporary differences, acompany’s recent financial performance, the market environment in which acompany operates, tax planning strategies and the length of NOL carryforwardperiods. Furthermore, the weight given to the potential effect of negative andpositive evidence should be commensurate with the extent to which it can beobjectively verified.

F-22

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

The Company operates in multiple taxing jurisdictionsand in the normal course of business is examined by federal and state taxauthorities. In association with this the Company has established reservesfor income taxes in accordance with SFAS No. 5. In the first quarterof 2007, this reserve will be accounted for under FIN 48. The Company willperiodically assess the amount of such reserves and adjust the reservebalances as necessary. The Company does not expect the final resolution of taxexaminations to have a material impact on the Company’s financial results.During the fourth quarter of 2006, the Company was notified that Laidlaw closedits federal consolidated tax return audits, which included the AMR and EmCareentities, for the periods August 31, 2001 through August 31, 2003.

As a result of the Company’s improved financialperformance during fiscal 2004, management reduced the deferred tax valuationallowance by $107.8 million during the year ended August 31, 2004. Asrequired under fresh-start accounting, this change also resulted in a reductionin intangible assets and goodwill and an increase in Laidlaw equity of AMR.

The Company has interest carryovers of $­172 millionat December 31, 2006 limited by IRC Section 163(j) withoutexpiration, and federal net operating loss carryforwards of $49 million whichexpire in the years 2007 to 2025. $47 million of net operating losscarryforwards are subject to AMR’s annual IRC Section 382 limitation of$1.3 million. However, AMR has a net unrealized built-in gain (“NUBIG”) andfuture recognition of some of these built-in gains will enable AMR to utilizeits NOLs in excess of the annual limitation. Of the NOL, $2 million isattributable to EmCare’s December 31, 2005 separate return limitationyear, which is not subject to either of the aforementioned Section 382limits. The Company’s deferred tax assets related to its NOLs increased by $1.8million from 2005 to 2006, despite utilizing NOLs in 2006. The increase isattributable to reevaluation of the NUBIG, purchase price adjustments relatedto the Company’s acquisition of AMR and EmCare, and favorable IRS auditadjustments to AMR’s NOLs.

The Company recorded an income tax receivable of $15.6million as of December 31, 2005 relating to over-payments of estimatedquarterly taxes. This receivable was included in trade and other accountsreceivable, net on the accompanying balance sheet and was collected in 2006.

F-23

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Thecomponents of income tax expense (benefit) were as follows:

| ** **               | ** ** | ** **                               | ** ** | ** **                                             | ** ** | ** ** | ** ** | **Predecessor**                                     | ** ** |
|--------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|
| ** **               | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | ** ** | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| **Current  tax expense** | ** ** |                                     | ** ** | ** **                                             |       |       | ** ** | ** **                                          |       |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| State                    |       |                                     | $          | —                                                 | ** ** |       |       | $                                                   | —     | ** ** |   |   |   |   | $ | — | ** ** |   |   | $ | 559 |   |   |
| Federal                  |       |                                     | 479        | ** **                                             |       |       | 102        | ** **                                          |       |   |   |   | — | ** ** |   |   | (694 | ) |   |
| Total                    |       |                                     | 479        | ** **                                             |       |       | 102        | ** **                                          |       |   |   |   | — | ** ** |   |   | (135 | ) |   |
| **Deferred tax expense** | ** ** |                                     | ** ** | ** **                                             |       |       | ** ** | ** **                                          |       |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| State                    |       |                                     | 1,970      | ** **                                             |       |       | 1,134      | ** **                                          |       |   |   |   | 762 | ** ** |   |   | 2,496 |   |   |
| Federal                  |       |                                     | 22,512     | ** **                                             |       |       | 13,136     | ** **                                          |       |   |   |   | 5,516 | ** ** |   |   | 19,403 |   |   |
| Total                    |       |                                     | 24,482     | ** **                                             |       |       | 14,270     | ** **                                          |       |   |   |   | 6,278 | ** ** |   |   | 21,899 |   |   |
| **Total tax expense**    | ** ** |                                     | ** ** | ** **                                             |       |       | ** ** | ** **                                          |       |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| State                    |       |                                     | 1,970      | ** **                                             |       |       | 1,134      | ** **                                          |       |   |   |   | 762 | ** ** |   |   | 3,055 |   |   |
| Federal                  |       |                                     | 22,991     | ** **                                             |       |       | 13,238     | ** **                                          |       |   |   |   | 5,516 | ** ** |   |   | 18,709 |   |   |
| Total                    |       |                                     | $24,961    | ** **                                             |       |       | $14,372    | ** **                                          |       |   |   |   | $6,278 | ** ** |   |   | $21,764 |   |   |
|                          |            |                                          |            |                                                        |            |            |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Areconciliation of the provision (benefit) for income taxes at the federalstatutory rate compared to the Company’s effective tax rate is as follows:

| ** **                                           | ** ** | ** **                               | ** ** | ** **                                             | ** ** | ** ** | ** ** | **Predecessor**                                     | ** ** |
|------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | ** ** | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| Income tax  expense (benefit) at the statutory rate  |       |                                     | $22,412    |                                                   |       |       | $12,033    |                                                |       |   |   |   | $5,516 |   |   |   | $20,690 |   |   |
| Increase (decrease) in  income taxes resulting from: |       |                                     |       |                                                   |       |       |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| State taxes, net of federal                          |       |                                     | 1,971      |                                                   |       |       | 1,182      |                                                |       |   |   |   | 495 |   |   |   | 1,986 |   |   |
| Laidlaw allocations                                  |       |                                     | —     |                                                   |       |       | —     |                                                |       |   |   |   | — |   |   |   | (1,577 | ) |   |
| Other                                                |       |                                     | 578        |                                                   |       |       | 1,157      |                                                |       |   |   |   | 267 |   |   |   | 665 |   |   |
| Provision for  income taxes                          |       |                                     | $24,961    |                                                   |       |       | $14,372    |                                                |       |   |   |   | $6,278 |   |   |   | $21,764 |   |   |

 

F-24

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**7.**                 AccruedLiabilities

Accruedliabilities were as follows at December 31:

| ** **                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Accrued wages and  benefits                |       | $        | 71,578     |     | $          | 61,646 |   |
| Accrued paid  time-off                     |       | 22,816   |       | 21,673   |       |
| Current portion  of self-insurance reserve |       | 57,596   |       | 58,379   |       |
| Accrued  restructuring                     |       | 5,738    |       | 1,732    |       |
| Current portion  of compliance and legal   |       | 4,910    |       | 14,244   |       |
| Accrued billing  and collection fees       |       | 5,085    |       | 4,176    |       |
| Accrued profit  sharing                    |       | 19,695   |       | 10,260   |       |
| Accrued interest                           |       | 11,810   |       | 12,335   |       |
| Other                                      |       | 32,403   |       | 30,036   |       |
| Total accrued  liabilities                 |       | $231,631 |       | $214,481 |       |
|                                            |            |          |            |          |            |  |  |

 

**8.**                 Debt

On February 10, 2005, the Company issued $250.0million of senior subordinated unsecured notes and entered into a $450.0million Senior Secured Credit Facility (“Credit Facility”) agreement.

The senior subordinated notes have a fixed interestrate of 10%, payable semi-annually and mature in February 2015. The seniorsubordinated notes are general unsecured obligations of the issuers, EMSCManagement, Inc. and EmCare HoldCo, Inc., and are guaranteed by EMSC,EMS LP and each of EMSC’s domestic subsidiaries. AMR and its subsidiaries arewholly-owned subsidiaries of EMSC Management, Inc. and EmCare and itssubsidiaries are wholly-owned subsidiaries of EmCare HoldCo, Inc.

The Credit Facility consists of a $350.0 millionsenior secured term loan and a $100.0 million Senior Secured Revolving CreditFacility commitment, (“Revolving Facility”), each collateralized by a pledge of100% of the capital stock of the Company and its direct and indirect domesticsubsidiaries, 65% of the capital stock of any direct foreign subsidiaries andan interest in substantially all tangible and intangible assets of EMS LP andits subsidiaries. The term loan matures in February 2012 and requiresquarterly principal payments of $0.6 million. The Revolving Facility wasestablished to fund the Company’s working capital and letter of credit needsand requires principal and interest to be paid at maturity in February 2011.The Revolving Facility is also subject to an annual commitment fee of 0.5% onunutilized commitments. Under the terms of the agreement, the Company mayselect between various interest rate arrangements based on LIBOR or the PrimeRate plus additional basis points ranging from 1% to 3%, determined byreference to a leverage ratio. At December 31, 2006, net of letters ofcredit outstanding of $29.9 million, the maximum available under the RevolvingFacility was $70.1 million. There were no borrowings under the RevolvingFacility at December 31, 2006 and 2005.

The Credit Facility agreement contains variouscustomary operating and financial covenants. The more restrictive of thesecovenants limit the Company and its subsidiaries’ ability to create liens onassets; make certain investments, loans, guarantees or advances; incuradditional indebtedness or issue capital stock; engage in mergers, acquisitionsor consolidations; dispose of assets; pay dividends, repurchase equity interestor make other restricted payments; change the business conducted by theCompany; engage in transactions with affiliates; and repay certainindebtedness, including the senior unsecured notes, or amend 

F-25

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

or otherwise modifyagreements governing the subordinated indebtedness. The financial maintenancecovenants establish a maximum leverage ratio, a maximum senior leverage ratio,a minimum fixed charge coverage ratio and an annual capital expenditure limit.The Company is in compliance with its debt covenants as of December 31,2006.

The Company paid approximately $18.3 million in debtissuance costs that are being amortized using the effective interest method. Inconnection with the initial public offering discussed in note 12 “Equity,” theCompany used net proceeds from the offering to pay down a portion of the CreditFacility and wrote-off $2.0 million of unamortized debt issuance costs. TheCompany made unscheduled payments on the Credit Facility totaling $19.4 millionduring the year ended December 31, 2006 and wrote off $0.4 million ofunamortized debt issuance costs.

Long-termdebt and capital lease obligations consisted of the following at December 31:

| ** **                                                                                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Senior  subordinated notes due 2015                                                                                             |       | $250,000 |       | $250,000 |       |
| Senior secured  term loan due 2012 (7.38% at December 31, 2006)                                                            |       | 226,472  |       | 248,250  |       |
| Notes due at  various dates from 2004 to 2022 with interest rates from 6% to 10%                                                |       | 1,856    |       | 856      |       |
| Capital lease  obligations due at various dates from 2006 to 2007 (see note 13  “Commitments and Contingencies”) |       | 1,447    |       | 3,078    |       |
|                                                                                                                            |       | 479,775  |       | 502,184  |       |
| Less current  portion                                                                                                           |       | (4,159   | )          | (6,664   | )          |
| Total long-term debt                                                                                                            |       | $475,616 |       | $495,520 |       |

 

The aggregate amount ofminimum payments required on long-term debt and capital lease obligations ineach of the years indicated is as follows:

| **Year ending December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 4,159      |       |
| 2008                                        |       | 2,565      |       |
| 2009                                        |       | 2,576      |       |
| 2010                                        |       | 2,598      |       |
| 2011                                        |       | 163,257    |       |
| Thereafter                                  |       | 304,620    |       |
|                                        |       | $          | 479,775    |       |

 

F-26

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**9.**                 RestructuringCharges

Theactivity in the accrued restructuring balance is as follows:

| ** **              | ** ** | **2002 Plan** | ** ** | **2004 Plan** | ** ** | **2005 Plan** | ** ** | **2006 Plans** | ** ** | ** **    | ** ** |
|-------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------|------------|
| ** **              | ** ** | **Severance**      | ** ** | **Lease**          | ** ** | **Total**          | ** ** | **Severance**       | ** ** | **Severance** | ** ** | **Severance** | ** ** | **Lease** | ** ** | **Total** | ** ** | **Total** | ** ** |
| **Predecessor**         | ** ** |               | ** ** | ** **         |       | ** **         | ** ** | ** **          | ** ** |          | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Incurred                |       |               | $          | 1,517              |       |               | $          | 2,260               |       | $             | 3,777      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | $ | 3,777 |   |
| Paid                    |       |               | (456       | )                  |       | (149               | )          | (605                | )          |          |       |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | (605 | ) |
| August 31, 2002    |       |               | 1,061      |               |       | 2,111              |       | 3,172               |       |          |       |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | 3,172 |   |
| Paid                    |       |               | (559       | )                  |       | (561               | )          | (1,120              | )          |          |       |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | (1,120 | ) |
| August 31, 2003    |       |               | 502        |               |       | 1,550              |       | 2,052               |       |          |       |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | 2,052 |   |
| Incurred                |       |               | —     |               |       | —             |       | —              |       |          | $          | 2,115 |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | 2,115 |   |
| Paid                    |       |               | (502       | )                  |       | (566               | )          | (1,068              | )          |          | (1,488     | ) |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | (2,556 | ) |
| August 31, 2004    |       |               | —     |               |       | 984                |       | 984                 |       |          | 627        |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | 1,611 |   |
| Paid                    |       |               | —     |               |       | (238               | )          | (238                | )          |          | (255       | ) |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | (493 | ) |
| January 31, 2005   |       |               | $          | —             |       |               | $          | 746                 |       | $             | 746        |   |   | $ | 372 |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | $ | 1,118 |   |
| February 1, 2005   |       |               | $          | —             |       |               | $          | 746                 |       | $             | 746        |   |   | $ | 372 |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | $ | 1,118 |   |
| Adjustment              |       |               | —     |               |       | 287                |       | 287                 |       |          | —     |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | 287 |   |
| Incurred                |       |               | —     |               |       | —             |       | —              |       |          | —     |   |   |   | $ | 1,494 |   |   |   |   |   |   |   |   | ** ** |   |   |   | 1,494 |   |
| Paid                    |       |               | —     |               |       | (567               | )          | (567                | )          |          | (372       | ) |   |   | (228 | ) |   |   |   |   |   |   |   | ** ** |   |   |   | (1,167 | ) |
| December 31, 2005  |       |               | —     |               |       | 466                |       | 466                 |       |          | —     |   |   |   | 1,266 |   |   |   |   |   |   |   |   | ** ** |   |   |   | 1,732 |   |
| Incurred                |       |               | —     |               |       | —             |       | —              |       |          | —     |   |   |   | — |   |   |   | $ | 5,618 |   |   |   | $ | 751 | ** ** |   | $ | 6,369 |   | 6,369 |   |
| Paid                    |       |               | —     |               |       | (286               | )          | (286                | )          |          | —     |   |   |   | (1,266 | ) |   |   | (811 | ) |   |   | — | ** ** |   | (811 | ) | (2,363 | ) |
| December 31,  2006 |       |               | $          | —             |       |               | $          | 180                 |       | $             | 180        |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 4,807 |   |   |   | $ | 751 | ** ** |   | $ | 5,558 |   | $ | 5,738 |   |

 

During fiscal year 2002, in an effort to eliminate thedifferences in size among regions, AMR was re-aligned into four geographicregions. The operating units within the five original regions were shifted tocreate the new structure and the administrative offices of the former Southregion and one billing center were closed. A National Products and Servicesfunction was also closed as part of this restructuring plan. The functionspreviously performed by these groups were distributed to the remaining regionsand the corporate office. The lease commitment associated with this plan isexpected to be completed by December 2008.

During fiscal year 2004, AMR was re-aligned into threegeographic regions. The billing centers and operating units within the fouroriginal AMR regions were shifted to create the new structure and theadministrative office of the former South-Central region was closed. The functionspreviously performed by this group were distributed to the remaining regions.This restructuring plan was completed in 2005.

As part of a plan to merge the national supportfunctions of AMR and EmCare, EMSC recorded a restructuring charge of $0.6million for severance costs in the fourth quarter of fiscal 2005. In additionto this EMSC restructuring, in 2005 AMR was re-aligned from three into twogeographic regions and a resulting severance charge of $0.9 million wasrecorded. The final severance payments under the restructuring plan were paidin 2006.

As part of a plan tore-align the operations and billing function of AMR and to exit the EastMichigan market, the Company recorded a restructuring charge of $6.4 millionduring 2006. Lease termination costs accounted for $0.8 million and theremaining $5.6 million related to one-time termination benefits. 

F-27

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

One-timetermination benefits associated with the plan are expected to be completed by December 2007.Lease termination costs are expected to be completed by December 2015.

**10.**          RetirementPlans and Employee Benefits

AMR maintains three 401(k) plans (the “AMR Plans”)for its employees and employees of its subsidiaries who meet the eligibilityrequirements set forth in the AMR Plans. Employees may contribute a maximum of40% of their compensation up to a maximum of $14 thousand. Generally, 50% ofthe contribution is matched by AMR up to a maximum of 3% to 6% of the employee’ssalary per year, depending on the plan. AMR’s contributions to the AMR Planswere $10.4 million for the year ended December 31, 2006, $8.7 million forthe eleven months ended December 31, 2005, $3.7 million for the fivemonths ended January 31, 2005 and $8.1 million for the year ended August 31,2004. Contributions are included in compensation and benefits on theaccompanying statements of operations.

EmCare established the EmCare Holdings Inc. 401(k) SavingsPlan (the “EmCare Plan”) in 1994 to provide retirement benefits to itsemployees. Employees may elect to participate in the EmCare Plan at thebeginning of each calendar quarter and may contribute 1% to 25% of their annualcompensation on a tax-deferred basis subject to limits established by theInternal Revenue Service. EmCare contributes 50% of the first 6% of basecompensation that a participant contributes to the EmCare Plan during anycalendar year. The EmCare Plan follows a calendar year-end. Accordingly, EmCaremakes its matching contributions based on eligible employee contributions foreach calendar year. EmCare contributed $0.3 million during the year ended December 31,2006, $0.3 million during the eleven months ended December 31, 2005 and$0.1 million to the EmCare Plan during the five months ended January 31,2005. EmCare contributed $0.5 million during calendar year 2004.

In fiscal 2004, Laidlawissued Value Appreciation Rights (“VARs”) to various employees of AMR andEmCare. There were no VARs issued prior to fiscal 2004. The VARs were scheduledto vest 100% on the third anniversary of the date of the grant. The VARs’ valuewas based on prescribed formulas that estimated changes in the enterprisevalues of AMR and EmCare. The Predecessor Company recognized compensationexpense on a straight-line basis over the vesting period with compensationexpense of $4.1 million for fiscal 2004. The Company recognized$15.3 million of expense related to the VARs for the period ended January 31,2005, which amount is included in Laidlaw fees and compensation charges. Thisexpense related to EMS LP’s purchase of AMR and EmCare discussed in note 1“General” and was funded by Laidlaw in accordance with the terms of thepurchase agreements. The VAR program was terminated in connection with EMS LP’spurchase of AMR and EmCare in February 2005 and employees and executiveswill earn no further rights.

**11.**          EquityBased Compensation

Underthe Company’s Equity Option Plan approved in February 2005, key employeeswere granted options to purchase partnership units of EMS LP. In accordancewith the terms of the Equity Option Plan, the terms of these options wereadjusted to reflect the Company’s initial public offering and reorganization(see note 12 “Equity”) in the fourth quarter of 2005. The options permit theemployees to purchase class A common shares at an exercise price of $6.67 pershare and vest ratably generally over a period of 4 years. In addition, certainperformance measures must be met for 50% of the options to become exercisable.The Company recorded a compensation charge of $1.2 million for the year ended December 31,2006 and 

F-28

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

$1.0 million for the eleven months ended December 31,2005 associated with the grant of these options. The following table summarizesthe status of options under the Equity Option Plan, as well as options grantedto certain directors (with similar terms) as of December 31, 2006:

| ** **                        | ** ** | **Class A  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-----------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| Outstanding at  beginning of year |       | 3,528,719                |       |                                       | $          | 6.77 |   |   |
| Granted at fair  value            |       | —                   |       |                                       | —     |   |   |
| Exercised                         |       | 15,653                   |       |                                       | 6.67       |   |   |
| Expired                           |       | —                   |       |                                       | —     |   |   |
| Forfeited                         |       | 155,159                  |       |                                       | $          | 6.67 |   |   |
| Outstanding at end of year        |       | 3,357,907                |       |                                       | $          | 6.77 |   |   |
| Exercisable at  end of year       |       | 517,507                  |       |                                       | $          | 6.67 |   |   |

 

Therange of exercise prices of the outstanding exercisable options are as followsat December 31, 2006:

| **Weighted Average  Exercise Price** | ** ** | **Number of  Exercisable  Shares** | ** ** | **Number of  Outstanding  Shares** | ** ** | **Weighted Average  Remaining  Life in Years** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|---------------------------------------------------------------|------------|
|                                           | $          | 6.67                                    |       |                                    |       | 512,819                                                       |       |   |   | 3,320,407 |   |   |   | 8.19 |   |   |
|                                           | $          | 16.00                                   |       |                                    |       | 4,688                                                         |       |   |   | 37,500 |   |   |   | 8.95 |   |   |

 

The Black-Scholes option pricing model was used toestimate fair values as of the date of grant using 0% volatility (because theoptions were granted by EMS LP as a private company), risk free rates rangingfrom 3.53% to 3.88%, 0% dividend yield and terms of 4 and 5 years. The weightedaverage fair value of options granted during the eleven months ended December 31,2005 was $1.40. There were no options granted in 2006.

The Company recorded a charge totaling $1.8 millionassociated with partnership units sold and certain options to purchase equityissued to employees and officers of the Company. This non-cash expense wasrecorded as a component of compensation and benefits on the accompanyingstatement of operations for the eleven months ended December 31, 2005.

In June 2006, theboard of directors adopted an equity compensation program for non-employeedirectors of the Company, other than the Chair of the Compliance Committee (“Directors’Plan”). Non-employee directors were granted 8,000 Restricted Stock Units (“RSUs”)on June 1, 2006, each RSU representing one share of the Company’s class Acommon stock. Immediately following each annual stockholder meeting, eachnon-employee director will receive a grant of RSUs having a fair market valueof $0.1 million on the date of grant, based on the closing price of the Company’sclass A common stock on the business day immediately preceding the grant date.The Directors’ Plan allows directors to defer income from the grant of RSUs.The RSUs vest immediately prior to the election of directors at the nextfollowing annual stockholder meeting, and will be paid in shares of the Company’sclass A common stock (one share for each RSU). Each non-employee director(other than the Chair of the Compliance Committee) is also entitled to anannual cash retainer of $50 thousand to be paid in four quarterly 

F-29

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

installments.The Directors’ Plan and RSU grants on June 1, 2006 are both subject tostockholder approval at the 2007 annual stockholders meeting. In connectionwith this plan, the Company expensed $0.2 million for the year ended December 31,2006.

**12.**          Equity

On December 21, 2005,the Company effected a reorganization and issued 8.1 million shares ofclass A common stock in an initial public offering. Pursuant to thereorganization, EMS LP, the former top-tier holding company of AMR and EmCare,became the consolidated subsidiary of EMSC, a newly formed corporation. Toeffect the reorganization, the holders of the capital stock of the sole generalpartner of EMS LP contributed that capital stock to the Company in exchange forclass B common stock; the general partner was merged into the Company and theCompany became the sole general partner of EMS LP. Concurrently, the holders ofclass B units of EMS LP contributed their units to the Company in exchange forshares of the Company’s class A common stock, and the holders of certain classA units of EMS LP contributed their units to the Company in exchange for sharesof the Company’s class B common stock.

**Preferred Stock**

The Company’s board ofdirectors may, without further action by stockholders, from time to time directthe issuance of up to 20 million shares of preferred stock in series andmay, at the time of issuance, determine the rights, preferences and limitationsof each series.

**Class A and Class BCommon Stock and Class B Special Voting Stock**

***General***

The Company’s class A common stock and class B commonstock is identical in all respects, except with respect to voting and exceptthat each share of class B common stock is convertible into one share of classA common stock at the option of the holder. The class B common stock will be convertedautomatically into class A common stock upon a transfer thereof to any personother than certain currently affiliated persons and their affiliates. The classA and class B common stock are referred to as “common stock”.

Subject to preferences that may apply to shares ofpreferred stock outstanding at the time, holders of the Company’s outstandingcommon stock are entitled to any dividend declared by the board of directorsout of funds legally available for this purpose. Upon the Company’s liquidation,dissolution or winding up, the holders of the class A and class B common stockare entitled to receive pro rata the Company’s assets available fordistribution, after payment of all liabilities and subject to the rights of anyoutstanding preferred stock and of the holders of the LP exchangeable units toreceive distributions of assets equivalent to, on a per share/per unit basis,the distributions to the holders of the class A and class B common stock.

The Company’s one share of class B special voting stockis not entitled to any rights or privileges except for the voting rightsdescribed below, and except that it is entitled to a distribution equal to its$0.01 par value upon the Company’s liquidation, dissolution or winding up.

The class B units of EMS LPhad no voting rights and transfer of the units was restricted. Prior to aqualified public offering, if the employment of a holder of class B units wasterminated because of death, disability or by the Company without cause, theholder had the right to either retain his class B units, or to 

F-30

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

“put”his class B units to the Company and require the Company to purchase his classB units. The Company had the right to “call” the class B units and require theholder to sell his/her class B units to the Company. The Company’s “call” rightwas also exercisable upon a holder’s termination for cause. At June 30,2005 and September 30, 2005, the Company recorded the repurchase priceassociated with the put right of $1.8 million and $1.2 million, respectively(see note 17 “Net Income per Common Share”). These put and call rights expiredupon the completion of the Company’s public offering in the fourth quarter of 2005.

***Voting Rights***

Generally, on all matters on which the holders ofcommon stock are entitled to vote, the holders of the class A common stock, theclass B common stock and the class B special voting stock vote together as asingle class. On all matters with respect to which the holders of our commonstock are entitled to vote, each outstanding share of class A common stock isentitled to one vote, each outstanding share of class B common stock isentitled to ten votes and the one share of class B special voting stock isentitled to a number of votes equal to the number of votes that could be castif all of the then outstanding LP exchangeable units were exchanged for class Bcommon stock. If the Minimum Hold Condition is no longer satisfied, the numberof votes per share of class B common stock will be reduced automatically to onevote per share. The Minimum Hold Condition is satisfied so long as theaggregate of the numbers of outstanding shares of class B common stock and LPexchangeable units is at least 10% of the total number of shares of commonstock and LP exchangeable units outstanding.

In addition, holders of class A common stock, on theone hand, and the class B common stock and class B special voting stock, on theother, are entitled to vote as a separate class on approval of (i) anyalteration, repeal or amendment of our certificate of incorporation which wouldadversely affect the powers, preferences or rights of the holders of class Acommon stock or the class B common stock and class B special voting stock, asthe case may be, and (ii) any merger or consolidation of the Company withany other entity if, as a result, (x) shares of class A common stock wouldbe converted into or exchanged for, or receive, any consideration that differsfrom that applicable to the shares of class B common stock as a result of suchmerger or consolidation, other than a difference limited to preserving therelative voting power of the holders of the class A common stock, the class Bcommon stock and the class B special voting stock or (y) in the case ofthe class B common stock and class B special voting stock only, the class Bspecial voting stock would not remain outstanding.

In respect of any matter as to which the holders ofthe class A common stock are entitled to a class vote, holders have one voteper share, and the affirmative vote of the holders of a majority of the sharesof class A common stock outstanding is required for approval. In respect of anymatter as to which the holders of the class B common stock and class B specialvoting stock are entitled to a class vote, holders of class B common stock haveone vote per share and the holder of the class B special voting stock will haveone vote for each LP exchangeable unit outstanding, and the affirmative vote ofthe holders of a majority of the votes entitled to be cast is required forapproval.

F-31

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

***LP Exchangeable Units***

The LP exchangeable unitsare issued by EMS LP. Each LP exchangeable unit is exchangeable at any timeinto one share of class B common stock at the option of the holder and issubstantially equivalent economically to a share of class B common stock. Theholders of the LP exchangeable units have the right to receive distributions,on a per unit basis, in amounts (or property in the case of non-cashdividends), which are the same as, or economically equivalent to, and which arepayable at the same time as, dividends declared on the class B common stock (ordividends that would be required to be declared if class B common stock wereoutstanding). These holders also have the right to vote, through the trusteeholder of the class B special voting stock, at all stockholder meetings atwhich holders of the class B common stock or class B special voting stock areentitled to vote, and the right to participate on a pro rata basis with theclass B common stock in the distribution of assets of the Company, uponspecified events relating to the voluntary or involuntary liquidation,dissolution, winding up or other distribution of the assets, through themandatory exchange of LP exchangeable units for shares of class B common stock.The LP exchangeable units have been included as common stock equivalents in thebasic and diluted earnings per share calculations.

**13.**          Commitmentsand Contingencies

***Lease Commitments***

The Company leases various facilities and equipmentunder operating lease agreements. Rental expense incurred under these leaseswas $43.4 million, $31.1 million, $12.4 million and $27.9 million forthe year ended December 31, 2006, for the eleven months ended December 31,2005, for the five months ended January 31, 2005 and for the year ended August 31,2004, respectively.

In addition, the Company leases certain vehicles undercapital leases. Assets under capital lease are capitalized using inherentinterest rates at the inception of each lease. Capital leases arecollateralized by the leased vehicles.

F-32

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Futurecommitments under non-cancelable capital and operating leases for vehicle,premises, equipment and other recurring commitments are as follows:

| ** **                           | ** ** | ** **  | ** ** | **Operating**         | ** ** |
|--------------------------------------|------------|-------------|------------|-----------------------|------------|
| ** **                           | ** ** | **Capital** | ** ** | **Leases &** | ** ** |
| ** **                           | ** ** | **Leases**  | ** ** | **Other**             | ** ** |
| **Year ending December 31,**    |       |        |       |                  |       |
| 2007                                 |       | $           | 1,484      |                  | $          | 40,873 |   |
| 2008                                 |       | —      |       | 27,610                |       |
| 2009                                 |       | —      |       | 21,023                |       |
| 2010                                 |       | —      |       | 16,471                |       |
| 2011                                 |       | —      |       | 13,990                |       |
| Thereafter                           |       | —      |       | 29,663                |       |
|                                 |       | 1,484       |       | $                     | 149,630    |   |
| Less imputed  interest               |       | (37         | )          |                  |       |
| Total capital  lease obligations     |       | 1,447       |       |                  |       |
| Less current  portion                |       | (1,447      | )          |                  |       |
| Long-term capital lease  obligations |       | $           | —     |                  |       |   |

 

***Services***

The Company is subject to the Medicare and Medicaidfraud and abuse laws which prohibit, among other things, any false claims, orany bribe, kick-back or rebate in return for the referral of Medicare and Medicaidpatients. Violation of these prohibitions may result in civil and criminalpenalties and exclusion from participation in the Medicare and Medicaidprograms. Management has implemented policies and procedures that managementbelieves will assure that the Company is in substantial compliance with theselaws and regulations but there can be no assurance the Company will not befound to have violated certain of these laws and regulations. From time totime, the Company receives requests for information from government agenciespursuant to their regulatory or investigational authority. Such requests caninclude subpoenas or demand letters for documents to assist the government inaudits or investigations. The Company is cooperating with the government agenciesconducting these investigations and is providing requested information to thegovernment agencies. Other than the investigations described below, managementbelieves that the outcome of any of these investigations would not have amaterial adverse effect on the Company.

Like other ambulance companies, AMR has provideddiscounts to its healthcare facility customers (nursing homes and hospitals) incertain circumstances. The Company has attempted to comply with applicable lawwhere such discounts are provided. During the first quarter of fiscal 2004, theCompany was advised by the U.S. Department of Justice (“DOJ”) that it wasinvestigating certain business practices at AMR. The specific practices atissue were (1) whether ambulance transports involving Medicare eligiblepatients complied with the “medical necessity” requirement imposed by Medicareregulations, (2) whether patient signatures, when required, were properlyobtained from Medicare eligible patients, and (3) whether discounts inviolation of the federal Anti-Kickback Statute were provided by AMR in exchangefor referrals involving Medicare eligible patients. In connection with thethird issue, the government alleged that certain of AMR’s hospital andnursing home contracts in effect in Texas in periods prior to 2002 containeddiscounts in violation of the federal Anti-Kickback Statute. The Company 

F-33

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

negotiated a settlementwith the government pursuant to which the Company paid $9 million and obtaineda release of all claims related to such conduct alleged to have occurred inTexas in periods prior to 2002. In connection with the settlement, AMR enteredinto a Corporate Integrity Agreement (“CIA”) which is effective for a period offive years beginning September 12, 2006. Pursuant to the CIA, AMR isrequired to maintain a compliance program which includes, among other elements,the appointment of a compliance officer and committee; training of employeesnationwide; contractual safeguards nationwide, including tracking ofcontractual arrangements in Texas; review by an independent review organizationand reporting of certain reportable events. Under the provisions of thepurchase agreement for the acquisition of AMR, EMSC and Laidlaw sharedresponsibility for the settlement amount and certain of the costs associatedwith the CIA. The net difference in what was reserved as part of purchaseaccounting and what was ultimately paid in settlement of this matter wasrecorded as a reduction of goodwill and totaled $2.1 million.

From August 1998 until August 2000, AmericanMedical Response West (“AMR West”), a subsidiary of AMR, received six subpoenasduces tecum from the United States Attorney’s Office. These subpoenas relatedto billing matters for emergency transports during the periods January 1,1995 to December 31, 1999. Pursuant to a settlement agreement with theUnited States Attorney’s Office, AMR West paid $3.5 million in 2004 andentered into a five-year agreement with the Department of Health and HumanServices covering various administrative processes and procedures. AMR reservedfor these matters in periods prior to the statements of operations presentedherein.

In June 1999, the DOJ began an investigation ofthe billing processes of Regional Emergency Services L.P., or RES, a subsidiaryof AMR, and one of RES’ hospital clients. The DOJ alleged violations bythe companies of the False Claims Act based on the absence of certificates ofmedical necessity and other non-compliant billing practices from October 1992to May 2002. Pursuant to a settlement agreement to resolve theseallegations, including settlement of claims in Texas described below, in April 2004AMR paid $5.0 million of a total $20.0 million settlement amount, with thebalance paid by the hospital. AMR reserved for these matters in periods priorto the statements of operations presented herein.

On December 13, 2005, a lawsuit purporting to bea class action was commenced against AMR in Spokane, Washington in WashingtonState Court, Spokane County. The complaint alleges that AMR billed patients andthird party payors for transports it conducted between 1998 and 2005 at higherrates than contractually permitted. The Court has certified a class in thiscase, but the size and membership of the class has not yet beendetermined. At this time, AMR does not believe that any incorrect billingsare material in amount.

On April 17, 2006,the Office of Inspector General for the United States Department of Health andHuman Services, or OIG, finalized its draft report requesting that the Company’sMassachusetts subsidiary reimburse the Medicare program for approximately $1.8million in alleged overpayments from Medicare for services performed between July 1,2002 and December 31, 2002. The OIG claims that these paymentswere made for services that did not meet Medicare medical necessity andreimbursement requirements. On December 10, 2006, AMR paid the $1.8million in alleged overpayments. However, the Company disagrees with the OIG’sfinding and has filed an administrative appeal. If AMR is successful in theadministrative appeal the Company may be entitled to repayment of all or partof the $1.8 million.

F-34

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**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

***Letters of Credit***

At December 31, 2006and 2005, the Company had $29.9 million and $27.3 million, respectively, inoutstanding letters of credit.

***Other Legal Matters***

EmCare entered into a settlement agreement withrespect to June Belt, et. al. v. EmCare, Inc., et. al brought by anumber of nurse practitioners and physician assistants under the Fair LaborStandards Act. The suit was filed on February 25, 2003 in the EasternDistrict of Texas. Pursuant to the settlement agreement, EmCare will pay $1.7million in satisfaction of all claims in the lawsuit.

AMR and the City of Stockton, California are partiesto litigation regarding the terms and enforceability of a memorandum ofunderstanding and a related joint venture agreement between the parties topresent a joint bid in response to a request for proposals to provide emergencyambulance services in the County of San Joaquin, California. The parties wereunable to agree on the final terms of a joint bid. AMR was awarded the SanJoaquin contract. While the Company is unable at this time to estimate theamount of potential damages, it believes that Stockton may claim as damages aportion of the Company’s profit on the contract or the profit Stockton mighthave realized had the joint venture proceeded. Management believes the outcomeof this lawsuit will not have a material adverse effect on the Company.

In December 2006, AMRreceived a subpoena from the DOJ. The subpoena requested copies of documentsfor the period from January 2000 through the present. The subpoenarequired AMR to produce a broad range of documents relating to the operationsof certain AMR affiliates in New York. The Company is in the process ofproducing documents in response to the subpoena.

**14.**          Transactionswith Onex

The Company is party to amanagement agreement with a wholly-owned subsidiary of Onex Corporation, itsprincipal equityholder. In exchange for an annual management fee of $1.0million, the Onex subsidiary provides the Company with corporate finance andstrategic planning consulting services. For the year ended December 31,2006 and for the eleven months ended December 31, 2005, $1.0 million and $0.9million, respectively, has been expensed and included as a component of generaland administrative expenses on the accompanying statements of operations.

**15.**          Transactionswith Laidlaw

***Allocation of Costs from Laidlaw***

Laidlaw charged AMR and EmCare for the estimated costof certain functions that were managed by Laidlaw and could reasonably beattributed directly to the operations of the Predecessor. The charges to thePredecessor were based on Laidlaw management’s estimate of such servicesspecifically used by the Predecessor. Where determinations based on specificusage alone were impracticable, other methods and criteria were used thatLaidlaw management believed were reasonable. Such allocations were not intendedto represent the costs that would be or would have been incurred if thePredecessor were an independent business.

F-35

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Laidlawcharges or cost allocations included in the accompanying statements ofoperations include the following:

| ** **                             | ** ** | **Predecessor**                                     | ** ** |
|----------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| Allocated  insurance expense (income)  |       |                                                | $          | — |   |   |   | $ | (4,505 | ) |   |
| Direct insurance  expense              |       |                                                | 17,069     |   |   |   | 40,554 |   |   |
| Laidlaw fees and  compensation charges |       |                                                | 19,857     |   |   |   | 15,449 |   |   |
| Interest                               |       |                                                | $          | 4,480 |   |   |   | $ | 6,225 |   |   |

 

Included in insurance expense are allocations ofcharges and credits made to AMR related to the operating costs and investmentactivities of Laidlaw’s captive insurance company. These allocations alsoinclude changes in actuarial estimates of insurance reserves for fiscal year2001 and prior years’ claims estimates. In February 2005, AMR obtainedinsurance coverage from outside parties. EmCare’s participation in the Laidlawinsurance program was limited to directors’ and officers’ and general liabilityinsurance which was allocated as a component of Laidlaw fees and compensationcharges.

Management costs were calculated using a formula basedupon the Predecessor’s share of Laidlaw’s consolidated revenue and representLaidlaw’s general and administrative costs incurred for the benefit of the Predecessor.Laidlaw fees and compensation charges include $15.3 million and$4.1 million of charges related to incentive plans for management of thePredecessor for the five months ended January 31, 2005 and for the yearended August 31, 2004, respectively.

Interest expense has been recorded by the Predecessorbased on an average intercompany balance and applicable interest rates (prime +2%).

On March 1, 2004, AMR declared a$200 million dividend payable to Laidlaw. The dividend was recorded as anincrease in the Laidlaw payable account and as a decrease to Laidlaw investmenton the balance sheet. There were no specific repayment terms related to theLaidlaw payable account which was included as a component of equity.

As described innote 16 “Insurance,” Laidlaw also maintains insurance-related deposits onbehalf of AMR.

**16.**          Insurance

Insurance reserves are established for automobile,workers compensation, general liability and professional liability claimsutilizing policies with both fully-insured and self-insured components. Thisincludes the use of an off-shore captive insurance program through awholly-owned subsidiary for certain professional liability (medicalmalpractice) programs for EmCare. In those instances where the Company hasobtained third-party insurance coverage, either directly through an independentoutside party or through participation in a Laidlaw-administered program, theCompany normally retains liability for the first $1 to $2 million of theloss. Insurance reserves cover known claims and incidents within the level ofCompany retention that may result in the assertion of additional claims, aswell as claims from unknown incidents that may be asserted arising fromactivities through December 31, 2006.

F-36

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

The Company establishes reserves for claims based uponan assessment of actual claims and claims incurred but not reported. Thereserves are established based on consultation with third-party independentactuaries using actuarial principles and assumptions that consider a number offactors, including historical claim payment patterns (including legal costs)and changes in case reserves and the assumed rate of inflation in health carecosts and property damage repairs. Claims, other than general liability claims,are discounted at a rate commensurate with the interest rate on monetary assetsthat essentially are risk free and have a maturity comparable to the underlyingliabilities. General liability claims are not discounted.

The Company’s most recent actuarial valuation wascompleted in December 2006. As a result of this and previous actuarialvaluations, the Company recorded reductions in its provisions for insuranceliabilities of approximately $16.9 million in fiscal 2006 related to reservesfor losses in prior years. During the eleven months ended December 31,2005, the Company recorded reductions in insurance liabilities of approximately$7.3 million related to reserves for losses in prior years. Fiscal 2004 expensewas reduced by a $3.8 million experience refund received during the year.

Provisions for insurance expense included in thestatements of operations includes annual provisions determined in consultationwith third-party actuaries, premiums paid to third-party insurers net ofretrospective policy adjustments, interest accretion and earnings/loss oninvestments.

Thetable below summarizes the non-health and welfare insurance reserves includedin the accompanying balance sheets:

| ** **                       | ** ** | **Accrued   Liabilities** | ** ** | **Insurance Reserves   and Other   Long-term   Liabilities** | ** ** | **Total   Liabilities** | ** ** |
|----------------------------------|------------|--------------------------------|------------|---------------------------------------------------------------------------------------|------------|------------------------------|------------|
| **December 31, 2006**       | ** ** |                           | ** ** | ** **                                                                            |       |                         | ** ** | ** ** |   | ** ** | ** ** |
| Automobile                       |       |                           | $          | 7,671                                                                                 | ** ** |                         |       | $ | 9,642 | ** ** |   | $ | 17,313 |   |
| Workers  compensation            |       |                           | 14,751     | ** **                                                                            |       |                         | 29,728     | ** ** |   | 44,479 |   |
| General/  Professional liability |       |                           | 35,174     | ** **                                                                            |       |                         | 110,605    | ** ** |   | 145,779 |   |
|                             |       |                           | $          | 57,596                                                                                | ** ** |                         |       | $ | 149,975 | ** ** |   | $ | 207,571 |   |
| **December 31, 2005**       | ** ** |                           | ** ** | ** **                                                                            |       |                         | ** ** | ** ** |   | ** ** | ** ** |
| Automobile                       |       |                           | $          | 4,930                                                                                 | ** ** |                         |       | $ | 11,677 | ** ** |   | $ | 16,607 |   |
| Workers  compensation            |       |                           | 11,569     | ** **                                                                            |       |                         | 35,216     | ** ** |   | 46,785 |   |
| General/  Professional liability |       |                           | 41,880     | ** **                                                                            |       |                         | 97,248     | ** ** |   | 139,128 |   |
|                             |       |                           | $          | 58,379                                                                                | ** ** |                         |       | $ | 144,141 | ** ** |   | $ | 202,520 |   |

 

F-37

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Certaininsurance programs also require the Company to maintain deposits withthird-party insurers, with trustees or with Laidlaw to cover future claimscosts. These deposits are included as insurance collateral in the accompanyingbalance sheets. Investments supporting insurance programs are comprised principallyof government securities and investment grade securities. These investments aredesignated as available-for-sale and reported at fair value. Investmentincome/loss earned on these investments is reported as a component of insuranceexpense in the statements of operations. The following table summarizes thesedeposits and restricted investments:

| ** **                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Restricted cash  and cash equivalents       |       | $        | 3,321      |     | $          | 12,017 |   |
| Restricted  marketable securities           |       | 1,504    |       | 1,657    |       |
| Short-term  insurance collateral at Laidlaw |       | 5,685    |       | 6,583    |       |
| Other short-term  insurance collateral      |       | 19,214   |       | 9,509    |       |
| Insurance collateral—short-term        |       | $        | 29,724     |     | $          | 29,766 |   |
| Restricted  long-term investments           |       | $        | 95,307     |     | $          | 67,973 |   |
| Long-term  insurance collateral at Laidlaw  |       | 21,476   |       | 27,157   |       |
| Other long-term  insurance collateral       |       | 46,517   |       | 36,777   |       |
| Insurance collateral—long-term         |       | $        | 163,300    |     | $          | 131,907 |   |

 

**17.**          NetIncome Per Common Share

The calculation of basicnet income per common share and diluted net income per common share ispresented below for the eleven months ended December 31, 2006 and 2005(dollars in thousands except for per share amounts):

| ** **                                                          | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Basic earnings  per common share computation                        |       |       |       |       |       |
| **Numerator:**                                                      |       |       |       |       |       |
| Net income                                                          |       | $          | 39,071     |       | $          | 20,067 |   |
| Accretion of put right (see note 12 “Equity”)             |       | —     |       | (1,213     | )          |
| Net income available to stockholders                                |       | 39,071     |       | 18,854     |       |
| **Denominator:**                                                    |       |       |       |       |       |
| Basic average  shares outstanding                                   |       |       |       |       |       |
| Common stock and LP exchangeable units                              |       | 41,502,632 |       | 33,621,542 |       |
| Basic earnings per common share                                     |       | $          | 0.94       |       | $          | 0.56 |   |
| Diluted earnings  per share computation                             |       |       |       |       |       |
| **Numerator:**                                                      |       |       |       |       |       |
| Net income                                                          |       | $          | 39,071     |       | $          | 20,067 |   |
| Accretion of put right                                              |       | —     |       | (1,213     | )          |
| Net income available to stockholders                                |       | 39,071     |       | 18,854     |       |
| **Denominator:**                                                    |       |       |       |       |       |
| Basic average shares outstanding                                    |       | 41,502,632 |       | 33,621,542 |       |
| Incremental shares from assumed exercise of stock  options and RSUs |       | 1,026,253  |       | 660,634    |       |
| Diluted average common shares outstanding                           |       | 42,528,885 |       | 34,282,176 |       |
| Diluted earnings per common share                                   |       | $          | 0.92       |       | $          | 0.55 |   |

 

F-38

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

We excluded 37,500 potentialcommon shares from the calculation of diluted earnings per share in 2005because they were antidilutive.

**18.**          SupplementalCash Flow Information

| ** **                                                       | ** ** | ** **                                   | ** ** | ** **                                                 | ** ** | ** ** | ** ** | **Predecessor**                                     | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **Year ended  December 31,  2006** | ** ** | **Eleven months  ended December 31,  2005** | ** ** | ** ** | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| Finance and investing  activities not requiring the use of cash: |       |                                         |       |                                                       |       |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Dividend to  Laidlaw                                             |       |                                         | $          | —                                                     |       |       |       | $                                                   | —     |   |   |   |   |   | $ | — |   |   | $ | 200,000 |   |
| Leasehold  improvement allowance                                 |       |                                         | 1,469      |                                                       |       |       | 3,100      |                                                |       |   |   |   | — |   |   | — |   |
| Reduction of deferred  tax asset valuation allowance through:    |       |                                         |       |                                                       |       |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Reduction of ambulance service contracts and other  intangibles  |       |                                         | —     |                                                       |       |       | —     |                                                |       |   |   |   | — |   |   | 124,977 |   |
| Reduction of associated deferred tax asset                       |       |                                         | —     |                                                       |       |       | —     |                                                |       |   |   |   | — |   |   | (27,606 | ) |
| Laidlaw equity                                                   |       |                                         | $          | —                                                     |       |       |       | $                                                   | —     |   |   |   |   |   | $ | — |   |   | $ | 10,406 |   |

 

F-39

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**19.**          SegmentInformation

TheCompany is organized around two separately managed business units: healthcaretransportation services and emergency management services, which have beenidentified as operating segments. The healthcare transportation services reportablesegment focuses on providing a full range of medical transportation servicesfrom basic patient transit to the most advanced emergency care and pre-hospitalassistance. The emergency management services reportable segment providesoutsourced business services to hospitals primarily for emergency departments,urgent care centers and for certain inpatient departments. The Chief ExecutiveOfficer 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,*ashe assesses the performance of the business units and decides how to allocateresources to the business units. Pre-tax income from continuing operationsbefore interest, taxes and depreciation and amortization (“Segment EBITDA”) isthe measure of profit and loss that the CODM uses to assess performance andmake decisions. Pre-tax income from continuing operations represents netrevenue less direct operating expenses incurred within the operating segments.The accounting policies for reported segments are the same as for the Companyas a whole (see note 2 “Summary of Significant Accounting Policies”).

| ** **                             | ** ** | ** **                                   | ** ** | ** **                                             | ** ** | ** ** | **Predecessor**                                     | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------|------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **Year ended  December 31,  2006** | ** ** | **Eleven  months ended  December 31,  2005** | ** ** | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| **Healthcare Transportation Services** |       |                                         |       |                                                   |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Revenue                                |       |                                         | $          | 1,189,447                                              |       |       |                                                | $          | 1,059,725 |   |   |   |   | $ | 455,059 |   |   | $ | 1,054,800 |   |
| Income from operations                 |       |                                         | 37,647     |                                                   |       |       | 49,314                                              |       |   |   |   | 17,465 |   |   | 41,928 |   |
| EBITDA                                 |       |                                         | 90,671     |                                                   |       |       | 93,404                                              |       |   |   |   | 33,859 |   |   | 85,557 |   |
| Goodwill                               |       |                                         | 130,268    |                                                   |       |       | 128,222                                             |       |   |   |   | — |   |   | — |   |
| Intangible assets, net                 |       |                                         | 31,066     |                                                   |       |       | 35,489                                              |       |   |   |   | 679 |   |   | — |   |
| Total identifiable  assets             |       |                                         | 817,715    |                                                   |       |       | 807,874                                             |       |   |   |   | 645,441 |   |   | 628,635 |   |
| Capital expenditures                   |       |                                         | $          | 44,006                                                 |       |       |                                                | $          | 44,992 |   |   |   |   | $ | 12,054 |   |   | $ | 38,573 |   |
| **Emergency Management Services**      |       |                                         |       |                                                   |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Revenue                                |       |                                         | $          | 744,758                                                |       |       |                                                | $          | 595,760 |   |   |   |   | $ | 241,120 |   |   | $ | 549,798 |   |
| Income from operations                 |       |                                         | 70,056     |                                                   |       |       | 34,065                                              |       |   |   |   | 3,225 |   |   | 28,046 |   |
| EBITDA                                 |       |                                         | 83,037     |                                                   |       |       | 44,096                                              |       |   |   |   | 5,639 |   |   | 37,156 |   |
| Goodwill                               |       |                                         | 142,060    |                                                   |       |       | 122,946                                             |       |   |   |   | — |   |   | — |   |
| Intangible assets, net                 |       |                                         | 35,723     |                                                   |       |       | 42,694                                              |       |   |   |   | 15,396 |   |   | 15,758 |   |
| Total identifiable  assets             |       |                                         | 446,590    |                                                   |       |       | 443,435                                             |       |   |   |   | 338,069 |   |   | 320,964 |   |
| Capital expenditures                   |       |                                         | $          | 4,933                                                  |       |       |                                                | $          | 2,465 |   |   |   |   | $ | 1,991 |   |   | $ | 4,214 |   |
| **Segment Totals**                     |       |                                         |       |                                                   |       |       |                                                |       |   |   |   |   |   |   |   |   |
| Revenue                                |       |                                         | $          | 1,934,205                                              |       |       |                                                | $          | 1,655,485 |   |   |   |   | $ | 696,179 |   |   | $ | 1,604,598 |   |
| Income from operations                 |       |                                         | 107,703    |                                                   |       |       | 83,379                                              |       |   |   |   | 20,690 |   |   | 69,974 |   |
| EBITDA                                 |       |                                         | 173,708    |                                                   |       |       | 137,500                                             |       |   |   |   | 39,498 |   |   | 122,713 |   |
| Goodwill                               |       |                                         | 272,328    |                                                   |       |       | 251,168                                             |       |   |   |   | — |   |   | — |   |
| Intangible assets, net                 |       |                                         | 66,789     |                                                   |       |       | 78,183                                              |       |   |   |   | 16,075 |   |   | 15,758 |   |
| Total identifiable  assets             |       |                                         | 1,264,305  |                                                   |       |       | 1,251,309                                           |       |   |   |   | 983,510 |   |   | 949,599 |   |
| Capital expenditures                   |       |                                         | $          | 48,939                                                 |       |       |                                                | $          | 47,457 |   |   |   |   | $ | 14,045 |   |   | $ | 42,787 |   |

 

F-40

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

Thereconciliation of EBITDA to net income for each year is as follows:

| ** **                                       | ** ** | ** **                               | ** ** | ** **                                             | ** ** | ** ** | **Predecessor**                                     | ** ** |
|--------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------|------------|------------|-----------------------------------------------------|------------|
| ** **                                       | ** ** | **Year  ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** | ** ** | **Five months  ended  January 31,  2005** | ** ** | **Year  ended  August 31,  2004** | ** ** |
| EBITDA                                           |       |                                     | $          | 173,708                                                |       |       |                                                | $          | 137,500 |   |   |   |   | $ | 39,498 |   |   | $ | 122,713 |   |
| Depreciation and  amortization expense           |       |                                     | (66,005    | )                                                      |       |       | (54,143                                             | )          |   |   |   | (18,808 | ) |   | (52,739 | ) |
| Interest expense                                 |       |                                     | (45,605    | )                                                      |       |       | (47,813                                             | )          |   |   |   | (5,644 | ) |   | (9,961 | ) |
| Realized gain  (loss) on investments             |       |                                     | (467       | )                                                      |       |       | (164                                                | )          |   |   |   | — |   |   | (1,140 | ) |
| Interest and  other income                       |       |                                     | 2,346      |                                                   |       |       | 1,040                                               |       |   |   |   | 714 |   |   | 240 |   |
| Loss on early  debt extinguishment               |       |                                     | (377       | )                                                      |       |       | (2,040                                              | )          |   |   |   | — |   |   | — |   |
| Income tax  expense                              |       |                                     | (24,961    | )                                                      |       |       | (14,372                                             | )          |   |   |   | (6,278 | ) |   | (21,764 | ) |
| Equity in  earnings of unconsolidated subsidiary |       |                                     | 432        |                                                   |       |       | 59                                                  |       |   |   |   | — |   |   | — |   |
| Net income                                       |       |                                     | $          | 39,071                                                 |       |       |                                                | $          | 20,067 |   |   |   |   | $ | 9,482 |   |   | $ | 37,349 |   |

 

Areconciliation of segment assets to total assets and segment capitalexpenditures to total capital expenditures is as follows:

| ** **                            | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|
| **As of December 31,** |       |       |       |       |       |
| Segment total  identifiable assets    |       | $1,264,305 |       | $1,251,309 |       |
| Corporate cash                        |       | 35,598     |       | 13,786     |       |
| Other corporate  assets               |       | 18,314     |       | 1,933      |       |
| Total identifiable  assets            |       | $1,318,217 |       | $1,267,028 |       |

 

Othercorporate assets principally consist of property, plant and equipment, andother assets.

| ** **                          | ** ** | **Year ended  December 31,  2006** | ** ** | **Eleven months  ended  December 31,  2005** | ** ** |
|-------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------|------------|
| Segment total  capital expenditures |       |                                         | $48,939    |                                                   |       |   | $47,457 |   |   |
| Corporate capital  expenditures     |       |                                         | 11,476     |                                                   |       |   | 1,476 |   |   |
| Total capital  expenditures         |       |                                         | $60,415    |                                                   |       |   | $48,933 |   |   |

 

F-41

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**20.**          Quarterlyfinancial information (unaudited)

Selectedunaudited quarterly financial data for the year ended December 31, 2006and the eleven months ended December 31, 2005 as follows (in millions,except per share amounts):

| **2006**                    | ** ** | ** ** | ** ** | **1st Qtr.** | ** ** | **2nd Qtr.** | ** ** | **3rd Qtr.** | ** ** | **4th Qtr.** | ** ** | **Total** | ** ** |
|-----------------------------|------------|------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-----------|------------|
| Revenue                     |       | $          | 469.1      |              |       | $                 | 478.5      |              |       |              | $          | 485.7     |       |   |   | $ | 500.9 |   |   | $ | 1,934.2 |   |
| Operating income            |       | 23.0       |       |              | 28.7       |              |       |              | 27.9       |              |       |      | 28.1       |   |   | 107.7 |   |
| Net income                  |       | 7.3        |       |              | 10.7       |              |       |              | 10.3       |              |       |      | 10.8       |   |   | 39.1 |   |
| Basic earnings  per share   |       | 0.17       |       |              | 0.26       |              |       |              | 0.25       |              |       |      | 0.26       |   |   | 0.94 |   |
| Diluted earnings per  share |       | $          | 0.17       |              |       | $                 | 0.25       |              |       |              | $          | 0.24      |       |   |   | $ | 0.25 |   |   | $ | 0.92 |   |

 

| **2005**                    | ** ** | ** ** | ** ** | **1st Qtr.**(1) | ** ** | **2nd Qtr.** | ** ** | **3rd Qtr.** | ** ** | **4th Qtr.** | ** ** | **Total** | ** ** |
|-----------------------------|------------|------------|------------|----------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-----------|------------|
| Revenue                     |       |       | $          | 286.4                |       |              |       | $                 | 445.0      |              |       |      | $          | 456.2 |   |   |   | $ | 467.9 |   |   | $ | 1,655.5 |   |
| Operating income            |       |       | 17.0       |                 |       |              | 22.6       |              |       |              | 19.3       |      |       |   | 24.4 |   |   | 83.4 |   |
| Net income                  |       |       | 4.5        |                 |       |              | 6.5        |              |       |              | 3.0        |      |       |   | 6.1 |   |   | 20.1 |   |
| Basic earnings  per share   |       |       | 0.14       |                 |       |              | 0.14       |              |       |              | 0.11       |      |       |   | 0.17 |   |   | 0.56 |   |
| Diluted earnings per  share |       |       | $          | 0.14                 |       |              |       | $                 | 0.14       |              |       |      | $          | 0.11 |   |   |   | $ | 0.17 |   |   | $ | 0.55 |   |

----

(1)          First quarter 2005represents the two months beginning on the effective date of the purchase ofAMR and EmCare by EMS LP and ending March 31, 2005.

F-42

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**21.**          Valuationand Qualifying Accounts

| ** **                                          | ** ** | **Allowance for  Contractual  Discounts** | ** ** | **Allowance for  Uncompensated  Care** | ** ** | **Total  Accounts  Receivable  Allowances** | ** ** | **Valuation  Allowance for  Deferred Tax  Assets** | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------------------------|------------|-----------|------------|
| Balance at September 1,  2003—Predecessor |       | $                                              | 258,768    |                                        |       | $                                           | 487,591    |                                                         |       | $         | 746,359    |   |   | $ | 155,952 |   |   | $ | 902,311 |   |
| Additions                                           |       | 1,361,708                                      |       |                                        | 666,116    |                                        |       | 2,027,824                                                    |       |      | —     |   |   | 2,027,824 |   |
| Reductions                                          |       | (1,349,005                                     | )          |                                        | (542,429   | )                                           |       | (1,891,434                                                   | )          |      | (155,952   | ) |   | (2,047,386 | ) |
| Balance at  August 31, 2004—Predecessor   |       | 271,471                                        |       |                                        | 611,278    |                                        |       | 882,749                                                      |       |      | —     |   |   | 882,749 |   |
| Additions                                           |       | 632,959                                        |       |                                        | 312,310    |                                        |       | 945,269                                                      |       |      | —     |   |   | 945,269 |   |
| Reductions                                          |       | (589,567                                       | )          |                                        | (242,284   | )                                           |       | (831,851                                                     | )          |      | —     |   |   | (831,851 | ) |
| Balance at  January 31, 2005—Predecessor  |       | $                                              | 314,863    |                                        |       | $                                           | 681,304    |                                                         |       | $         | 996,167    |   |   | $ | — |   |   | $ | 996,167 |   |
| Balance at  February 1, 2005                   |       | $                                              | 314,863    |                                        |       | $                                           | 681,304    |                                                         |       | $         | 996,167    |   |   | $ | — |   |   | $ | 996,167 |   |
| Additions                                           |       | 1,752,254                                      |       |                                        | 684,614    |                                        |       | 2,436,868                                                    |       |      | —     |   |   | 2,436,868 |   |
| Reductions                                          |       | (1,596,915                                     | )          |                                        | (1,029,144 | )                                           |       | (2,626,059                                                   | )          |      | —     |   |   | (2,626,059 | ) |
| Balance at December 31,  2005                  |       | 470,202                                        |       |                                        | 336,774    |                                        |       | 806,976                                                      |       |      | —     |   |   | 806,976 |   |
| Additions                                           |       | 2,126,111                                      |       |                                        | 950,639    |                                        |       | 3,076,750                                                    |       |      | —     |   |   | 3,076,750 |   |
| Reductions                                          |       | (1,896,913                                     | )          |                                        | (917,881   | )                                           |       | (2,814,794                                                   | )          |      | —     |   |   | (2,814,794 | ) |
| Balance at  December 31, 2006                  |       | $                                              | 699,400    |                                        |       | $                                           | 369,532    |                                                         |       | $         | 1,068,932  |   |   | $ | — |   |   | $ | 1,068,932 |   |

 

Additions to the Company’s valuation and qualifyingaccounts are primarily related to income statement provisions and balancesadded from acquisitions. Reductions to these accounts are primarily related towrite-off activity and release of tax asset valuation allowances.

F-43

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**22.**          Guarantorsof Debt

EMS LP financed theacquisition of AMR and EmCare, described in note 1 “General—Basis ofPresentation”, in part by issuing $250.0 million principal amount ofsenior subordinated notes and borrowing $370.2 million under the SeniorFacility. Its wholly-owned subsidiaries, EMSC Management, Inc. and EmCareHoldCo, Inc., are the issuers of the senior subordinated notes and theborrowers under the Senior Facility. As part of the transaction, AMR and itssubsidiaries became wholly-owned subsidiaries of EMSC Management, Inc. andEmCare and its subsidiaries became wholly-owned subsidiaries of EmCare HoldCo, Inc.The senior subordinated notes and the Senior Facility include a full,unconditional and joint and several guarantee by all of EMSC, EMS LP and EMSC’sdomestic subsidiaries. All of the operating income and cash flow of EMSC, EMSLP, EMSC Management, Inc. and EmCare HoldCo, Inc. is generated byAMR, EmCare and their subsidiaries. As a result, funds necessary to meet thedebt service obligations under the senior secured notes and Senior Facility areprovided by the distributions or advances from the subsidiary companies, AMRand EmCare. Investments in subsidiary operating companies are accounted for onthe equity method. Accordingly, entries necessary to consolidate EMSC, EMS LP,EMSC Management, Inc., EmCare HoldCo, Inc. and all of theirsubsidiaries are reflected in the Eliminations/Adjustments column. Separatecomplete financial statements of the issuers, EMS LP and subsidiary guarantorswould not provide additional material information that would be useful inassessing the financial composition of the issuers, EMS LP or the subsidiaryguarantors. The condensed consolidating and combining financial statements forEMSC, EMS LP, the issuers, the guarantors and the non-guarantor are as follows:

F-44

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**ConsolidatingBalance SheetAs of December 31, 2006**

| ** **                                    | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**      | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------------|------------|-----------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | ** **      | ** ** | **EMSC**        | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | ** **      | ** ** | **Management,** | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **Inc.**        | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                    |       |       |       |            |       |            |       |                  |       |           |       |              |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                               |       |       |       |            |       |            |       |                  |       |           |       |              |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                    |       | $          | —     |            | $          | —          |       |                  | $          | —         |       |              |       | $                 | —     |       |       |   | $ | 39,329 |   |   |   | $ | 7 |   |   |   | $ | — |   |   | $ | 39,336 |   |
| Insurance  collateral                         |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 24,912     |       |       |   | 4,812 |   |   |   | — |   |   | 29,724 |   |
| Trade and other  accounts receivable, net     |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 415,290    |       |       |   | 1,160 |   |   |   | — |   |   | 416,450 |   |
| Parts and supplies  inventory                 |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 18,089     |       |       |   | — |   |   |   | — |   |   | 18,089 |   |
| Other current  assets                         |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 16,972     |       |       |   | 394 |   |   |   | (949 | ) |   | 16,417 |   |
| Current deferred  tax assets                  |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 9,310      |       |       |   | 3,163 |   |   |   | — |   |   | 12,473 |   |
| Current assets                                |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 523,902    |       |       |   | 9,536 |   |   |   | (949 | ) |   | 532,489 |   |
| Non-current assets:                           |       |       |       |            |       |            |       |                  |       |           |       |              |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Property, plant,  and equipment, net          |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 147,162    |       |       |   | — |   |   |   | — |   |   | 147,162 |   |
| Intercompany  receivable                      |       | 400        |       | 114,165         |       |            | 282,691    |                  |       |           | 193,177    |              |       |              | —     |       |       |   | — |   |   |   | (590,433 | ) |   | — |   |
| Intangible assets,  net                       |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 66,789     |       |       |   | — |   |   |   | — |   |   | 66,789 |   |
| Non-current  deferred tax assets              |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 104,501    |       |       |   | (1,131 | ) |   |   | — |   |   | 103,370 |   |
| Insurance  collateral                         |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 59,599     |       |       |   | 103,701 |   |   |   | — |   |   | 163,300 |   |
| Goodwill                                      |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 271,870    |       |       |   | 458 |   |   |   | — |   |   | 272,328 |   |
| Other long-term  assets                       |       | —     |       | —          |       |            | 8,590      |                  |       |           | 3,838      |              |       |              | 20,351     |       |       |   | — |   |   |   | — |   |   | 32,779 |   |
| Investment and  advances in subsidiaries |       | 385,640    |       | 271,475         |       |            | 206,969    |                  |       |           | 64,492     |              |       |              | 6,696      |       |       |   | — |   |   |   | (935,272 | ) |   | — |   |
| Assets                                        |       | $          | 386,040    |            | $          | 385,640         |       |                  | $          | 498,250        |       |              |       | $                 | 261,507    |       |       |   | $ | 1,200,870 |   |   |   | $ | 112,564 |   |   |   | $ | (1,526,654 | ) |   | $ | 1,318,217 |   |
| **Liabilities and Equity**                    |       |       |       |            |       |            |       |                  |       |           |       |              |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                          |       |       |       |            |       |            |       |                  |       |           |       |              |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                              |       | $          | —     |            | $          | —          |       |                  | $          | —         |       |              |       | $                 | —     |       |       |   | $ | 65,172 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 65,172 |   |
| Accrued  liabilities                          |       | —     |       | —          |       |            | 6,515      |                  |       |           | 5,295      |              |       |              | 192,501    |       |       |   | 27,320 |   |   |   | — |   |   | 231,631 |   |
| Current portion of  long-term debt            |       | —     |       | —          |       |            | 1,656      |                  |       |           | 744        |              |       |              | 1,759      |       |       |   | — |   |   |   | — |   |   | 4,159 |   |
| Current  liabilities                          |       | —     |       | —          |       |            | 8,171      |                  |       |           | 6,039      |              |       |              | 259,432    |       |       |   | 27,320 |   |   |   | — |   |   | 300,962 |   |
| Long-term debt                                |       | —     |       | —          |       |            | 283,110    |                  |       |           | 190,962    |              |       |              | 1,544      |       |       |   | — |   |   |   | — |   |   | 475,616 |   |
| Other long-term  liabilities                  |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 78,000     |       |       |   | 78,548 |   |   |   | (949 | ) |   | 155,599 |   |
| Intercompany                                  |       | —     |       | —          |       |            | —     |                  |       |           | —     |              |       |              | 590,433    |       |       |   | — |   |   |   | (590,433 | ) |   | — |   |
| Liabilities                                   |       | —     |       | —          |       |            | 291,281    |                  |       |           | 197,001    |              |       |              | 929,409    |       |       |   | 105,868 |   |   |   | (591,382 | ) |   | 932,177 |   |
| Equity:                                       |       |       |       |            |       |            |       |                  |       |           |       |              |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Class A  common stock                    |       | 93         |       | —          |       |            | —     |                  |       |           | —     |              |       |              | —     |       |       |   | 30 |   |   |   | (30 | ) |   | 93 |   |
| Class B  common stock                    |       | 1          |       | —          |       |            | —     |                  |       |           | —     |              |       |              | —     |       |       |   | — |   |   |   | — |   |   | 1 |   |
| Partnership equity                            |       | 212,361    |       | 326,526         |       |            | 189,394    |                  |       |           | 22,967     |              |       |              | 212,361    |       |       |   | — |   |   |   | (751,248 | ) |   | 212,361 |   |
| Additional paid-in  capital                   |       | 114,471    |       | —          |       |            | —     |                  |       |           | —     |              |       |              | —     |       |       |   | 6,690 |   |   |   | (6,690 | ) |   | 114,471 |   |
| Retained earnings                             |       | 59,138     |       | 59,138          |       |            | 17,575     |                  |       |           | 41,563     |              |       |              | 59,124     |       |       |   | — |   |   |   | (177,400 | ) |   | 59,138 |   |
| Comprehensive  income (loss)                  |       | (24        | )          | (24             | )          |            | —     |                  |       |           | (24        | )                 |       |              | (24        | )          |       |   | (24 | ) |   |   | 96 |   |   | (24 | ) |
| Equity                                        |       | 386,040    |       | 385,640         |       |            | 206,969    |                  |       |           | 64,506     |              |       |              | 271,461    |       |       |   | 6,696 |   |   |   | (935,272 | ) |   | 386,040 |   |
| Liabilities and  Equity                       |       | $          | 386,040    |            | $          | 385,640         |       |                  | $          | 498,250        |       |              |       | $                 | 261,507    |       |       |   | $ | 1,200,870 |   |   |   | $ | 112,564 |   |   |   | $ | (1,526,654 | ) |   | $ | 1,318,217 |   |

 

F-45

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**ConsolidatingBalance SheetAs of December 31, 2005**

| ** **                               | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **Issuer  AMR  HoldCo, Inc.** | ** ** | **Issuer   EmCare  HoldCo, Inc.** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantor** | ** ** | **Eliminations/  Adjustments** | ** ** | **Total**  | ** ** |
|------------------------------------------|------------|------------|------------|-----------------|------------|------------------------------------|------------|---------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|--------------------------------|------------|------------|------------|
| **Assets**                               | ** ** | ** ** | ** ** | ** **      | ** ** |                               | ** ** | ** **                                  |       |                       | ** ** | ** **                    |       |                           | ** ** | ** ** |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Current assets:                          |       |       |       |            |       |                               |       | ** **                                  |       |                       |       |                          |       |                           |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                |       | $          | —     |            | $          | —                             |       |                                        | $          | —                     | ** ** |                          |       | $                              | —     |       |       |   | $ | 18,001 |   |   |   | $ | 47 |   |   |   | $ | — |   |   | $ | 18,048 |   |
| Restricted cash and cash equivalents     |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | —     |       |       |   | 12,017 |   |   |   | — |   |   | 12,017 |   |
| Restricted marketable securities         |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | —     |       |       |   | 1,657 |   |   |   | — |   |   | 1,657 |   |
| Trade and other accounts receivable, net |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 408,675    |       |       |   | 2,529 |   |   |   | (20 | ) |   | 411,184 |   |
| Parts and supplies inventory             |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 18,449     |       |       |   | — |   |   |   | — |   |   | 18,449 |   |
| Other current assets                     |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 31,149     |       |       |   | 302 |   |   |   | (946 | ) |   | 30,505 |   |
| Current deferred tax assets              |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 20,441     |       |       |   | 2,995 |   |   |   | — |   |   | 23,436 |   |
| Current assets                           |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 496,715    |       |       |   | 19,547 |   |   |   | (966 | ) |   | 515,296 |   |
| Non-current assets:                      |       |       |       |            |       |                               |       | ** **                                  |       |                       |       |                          |       |                           |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Property, plant, and equipment, net      |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 138,037    |       |       |   | — |   |   |   | — |   |   | 138,037 |   |
| Intercompany receivable                  |       | 1,973      |       | 113,400         |       |                               | 296,207    | ** **                                  |       |                       | 199,529    |                          |       |                           | 14,863     |       |       |   | — |   |   |   | (625,972 | ) |   | — |   |
| Intangible assets, net                   |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 78,183     |       |       |   | — |   |   |   | — |   |   | 78,183 |   |
| Non-current deferred tax  assets         |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 119,538    |       |       |   | (1,130 | ) |   |   | — |   |   | 118,408 |   |
| Restricted long-term investments         |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | —     |       |       |   | 67,973 |   |   |   | — |   |   | 67,973 |   |
| Goodwill                                 |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 250,710    |       |       |   | 458 |   |   |   | — |   |   | 251,168 |   |
| Other long-term assets                   |       | 65         |       | —          |       |                               | 10,443     | ** **                                  |       |                       | 4,420      |                          |       |                           | 83,035     |       |       |   | — |   |   |   | — |   |   | 97,963 |   |
| Investment and advances in subsidiaries  |       | 345,354    |       | 231,954         |       |                               | 200,868    | ** **                                  |       |                       | 31,072     |                          |       |                           | 6,246      |       |       |   | — |   |   |   | (815,494 | ) |   | — |   |
| Assets                                   |       | $          | 347,392    |            | $          | 345,354                            |       |                                        | $          | 507,518                    | ** ** |                          |       | $                              | 235,021    |       |       |   | $ | 1,187,327 |   |   |   | $ | 86,848 |   |   |   | $ | (1,442,432 | ) |   | $ | 1,267,028 |   |
| **Liabilities and Equity**               | ** ** | ** ** | ** ** | ** **      | ** ** |                               | ** ** | ** **                                  |       |                       | ** ** | ** **                    |       |                           | ** ** | ** ** |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Current liabilities:                     |       |       |       |            |       |                               |       | ** **                                  |       |                       |       |                          |       |                           |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                         |       | $          | —     |            | $          | —                             |       |                                        | $          | —                     | ** ** |                          |       | $                              | —     |       |       |   | $ | 56,290 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 56,290 |   |
| Accrued liabilities                      |       | 2,408      |       | —          |       |                               | 6,857      | ** **                                  |       |                       | 5,478      |                          |       |                           | 162,456    |       |       |   | 37,282 |   |   |   | — |   |   | 214,481 |   |
| Current portion of long-term debt        |       | —     |       | —          |       |                               | 2,415      | ** **                                  |       |                       | 1,085      |                          |       |                           | 3,164      |       |       |   | — |   |   |   | — |   |   | 6,664 |   |
| Current liabilities                      |       | 2,408      |       | —          |       |                               | 9,272      | ** **                                  |       |                       | 6,563      |                          |       |                           | 221,910    |       |       |   | 37,282 |   |   |   | — |   |   | 277,435 |   |
| Long-term debt                           |       | —     |       | —          |       |                               | 297,378    | ** **                                  |       |                       | 197,372    |                          |       |                           | 770        |       |       |   | — |   |   |   | — |   |   | 495,520 |   |
| Other long-term liabilities              |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 106,735    |       |       |   | 43,320 |   |   |   | (966 | ) |   | 149,089 |   |
| Intercompany                             |       | —     |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | 625,972    |       |       |   | — |   |   |   | (625,972 | ) |   | — |   |
| Liabilities                              |       | 2,408      |       | —          |       |                               | 306,650    | ** **                                  |       |                       | 203,935    |                          |       |                           | 955,387    |       |       |   | 80,602 |   |   |   | (626,938 | ) |   | 922,044 |   |
| Class A common stock                |       | 92         |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | —     |       |       |   | 30 |   |   |   | (30 | ) |   | 92 |   |
| Class B common stock                |       | 1          |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | —     |       |       |   | — |   |   |   | — |   |   | 1 |   |
| Additional paid-in capital               |       | 112,937    |       | —          |       |                               | —     | ** **                                  |       |                       | —     |                          |       |                           | —     |       |       |   | 6,690 |   |   |   | (6,690 | ) |   | 112,937 |   |
| Partnership equity                       |       | 212,361    |       | 325,761         |       |                               | 190,073    | ** **                                  |       |                       | 22,288     |                          |       |                           | 212,361    |       |       |   | — |   |   |   | (750,483 | ) |   | 212,361 |   |
| Retained earnings                        |       | 20,067     |       | 20,067          |       |                               | 10,795     | ** **                                  |       |                       | 9,272      |                          |       |                           | 20,053     |       |       |   | — |   |   |   | (60,187 | ) |   | 20,067 |   |
| Comprehensive income (loss)              |       | (474       | )          | (474            | )          |                               | —     | ** **                                  |       |                       | (474       | )                             |       |                           | (474       | )          |       |   | (474 | ) |   |   | 1,896 |   |   | (474 | ) |
| Equity                                   |       | 344,984    |       | 345,354         |       |                               | 200,868    | ** **                                  |       |                       | 31,086     |                          |       |                           | 231,940    |       |       |   | 6,246 |   |   |   | (815,494 | ) |   | 344,984 |   |
| Liabilities and  Equity                  |       | $          | 347,392    |            | $          | 345,354                            |       |                                        | $          | 507,518                    | ** ** |                          |       | $                              | 235,021    |       |       |   | $ | 1,187,327 |   |   |   | $ | 86,848 |   |   |   | $ | (1,442,432 | ) |   | $ | 1,267,028 |   |

 

F-46

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**ConsolidatingStatement of OperationsFor the year ended December 31, 2006**

| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**      | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **EMSC**        | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Management,** | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **Inc.**        | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |            |       | $               | —     |                  |       |           | $          | —            |       |              |       | $          | —     |   |   |   | $ | 1,934,205 |   |   |   | $ | 38,446 |   |   |   | $ | (38,446 | ) |   | $ | 1,934,205 |   |
| Compensation and  benefits                                       |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 1,333,648  |   |   |   | — |   |   |   | — |   |   | 1,333,648 |   |
| Operating expenses                                               |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 294,806    |   |   |   | — |   |   |   | — |   |   | 294,806 |   |
| Insurance expense                                                |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 68,738     |   |   |   | 37,979 |   |   |   | (38,446 | ) |   | 68,271 |   |
| Selling, general and administrative  expenses                    |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 57,403     |   |   |   | — |   |   |   | — |   |   | 57,403 |   |
| Depreciation and amortization expense                            |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 66,005     |   |   |   | — |   |   |   | — |   |   | 66,005 |   |
| Restructuring charge                                             |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 6,369      |   |   |   | — |   |   |   | — |   |   | 6,369 |   |
| Income from  operations                                          |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 107,236    |   |   |   | 467 |   |   |   | — |   |   | 107,703 |   |
| Interest expense                                                 |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | (45,605    | ) |   |   | — |   |   |   | — |   |   | (45,605 | ) |
| Realized loss on investments                                     |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | —     |   |   |   | (467 | ) |   |   | — |   |   | (467 | ) |
| Interest and other  income                                       |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 2,346      |   |   |   | — |   |   |   | — |   |   | 2,346 |   |
| Loss on early debt extinguishment                                |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | (377       | ) |   |   | — |   |   |   | — |   |   | (377 | ) |
| Income before income taxes                                       |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 63,600     |   |   |   | — |   |   |   | — |   |   | 63,600 |   |
| Income tax expense                                               |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | (24,961    | ) |   |   | — |   |   |   | — |   |   | (24,961 | ) |
| Income before equity in earnings of unconsolidated  subsidiaries |       | —     |       |            | —     |            |       |                  | —     |           |       |              | —     |              |       |       | 38,639     |   |   |   | — |   |   |   | — |   |   | 38,639 |   |
| Equity in earnings of unconsolidated subsidiaries                |       | 39,071     |       |            | 39,071     |            |       |                  | 6,781      |           |       |              | 32,290     |              |       |       | 432        |   |   |   | — |   |   |   | (117,213 | ) |   | 432 |   |
| Net income                                                       |       | $          | 39,071     |            |       | $               | 39,071     |                  |       |           | $          | 6,781             |       |              |       | $          | 32,290     |   |   |   | $ | 39,071 |   |   |   | $ | — |   |   |   | $ | (117,213 | ) |   | $ | 39,071 |   |

 

F-47

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**ConsolidatingStatement of OperationsFor the eleven months ended December 31, 2005**

| ** **                                                       | ** ** | **EMSC** | ** ** | **EMS LP** | ** ** | **Issuer AMR  HoldCo, Inc.** | ** ** | **Issuer  EmCare  HoldCo, Inc.** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantor** | ** ** | **Eliminations/  Adjustments** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------------------------------|------------|---------------------------------------|------------|----------------------------|------------|-------------------------------|------------|--------------------------------|------------|-----------|------------|
| Net revenue                                                      |       | $        | —     |            |       | $                                      | —     |                                  |       |                       | $          | —                        |       |                           |       | $         | —     |   |   |   | $ | 1,655,485 |   |   |   | $ | 34,539 |   |   |   | $ | (34,539 | ) |   | $ | 1,655,485 |   |
| Compensation and  benefits                                       |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 1,146,055  |   |   |   | — |   |   |   | — |   |   | 1,146,055 |   |
| Operating expenses                                               |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 233,087    |   |   |   | — |   |   |   | — |   |   | 233,087 |   |
| Insurance expense                                                |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 82,964     |   |   |   | 34,375 |   |   |   | (34,539 | ) |   | 82,800 |   |
| Selling, general  and administrative expenses                    |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 54,262     |   |   |   | — |   |   |   | — |   |   | 54,262 |   |
| Depreciation and  amortization expense                           |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 54,143     |   |   |   | — |   |   |   | — |   |   | 54,143 |   |
| Restructuring  charge                                            |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 1,781      |   |   |   | — |   |   |   | — |   |   | 1,781 |   |
| Income from  operations                                          |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | 83,193     |   |   |   | 164 |   |   |   | — |   |   | 83,357 |   |
| Interest expense                                                 |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | (47,813    | ) |   |   | — |   |   |   | — |   |   | (47,813 | ) |
| Realized loss on  investments                                    |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | —     |   |   |   | (164 | ) |   |   | — |   |   | (164 | ) |
| Interest and other  income                                       |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | 14         |                           |       |      | 1,026      |   |   |   | — |   |   |   | — |   |   | 1,040 |   |
| Loss on early debt  extinguishment                               |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | (2,040     | ) |   |   | — |   |   |   | — |   |   | (2,040 | ) |
| Income before  income  taxes                                     |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | 14         |                           |       |      | 34,366     |   |   |   | — |   |   |   | — |   |   | 34,380 |   |
| Income tax expense                                               |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | —     |                           |       |      | (14,372    | ) |   |   | — |   |   |   | — |   |   | (14,372 | ) |
| Income before  equity in earnings of unconsolidated subsidiaries |       | —   |       |            | —     |                                   |       |                                  | —     |                       |       |                          | 14         |                           |       |      | 19,994     |   |   |   | — |   |   |   | — |   |   | 20,008 |   |
| Equity in earnings  of unconsolidated subsidiary            |       | 20,067   |       |            | 20,067     |                                   |       |                                  | 10,795     |                       |       |                          | 9,258      |                           |       |      | 59         |   |   |   | — |   |   |   | (60,187 | ) |   | 59 |   |
| Net income                                                       |       | $        | 20,067     |            |       | $                                      | 20,067     |                                  |       |                       | $          | 10,795                        |       |                           |       | $         | 9,272      |   |   |   | $ | 20,053 |   |   |   | $ | — |   |   |   | $ | (60,187 | ) |   | $ | 20,067 |   |

 

**PredecessorCombining Statement of OperationsFor the five months ended January 31, 2005**

| ** **                                         | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                         | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                        |       |            | $          | —                |       |                  |       | $              | —     |              |       |              | $          | —     |       |   |   | $ | 696,179 |   |   |   | $ | 15,913 |   |   |   | $ | (15,913 | ) |   | $ | 696,179 |   |
| Compensation and  benefits                         |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 481,305    |   |   |   | — |   |   |   | — |   |   | 481,305 |   |
| Operating expenses                                 |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 94,882     |   |   |   | — |   |   |   | — |   |   | 94,882 |   |
| Insurance expense                                  |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 39,002     |   |   |   | 15,913 |   |   |   | (15,913 | ) |   | 39,002 |   |
| Selling, general  and administrative expenses |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 21,635     |   |   |   | — |   |   |   | — |   |   | 21,635 |   |
| Laidlaw fees and  compensation charges             |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 19,857     |   |   |   | — |   |   |   | — |   |   | 19,857 |   |
| Depreciation and  amortization expense             |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 18,808     |   |   |   | — |   |   |   | — |   |   | 18,808 |   |
| Income from  operations                            |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 20,690     |   |   |   | — |   |   |   | — |   |   | 20,690 |   |
| Interest expense                                   |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | (5,644     | ) |   |   | — |   |   |   | — |   |   | (5,644 | ) |
| Interest and other  income                         |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 714        |   |   |   | — |   |   |   | — |   |   | 714 |   |
| Income before  income taxes                        |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 15,760     |   |   |   | — |   |   |   | — |   |   | 15,760 |   |
| Income tax expense                                 |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | (6,278     | ) |   |   | — |   |   |   | — |   |   | (6,278 | ) |
| Net income                                         |       |            | $          | —                |       |                  |       | $              | —     |              |       |              | $          | —     |       |   |   | $ | 9,482 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 9,482 |   |

 

F-48

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**PredecessorCombining Statement of OperationsFor the year ended August 31, 2004**

| ** **                                                     | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|----------------------------------------------------------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                     | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                    |       |            | $          | —                |       |                  |       | $              | —     |              |       |              | $          | —     |       |   |   | $ | 1,604,598 |   |   |   | $ | 29,803 |   |   |   | $ | (29,803 | ) |   | $ | 1,604,598 |   |
| Compensation and benefits                                      |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 1,117,890  |   |   |   | — |   |   |   | — |   |   | 1,117,890 |   |
| Operating expenses                                             |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 218,277    |   |   |   | — |   |   |   | — |   |   | 218,277 |   |
| Insurance expense                                              |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 81,395     |   |   |   | 28,663 |   |   |   | (29,803 | ) |   | 80,255 |   |
| Selling, general and administrative expenses                   |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 47,899     |   |   |   | — |   |   |   | — |   |   | 47,899 |   |
| Laidlaw fees and compensation charges                     |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 15,449     |   |   |   | — |   |   |   | — |   |   | 15,449 |   |
| Depreciation and amortization expense                     |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 52,739     |   |   |   | — |   |   |   |   |   |   | 52,739 |   |
| Restructuring charges                                          |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 2,115      |   |   |   | — |   |   |   | — |   |   | 2,115 |   |
| Income from operations                                         |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 68,834     |   |   |   | 1,140 |   |   |   | — |   |   | 69,974 |   |
| Interest expense                                               |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | (9,961     | ) |   |   | — |   |   |   | — |   |   | (9,961 | ) |
| Realized loss on investments                                   |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | —     |   |   |   | (1,140 | ) |   |   | — |   |   | (1,140 | ) |
| Interest and other income                                      |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 240        |   |   |   | — |   |   |   | — |   |   | 240 |   |
| Income before income  taxes                                    |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 59,113     |   |   |   | — |   |   |   | — |   |   | 59,113 |   |
| Income tax expense                                             |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | (23,399    | ) |   |   | 1,635 |   |   |   | — |   |   | (21,764 | ) |
| Income before equity in earnings of unconsolidated  subsidiary |       |            | —     |                  |       |                  | —     |           |       |              | —     |              |       |       | 35,714     |   |   |   | 1,635 |   |   |   | — |   |   | 37,349 |   |
| Equity in earnings of unconsolidated subsidiary                |       |            | —     |                  |       |                  |       |           |       |              |       |              |       |       | 1,635      |   |   |   | — |   |   |   | (1,635 | ) |   | — |   |
| Net income                                                     |       |            | $          | —                |       |                  |       | $              | —     |              |       |              | $          | —     |       |   |   | $ | 37,349 |   |   |   | $ | 1,635 |   |   |   | $ | (1,635 | ) |   | $ | 37,349 |   |

 

F-49

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**CondensedConsolidating Statement of Cash FlowsFor the year ended December 31, 2006**

| ** **                                                   | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**      | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | ** **      | ** ** | **EMSC**        | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | ** ** | ** ** | ** **      | ** ** | **Management,** | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **Inc.**        | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating  Activities**                    |       |       |       |            |       |            |       |                 |       |           |       |               |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                    |       | $          | —     |            |       | $               | —     |                 |       |           | $          | —             |       |       |       | $ | — |   |   |   | $ | 145,255 |   |   |   | $ | 20,487 |   |   | $ | 165,742 |   |
| **Cash Flows from Investing  Activities**                    |       |       |       |            |       |            |       |                 |       |           |       |               |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Purchase of property, plant and equipment                    |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (60,415 | ) |   |   | — |   |   | (60,415 | ) |
| Proceeds from sale of property, plant and equipment          |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | 902 |   |   |   | — |   |   | 902 |   |
| Acquisitions of businesses, net of cash acquired             |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (23,555 | ) |   |   | — |   |   | (23,555 | ) |
| Insurance collateral                                         |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (7,836 | ) |   |   | (20,527 | ) |   | (28,363 | ) |
| Net change in deposits and other  assets                     |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (1,696 | ) |   |   | — |   |   | (1,696 | ) |
| Net cash used in investing  activities                       |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (92,600 | ) |   |   | (20,527 | ) |   | (113,127 | ) |
| **Cash Flows from Financing  Activities**                    |       |       |       |            |       |            |       |                 |       |           |       |               |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Issuance of EMSC equity                                      |       | 104        |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | — |   |   |   | — |   |   | 104 |   |
| EMSC equity issuance costs                                   |       | (2,408     | )          |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | — |   |   |   | — |   |   | (2,408 | ) |
| Repayments of capital lease obligations and  other debt |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (27,066 | ) |   |   | — |   |   | (27,066 | ) |
| Net intercompany borrowings (payments)                       |       | 2,304      |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (2,304 | ) |   |   | — |   |   | — |   |
| Decrease in bank overdrafts                                  |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (1,957 | ) |   |   | — |   |   | (1,957 | ) |
| Net cash used in financing  activities                       |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | (31,327 | ) |   |   | — |   |   | (31,327 | ) |
| Increase in cash and cash  equivalents                       |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | 21,328 |   |   |   | (40 | ) |   | 21,288 |   |
| Cash and cash equivalents, beginning of period          |       | —     |       |            | —     |            |       |                 | —     |           |       |               | —     |       |       |   | 18,001 |   |   |   | 47 |   |   | 18,048 |   |
| Cash and cash  equivalents, end of period                    |       | $          | —     |            |       | $               | —     |                 |       |           | $          | —             |       |       |       | $ | — |   |   |   | $ | 39,329 |   |   |   | $ | 7 |   |   | $ | 39,336 |   |

 

F-50

----

**Emergency Medical Services Corporation Notes to Financial Statements (Continued) (dollars in thousands)**

**CondensedConsolidating Statement of Cash FlowsFor the eleven months ended December 31, 2005**

| ** **                                                 | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|-------------------|------------|------------|------------|
| ** **                                                 | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantor** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating  Activities**                  |       |       |       |            |       |                 |       |                 |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                  |       | $          | —     |            | $          | —               |       |                 | $          | —         |       |              |       | $          | 14         |   |   |   | $ | 91,599 |   |   |   | $ | 18,350 |   |   | $ | 109,963 |   |
| **Cash Flows from Investing  Activities**                  |       |       |       |            |       |                 |       |                 |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |
| EMS purchase of AMR and EmCare                             |       | —     |       | (828,775        | )          |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | — |   |   | (828,775 | ) |
| Purchase of property, plant and equipment                  |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | (48,933    | ) |   |   | — |   |   | (48,933 | ) |
| Proceeds from sale of property, plant and equipment        |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | 708        |   |   |   | — |   |   | 708 |   |
| Purchase of restricted cash and investments                |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | (64,128 | ) |   | (64,128 | ) |
| Proceeds from sale and maturity of restricted  investments |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | 35,972 |   |   | 35,972 |   |
| Net change in deposits and other assets                    |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | (4,473     | ) |   |   | — |   |   | (4,473 | ) |
| Net cash used in investing  activities                     |       | —     |       | (828,775        | )          |                 | —     |                 |       |           | —     |              |       |       | (52,698    | ) |   |   | (28,156 | ) |   | (909,629 | ) |
| **Cash  Flows from Financing Activities**                  |       |       |       |            |       |                 |       |                 |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Borrowings under new senior secured credit facility        |       | —     |       | —          |       |                 | 241,500    |                 |       |           | 108,500    |              |       |       | —     |   |   |   | — |   |   | 350,000 |   |
| Proceeds from issuance of senior subordinated notes        |       | —     |       | —          |       |                 | 172,500    |                 |       |           | 77,500     |              |       |       | —     |   |   |   | — |   |   | 250,000 |   |
| Borrowings under new revolving credit facility        |       | —     |       | —          |       |                 | 17,388     |                 |       |           | 7,812      |              |       |       | —     |   |   |   | — |   |   | 25,200 |   |
| Debt issue costs                                           |       | —     |       |            |       |                 | (12,648    | )                    |       |           | (5,682     | )                 |       |       |       |   |   |   |   |   |   | (18,330 | ) |
| EMS LP issuance of partnership equity                      |       | —     |       | 222,655         |       |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | — |   |   | 222,655 |   |
| EMS LP partnership equity issuance costs                   |       | —     |       | (1,919          | )          |                 |       |                 |       |           |       |              |       |       |       |   |   |   |   |   |   | (1,919 | ) |
| EMSC issuance of class A common stock                      |       | 113,400    |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | — |   |   | 113,400 |   |
| EMSC equity issuance costs                                 |       | (9,329     | )          | —          |       |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | — |   |   | (9,329 | ) |
| Repayments of capital lease obligations and other  debt    |       | —     |       | —          |       |                 | (87,596    | )                    |       |           | (39,354    | )                 |       |       | (5,395     | ) |   |   | — |   |   | (132,345 | ) |
| Repayments of revolving credit  facility                   |       | —     |       | —          |       |                 |       |                 |       |           |       |              |       |       | —     |   |   |   | — |   |   | — |   |
| Net investment and advances (distributions)                |       | (104,071   | )          | 608,039         |       |                 | (331,144   | )                    |       |           | (148,790   | )                 |       |       | (24,034    | ) |   |   | — |   |   | — |   |
| Increase (decrease) in bank  overdrafts                    |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | 3,751      |   |   |   | — |   |   | 3,751 |   |
| Increase (decrease) in other non-current liabilities       |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | —     |   |   |   | — |   |   | — |   |
| Net cash provided by (used in) financing activities        |       | —     |       | 828,775         |       |                 | —     |                 |       |           | (14        | )                 |       |       | (25,678    | ) |   |   | — |   |   | 803,083 |   |
| Increase in cash and cash equivalents                      |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | 13,223     |   |   |   | (9,806 | ) |   | 3,417 |   |
| Cash and cash equivalents, beginning of period             |       | —     |       | —          |       |                 | —     |                 |       |           | —     |              |       |       | 4,778      |   |   |   | 9,853 |   |   | 14,631 |   |
| Cash and cash  equivalents, end of period                  |       | $          | —     |            | $          | —               |       |                 | $          | —         |       |              |       | $          | —     |   |   |   | $ | 18,001 |   |   |   | $ | 47 |   |   | $ | 18,048 |   |

 

F-51

----

**Emergency Medical Services Corporation Notes to Financial Statements (dollars in thousands)**

**PredecessorCondensed Combining Statement of Cash FlowsFor the five months ended January 31, 2005**

| ** **                                                 | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|------------|------------|
| ** **                                                 | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantor** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                   |       |            |       |                  |       |                  |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided  by operating activities                 |       |            | $          | —                |       |                  |       | $              | —     |              |       |       | $          | — |   |   |   | $ | 10,856 |   |   |   | $ | 5,110 |   |   | $ | 15,966 |   |
| **Cash Flows from Investing Activities**                   |       |            |       |                  |       |                  |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Purchase of  property, plant and equipment                 |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (14,045 | ) |   |   | — |   |   | (14,045 | ) |
| Purchase of  business                                      |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (1,200 | ) |   |   | — |   |   | (1,200 | ) |
| Proceeds from sale  of business                            |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 1,300 |   |   |   | — |   |   | 1,300 |   |
| Proceeds from sale  of property, plant and  equipment      |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 175 |   |   |   | — |   |   | 175 |   |
| Purchase of  restricted cash and investments               |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | — |   |   |   | (31,257 | ) |   | (31,257 | ) |
| Proceeds from sale  and maturity of restricted investments |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | — |   |   |   | 35,960 |   |   | 35,960 |   |
| Other investing  activities                                |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (79 | ) |   |   | — |   |   | (79 | ) |
| Increase in  Laidlaw insurance deposits                    |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (12,521 | ) |   |   | — |   |   | (12,521 | ) |
| Net cash (used in)  provided by investing  activities      |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (26,370 | ) |   |   | 4,703 |   |   | (21,667 | ) |
| **Cash Flows from Financing Activities**                   |       |            |       |                  |       |                  |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Repayments of  capital lease obligations and other debt    |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (3,992 | ) |   |   | — |   |   | (3,992 | ) |
| Advances from  Laidlaw                                     |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 8,982 |   |   |   | — |   |   | 8,982 |   |
| Increase in bank  overdrafts                               |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 5,866 |   |   |   | — |   |   | 5,866 |   |
| Net cash provided  by financing activities                 |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 10,856 |   |   |   | — |   |   | 10,856 |   |
| Change in cash and  cash equivalents                       |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (4,658 | ) |   |   | 9,813 |   |   | 5,155 |   |
| Cash and cash  equivalents, beginning of period            |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 9,436 |   |   |   | 40 |   |   | 9,476 |   |
| Cash and cash  equivalents, end of period                  |       |            | $          | —                |       |                  |       | $              | —     |              |       |       | $          | — |   |   |   | $ | 4,778 |   |   |   | $ | 9,853 |   |   | $ | 14,631 |   |

 

**PredecessorCondensed Combining Statement of Cash FlowsFor the year ended August 31, 2004**

| ** **                                                 | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|------------|------------|
| ** **                                                 | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantor** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                   |       |            |       |                  |       |                  |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided  by operating activities                 |       |            | $          | —                |       |                  |       | $              | —     |              |       |       | $          | — |   |   |   | $ | 109,708 |   |   |   | $ | 17,971 |   |   | $ | 127,679 |   |
| **Cash Flows from Investing Activities**                   |       |            |       |                  |       |                  |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Purchase of  property, plant and equipment                 |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (42,787 | ) |   |   | — |   |   | (42,787 | ) |
| Proceeds from sale  of property, plant and  equipment      |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 858 |   |   |   | — |   |   | 858 |   |
| Purchase of  restricted cash and investments               |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | — |   |   |   | (64,357 | ) |   | (64,357 | ) |
| Proceeds from sale  and maturity of restricted investments |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | — |   |   |   | 46,389 |   |   | 46,389 |   |
| Other investing  activities                                |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 6,814 |   |   |   | — |   |   | 6,814 |   |
| Increase in  Laidlaw insurance deposits                    |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (28,433 | ) |   |   | — |   |   | (28,433 | ) |
| Net cash used in  investing activities                     |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (63,548 | ) |   |   | (17,968 | ) |   | (81,516 | ) |
| **Cash Flows from Financing Activities**                   |       |            |       |                  |       |                  |       |           |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Repayments of  capital lease obligations and other debt    |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (8,709 | ) |   |   | — |   |   | (8,709 | ) |
| Payments to  Laidlaw                                       |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (31,133 | ) |   |   | — |   |   | (31,133 | ) |
| Decrease in bank  overdrafts                               |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (4,544 | ) |   |   | — |   |   | (4,544 | ) |
| Decrease in other  non-current liabilities                 |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (2,942 | ) |   |   | — |   |   | (2,942 | ) |
| Net cash used in  financing activities                     |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (47,328 | ) |   |   | — |   |   | (47,328 | ) |
| Change in cash and  cash equivalents                       |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | (1,168 | ) |   |   | 3 |   |   | (1,165 | ) |
| Cash and cash  equivalents, beginning of period            |       |            | —     |                  |       |                  | —     |           |       |              | —     |       |       |   | 10,604 |   |   |   | 37 |   |   | 10,641 |   |
| Cash and cash  equivalents, end of period                  |       |            | $          | —                |       |                  |       | $              | —     |              |       |       | $          | — |   |   |   | $ | 9,436 |   |   |   | $ | 40 |   |   | $ | 9,476 |   |

 

F-52

----