Table of Contents

** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

----

 

**FORM 10-Q**

 

----

 
| **(Mark  one)**                                   | ** **                                                                                    | ** ** |
|---------------------------------------------------|-----------------------------------------------------------------------------------------------|------------|
| **x**                                             | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                        | ** **                                                                                    | ** ** |
| **For  the quarterly period ended June 30, 2008** |
| ** **                                        | ** **                                                                                    | ** ** |
| **Or**                                            |
| ** **                                        | ** **                                                                                    | ** ** |
| **o**                                             | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                   |                                                                                               |            |  |

 

**Forthe transition period from               to                **

 

**Commissionfile numbers:**

**001-32701**

**333-127115**

 

----

 

 

**EMERGENCY MEDICAL SERVICES CORPORATION**

**EMERGENCYMEDICAL SERVICES L.P.**

(Exact name ofRegistrants as Specified in their Charters)

 

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

 

Registrants’telephone number, including area code:**303-495-1200**

 

Former name,former address and former fiscal year, if changed since last report:

**Notapplicable**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.    Yes  x    No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. 

 

| Large accelerated filer o  |                                           | Accelerated filer x          |
|-------------------------------------------|------------------------------------------------|------------------------------|
| Non-accelerated filer   o  | (Do not check if a  smaller reporting company) | Smaller reporting  company o |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange act).  Yes  o No  x

 

Shares of class Acommon stock outstanding at August 1, 2008 – 9,331,533; shares of class Bcommon stock outstanding at August 1, 2008 – 142,545; LP exchangeableunits outstanding at August 1, 2008 – 32,107,500.

 

 

 

----

Table of Contents

 

**EMERGENCYMEDICAL SERVICES CORPORATION**

 

**INDEX TO QUARTERLY REPORT**

 

**ONFORM 10-Q**

 

**FORTHE THREE AND SIX MONTHS ENDED**

 

**JUNE30, 2008**

 
| Part 1. Financial Information |   |
|------------------------------------|--------|
|                               |   |   |   |
| Item 1.                            |   | Financial Statements  (Unaudited): |   |
|                               |   |   |   |
|                               |   | Consolidated Statements of  Operations and Comprehensive Income |   |
|                               |   |   |   |
|                               |   | Consolidated Balance Sheets |   |
|                               |   |   |   |
|                               |   | Consolidated Statements of  Cash Flows |   |
|                               |   |   |   |
|                               |   | Notes to  Consolidated Financial Statements |   |
|                               |   |   |   |
| Item  2.                           |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                               |   |   |   |
| Item  3.                           |   | Quantitative  and Qualitative Disclosures About Market Risk |   |
|                               |   |   |   |
| Item  4.                           |   | Controls and  Procedures |   |
|                               |   |   |   |
| Part II. Other  Information   |   |
|                               |   |   |   |
| Item 1.                            |   | Legal Proceedings |   |
|                               |   |   |   |
| Item 1A.                           |   | Risk Factors |   |
|                               |   |   |   |
| Item  4.                           |   | Submission  of Matters To A Vote of Security Holders |   |
|                               |   |   |   |
| Item 6.                       |   | Exhibits |   |
|                               |   |   |   |
| Signatures                         |   |

 

2

----

Table of Contents

 

**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FORTHE THREE AND SIX MONTHS ENDED**

**JUNE30, 2008**

 

**ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)**

 

**EmergencyMedical Services Corporation**

**Consolidated Statements of Operationsand Comprehensive Income**

**(unaudited;in thousands, except share and per share data)**

 
| ** **                                                                      | ** ** | **Quarter ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net revenue                                                                     |       | $                                         | 571,079    |                                              | $          | 516,712 |   | $ | 1,136,865 |   | $ | 1,040,031 |   |
| Compensation and  benefits                                                      |       | 400,501                                   |       | 357,309                                           |       | 794,852 |   | 712,241 |   |
| Operating  expenses                                                             |       | 83,704                                    |       | 76,262                                            |       | 166,927 |   | 156,258 |   |
| Insurance  expense                                                              |       | 17,568                                    |       | 17,476                                            |       | 38,531 |   | 37,777 |   |
| Selling, general  and administrative expenses                                   |       | 15,520                                    |       | 14,901                                            |       | 30,112 |   | 28,206 |   |
| Depreciation and  amortization expense                                          |       | 17,446                                    |       | 17,577                                            |       | 35,163 |   | 34,356 |   |
| Restructuring  charges                                                          |       | —                                    |       | —                                            |       | — |   | 2,242 |   |
| Income from  operations                                                         |       | 36,340                                    |       | 33,187                                            |       | 71,280 |   | 68,951 |   |
| Interest income  from restricted assets                                         |       | 1,735                                     |       | 1,660                                             |       | 3,490 |   | 3,375 |   |
| Interest expense                                                                |       | (10,354                                   | )          | (11,395                                           | )          | (20,270 | ) | (22,629 | ) |
| Realized gain on  investments                                                   |       | 1,571                                     |       | 22                                                |       | 2,243 |   | 59 |   |
| Interest and  other income                                                      |       | 287                                       |       | 532                                               |       | 589 |   | 1,189 |   |
| Income before income  taxes and equity in earnings of unconsolidated subsidiary |       | 29,579                                    |       | 24,006                                            |       | 57,332 |   | 50,945 |   |
| Income tax  expense                                                             |       | (11,348                                   | )          | (9,012                                            | )          | (22,032 | ) | (19,474 | ) |
| Income before  equity in earnings of unconsolidated subsidiary                  |       | 18,231                                    |       | 14,994                                            |       | 35,300 |   | 31,471 |   |
| Equity in  earnings of unconsolidated subsidiary                                |       | 104                                       |       | 101                                               |       | 54 |   | 255 |   |
| Net income                                                                      |       | 18,335                                    |       | 15,095                                            |       | 35,354 |   | 31,726 |   |
| Other  comprehensive income (loss), net of tax:                                 |       |                                      |       |                                              |       |   |   |   |   |
| Unrealized  holding losses during the period                                    |       | (3,107                                    | )          | (723                                              | )          | (1,760 | ) | (425 | ) |
| Unrealized gains  (losses) on derivative financial instruments                  |       | 2,165                                     |       | —                                            |       | (760 | ) | — |   |
| Comprehensive  income                                                           |       | $                                         | 17,393     |                                              | $          | 14,372 |   | $ | 32,834 |   | $ | 31,301 |   |
|                                                                            |       |                                      |       |                                              |       |   |   |   |   |
| Basic earnings  per common share                                                |       | $                                         | 0.44       |                                              | $          | 0.36 |   | $ | 0.85 |   | $ | 0.76 |   |
| Diluted earnings  per common share                                              |       | $                                         | 0.43       |                                              | $          | 0.35 |   | $ | 0.82 |   | $ | 0.74 |   |
| Weighted average  common shares outstanding, basic                              |       | 41,573,893                                |       | 41,544,901                                        |       | 41,572,162 |   | 41,533,093 |   |
| Weighted average  common shares outstanding, diluted                            |       | 43,022,034                                |       | 43,211,661                                        |       | 43,052,668 |   | 43,120,416 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

3

----

Table of Contents

 

**EmergencyMedical Services Corporation**

**Consolidated Balance Sheets**

**(inthousands, except share and per share data)**

 
| ** **                                                                                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                  | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                  | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                             |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                  |       | $                 | 73,019     |                  | $          | 28,914 |   |
| Insurance  collateral                                                                                                                                       |       | 41,226            |       | 37,776                |       |
| Trade and other  accounts receivable, net                                                                                                                   |       | 512,027           |       | 495,348               |       |
| Parts and  supplies inventory                                                                                                                               |       | 20,124            |       | 20,010                |       |
| Prepaids and  other current assets                                                                                                                          |       | 16,398            |       | 11,715                |       |
| Current deferred  tax assets                                                                                                                                |       | 78,566            |       | 76,997                |       |
| Total current  assets                                                                                                                                       |       | 741,360           |       | 670,760               |       |
| Non-current  assets:                                                                                                                                        |       |              |       |                  |       |
| Property, plant  and equipment, net                                                                                                                         |       | 127,745           |       | 143,342               |       |
| Intangible  assets, net                                                                                                                                     |       | 76,112            |       | 81,717                |       |
| Non-current  deferred tax assets                                                                                                                            |       | 76,587            |       | 94,961                |       |
| Insurance  collateral                                                                                                                                       |       | 126,572           |       | 146,638               |       |
| Goodwill                                                                                                                                                    |       | 329,300           |       | 313,124               |       |
| Other long-term  assets                                                                                                                                     |       | 24,508            |       | 29,021                |       |
| Total assets                                                                                                                                                |       | $                 | 1,502,184  |                  | $          | 1,479,563 |   |
| **Liabilities  and Equity**                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                                                       |       |              |       |                  |       |
| Accounts payable                                                                                                                                            |       | $                 | 63,117     |                  | $          | 64,855 |   |
| Accrued  liabilities                                                                                                                                        |       | 233,545           |       | 237,319               |       |
| Current portion  of long-term debt                                                                                                                          |       | 4,828             |       | 4,717                 |       |
| Total current  liabilities                                                                                                                                  |       | 301,490           |       | 306,891               |       |
| Long-term debt                                                                                                                                              |       | 476,186           |       | 478,166               |       |
| Insurance  reserves and other long-term liabilities                                                                                                         |       | 240,945           |       | 245,010               |       |
| Total  liabilities                                                                                                                                          |       | 1,018,621         |       | 1,030,067             |       |
| 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, 9,331,533 and  9,320,347 issued and outstanding in 2008 and 2007, respectively) |       | 93                |       | 93                    |       |
| Class B  common stock ($0.01 par value; 40,000,000 shares authorized, 142,545 issued  and outstanding in 2008 and 2007)                                |       | 1                 |       | 1                     |       |
| Class B  special voting stock ($0.01 par value; 1 share authorized, issued and outstanding  in 2008 and 2007)                                          |       | —            |       | —                |       |
| LP exchangeable  units (32,107,500 shares issued and outstanding in 2008 and 2007)                                                                          |       | 212,361           |       | 212,361               |       |
| Additional  paid-in capital                                                                                                                                 |       | 118,312           |       | 117,079               |       |
| Retained  earnings                                                                                                                                          |       | 154,310           |       | 118,956               |       |
| Accumulated  other comprehensive (loss) income                                                                                                              |       | (1,514            | )          | 1,006                 |       |
| Total equity                                                                                                                                                |       | 483,563           |       | 449,496               |       |
| Total  liabilities and equity                                                                                                                               |       | $                 | 1,502,184  |                  | $          | 1,479,563 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

4

----

Table of Contents

 

**EmergencyMedical Services Corporation**

**Consolidated Statements of Cash Flows**

**(unaudited;in thousands)**

 
| ** **                                                                         | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| **Cash  Flows from Operating Activities**                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                                 | 35,354     |   | $ | 31,726 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                              |       |   |   |
| Depreciation and  amortization                                                     |       | 36,269                                            |       | 35,376 |   |
| Gain on disposal  of property, plant and equipment                                 |       | (103                                              | )          | (181 | ) |
| Equity-based  compensation expense                                                 |       | 1,124                                             |       | 800 |   |
| Equity in  earnings of unconsolidated subsidiary                                   |       | (54                                               | )          | (255 | ) |
| Dividends  received                                                                |       | —                                            |       | 416 |   |
| Deferred income  taxes                                                             |       | 18,622                                            |       | 19,050 |   |
| Changes in  operating assets/liabilities, net of acquisitions:                     |       |                                              |       |   |   |
| Trade and other  accounts receivable                                               |       | (13,752                                           | )          | (63,934 | ) |
| Parts and  supplies inventory                                                      |       | (14                                               | )          | (314 | ) |
| Prepaids and  other current assets                                                 |       | (4,638                                            | )          | (3,570 | ) |
| Accounts payable  and accrued liabilities                                          |       | (10,289                                           | )          | 162 |   |
| Insurance  accruals                                                                |       | (7,140                                            | )          | 4 |   |
| Net cash  provided by operating activities                                         |       | 55,379                                            |       | 19,280 |   |
| **Cash  Flows from Investing Activities**                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                        |       | (10,180                                           | )          | (22,743 | ) |
| Proceeds from  sale of property, plant and equipment                               |       | 220                                               |       | 291 |   |
| Acquisition of  businesses, net of cash received                                   |       | (19,957                                           | )          | (477 | ) |
| Net change in  insurance collateral                                                |       | 14,856                                            |       | (3,033 | ) |
| Other investing  activities                                                        |       | 2,628                                             |       | 2,715 |   |
| Net cash used in  investing activities                                             |       | (12,433                                           | )          | (23,247 | ) |
| **Cash  Flows from Financing Activities**                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| EMSC issuance of  class A common stock                                             |       | 45                                                |       | 249 |   |
| Repayments of  capital lease obligations and other debt                            |       | (16,721                                           | )          | (3,391 | ) |
| Increase  (decrease) in bank overdrafts                                            |       | 3,835                                             |       | (2,743 | ) |
| Borrowings under  revolving credit facility                                        |       | 14,000                                            |       | — |   |
| Net cash  provided by (used in) financing activities                               |       | 1,159                                             |       | (5,885 | ) |
| Change in cash  and cash equivalents                                               |       | 44,105                                            |       | (9,852 | ) |
| Cash and cash  equivalents, beginning of period                                    |       | 28,914                                            |       | 39,336 |   |
| Cash and cash  equivalents, end of period                                          |       | $                                                 | 73,019     |   | $ | 29,484 |   |
|                                                                               |       |                                              |       |   |   |
| **Non-cash  Activities**                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Capital lease  obligations incurred                                                |       | $                                                 | 682        |   | $ | 8,038 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

5

----

Tableof Contents

 

**Emergency Medical ServicesCorporation**

**Notes to Unaudited Consolidated FinancialStatements**

**(inthousands, except share and per share data)**

 

**1.****                General**

** **

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

*** ***

The accompanying interimconsolidated financial statements for Emergency Medical Services Corporation (“EMSC”or the “Company”) have been prepared in accordance with U. S. generallyaccepted accounting principles (“GAAP”) for interim reporting, and accordingly,do not include all of the disclosures required for annual financial statements.In the opinion of management, all adjustments considered necessary for fairpresentation have been included. All such adjustments are of a normal,recurring nature. Operating results for the three and six month periods ended June 30,2008 are not necessarily indicative of the results that may be expected for thefull year ending December 31, 2008. For further information, see the Company’sconsolidated financial statements, including the accounting policies and notesthereto, included in the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2007.

 

The consolidatedfinancial statements of EMSC include those of its direct subsidiary, EmergencyMedical Services L.P. (“EMS LP”), a Delaware limited partnership. EMS LPacquired American Medical Response, Inc. and its subsidiaries (“AMR”) andEmCare Holdings Inc. and its subsidiaries (“EmCare”) from Laidlaw International, Inc.(“Laidlaw”) on February 10, 2005, with an effective transaction date afterthe close of business January 31, 2005. On December 21, 2005, theCompany effected a reorganization and issued class A common stock in an initialpublic offering.

 

The Company is party to amanagement agreement with a wholly-owned subsidiary of Onex Corporation, theCompany’s principal equityholder. In exchange for an annual management fee of$1.0 million, the Onex subsidiary provides the Company with corporate financeand strategic planning consulting services. For each of the three and sixmonths ended June 30, 2008 and 2007, the Company expensed $250 and $500,respectively, in respect of this fee.

 

**2.****                Summaryof Significant Accounting Policies**

** **

***Consolidation***

*** ***

The consolidatedfinancial statements include all wholly-owned subsidiaries of EMSC, includingAMR and EmCare and their respective subsidiaries. All significant intercompanytransactions and balances have been eliminated.

 

***Use of Estimates***

*** ***

The preparation offinancial statements requires management to make estimates and assumptionsrelating to the reporting of results of operations, financial condition andrelated disclosure of contingent assets and liabilities at the date of thefinancial statements. Actual results may differ from those estimates underdifferent assumptions or conditions.

 

***Insurance***

*** ***

Insurance collateral iscomprised principally 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.

 

Insurance reserves areestablished for automobile, workers compensation, general liability andprofessional liability claims utilizing policies with both fully-insured andself-insured components. This includes the use of an off-shore captiveinsurance program through a wholly-owned subsidiary for certain professional liability(malpractice) programs for EmCare. In those instances where the Company hasobtained third-party insurance 

 

6

----

Tableof Contents

 

coverage, the Companygenerally retains liability for the first $1 to $2 million of the loss.Insurance reserves cover known claims and incidents within the level of Companyretention that may result in the assertion of additional claims, as well asclaims from unknown incidents that may be asserted arising from activitiesthrough the balance sheet date.

 

The Company establishesreserves for claims based upon an assessment of actual claims and claimsincurred but not reported. The reserves are established based on quarterlyconsultation with third-party independent actuaries using actuarial principlesand assumptions that consider a number of factors, including historical claimpayment patterns (including legal costs) and changes in case reserves and theassumed rate of inflation in healthcare costs and property damage repairs.

 

The Company’s most recentactuarial valuation was completed in June 2008. As a result of thisactuarial valuation, in the three and six months ended June 30, 2008 theCompany recorded reductions in its provision for insurance liabilities ofapproximately $3.4 million and $6.2 million, respectively, related to itsreserves for losses in prior years.  In the three and six months ended June 30,2007 the Company recorded reductions in its provision for insurance liabilitiesof approximately $8.7 million and $13.8 million, respectively, as a result ofan actuarial valuation completed in June 2007.

 

The long-term portion ofinsurance reserves was $139.0 million and $144.7 million as of June 30,2008 and December 31, 2007, respectively.

 

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

*** ***

The Company determinesits allowances based on payor reimbursement schedules, historical write-offexperience and other economic data. The allowances for contractual discountsand uncompensated care are reviewed monthly. Account balances are charged offagainst the uncompensated care allowance when it is probable the receivablewill not be recovered. Write-offs to the contractual allowance occur whenpayment is received. The allowance for uncompensated care is relatedprincipally to receivables recorded for self-pay patients. The Company’saccounts receivable allowances are as follows:

 
| ** **                           | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Gross trade  accounts receivable     |       | $                       | 1,875,919  |                        | $          | 1,693,862 |   |
| Allowance for  contractual discounts |       | 953,442                 |       | 832,738                     |       |
| Allowance for  uncompensated care    |       | 481,434                 |       | 431,920                     |       |
| Net trade  accounts receivable       |       | 441,043                 |       | 429,204                     |       |
| Other  receivables, net              |       | 70,984                  |       | 66,144                      |       |
| Net accounts  receivable             |       | $                       | 512,027    |                        | $          | 495,348 |   |

 

Other receivablesrepresent EmCare hospital subsidies and fees and AMR fees for stand-by andspecial events and subsidies from community organizations.

 

AMR contractualallowances are primarily determined on payor reimbursement schedules that areincluded and regularly updated in the billing systems, and by historicalcollection experience.  The billingsystems calculate the difference between payor specific gross billings andcontractually agreed to, or governmentally driven, reimbursement rates.  The allowance for uncompensated care at AMRis related principally to receivables recorded for self-pay patients.  AMR’s allowances on self-pay accountsreceivable are estimated on claim level, historical write-off experience.

 

Accounts receivableallowances at EmCare are estimated based on cash collection and write-offexperience at a facility level contract and facility specific payor mix.  These allowances are reviewed and adjustedmonthly through revenue provisions.  Inaddition, an analysis is done after 15 months to compare actual cash collectedon a date of service basis to the revenue recorded for that period.  Any adjustment necessary for an overage ordeficit in these allowances based on actual collections is recorded through aretroactive revenue adjustment in the current period.

 

7

----

Tableof Contents

 

***Revenue Recognition***

*** ***

Revenue is recognized atthe time of service and is recorded net of provisions for contractual discountsand estimated uncompensated care. Provisions for contractual discounts andestimated uncompensated care as a percentage of gross revenue and as apercentage of gross revenue less provision for contractual discounts are asfollows:

 
| ** **                                                                                     | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| Gross revenue                                                                                  |       | 100.0                                           | %          | 100.0                                         | %          | 100.0 | % | 100.0 | % |
| Provision for  contractual discounts                                                           |       | 46.1                                            | %          | 42.2                                          | %          | 45.9 | % | 42.3 | % |
| Revenue net of contractual  discounts                                                          |       | 53.9                                            | %          | 57.8                                          | %          | 54.1 | % | 57.7 | % |
| Provision for  uncompensated care as a percentage of gross revenue                             |       | 19.3                                            | %          | 20.1                                          | %          | 19.0 | % | 19.8 | % |
| Provision for  uncompensated care as a percentage of gross revenue less contractual  discounts |       | 35.8                                            | %          | 34.8                                          | %          | 35.1 | % | 34.3 | % |

 

Healthcare reimbursementis complex and may involve lengthy delays. Third-party payors are continuingtheir efforts to control expenditures for healthcare, including proposals torevise reimbursement policies. The Company has from time to time experienceddelays in reimbursement from third-party payors. In addition, third-partypayors may disallow, in whole or in part, claims for reimbursement based ondeterminations that certain amounts are not reimbursable under plan coverage,determinations of medical necessity, or the need for additional information.Laws and regulations governing the Medicare and Medicaid programs are verycomplex and subject to interpretation. As a result, there is a reasonablepossibility that recorded estimates will change materially in the short-term.Retroactive adjustments may change the amounts realized from third-party payorsand are considered in the recognition of revenue on an estimated basis in theperiod the related services are rendered. Such amounts, including adjustmentsbetween provisions for contractual discounts and uncompensated care, areadjusted in future periods, as adjustments become known.  Retroactiveadjustments in the three months ended June 30, 2008, which increasedrevenue, were 0.1% of consolidated net revenue compared to 1.7% of consolidatednet revenue for the three months ended June 30, 2007.  Retroactive adjustments recorded in the sixmonth period ended June 30, 2008, which increased revenue, were 0.4% ofconsolidated net revenue compared to 2.0% of consolidated net revenue for thesix months ended June 30, 2007.

 

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.

 

***Equity Structure***

*** ***

On December 21,2005, the Company effected a reorganization and issued 8.1 million sharesof class 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.

 

The Company holds 22.8%of the equity interests in EMS LP. LP exchangeable units, held by personsaffiliated with the Company’s principal equity holder, represent the balance ofthe EMS LP equity. The LP exchangeable units are exchangeable at any time, atthe option of the holder, for shares of the Company’s class B common stock on aone-for-one basis. The holders of the LP exchangeable units have the right tovote, through the trustee holder of the Company’s class B special voting stock,at all stockholder meetings at which holders of the Company’s class B commonstock or class B special voting stock are entitled to vote.

 

8

----

Tableof Contents

 

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 LPexchangeable units have no general voting rights. The LP exchangeable units, whenconsidered with the class B special voting stock, have the same rights,privileges and characteristics of the Company’s class B common stock. The LPexchangeable units are intended to be economically equivalent to the class Bcommon stock of the Company in that the LP exchangeable units carry the rightto vote (by virtue of the class B special voting stock) with the holders ofclass B common stock as if one class, and entitle holders to receivedistributions only if the equivalent dividends are declared on the Company’sclass B common stock. Accordingly, the Company accounts for the LP exchangeableunits as if the LP exchangeable units were shares of its common stock,including reporting the LP exchangeable units in the equity section of theCompany’s balance sheet and including the number of outstanding LP exchangeableunits in both its basic and diluted earnings per share calculations.

 

***Recent Accounting Pronouncements***

*** ***

The Company adopted SFAS No. 157*Fair value measurement* (“SFAS 157”)effective January 1, 2008, which among other things, requires additionaldisclosures about investments that are reported at fair value.  SFAS 157 establishes a hierarchal disclosureframework which ranks the level of market price observability used in measuringinvestments at fair value. Market price observability is impacted by a numberof factors, including the type of investment and the characteristics specificto the investment.  Investments withreadily available active quoted prices or for which fair value can be measuredfrom actively quoted prices generally will have a higher degree of market priceobservability and a lesser degree of judgment used in measuring fair value.

 

Investments measured andreported at fair value are classified and disclosed in one of the followingcategories.

 

Level 1 – Quoted pricesare available in active markets for identical investments as of the reportingdate.  As required by SFAS 157, theCompany does not adjust the quoted price for these investments.

 

Level 2 – Pricing inputsare other than quoted prices in active markets, which are either directly orindirectly observable as of the reporting date, and fair value is determinedthrough the use of models or other valuation methodologies.

 

The following tablesummarizes the valuation of EMSC’s investments by the above SFAS 157 fair valuehierarchy levels as of June 30, 2008:

 
| ** **      | ** ** | **Fair value measurements at June 30, 2008  using:** | ** ** |
|-----------------|------------|------------------------------------------------------------------------------------|------------|
| **Description** | ** ** | **Total**                                                                          | ** ** | **Level 1** | ** ** | **Level 2** | ** ** |
| Assets:         |       |                                                                               |       |   |   |   |   |
| Securities      |       | $                                                                                  | 89,403     |   | $ | 83,622 |   | $ | 5,781 |   |
|            |       |                                                                               |       |   |   |   |   |
| Liabilities:    |       |                                                                               |       |   |   |   |   |
| Derivatives     |       | $                                                                                  | 2,009      |   | $ | — |   | $ | 2,009 |   |

 

**3.****                Acquisitions**

** **

In March 2008, theCompany completed its acquisition of River Medical, Inc. based in LakeHavasu, Arizona, which provides exclusive emergency ambulance transportationservices to Lake Havasu City, and La Paz and Mohave Counties in westernArizona.  The Company believes that thisacquisition positions the Company for future expansion in the Arizona market.  In April 2008, the Company completed itsacquisition of Aldan Emergency Physicians, P.A. which provides emergencydepartment staffing and management services at facilities located inBrooksville, Florida and Hudson, Florida. The total cost of these acquisitionswas $20.0 million and the Company has recorded $14.5 million of goodwill, whichamount is subject to adjustment based upon completion of purchase priceallocations.

 

9

----

Tableof Contents

 

**4.****                AccruedLiabilities**

** **

Accrued liabilities wereas follows at June 30, 2008 and December 31, 2007:

 
| ** **                                  | ** ** | **June 30, 2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| Accrued wages  and benefits                 |       | $                      | 85,512     |                        | $          | 79,781 |   |
| Accrued paid  time-off                      |       | 27,418                 |       | 24,687                      |       |
| Current portion  of self-insurance reserves |       | 58,391                 |       | 59,821                      |       |
| Accrued  restructuring                      |       | 570                    |       | 600                         |       |
| Current portion  of compliance and legal    |       | 2,659                  |       | 2,245                       |       |
| Accrued billing  and collection fees        |       | 4,184                  |       | 5,046                       |       |
| Accrued profit  sharing                     |       | 15,351                 |       | 23,661                      |       |
| Accrued interest                            |       | 10,039                 |       | 10,407                      |       |
| Other                                       |       | 29,421                 |       | 31,071                      |       |
| Total accrued  liabilities                  |       | $                      | 233,545    |                        | $          | 237,319 |   |

 

**5.****                Long-TermDebt**

** **

Long-term debt consistedof the following at June 30, 2008 and December 31, 2007:

 
| ** **                                                                       | ** ** | **June 30, 2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| Senior  subordinated notes due 2015                                              |       | $                      | 250,000    |                        | $          | 250,000 |   |
| Senior secured  term loan due 2012 (6.69% at June 30, 2008)                 |       | 223,015                |       | 224,167                     |       |
| Notes due at  various dates from 2008 to 2022 with interest rates from 6% to 10% |       | 1,788                  |       | 2,292                       |       |
| Capital lease  obligations due at various dates from 2008 to 2018 (see note 6)   |       | 6,211                  |       | 6,424                       |       |
|                                                                             |       | 481,014                |       | 482,883                     |       |
| Less current  portion                                                            |       | (4,828                 | )          | (4,717                      | )          |
| Total long-term  debt                                                            |       | $                      | 476,186    |                        | $          | 478,166 |   |

 

**6.****                Commitmentsand Contingencies**

** **

***Lease Commitments***

*** ***

The Company leasesvarious facilities and equipment under operating lease agreements.

 

The Company also leasescertain vehicles and certain leasehold improvements under capital leases.During the first quarter of 2007 the Company extended the term on the vehicleslease for an additional three years. Assets under capital leases arecapitalized using inherent interest rates at the inception of each lease.Capital leases are collateralized by the underlying assets.

 

***Services***

*** ***

The Company is subject tothe Medicare and Medicaid fraud and abuse laws which prohibit, among otherthings, any false claims, or any bribe, kick-back or rebate in return for thereferral of Medicare and Medicaid patients. Violation of these prohibitions mayresult in civil and criminal penalties and exclusion from participation in the Medicareand Medicaid programs. Management has implemented policies and procedures thatmanagement believes will assure that the Company is in substantial compliancewith these laws and regulations but there can be no assurance the Company willnot be found to have violated certain of these laws and regulations. From timeto time, 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 governmentagencies conducting these 

 

10

----

Tableof Contents

 

investigations and isproviding requested information to the government agencies. Other than theproceedings described below, management believes that the outcome of any ofthese investigations would not have a material adverse effect on the Company.

 

On April 17, 2006,the Office of Inspector General for the United States Department of Health 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 and reimbursementrequirements.   On December 10, 2006, AMR paid the $1.8 millionin alleged overpayments.  However, the Company disagreed with the OIG’sfinding, filed an administrative appeal and on May 15, 2008, received $1.2million back from Medicare as a result of the successful appeal.  The outcome of this appeal did not have animpact on the results of operations of the Company.

 

***Other Legal Matters***

*** ***

On December 13,2005, a lawsuit purporting to be a class action was commenced against AMR inSpokane, Washington in Washington State Court, Spokane County.  Thecomplaint alleges that AMR billed patients and third party payors fortransports it conducted between 1998 and 2005 at higher rates thancontractually permitted.  The court has certified a class in this case,but the size and membership of the class has not been determined.  At thistime, AMR does not believe that any incorrect billings are material in amount.

 

EmCare entered into asettlement agreement with respect to June Belt, et. al. v. EmCare, Inc.et. al. brought by a number of nurse practitioners and physician assistantsunder the Fair Labor Standards Act.  The suit was filed on February 25,2003 in the Eastern District of Texas.  Pursuant to the settlementagreement, EmCare paid $1.7 million during the first quarter of 2007 insatisfaction of all claims in the lawsuit.

 

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.

 

**7.****                RestructuringCharges**

** **

The Company restructuredcertain billing functions of AMR and operations in the Los Angeles, Californiamarket during the first quarter of 2007 and recorded a restructuring charge of$2.2 million.  This restructuring charge included $0.2 million in leasetermination and exit costs and $2.0 million related to termination benefits.

 

**8.****                EquityBased Compensation**

** **

The Company adopted theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(revised 2004)*Share-Based Payment*(“SFAS 123R”) on January 1, 2006 using the prospective transitionmethod.  The stock options are valued using the Black-Scholes valuationmethod on the date of grant.

 

**EquityOption Plan**

** **

Under the Company’sEquity Option Plan, key employees were granted options that permit theindividuals to purchase class A common shares and vest ratably generally over aperiod of four years. In addition, certain performance measures must be met for50% of the options to become exercisable. Options with similar provisions weregranted to non-employee directors. The Company recorded a compensation chargeof $431 and $300 for the three months ended June 30, 2008 and 2007,respectively, and $862 and $600 for the six months ended June 30, 2008 and2007, respectively.

 

11

----

Tableof Contents

 

**Non-EmployeeDirector Compensation Plan**

** **

The Non-Employee DirectorCompensation Plan, approved in May 2007, is available to non-employeedirectors of the Company, other than the Chair of the ComplianceCommittee.  Under this plan, eligibledirectors are granted Restricted Stock Units (“RSUs”) following each annualstockholder meeting with each RSU representing one share of the Company’s classA common stock.  Eligible directorsreceive a grant of RSUs having a fair market value of $100 on the date of grantbased on the closing price of the Company’s class A common stock on thebusiness day immediately preceding the grant date.  The Non-Employee Director Compensation Planallows directors to defer income from the grant of RSUs, which vest immediatelyprior to the election of directors at the next following annual stockholdermeeting.  In connection with this plan,the Company granted 4,145 and 2,705 RSUs per director in 2008 and 2007,respectively, and expensed $100 for each of the three month periods ended June 30,2008 and 2007 and $200 for each of the six month periods ended June 30,2008 and 2007.

 

**Long-TermIncentive Plan**

** **

The Company’s originalLong-Term Incentive Plan was approved by stockholders in May 2007 and anAmended and Restated Long-Term Incentive Plan (the “Plan”) was approved bystockholders in May 2008.  The Planprovides for the grant of long-term incentives, including various equity-basedincentives, to those persons with responsibility for the success and growth ofthe Company and its subsidiaries.

 

The Company grantedoptions under the Plan  to key employeesduring the six months ended June 30, 2008 under the Plan. The optionspermit employees to purchase a total of 132,250 shares of class A commonstock at a weighted average exercise price of $28.78 per share, vest and becomeexercisable ratably over a period of 4 years from the date of grant andhave a maximum term of ten years.

 

The Company recorded acompensation charge of $31 during the three months ended June 30, 2008 and$62 for the six months ended June 30, 2008 in connection with the Plan.

 

**StockPurchase Plan/Employee Stock Purchase Plan**

** **

During the first quarterof 2008, the Company commenced an offering of its class A common stock toeligible employees and independent contractors associated with the Company andits subsidiaries pursuant to a Stock Purchase Plan and the Company’s EmployeeStock Purchase Plan (together, the “SPPs”).  The purchases of stock underthe SPPs will occur in September 2008 at a 5% discount to the closingprice of the Company’s class A common stock on September 15, 2008, and assuch no compensation charge has been recorded for the SPPs during the sixmonths ended June 30, 2008.

 

**9.****                SegmentInformation**

** **

The Company is organizedaround two separately managed business units: healthcare transportationservices and emergency management services, which have been identified asoperating segments. The healthcare transportation services reportable segmentfocuses on providing a full range of medical transportation services from basicpatient 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”) forpurposes of SFAS No. 131*Disclosures about Segments of an Enterprise and Related Information*(“SFAS 131”), as he assesses the performance of the business units anddecides how to allocate resources to the business units.

 

Net income before equityin earnings of unconsolidated subsidiary, income tax expense, interest andother income, realized gain on investments, interest expense and depreciationand amortization (“Adjusted EBITDA”) is the measure of profit and loss that theCODM uses to assess performance, measure liquidity and make decisions. Theaccounting policies for reported segments are the same as for the Company as awhole.

 

12

----

Table of Contents

 
| ** **                                           | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Healthcare  Transportation Services**              |       |                                                |       |                                              |       |   |   |   |   |
| Revenue                                              |       | $                                                   | 323,672    |                                              | $          | 295,304 |   | $ | 649,988 |   | $ | 603,412 |   |
| Segment Adjusted  EBITDA                             |       | 25,976                                              |       | 23,364                                            |       | 54,374 |   | 48,309 |   |
| **Emergency  Management Services**                   |       |                                                |       |                                              |       |   |   |   |   |
| Revenue                                              |       | 247,407                                             |       | 221,408                                           |       | 486,877 |   | 436,619 |   |
| Segment Adjusted  EBITDA                             |       | 29,545                                              |       | 29,060                                            |       | 55,559 |   | 58,373 |   |
| **Total**                                            |       |                                                |       |                                              |       |   |   |   |   |
| Total revenue                                        |       | 571,079                                             |       | 516,712                                           |       | 1,136,865 |   | 1,040,031 |   |
| Total Adjusted  EBITDA                               |       | 55,521                                              |       | 52,424                                            |       | 109,933 |   | 106,682 |   |
| **Reconciliation  of Adjusted EBITDA to Net Income** |       |                                                |       |                                              |       |   |   |   |   |
| Adjusted EBITDA                                      |       | $                                                   | 55,521     |                                              | $          | 52,424 |   | $ | 109,933 |   | $ | 106,682 |   |
| Depreciation and  amortization expense               |       | (17,446                                             | )          | (17,577                                           | )          | (35,163 | ) | (34,356 | ) |
| Interest expense                                     |       | (10,354                                             | )          | (11,395                                           | )          | (20,270 | ) | (22,629 | ) |
| Realized gain on  investments                        |       | 1,571                                               |       | 22                                                |       | 2,243 |   | 59 |   |
| Interest and  other income                           |       | 287                                                 |       | 532                                               |       | 589 |   | 1,189 |   |
| Income tax  expense                                  |       | (11,348                                             | )          | (9,012                                            | )          | (22,032 | ) | (19,474 | ) |
| Equity in  earnings of unconsolidated subsidiary     |       | 104                                                 |       | 101                                               |       | 54 |   | 255 |   |
| Net income                                           |       | $                                                   | 18,335     |                                              | $          | 15,095 |   | $ | 35,354 |   | $ | 31,726 |   |

 

A reconciliation ofAdjusted EBITDA to cash flows provided by operating activities is as follows:

 
| ** **                                    | ** ** | **For the six months ended June 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                                            | ** ** | **2007** | ** ** |
| Adjusted EBITDA                               |       | $                                                                   | 109,933    |   | $ | 106,682 |   |
| Interest paid                                 |       | (19,164                                                             | )          | (21,609 | ) |
| Change in  accounts receivable                |       | (13,752                                                             | )          | (63,934 | ) |
| Change in other  operating assets/liabilities |       | (22,081                                                             | )          | (3,718 | ) |
| Equity based  compensation                    |       | 1,124                                                               |       | 800 |   |
| Other                                         |       | (681                                                                | )          | 1,059 |   |
| Cash flows  provided by operating activities  |       | $                                                                   | 55,379     |   | $ | 19,280 |   |

 

**10.****         ****Guarantors of Debt**

 

EMS LP financed theacquisition of AMR and EmCare in part by issuing $250.0 million principalamount of senior subordinated notes and borrowing $370.2 million under itssenior secured credit facility. Its wholly-owned subsidiaries, AMR HoldCo, Inc.(f/k/a EMSC Management, Inc.) and EmCare HoldCo, Inc., are theissuers of the senior subordinated notes and the borrowers under the seniorsecured credit facility. As part of the transaction, AMR and its subsidiariesbecame wholly-owned subsidiaries of AMR HoldCo, Inc. and EmCare and itssubsidiaries became wholly-owned subsidiaries of EmCare HoldCo, Inc. Thesenior subordinated notes and the senior secured credit facility include afull, unconditional and joint and several guarantee by EMSC, EMS LP and EMSC’sdomestic subsidiaries. The senior subordinated notes and senior secured creditfacility do not include a guarantee by the Company’s captive insurancesubsidiary. All of the operating income and cash flow of EMSC, EMS LP, AMRHoldCo, Inc. and EmCare HoldCo, Inc. is generated by AMR, EmCare andtheir subsidiaries. As a result, funds necessary to meet the debt serviceobligations under the senior secured notes and senior secured credit facilitydescribed above are provided by the distributions or advances from thesubsidiary companies, AMR and EmCare. Investments in subsidiary operatingcompanies are accounted for on the equity method. Accordingly, entriesnecessary to consolidate EMSC, EMS LP, AMR HoldCo, Inc., EmCare HoldCo, Inc.and all of their subsidiaries are reflected in the Eliminations/Adjustmentscolumn. Separate complete financial statements of the issuers, EMS LP 

 

13

----

Table of Contents

 

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 financial statements for EMSC, EMS LP,the issuers, the guarantors and the non-guarantor are as follows:

 

**ConsolidatingStatement of Operations**

**Forthe three months ended June 30, 2008**

** **
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 571,079    |       | $          | 7,952 |   | $ | (7,952 | ) | $ | 571,079 |   |
| Compensation and  benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 400,501        |       | —            |       | —            |       | 400,501    |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 83,704         |       | —            |       | —            |       | 83,704     |       |
| Insurance expense                                                |       | —     |       | —          |       | —                |       | —                |       | 14,944         |       | 10,576            |       | (7,952            | )          | 17,568     |       |
| Selling, general  and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 15,520         |       | —            |       | —            |       | 15,520     |       |
| Depreciation and  amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 17,446         |       | —            |       | —            |       | 17,446     |       |
| Restructuring  charge                                            |       | —     |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | —     |       |
| Income (loss)  from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 38,964         |       | (2,624            | )          | —            |       | 36,340     |       |
| Interest income  from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 682            |       | 1,053             |       | —            |       | 1,735      |       |
| Interest expense                                                 |       | —     |       | —          |       | —                |       | —                |       | (10,354        | )          | —            |       | —            |       | (10,354    | )          |
| Realized gain on  investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 1,571             |       | —            |       | 1,571      |       |
| Interest and  other income                                       |       | —     |       | —          |       | —                |       | —                |       | 287            |       | —            |       | —            |       | 287        |       |
| Income before  income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 29,579         |       | —            |       | —            |       | 29,579     |       |
| Income tax  expense                                              |       | —     |       | —          |       | —                |       | —                |       | (11,348        | )          | —            |       | —            |       | (11,348    | )          |
| Income before  equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 18,231         |       | —            |       | —            |       | 18,231     |       |
| Equity in  earnings of unconsolidated subsidiaries               |       | 18,335     |       | 18,335          |       | 3,637                 |       | 14,698                |       | 104            |       | —            |       | (55,005           | )          | 104        |       |
| Net income                                                       |       | $          | 18,335     |            | $          | 18,335                |       | $                     | 3,637      |           | $          | 14,698            |       | $                 | 18,335     |       | $          | — |   | $ | (55,005 | ) | $ | 18,335 |   |

 

**ConsolidatingStatement of Operations**

**Forthe three months ended June 30, 2007**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 516,712    |       | $          | 6,867 |   | $ | (6,867 | ) | $ | 516,712 |   |
| Compensation and  benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 357,309        |       | —            |       | —            |       | 357,309    |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 76,262         |       | —            |       | —            |       | 76,262     |       |
| Insurance expense                                                |       | —     |       | —          |       | —                |       | —                |       | 17,454         |       | 6,889             |       | (6,867            | )          | 17,476     |       |
| Selling, general  and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 14,901         |       | —            |       | —            |       | 14,901     |       |
| Depreciation and  amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 17,577         |       | —            |       | —            |       | 17,577     |       |
| Income (loss)  from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 33,209         |       | (22               | )          | —            |       | 33,187     |       |
| Interest income  from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 1,660          |       | —            |       | —            |       | 1,660      |       |
| Interest expense                                                 |       | —     |       | —          |       | —                |       | —                |       | (11,395        | )          | —            |       | —            |       | (11,395    | )          |
| Realized gain on  investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 22                |       | —            |       | 22         |       |
| Interest and  other income                                       |       | —     |       | —          |       | —                |       | —                |       | 532            |       | —            |       | —            |       | 532        |       |
| Income before  income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 24,006         |       | —            |       | —            |       | 24,006     |       |
| Income tax  expense                                              |       | —     |       | —          |       | —                |       | —                |       | (9,012         | )          | —            |       | —            |       | (9,012     | )          |
| Income before  equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 14,994         |       | —            |       | —            |       | 14,994     |       |
| Equity in  earnings of unconsolidated subsidiaries               |       | 15,095     |       | 15,095          |       | 2,050                 |       | 13,045                |       | 101            |       | —            |       | (45,285           | )          | 101        |       |
| Net income                                                       |       | $          | 15,095     |            | $          | 15,095                |       | $                     | 2,050      |           | $          | 13,045            |       | $                 | 15,095     |       | $          | — |   | $ | (45,285 | ) | $ | 15,095 |   |

 

14

----

Tableof Contents

 

**ConsolidatingStatement of Operations**

**Forthe six months ended June 30, 2008**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 1,136,865  |       | $          | 18,709 |   | $ | (18,709 | ) | $ | 1,136,865 |   |
| Compensation and  benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 794,852        |       | —            |       | —            |       | 794,852    |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 166,927        |       | —            |       | —            |       | 166,927    |       |
| Insurance expense                                                |       | —     |       | —          |       | —                |       | —                |       | 34,162         |       | 23,078            |       | (18,709           | )          | 38,531     |       |
| Selling, general  and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 30,112         |       | —            |       | —            |       | 30,112     |       |
| Depreciation and  amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 35,163         |       | —            |       | —            |       | 35,163     |       |
| Restructuring  charge                                            |       | —     |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | —     |       |
| Income (loss)  from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 75,649         |       | (4,369            | )          | —            |       | 71,280     |       |
| Interest income  from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 1,364          |       | 2,126             |       | —            |       | 3,490      |       |
| Interest expense                                                 |       | —     |       | —          |       | —                |       | —                |       | (20,270        | )          | —            |       | —            |       | (20,270    | )          |
| Realized gain on  investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 2,243             |       | —            |       | 2,243      |       |
| Interest and  other income                                       |       | —     |       | —          |       | —                |       | —                |       | 589            |       | —            |       | —            |       | 589        |       |
| Income before  income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 57,332         |       | —            |       | —            |       | 57,332     |       |
| Income tax  expense                                              |       | —     |       | —          |       | —                |       | —                |       | (22,032        | )          | —            |       | —            |       | (22,032    | )          |
| Income before  equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 35,300         |       | —            |       | —            |       | 35,300     |       |
| Equity in  earnings of unconsolidated subsidiaries               |       | 35,354     |       | 35,354          |       | 8,698                 |       | 26,656                |       | 54             |       | —            |       | (106,062          | )          | 54         |       |
| Net income                                                       |       | $          | 35,354     |            | $          | 35,354                |       | $                     | 8,698      |           | $          | 26,656            |       | $                 | 35,354     |       | $          | — |   | $ | (106,062 | ) | $ | 35,354 |   |

 

**ConsolidatingStatement of Operations**

**Forthe six months ended June 30, 2007**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 1,040,031  |       | $          | 15,507 |   | $ | (15,507 | ) | $ | 1,040,031 |   |
| Compensation and  benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 712,241        |       | —            |       | —            |       | 712,241    |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 156,258        |       | —            |       | —            |       | 156,258    |       |
| Insurance expense                                                |       | —     |       | —          |       | —                |       | —                |       | 37,718         |       | 15,566            |       | (15,507           | )          | 37,777     |       |
| Selling, general  and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 28,206         |       | —            |       | —            |       | 28,206     |       |
| Depreciation and  amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 34,356         |       | —            |       | —            |       | 34,356     |       |
| Restructuring  charge                                            |       | —     |       | —          |       | —                |       | —                |       | 2,242          |       | —            |       | —            |       | 2,242      |       |
| Income (loss)  from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 69,010         |       | (59               | )          | —            |       | 68,951     |       |
| Interest income  from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 3,375          |       | —            |       | —            |       | 3,375      |       |
| Interest expense                                                 |       | —     |       | —          |       | —                |       | —                |       | (22,629        | )          | —            |       | —            |       | (22,629    | )          |
| Realized gain on  investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 59                |       | —            |       | 59         |       |
| Interest and  other income                                       |       | —     |       | —          |       | —                |       | —                |       | 1,189          |       | —            |       | —            |       | 1,189      |       |
| Income before  income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 50,945         |       | —            |       | —            |       | 50,945     |       |
| Income tax  expense                                              |       | —     |       | —          |       | —                |       | —                |       | (19,474        | )          | —            |       | —            |       | (19,474    | )          |
| Income before  equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 31,471         |       | —            |       | —            |       | 31,471     |       |
| Equity in  earnings of unconsolidated subsidiaries               |       | 31,726     |       | 31,726          |       | 4,876                 |       | 26,850                |       | 255            |       | —            |       | (95,178           | )          | 255        |       |
| Net income                                                       |       | $          | 31,726     |            | $          | 31,726                |       | $                     | 4,876      |           | $          | 26,850            |       | $                 | 31,726     |       | $          | — |   | $ | (95,178 | ) | $ | 31,726 |   |

 

15

----

Table of Contents

 

**ConsolidatingBalance Sheet**

**Asof June 30, 2008**

 
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current assets:                           |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Cash and cash  equivalents                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 61,981     |       | $          | 11,038 |   | $ | — |   | $ | 73,019 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 21,367         |       | 43,528            |       | (23,669           | )          | 41,226     |       |
| Trade and other  accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 511,037        |       | 990               |       | —            |       | 512,027    |       |
| Parts and  supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 20,124         |       | —            |       | —            |       | 20,124     |       |
| Other current  assets                     |       | —     |       | —          |       | —                |       | —                |       | 14,598         |       | 1,800             |       | —            |       | 16,398     |       |
| Current deferred  tax assets              |       | —     |       | —          |       | —                |       | —                |       | 71,946         |       | 6,620             |       | —            |       | 78,566     |       |
| Current assets                            |       | —     |       | —          |       | —                |       | —                |       | 701,053        |       | 63,976            |       | (23,669           | )          | 741,360    |       |
| Non-current  assets:                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property, plant,  and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 127,745        |       | —            |       | —            |       | 127,745    |       |
| Intercompany  receivable                  |       | 5,006      |       | 113,400         |       | 281,282               |       | 192,537               |       | —         |       | —            |       | (592,225          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 76,112         |       | —            |       | —            |       | 76,112     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 80,033         |       | (3,446            | )          | —            |       | 76,587     |       |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 43,852         |       | 84,805            |       | (2,085            | )          | 126,572    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 328,842        |       | 458               |       | —            |       | 329,300    |       |
| Other long-term  assets                   |       | —     |       | —          |       | 6,393                 |       | 2,855                 |       | 15,260         |       | —            |       | —            |       | 24,508     |       |
| Investment and  advances in subsidiaries  |       | 478,557    |       | 365,157         |       | 216,160               |       | 148,983               |       | 16,807         |       | —            |       | (1,225,664        | )          | —     |       |
| Assets                                    |       | $          | 483,563    |            | $          | 478,557               |       | $                     | 503,835    |           | $          | 344,375           |       | $                 | 1,389,704  |       | $          | 145,793 |   | $ | (1,843,643 | ) | $ | 1,502,184 |   |
| **Liabilities  and Equity**               |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                     |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts payable                          |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 63,046     |       | $          | 71 |   | $ | — |   | $ | 63,117 |   |
| Accrued liabilities                       |       | —     |       | —          |       | 5,295                 |       | 4,744                 |       | 192,532        |       | 32,731            |       | (1,757            | )          | 233,545    |       |
| Current portion  of long-term debt        |       | —     |       | —          |       | 1,656                 |       | 744                   |       | 2,428          |       | —            |       | —            |       | 4,828      |       |
| Current  liabilities                      |       | —     |       | —          |       | 6,951                 |       | 5,488                 |       | 258,006        |       | 32,802            |       | (1,757            | )          | 301,490    |       |
| Long-term debt                            |       | —     |       | —          |       | 280,724               |       | 189,890               |       | 5,572          |       | —            |       | —            |       | 476,186    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 168,835        |       | 96,107            |       | (23,997           | )          | 240,945    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 592,148        |       | 77                |       | (592,225          | )          | —     |       |
| Liabilities                               |       | —     |       | —          |       | 287,675               |       | 195,378               |       | 1,024,561      |       | 128,986           |       | (617,979          | )          | 1,018,621  |       |
| Equity:                                   |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A  common stock                |       | 93         |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 93         |       |
| Class B  common stock                |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                       |       | 212,361    |       | 325,761         |       | 189,394               |       | 22,967                |       | 212,361        |       | —            |       | (750,483          | )          | 212,361    |       |
| Additional  paid-in capital               |       | 118,312    |       | —          |       | —                |       | —                |       | —         |       | 6,690             |       | (6,690            | )          | 118,312    |       |
| Retained earnings                         |       | 154,310    |       | 154,310         |       | 28,845                |       | 124,523               |       | 154,296        |       | 8,297             |       | (470,271          | )          | 154,310    |       |
| Comprehensive  income (loss)              |       | (1,514     | )          | (1,514          | )          | (2,079                | )          | 1,507                 |       | (1,514         | )          | 1,790             |       | 1,810             |       | (1,514     | )          |
| Equity                                    |       | 483,563    |       | 478,557         |       | 216,160               |       | 148,997               |       | 365,143        |       | 16,807            |       | (1,225,664        | )          | 483,563    |       |
| Liabilities and  Equity                   |       | $          | 483,563    |            | $          | 478,557               |       | $                     | 503,835    |           | $          | 344,375           |       | $                 | 1,389,704  |       | $          | 145,793 |   | $ | (1,843,643 | ) | $ | 1,502,184 |   |

 

16

----

Table of Contents

 

**ConsolidatingBalance Sheet**

**Asof December 31, 2007**

 
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current assets:                           |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Cash and cash  equivalents                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 24,987     |       | $          | 3,927 |   | $ | — |   | $ | 28,914 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 24,498         |       | 13,278            |       | —            |       | 37,776     |       |
| Trade and other  accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 494,376        |       | 972               |       | —            |       | 495,348    |       |
| Parts and  supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 20,010         |       | —            |       | —            |       | 20,010     |       |
| Other current  assets                     |       | —     |       | —          |       | —                |       | —                |       | 11,709         |       | 6                 |       | —            |       | 11,715     |       |
| Current deferred  tax assets              |       | —     |       | —          |       | —                |       | —                |       | 73,834         |       | 3,163             |       | —            |       | 76,997     |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current assets                            |       | —     |       | —          |       | —                |       | —                |       | 649,414        |       | 21,346            |       | —            |       | 670,760    |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Non-current  assets:                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property, plant,  and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 143,342        |       | —            |       | —            |       | 143,342    |       |
| Intercompany  receivable                  |       | 3,773      |       | 113,400         |       | 281,598               |       | 192,635               |       | —         |       | —            |       | (591,406          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 81,717         |       | —            |       | —            |       | 81,717     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 94,092         |       | 869               |       | —            |       | 94,961     |       |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 49,200         |       | 102,280           |       | (4,842            | )          | 146,638    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 312,666        |       | 458               |       | —            |       | 313,124    |       |
| Other long-term  assets                   |       | —     |       | —          |       | 7,124                 |       | 3,231                 |       | 18,666         |       | —            |       | —            |       | 29,021     |       |
| Investment and  advances in subsidiaries  |       | 445,723    |       | 332,323         |       | 212,555               |       | 119,754               |       | 3,458          |       | —            |       | (1,113,813        | )          | —     |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Assets                                    |       | $          | 449,496    |            | $          | 445,723               |       | $                     | 501,277    |           | $          | 315,620           |       | $                 | 1,352,555  |       | $          | 124,953 |   | $ | (1,710,061 | ) | $ | 1,479,563 |   |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| **Liabilities  and Equity**               |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                     |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts payable                          |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 64,746     |       | $          | 109 |   | $ | — |   | $ | 64,855 |   |
| Accrued  liabilities                      |       | —     |       | —          |       | 5,547                 |       | 4,860                 |       | 196,565        |       | 30,347            |       | —            |       | 237,319    |       |
| Current portion  of long-term debt        |       | —     |       | —          |       | 1,656                 |       | 744                   |       | 2,317          |       | —            |       | —            |       | 4,717      |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities                      |       | —     |       | —          |       | 7,203                 |       | 5,604                 |       | 263,628        |       | 30,456            |       | —            |       | 306,891    |       |
| Long-term debt                            |       | —     |       | —          |       | 281,519               |       | 190,248               |       | 6,399          |       | —            |       | —            |       | 478,166    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 158,813        |       | 91,039            |       | (4,842            | )          | 245,010    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 591,406        |       | —            |       | (591,406          | )          | —     |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Liabilities                               |       | —     |       | —          |       | 288,722               |       | 195,852               |       | 1,020,246      |       | 121,495           |       | (596,248          | )          | 1,030,067  |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Equity:                                   |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A common  stock                     |       | 93         |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 93         |       |
| Class B common  stock                     |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                       |       | 212,361    |       | 325,761         |       | 189,394               |       | 22,967                |       | 212,361        |       | —            |       | (750,483          | )          | 212,361    |       |
| Additional  paid-in capital               |       | 117,079    |       | —          |       | —                |       | —                |       | —         |       | 6,690             |       | (6,690            | )          | 117,079    |       |
| Retained earnings                         |       | 118,956    |       | 118,956         |       | 23,783                |       | 95,173                |       | 118,942        |       | (5,500            | )          | (351,354          | )          | 118,956    |       |
| Comprehensive  income (loss)              |       | 1,006      |       | 1,006           |       | (622                  | )          | 1,628                 |       | 1,006          |       | 2,238             |       | (5,256            | )          | 1,006      |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Equity                                    |       | 449,496    |       | 445,723         |       | 212,555               |       | 119,768               |       | 332,309        |       | 3,458             |       | (1,113,813        | )          | 449,496    |       |
|                                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Liabilities and  Equity                   |       | $          | 449,496    |            | $          | 445,723               |       | $                     | 501,277    |           | $          | 315,620           |       | $                 | 1,352,555  |       | $          | 124,953 |   | $ | (1,710,061 | ) | $ | 1,479,563 |   |

 

17

----

Table of Contents

 

**CondensedConsolidating Statement of Cash Flows**

**Forthe six months ended June 30, 2008**

 
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash  Flows from Operating Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net cash provided  by operating activities              |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 54,494     |   | $ | 885 |   | $ | 55,379 |   |
| **Cash  Flows from Investing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase of  property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (10,180        | )          | —             |       | (10,180    | )          |
| Proceeds from  sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 220            |       | —             |       | 220        |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (19,957        | )          | —             |       | (19,957    | )          |
| Net change in  insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | 8,630          |       | 6,226              |       | 14,856     |       |
| Net change in  deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 2,628          |       | —             |       | 2,628      |       |
| Net cash provided  by (used in) investing activities    |       | —     |       | —          |       | —               |       | —               |       | (18,659        | )          | 6,226              |       | (12,433    | )          |
| **Cash  Flows from Financing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC issuance of  class A common stock                  |       | 45         |       | —          |       | —               |       | —               |       | —         |       | —             |       | 45         |       |
| Repayments of  capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (16,721        | )          | —             |       | (16,721    | )          |
| Increase in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 3,835          |       | —             |       | 3,835      |       |
| Borrowings under  revolving credit facility             |       | —     |       | —          |       | —               |       | —               |       | 14,000         |       | —             |       | 14,000     |       |
| Net intercompany  borrowings (payments)                 |       | (45        | )          | —          |       | —               |       | —               |       | 45             |       | —             |       | —     |       |
| Net cash provided  by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 1,159          |       | —             |       | 1,159      |       |
| Change in cash  and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | 36,994         |       | 7,111              |       | 44,105     |       |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 24,987         |       | 3,927              |       | 28,914     |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 61,981     |   | $ | 11,038 |   | $ | 73,019 |   |

 

**CondensedConsolidating Statement of Cash Flows**

**Forthe six months ended June 30, 2007**

 
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash  Flows from Operating Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net cash provided  by operating activities              |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 14,956     |   | $ | 4,324 |   | $ | 19,280 |   |
| **Cash  Flows from Investing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase of  property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (22,743        | )          | —             |       | (22,743    | )          |
| Proceeds from  sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 291            |       | —             |       | 291        |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (477           | )          | —             |       | (477       | )          |
| Net change in  insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | 1,135          |       | (4,168             | )          | (3,033     | )          |
| Net change in  deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 2,715          |       | —             |       | 2,715      |       |
| Net cash used in  investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (19,079        | )          | (4,168             | )          | (23,247    | )          |
| **Cash  Flows from Financing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Issuance of EMSC  equity                                |       | 249        |       | —          |       | —               |       | —               |       | —         |       | —             |       | 249        |       |
| Repayments of  capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (3,391         | )          | —             |       | (3,391     | )          |
| Net intercompany  borrowings (payments)                 |       | (249       | )          | —          |       | —               |       | —               |       | 249            |       | —             |       | —     |       |
| Decrease in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | (2,743         | )          | —             |       | (2,743     | )          |
| Net cash used in  financing activities                  |       | —     |       | —          |       | —               |       | —               |       | (5,885         | )          | —             |       | (5,885     | )          |
| Change in cash  and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | (10,008        | )          | 156                |       | (9,852     | )          |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 39,329         |       | 7                  |       | 39,336     |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 29,321     |   | $ | 163 |   | $ | 29,484 |   |

 

18

----

Tableof Contents

 

**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

** **

**Forward-LookingStatements and Factors That May Affect Results**

** **

Certain statements andinformation herein may be deemed to be “forward-looking statements” within themeaning of the Federal Private Securities Litigation Reform Act of 1995.Forward-looking statements may include, but are not limited to, statementsrelating to our objectives, plans and strategies, and all statements (otherthan statements of historical facts) that address activities, events ordevelopments that we intend, expect, project, believe or anticipate will or mayoccur in the future. Any forward-looking statements herein are made as of thedate this Quarterly Report on Form 10-Q is filed with the Securities andExchange Commission, and EMSC undertakes no duty to update or revise any suchstatements. Forward-looking statements are not guarantees of future performanceand are subject to risks and uncertainties. Important factors that could causeactual results, developments and business decisions to differ materially fromforward-looking statements are described in EMSC’s filings with the SEC fromtime to time, including in the section entitled “Risk Factors” in the Company’smost recent Annual Report on Form 10-K and in subsequent Quarterly Reportson Form 10-Q. Among the factors that could cause future results to differmaterially from those provided in this Quarterly Report on Form 10-Q are:the impact on our revenue of changes in transport volume, mix of insured anduninsured patients, and third party reimbursement rates and methods; theadequacy of our insurance coverage and insurance reserves; potential penaltiesor changes to our operations if we fail to comply with extensive and complexgovernment regulation of our industry, both as it exists now and as it maychange in the future; our ability to recruit and retain qualified physiciansand other healthcare professionals, and enforce our non-compete agreements withour physicians; the loss of one or more members of our senior management team;the outcome of government investigations of certain of our business practices;our ability to generate cash flow to service our debt obligations and fund thecost of capital expenditures to maintain and upgrade our vehicle fleet andmedical equipment; and the loss of existing contracts and the accuracy of ourassessment of costs under new contracts.

 

All references to “we”, “our”,“us” or “EMSC” refer to Emergency Medical Services Corporation and itssubsidiaries, including Emergency Medical Services L.P., or EMS LP. The Company’sbusiness is conducted primarily through two operating subsidiaries, AmericanMedical Response, Inc., or AMR, and EmCare Holdings Inc., or EmCare.

 

This Report should beread in conjunction with the Company’s consolidated financial statements andnotes thereto included in our Annual Report on Form 10-K filed with theSEC on February 27, 2008.

 

***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. We believe that AMR, overits more than 50 years of operating history, has become the leading provider ofambulance transport services in the United States. We believe that EmCare, overits more than 30 years of operating history, has become the leading provider ofoutsourced emergency department staffing and management services in the UnitedStates.

 

***Key Factors and Measures We Use to Evaluate Our Business***

*** ***

The key factors andmeasures we use to evaluate our business focus on the number of patients wetreat and transport and the costs we incur to provide the necessary care and transportationfor each of our patients.

 

We evaluate our revenuenet of provisions for contractual payor discounts and provisions foruncompensated care. Medicaid, Medicare and certain other payors receivediscounts 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 have noinsurance or other third party payor coverage. Due to the uncertainty regardingcollectability of charges associated with services we provide to thesepatients, which we refer to as uncompensated care, our net revenue recognitionis based on expected cash collections. Our net revenue is gross billings afterprovisions for contractual discounts and estimated uncompensated care.Provisions for contractual discounts and uncompensated care have 

 

19

----

Table of Contents

 

increased historicallyprimarily as a result of increases in gross billing rates.

 

The table belowsummarizes our approximate payor mix as a percentage of both net revenue andtotal transports and patient visits for the three and six months ended June 30,2008 and 2007. In determining the net revenue payor mix, we use cashcollections in the period as an approximation of net revenue recorded.

 
| ** **                             | ** ** | **Percentage of Net Revenue** | ** ** | **Percentage of Total Volume** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                             | ** ** | **Quarter ended  June 30,**        | ** ** | **Six months ended  June 30,** | ** ** | **Quarter ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
| ** **                             | ** ** | **2008**                                     | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Medicare                               |       | 24.5                                         | %          | 24.4                                          | %          | 24.7 | % | 24.4 | % | 25.7 | % | 26.0 | % | 26.2 | % | 26.4 | % |
| Medicaid                               |       | 4.6                                          | %          | 4.5                                           | %          | 4.6 | % | 4.6 | % | 10.9 | % | 10.4 | % | 10.7 | % | 10.5 | % |
| Commercial  insurance and managed care |       | 49.7                                         | %          | 49.2                                          | %          | 49.6 | % | 49.4 | % | 42.1 | % | 41.2 | % | 42.0 | % | 41.2 | % |
| Self-pay                               |       | 4.4                                          | %          | 4.9                                           | %          | 4.5 | % | 4.7 | % | 21.3 | % | 22.4 | % | 21.1 | % | 21.9 | % |
| Subsidies &  fees             |       | 16.8                                         | %          | 17.0                                          | %          | 16.6 | % | 16.9 | % | — |   | — |   | — |   | — |   |
| Total                                  |       | 100.0                                        | %          | 100.0                                         | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |

 

In addition tocontinually monitoring our payor mix, we also analyze certain measures in eachof our business segments.

 

**AMR**

** **

Approximately 57% of AMR’snet revenue for the six months ended June 30, 2008 was generated fromemergency 9-1-1 ambulance transport services. Non-emergency ambulance transportservices, including critical care transfers, wheelchair transports and otherinterfacility transports, or IFTs, accounted for 30% of AMR’s net revenue forthe same period, with the balance generated from fixed wing medicaltransportation services, Medicaid managed transportation services, and theprovision of training, dispatch and other services to communities and publicsafety agencies.  AMR’s measures for net revenue include transports(segregated into ambulance and wheelchair transports and in certain analysesweighted) and net revenue per transport.

 

The change from period toperiod in the number of transports is influenced by increases in transports inexisting markets from both new and existing facilities we serve fornon-emergency transports, the effects of general community conditions foremergency transports and the impact of newly acquired businesses.

 

The costs we incur in ourAMR business segment consist primarily of compensation and benefits for medicalcrews and support personnel, direct and indirect operating costs to providetransportation services, and costs related to accident and insurance claims. AMR’skey cost measures include unit hours and cost per unit hour (to measurecompensation-related costs and the efficiency of our ambulance deployment),operating costs per transport, and accident and insurance claims.

 

We have focused our riskmitigation efforts on employee training for proper patient handling techniques,development of clinical and medical equipment protocols, driving safety,implementation of technology to reduce auto incidents and other risk mitigationprocesses which we believe have resulted in a reduction in the frequency,severity and development of claims. We continue to see positive trends in ourclaims costs but cannot provide assurance that these trends will continue.

 

**EmCare**

** **

Of EmCare’s net revenuefor the six months ended June 30, 2008, approximately 99% was derived fromour hospital contracts for emergency department staffing, hospitalist andradiology services and other management services. Of this revenue,approximately 79% was generated from billings to third party payors andpatients for patient visits and approximately 21% was generated from billingsto hospitals and affiliated physician groups for professional services. EmCare’skey net revenue measures are patient visits, net revenue per patient visit, and

 

20

----

Tableof Contents

 

number of contracts.

 

The change from period toperiod in the number of patient visits under our “same store” contracts is influencedby general community conditions as well as hospital-specific elements, many ofwhich are beyond our direct control.

 

The costs incurred in ourEmCare business segment consist primarily of compensation and benefits forphysicians and other professional providers, professional liability costs, andcontract and other support costs. EmCare’s key cost measures include providercompensation per patient visit and professional liability costs.

 

We have developedextensive professional liability risk mitigation processes, including riskassessments on medical professionals and hospitals, extensive incidentreporting and tracking processes, clinical fail-safe programs, training andeducation and other risk mitigation programs which we believe have resulted ina continued reduction in the frequency, severity and development of claims. Wecontinue to see positive trends in our claims costs but cannot provideassurance that these trends will continue.

 

***Recent Developments***

*** ***

The Company adopted SFAS No. 157*Fair value measurement* (“SFAS 157”)effective January 1, 2008, which among other things, requires additionaldisclosures about investments that are reported at fair value.  SFAS 157establishes a hierarchal disclosure framework which ranks the level of marketprice observability used in measuring investments at fair value. Market priceobservability is impacted by a number of factors, including the type ofinvestment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair valuecan be measured from actively quoted prices generally will have a higher degreeof market price observability and a lesser degree of judgment used in measuringfair value.

 

***Factors Affecting Operating Results***

*** ***

**Changesin Net New Contracts**

** **

Our operating results areaffected directly by the number of net new contracts and related volumes wehave in a period, reflecting the effects of both new contracts and contractexpirations. We regularly bid for new contracts, frequently in a formalcompetitive bidding process that often requires written responses to a Requestfor Proposal, or RFP, and, in any fiscal period, certain of our contracts willexpire. We may elect not to seek extension or renewal of a contract, or mayreduce certain services, if we determine that we cannot continue to providesuch services on favorable terms. With respect to expiring contracts we wouldlike to renew, we may be required to seek renewal through an RFP, and we maynot be successful in retaining any such contracts, or retaining them on termsthat are as favorable as present terms.

 

**Inflation**

** **

Certain of our expenses,such as wages and benefits, insurance, fuel and equipment repair andmaintenance costs, are subject to normal inflationary pressures. Fuel expenserepresented 16.1% and 12.0% of AMR’s operating expenses for the three monthsended June 30, 2008 and 2007, respectively, and 14.6% and 11.3% for thesix months ended June 30, 2008 and 2007, respectively.  Although we have generally been able tooffset inflationary and other cost increases through increased operatingefficiencies and successful negotiation of fees and subsidies, we can provideno assurance that we will be able to offset any future fuel and inflationarycost increases through similar efficiencies and fee changes.

 

***Critical Accounting Policies***

*** ***

**RevenueRecognition**

** **

Management regularlyanalyzes the ultimate collectability of accounts receivable after certainstages of the collection cycle using a look-back analysis to determine the amountof receivables subsequently collected.  Retroactive adjustments recordedin the first six months of the year, which increased revenue, were 0.4% of 

 

21

----

Tableof Contents

 

consolidated net revenuefor the six months ended June 30, 2008 compared to 2.0% of consolidatednet revenue for the six months ended June 30, 2007.

 

**Resultsof Operations**

** **

**Threeand Six Months Ended June 30, 2008 Compared to the Three and Six MonthsEnded June 30, 2007**

** **

The following tablespresent a comparison of financial data from our unaudited consolidatedstatements of operations for the three and six months ended June 30, 2008and 2007 for EMSC and our two operating segments.

 

**Non-GAAPMeasures**

** **

*AdjustedEBITDA. *Adjusted EBITDA is defined as net income beforeequity in earnings of unconsolidated subsidiary, income tax expense, interestand other income, realized gain on investments, interest expense and depreciationand amortization.  Adjusted EBITDA is commonly used by management andinvestors as a performance measure and liquidity indicator. Adjusted EBITDA isnot considered a measure of financial performance under U.S. generally acceptedaccounting principles, or GAAP, and the items excluded from Adjusted EBITDA aresignificant components in understanding and assessing our financialperformance. Adjusted 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 Adjusted EBITDA is not a measure determined inaccordance with GAAP and is susceptible to varying calculations, AdjustedEBITDA, as presented, may not be comparable to other similarly titled measuresof other companies. The tables set forth a reconciliation of Adjusted EBITDA tonet income and cash flows provided by operating activities.

 

**UnauditedConsolidated Results of Operations and as a Percentage of Net Revenue**

**(dollarsin thousands)**

**EMSC**

 
| ** **                                       | ** ** | **Quarter ended  June 30, 2008** | ** ** | **Quarter ended  June 30, 2007** | ** ** | **Six months ended  June 30, 2008** | ** ** | **Six months ended  June 30, 2007** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                      | ** ** | **% of net  revenue**                 | ** ** | ** **                                              | ** ** | **% of net  revenue**                         | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                      |       | $                                               | 571,079    |                                            | 100.0      | %                                                       | $          | 516,712                                                 |       | 100.0 | % | $ | 1,136,865 |   | 100.0 | % | $ | 1,040,031 |   | 100.0 | % |
| Compensation and  benefits                       |       | 400,501                                         |       | 70.1                                            |       | 357,309                                                 |       | 69.2                                                    |       | 794,852 |   | 69.9 |   | 712,241 |   | 68.5 |   |
| Operating  expenses                              |       | 83,704                                          |       | 14.7                                            |       | 76,262                                                  |       | 14.8                                                    |       | 166,927 |   | 14.7 |   | 156,258 |   | 15.0 |   |
| Insurance  expense                               |       | 17,568                                          |       | 3.1                                             |       | 17,476                                                  |       | 3.4                                                     |       | 38,531 |   | 3.4 |   | 37,777 |   | 3.6 |   |
| Selling, general  and administrative expenses    |       | 15,520                                          |       | 2.7                                             |       | 14,901                                                  |       | 2.9                                                     |       | 30,112 |   | 2.6 |   | 28,206 |   | 2.7 |   |
| Restructuring  charges                           |       | —                                          |       | —                                          |       | —                                                  |       | —                                                  |       | — |   | — |   | 2,242 |   | 0.2 |   |
| Interest income  from restricted assets          |       | (1,735                                          | )          | (0.3                                            | )          | (1,660                                                  | )          | (0.3                                                    | )          | (3,490 | ) | (0.3 | ) | (3,375 | ) | (0.3 | ) |
| Adjusted EBITDA                                  |       | 55,521                                          |       | 9.7                                             |       | 52,424                                                  |       | 10.1                                                    |       | 109,933 |   | 9.7 |   | 106,682 |   | 10.3 |   |
| Depreciation and  amortization expenses          |       | (17,446                                         | )          | (3.1                                            | )          | (17,577                                                 | )          | (3.4                                                    | )          | (35,163 | ) | (3.1 | ) | (34,356 | ) | (3.3 | ) |
| Interest expense                                 |       | (10,354                                         | )          | (1.8                                            | )          | (11,395                                                 | )          | (2.2                                                    | )          | (20,270 | ) | (1.8 | ) | (22,629 | ) | (2.2 | ) |
| Realized gain on  investments                    |       | 1,571                                           |       | 0.3                                             |       | 22                                                      |       | 0.0                                                     |       | 2,243 |   | 0.2 |   | 59 |   | 0.0 |   |
| Interest and  other income                       |       | 287                                             |       | 0.1                                             |       | 532                                                     |       | 0.1                                                     |       | 589 |   | 0.1 |   | 1,189 |   | 0.1 |   |
| Income tax  expense                              |       | (11,348                                         | )          | (2.0                                            | )          | (9,012                                                  | )          | (1.7                                                    | )          | (22,032 | ) | (1.9 | ) | (19,474 | ) | (1.9 | ) |
| Equity in  earnings of unconsolidated subsidiary |       | 104                                             |       | 0.0                                             |       | 101                                                     |       | 0.0                                                     |       | 54 |   | 0.0 |   | 255 |   | 0.0 |   |
| Net income                                       |       | $                                               | 18,335     |                                            | 3.2        | %                                                       | $          | 15,095                                                  |       | 2.9 | % | $ | 35,354 |   | 3.1 | % | $ | 31,726 |   | 3.1 | % |

 

22

----

Tableof Contents

 

**UnauditedReconciliation of Adjusted EBITDA to Cash Flows Provided by OperatingActivities**

**(dollarsin thousands)**

 
| ** **                                    | ** ** | **For the six months ended June 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                                            | ** ** | **2007** | ** ** |
| Adjusted EBITDA                               |       | $                                                                   | 109,933    |   | $ | 106,682 |   |
| Interest paid                                 |       | (19,164                                                             | )          | (21,609 | ) |
| Change in  accounts receivable                |       | (13,752                                                             | )          | (63,934 | ) |
| Change in other  operating assets/liabilities |       | (22,081                                                             | )          | (3,718 | ) |
| Equity based  compensation                    |       | 1,124                                                               |       | 800 |   |
| Other                                         |       | (681                                                                | )          | 1,059 |   |
| Cash flows  provided by operating activities  |       | $                                                                   | 55,379     |   | $ | 19,280 |   |

 

**UnauditedSegment Results of Operations and as a Percentage of Net Revenue**

**(dollarsin thousands)**

** **

**AMR**

 
| ** **                                                   | ** ** | **Quarter ended  June 30, 2008** | ** ** | **Quarter ended  June 30, 2007** | ** ** | **Six months ended  June 30, 2008** | ** ** | **Six months ended  June 30, 2007** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                      | ** ** | **% of net  revenue**                 | ** ** | ** **                                              | ** ** | **% of net  revenue**                         | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                                  |       | $                                               | 323,672    |                                            | 100.0      | %                                                       | $          | 295,304                                                 |       | 100.0 | % | $ | 649,988 |   | 100.0 | % | $ | 603,412 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 204,110                                         |       | 63.1                                            |       | 187,608                                                 |       | 63.5                                                    |       | 408,089 |   | 62.8 |   | 380,009 |   | 63.0 |   |
| Operating  expenses                                          |       | 75,691                                          |       | 23.4                                            |       | 65,955                                                  |       | 22.3                                                    |       | 149,782 |   | 23.0 |   | 135,607 |   | 22.5 |   |
| Insurance  expense                                           |       | 8,912                                           |       | 2.8                                             |       | 8,951                                                   |       | 3.0                                                     |       | 20,100 |   | 3.1 |   | 19,293 |   | 3.2 |   |
| Selling, general  and administrative expenses                |       | 9,665                                           |       | 3.0                                             |       | 10,145                                                  |       | 3.4                                                     |       | 19,007 |   | 2.9 |   | 19,392 |   | 3.2 |   |
| Restructuring  charges                                       |       | —                                          |       | —                                          |       | —                                                  |       | —                                                  |       | — |   | — |   | 2,242 |   | 0.4 |   |
| Interest income  from restricted assets                      |       | (682                                            | )          | (0.2                                            | )          | (719                                                    | )          | (0.2                                                    | )          | (1,364 | ) | (0.2 | ) | (1,440 | ) | (0.2 | ) |
| Adjusted EBITDA                                              |       | 25,976                                          |       | 8.0                                             |       | 23,364                                                  |       | 7.9                                                     |       | 54,374 |   | 8.4 |   | 48,309 |   | 8.0 |   |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                            |       |                                            |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                              |       | 25,976                                          |       | 8.0                                             |       | 23,364                                                  |       | 7.9                                                     |       | 54,374 |   | 8.4 |   | 48,309 |   | 8.0 |   |
| Depreciation and  amortization expense                       |       | (14,118                                         | )          | (4.4                                            | )          | (13,711                                                 | )          | (4.6                                                    | )          | (28,504 | ) | (4.4 | ) | (27,461 | ) | (4.6 | ) |
| Interest income  from restricted assets                      |       | (682                                            | )          | (0.2                                            | )          | (719                                                    | )          | (0.2                                                    | )          | (1,364 | ) | (0.2 | ) | (1,440 | ) | (0.2 | ) |
| Income from  operations                                      |       | $                                               | 11,176     |                                            | 3.5        | %                                                       | $          | 8,934                                                   |       | 3.0 | % | $ | 24,506 |   | 3.8 | % | $ | 19,408 |   | 3.2 | % |

 

23

----

Table of Contents

** **

**EmCare**

 
| ** **                                                   | ** ** | **Quarter ended  June 30, 2008** | ** ** | **Quarter ended  June 30, 2007** | ** ** | **Six months ended  June 30, 2008** | ** ** | **Six months ended  June 30, 2007** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                      | ** ** | **% of net  revenue**                 | ** ** | ** **                                              | ** ** | **% of net  revenue**                         | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                                  |       | $                                               | 247,407    |                                            | 100.0      | %                                                       | $          | 221,408                                                 |       | 100.0 | % | $ | 486,877 |   | 100.0 | % | $ | 436,619 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 196,391                                         |       | 79.4                                            |       | 169,701                                                 |       | 76.6                                                    |       | 386,763 |   | 79.4 |   | 332,232 |   | 76.1 |   |
| Operating  expenses                                          |       | 8,013                                           |       | 3.2                                             |       | 10,307                                                  |       | 4.7                                                     |       | 17,145 |   | 3.5 |   | 20,651 |   | 4.7 |   |
| Insurance  expense                                           |       | 8,656                                           |       | 3.5                                             |       | 8,525                                                   |       | 3.9                                                     |       | 18,431 |   | 3.8 |   | 18,484 |   | 4.2 |   |
| Selling, general  and administrative expenses                |       | 5,855                                           |       | 2.4                                             |       | 4,756                                                   |       | 2.1                                                     |       | 11,105 |   | 2.3 |   | 8,814 |   | 2.0 |   |
| Interest income  from restricted assets                      |       | (1,053                                          | )          | (0.4                                            | )          | (941                                                    | )          | (0.4                                                    | )          | (2,126 | ) | (0.4 | ) | (1,935 | ) | (0.4 | ) |
| Adjusted EBITDA                                              |       | 29,545                                          |       | 11.9                                            |       | 29,060                                                  |       | 13.1                                                    |       | 55,559 |   | 11.4 |   | 58,373 |   | 13.4 |   |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                            |       |                                            |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                              |       | 29,545                                          |       | 11.9                                            |       | 29,060                                                  |       | 13.1                                                    |       | 55,559 |   | 11.4 |   | 58,373 |   | 13.4 |   |
| Depreciation and  amortization expenses                      |       | (3,328                                          | )          | (1.3                                            | )          | (3,866                                                  | )          | (1.7                                                    | )          | (6,659 | ) | (1.4 | ) | (6,895 | ) | (1.6 | ) |
| Interest income  from restricted assets                      |       | (1,053                                          | )          | (0.4                                            | )          | (941                                                    | )          | (0.4                                                    | )          | (2,126 | ) | (0.4 | ) | (1,935 | ) | (0.4 | ) |
| Income from  operations                                      |       | $                                               | 25,164     |                                            | 10.2       | %                                                       | $          | 24,253                                                  |       | 11.0 | % | $ | 46,774 |   | 9.6 | % | $ | 49,543 |   | 11.3 | % |

 

***Quarter ended June 30, 2008 compared to the quarterended June 30, 2007***

*** ***

***Consolidated***

*** ***

Our results for the threemonths ended June 30, 2008 reflect an increase in net revenue of $54.4million and an increase in net income of $3.2 million compared to the threemonths ended June 30, 2007.  The increase in net income isattributable primarily to growth in income from operations, increase inrealized gain on investments and a decrease in interest expense partiallyoffset by increased income tax expense.  Basic and diluted earnings pershare were $0.44 and $0.43, respectively, for the three months ended June 30,2008.  Basic and diluted earnings per share were $0.36 and $0.35,respectively, for the same period in 2007.

 

*Netrevenue. *For the three months ended June 30, 2008,we generated net revenue of $571.1 million compared to $516.7 million for thethree months ended June 30, 2007, representing an increase of 10.5%. The increase is attributable primarily to increases in rates and volumes onexisting contracts and increased volume from net new contracts andacquisitions.

 

*AdjustedEBITDA.* Adjusted EBITDA was $55.5 million, or 9.7% of netrevenue, for the three months ended June 30, 2008 compared to $52.4million, or 10.1% of net revenue for the three months ended June 30,2007.  The 2007 period includedadditional positive revenue adjustments with an Adjusted EBITDA impact ofapproximately $1.9 million.

 

*Interestexpense.* Interest expense for the three months ended June 30,2008 was $10.4 million compared to $11.4 million for the three months ended June 30,2007.  The decrease is attributable primarily to our interest rate swapagreement, which became effective in the fourth quarter of 2007.  The swapagreement converts $200.0 million of variable rate debt to fixed rate debt withan effective rate of 6.3%.

 

*Incometax expense. *Income tax expense for the three monthsended June 30, 2008 was $11.3 million compared to $9.0 million for thesame period in 2007.  Our effective tax rate for the three months ended June 30,2008 was 38.4%, and 37.5% for the same period in 2007.  The increase is due to growth in income fromoperations, increase in realized gain on investments and lower interestexpense.

 

24

----

Tableof Contents

 

***AMR***

*** ***

*Netrevenue. *Net revenue for the three months ended June 30,2008 was $323.7 million, an increase of $28.4 million, or 9.6%, from $295.3million for the same period in 2007.  Theincrease in net revenue was due primarily to an increase in net revenue per weightedtransport of 5.0%, or $14.7 million, and an increase of 4.6%, or $13.7 million,in weighted transport volume.  The increase in net revenue per transportis attributable primarily to rate increases in several markets includingadjustments for increased fuel costs.  Weighted transports increased33,100 from the same quarter last year.  The change was due to an increasein weighted transports of 43,000 from acquisitions and an increase in transportvolume in existing markets of 0.8% partially offset by a decrease in weightedtransports of 15,200 from the restructuring and exit of certain of ouroperations.

 

*Compensationand benefits. *Compensation and benefit costs for thethree months ended June 30, 2008 were $204.1 million, or 63.1% of netrevenue, compared to $187.6 million, or 63.5% of net revenue, for the sameperiod last year. Ambulance crew wages per ambulance unit hour increased byapproximately 3.6%, or $3.9 million primarily attributable to annual wage rateincreases.   Ambulance unit hours increased period over period by4.3%, or $4.5 million.  The increase is due to our recent acquisitions andincreased transport volume in existing markets partially offset by therestructuring and exit of certain of our operations in 2007.  Non-crewwages increased $4.7 million primarily due to additional compensation expensesfrom acquisitions of $2.8 million and annual salary increases of 3.9%. Benefit costs increased by $3.6 million for the three months ended June 30,2008 compared to the same period in 2007.  The change is attributable toadditional benefit costs of $1.2 million related to our acquisitions andincreased health insurance costs.

 

*Operatingexpenses. *Operating expenses for the three months ended June 30,2008 were $75.7 million, or 23.4% of net revenue, compared to $66.0 million, or22.3% of net revenue, for the three months ended June 30, 2007.  Operating expenses per weighted transportincreased 9.7% in the three months ended June 30, 2008 compared to thesame period in 2007.  The change is primarily due to increased fuel costsof $3.6 million and additional operating expenses of $4.3 million from ouracquisitions.

 

*Insuranceexpense. *Insurance expense for the three months ended June 30,2008 was $8.9 million, or 2.8% of net revenue, compared to $9.0 million, or3.0% of net revenue, for the same period in 2007.  We recorded a reductionof prior year insurance provisions of $1.7 million during the three monthsended June 30, 2008 and $4.1 million during the three months ended June 30,2007.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended June 30, 2008 was $9.7million, or 3.0% of net revenue, compared to $10.1 million, or 3.4% of netrevenue, for the three months ended June 30, 2007.

 

*Depreciationand amortization. *Depreciation and amortization expensefor the three months ended June 30, 2008 was $14.1 million, or 4.4% of netrevenue, compared to $13.7 million, or 4.6% of net revenue, for the same periodin 2007.

 

***EmCare***

*** ***

*Netrevenue. *Net revenue for the three months ended June 30,2008 was $247.4 million, an increase of $26.0 million, or 11.7%, from $221.4million for the three months ended June 30, 2007. The increase was dueprimarily to an increase in patient visits from net new hospital contracts andnet revenue increases in existing contracts. Following March 31, 2007, weadded 37 net new contracts which accounted for a net revenue increase of $18.2million for the three months ended June 30, 2008.  Of the 37 net newcontracts added since March 31, 2007, 17 were added in 2007 resulting inan incremental increase in 2008 net revenue of $5.5 million.  During thethree months ended June 30, 2008, EmCare added 24 new contracts andterminated 10 contracts resulting in an increase in net revenue of $12.7million.  Net revenue under our “same store” contracts (contracts inexistence for the entirety of both periods) increased $7.8 million, or 4.1%,for the three months ended June 30, 2008.  The change is due to a0.1% decrease (3.5% increase excluding retroactive revenue adjustmentsdiscussed below) in revenue per visit and an increase in same store patientvisits of 4.2% over the prior period.  Retroactive adjustments, whichincreased revenue for the three months ended June 30, 2008 and 2007, wereapproximately 0.2% and 3.9% of EmCare’s net revenue, respectively.

 

25

----

Table of Contents

 

*Compensationand benefits. *Compensation and benefits costs for thethree months ended June 30, 2008 were $196.4 million, or 79.4% of netrevenue, compared to $169.7 million, or 76.6% of net revenue, for the sameperiod in 2007. Provider compensation and benefits costs increased $16.0million from net new contract additions. Same store provider compensation andbenefits costs were $9.1 million over prior period due to a 3.2% increase inprovider compensation per patient visit attributable primarily to higher netrevenue and patient visits.

 

*Operatingexpenses. *Operating expenses for the three months ended June 30,2008 were $8.0 million, or 3.2% of net revenue, compared to $10.3 million, or4.7% of net revenue, for the same period in 2007.  Operating expensesdecreased primarily due to reduced off-hours radiology coverage, lowercollection agency fees, and bank fees of approximately $0.7 million, which arenow included in selling, general and administrative expenses.

 

*Insuranceexpense. *Professional liability insurance expense forthe three months ended June 30, 2008 was $8.7 million, or 3.5% of netrevenue, compared to $8.5 million, or 3.9% of net revenue, for the three monthsended June 30, 2007.  The decrease as a percent of revenue is due toa reduction in current year reserves, offset by a $2.9 million decrease ofprior year insurance provision reductions. Insurance expense for the 2008 and 2007 periods includes reductions ofprior year insurance provisions of $1.7 million and $4.6 million, respectively.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended June 30, 2008 was $5.9million, or 2.4% of net revenue, compared to $4.8 million, or 2.1% of netrevenue, for the three months ended June 30, 2007.  The increase isdue primarily to an increase in regional travel expense associated with theincrease in contracts during the period and bank fees of approximately $0.7million, which bank fees were included in operating expenses.

 

*Depreciationand amortization. *Depreciation and amortization expensefor the three months ended June 30, 2008 was $3.3 million, or 1.3% of netrevenue, compared to $3.9 million, or 1.7% of net revenue, for the three monthsended June 30, 2007.

 

***Six months ended June 30, 2008 compared to the sixmonths ended June 30, 2007***

*** ***

***Consolidated***

*** ***

Our results for the sixmonths ended June 30, 2008 reflect an increase in net revenue of $96.8million and an increase in net income of $3.6 million compared to the sixmonths ended June 30, 2007. The increase in net income is attributableprimarily to growth in income from operations, higher realized gains oninvestments and a decrease in interest expense partially offset by increasedincome tax expense.  Basic and dilutedearnings per share were $0.85 and $0.82, respectively, for the six months endedJune 30, 2008. Basic and diluted earnings per share were $0.76 and $0.74,respectively, for the same period in 2007.

 

*Netrevenue. *For the six months ended June 30, 2008,net revenue was $1,136.9 million compared to $1,040.0 million for the sixmonths ended June 30, 2007, representing an increase of 9.3%. The increaseis attributable primarily to increases in rates and volumes on existingcontracts and increased volume from net new contracts and acquisitions.

 

*AdjustedEBITDA. *Adjusted EBITDA was $109.9 million, or 9.7% ofnet revenue, for the six months ended June 30, 2008 compared to $106.7million, or 10.3% of net revenue for the six months ended June 30, 2007.The six months ended June 30, 2007 included incremental positive revenueadjustments with an Adjusted EBITDA impact of $9.9 million.

 

*Interestexpense. *Interest expense for the six months ended June 30,2008 was $20.3 million compared to $22.6 million for the six months ended June 30,2007.  The decrease is attributable primarily to our interest rateswap agreement, which became effective in the fourth quarter of 2007.  Theswap agreement converts $200.0 million of variable rate debt to fixed rate debtwith an effective rate of 6.3%.

 

*Incometax expense. *Income tax expense increased $2.6 millionfor the six months ended June 30, 2008, compared to the same period in2007, resulting primarily from increased operating income, increased realizedgain 

 

26

----

Tableof Contents

 

on investments and lowerinterest expense.  Our effective tax rate for the six months ended June 30,2008 was 38.4% compared with 38.2% for the same period in 2007.

 

***AMR***

*** ***

*Netrevenue. *Net revenue for the six months ended June 30,2008 was $650.0 million, an increase of $46.6 million, or 7.7%, from $603.4million for the same period in 2007. The increase in net revenue was dueprimarily to an increase in our net revenue per weighted transport of 3.9%, or$23.8 million, and an increase of 3.8%, or $22.8 million, in weightedtransport volume.  The increase in netrevenue per transport is attributable primarily to rate increases in severalmarkets including adjustments for increased fuel costs.  Weightedtransports increased 55,000 from the same period last year.  The changewas due to an increase in weighted transports of 84,600 from acquisitions andan increase in transport volume in existing markets of 0.9%, partially offsetby a decrease in weighted transports of 42,000 from the restructuring and exitof certain of our operations.

 

*Compensationand benefits. *Compensation and benefit costs for the sixmonths ended June 30, 2008 were $408.1 million, or 62.8% of net revenue,compared to $380.0 million, or 63.0% of net revenue, for the six months ended June 30,2007. Ambulance crew wages per ambulance unit hour increased by approximately3.3%, or $7.3 million, principally from annual wage rate increases. Ambulance unit hours increased period over period by 2.8% or $6.0million.  The increase is due to our recent acquisitions and increasedtransport volume in existing markets partially offset by the restructuring ofcertain of our operations and exit of other markets in 2007.  Non-crew wages increased $8.8 millionprimarily due to additional compensation expenses from acquisitions of $5.1million and annual salary increases of 3.6%.  Benefit costs increased by$6.7 million for the six months ended June 30, 2008 primarily due toincreased benefit expense of $2.7 million from our acquisitions and increasedhealth insurance costs.

 

*Operatingexpenses. *Operating expenses for the six months ended June 30,2008 were $149.8 million, or 23.0% of net revenue, compared to $135.6 million,or 22.5% of net revenue, for the six months ended June 30, 2007. Operatingexpenses per weighted transport increased 6.4% in the six months ended June 30,2008 compared to the same period in 2007. This change is due primarily toincreased fuel costs of $5.6 million and additional operating expenses of $7.6million from our acquisitions.

 

*Insuranceexpense. *Insurance expense for the six months ended June 30,2008 was $20.1 million, or 3.1% of net revenue, compared to $19.3 million, or3.2% of net revenue, for the same period in 2007.  We recorded a reduction of prior yearinsurance provisions of $3.6 million during the six months ended June 30,2008 and $7.3 million during the six months ended June 30, 2007.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the six months ended June 30, 2008 was $19.0million, or 2.9% of net revenue, compared to $19.4 million, or 3.2% of netrevenue, for the six months ended June 30, 2007.

 

*Restructuringcharges. *Restructuring charges of $2.2 million wererecorded during the six months ended June 30, 2007, related to the closureof one of our billing offices and restructuring our operations in Los Angelesand Orange Counties in California.

 

*Depreciationand amortization. *Depreciation and amortization expensefor the six months ended June 30, 2008 was $28.5 million, or 4.4% of netrevenue, compared to $27.5 million, or 4.6% of net revenue, for the same periodin 2007.  The increase is attributableprimarily to amortization expense on additional contract intangible assetsrecorded on acquisitions since June 30, 2007.

 

***EmCare***

* *

*Netrevenue.* Netrevenue for the six months ended June 30, 2008 was $486.9 million, anincrease of $50.3 million, or 11.5%, from $436.6 million for the six monthsended June 30, 2007. The increase was due primarily to an increase inpatient visits from net new hospital contracts and net revenue increases inexisting contracts. 

 

27

----

Tableof Contents

 

FollowingDecember 31, 2006, we added 37 net new contracts which accounted for a netrevenue increase of $31.5 million.  Of the 37 net new contracts addedsince December 31, 2006, 17 were added in 2007 resulting in an increase in2008 net revenue of $15.4 million.  For the six months ended June 30,2008, EmCare added 45 new contracts and terminated 25 contracts resulting in anincremental increase in net revenue of $16.1 million.  Net revenue underour same store contracts increased $18.7 million, or 5.0%, for the period endedJune 30, 2008 due to a 0.1% increase (4.3% increase excluding retroactiverevenue adjustments discussed below) in revenue per visit and an increase insame store patient visits of 4.9% over the prior period.  Retroactive adjustments, which increasedrevenue for the six months ended June 30, 2008 and 2007, wereapproximately 0.9% and 4.8% of EmCare’s net revenue, respectively.

 

*Compensationand benefits.* Compensationand benefits costs for the six months ended June 30, 2008 were $386.8million, or 79.4% of net revenue, compared to $332.2 million, or 76.1% of netrevenue for the same period in 2007. Provider compensation and benefits costsincreased $29.9 million from net new contract additions. Same store providercompensation and benefits costs were $21.3 million over the prior period due toa 4.2% increase in provider compensation per patient visit primarily due toincreases in net revenue per patient visit.  The remaining variance isrelated primarily to increased staffing due to higher patient volumes.

 

*Operatingexpenses.* Operatingexpenses for the six months ended June 30, 2008 were $17.1 million, or3.5% of net revenue, compared to $20.7 million, or 4.7% of net revenue, for thesame period in 2007.  Operating expenses decreased due primarily toreduced off-hours radiology coverage, lower collection agency fees, and bankfees of approximately $1.4 million, which are now included in selling, generaland administrative expenses.

 

*Insuranceexpense.* Professionalliability insurance expense for the six months ended June 30, 2008 was$18.4 million, or 3.8% of net revenue, compared to $18.5 million, or 4.2% ofnet revenue, for the six months ended June 30, 2007. The decrease as apercentage of net revenue is due to the continued improvement in current yearultimate claims costs.  A reduction of prior year insurance provisions of$2.6 million was recorded during the six months ended June 30, 2008 and areduction of $6.6 million was recorded for the six months ended June 30,2007.

 

*Selling,general and administrative.* Selling, general and administrative expense for the six monthsended June 30, 2008 was $11.1 million, or 2.3% of net revenue, compared to$8.8 million, or 2.0% of net revenue, for the six months ended June 30,2007.  The increase is due primarily toan increase in regional travel expense associated with the increase incontracts during the period and increased bank fees of approximately $1.4million, which bank fees were previously included in operating expenses.

 

*Depreciationand amortization.* Depreciationand amortization expense for the six months ended June 30, 2008 was $6.7million, or 1.4% of net revenue, compared to $6.9 million, or 1.6% of netrevenue, for the six months ended June 30, 2007.

 

**CriticalAccounting Policies**

** **

For a discussion ofaccounting policies that we consider critical to our business operations andthe understanding of our results of operations that affect the more significantjudgments and estimates used in the preparation of our unaudited condensedconsolidated financial statements, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Policies” contained in our annual report on Form 10-Kfor the year ended December 31, 2007 and incorporated by reference herein.As of June 30, 2008, there were no significant changes in our critical accountingpolicies or estimation procedures.

 

**Liquidityand Capital Resources**

** **

Our primary source ofliquidity is cash flows provided by our operating activities. We can also useour revolving 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.

 

28

----

Tableof Contents

 

We believe our cash andcash equivalents, net cash from our operating activities, and amounts availableunder our senior secured credit facility will meet the liquidity requirementsof our business through at least the next 12 months. We have available to us,upon compliance with customary conditions, $100.0 million under the revolvingcredit facility, less outstanding letters of credit of $34.5 million at June 30,2008. Further, we have a conditional right under our senior secured creditfacility to request new or existing lenders to provide up to an additional$100.0 million of term debt (in $20.0 million increments).

 

**CashFlow**

** **

The table belowsummarizes cash flow information derived from our statements of cash flows forthe periods indicated, amounts in thousands.

 
| ** **                       | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------|------------|-----------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| Net cash  provided by (used in): |       |                                          |       |   |   |
| Operating  activities            |       | $                                             | 55,379     |   | $ | 19,280 |   |
| Investing  activities            |       | (12,433                                       | )          | (23,247 | ) |
| Financing  activities            |       | 1,159                                         |       | (5,885 | ) |
|                                  |            |                                               |            |  |  |  |  |

 

*Operatingactivities*. Net cash provided by operating activities was$55.4 million for the six months ended June 30, 2008 compared to $19.3million for the same period last year.  Increases in accounts receivabledecreased operating cash flows by $13.8 million for the six months ended June 30,2008 compared to $63.9 million for the same period in 2007. The accountsreceivable changes are related primarily to the billing system conversion andenrollment delays discussed below.  Accounts receivable increased during2008 due to revenue growth, offset by increased collections for receivablesdelayed in 2007 for billing system conversions and for delays in obtainingprovider numbers.  Accounts payable andaccrued liabilities decreased operating cash flows by $10.3 million in 2008compared to an increase of $0.2 million in 2007.  The decrease is attributable primarily topayment timing differences in accounts payable.

 

We regularly analyze dayssales outstanding, or DSO, which is calculated by taking our net revenue forthe period divided by the number of days in the period.  The result isdivided into net accounts receivable at the end of the period.  DSOprovides us with a gauge to measure receivables, revenue and collectionactivities.  The following table outlines our DSO by segment and in total:

 

 
| ** ** | ** ** | **Q2 2008** | ** ** | **Q1 2008** | ** ** | **Q4 2007** | ** ** | **Q3 2007** | ** ** | **Q2 2007** | ** ** | **Q1 2007** | ** ** |
|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 86               |       | 87               |       | 89               |       | 89               |       | 90               |       | 82               |       |
| EmCare     |       | 76               |       | 79               |       | 79               |       | 81               |       | 78               |       | 69               |       |
| EMSC       |       | 82               |       | 84               |       | 85               |       | 86               |       | 85               |       | 77               |       |

 

EMSC’s DSO decreased 3days for the six months ended June 30, 2008. The AMR DSO decrease of 3 daysfor the six months ended June 30, 2008 was primarily from the collectionof receivables delayed as a result of the billing system conversion in severalmarkets during 2007. AMR DSO increased 8 days in 2007, of which 6 days wererelated to this conversion.  We expect to collect the remaining netreceivables related to the system conversion by the end of 2008.

 

EmCare’s DSO declined 3days for the six months ended June 30, 2008.  The reduction was due to improved cashcollections and from the collection of Medicare and Medicaid billings which hadbeen delayed as a result of the time required to obtain provider numbers.  During the six months ended June 30,2008, the total enrollment delayed amount decreased by approximately 26% andhas been negatively affected by recent contract starts. The Company expects tocollect these Medicare and Medicaid receivables, which currently representapproximately 5 days of EmCare’s DSO.

 

*Investingactivities*.  Net cash used in investing activities was$12.4 million for the six months ended June 30, 2008 compared to $23.2million for the same period in 2007.   The decrease in cash flows used ininvesting activities relates to reduced insurance collateral requirements of$14.9 million during 2008 compared to an increase in cash required forinsurance collateral of $3.0 million during the 2007 period.  Net capital expenditure spending was $10.0 

 

29

----

Tableof Contents

 

million during the sixmonths ended June 30, 2008 compared to $22.5 million for the same periodlast year due primarily to the timing of capital purchases and the completionof system upgrades in the first half of 2007. Cash used in the acquisition of businesses during the six months ended June 30,2008 was $20.0 million compared to $0.5 million during the same period in 2007.

 

*Financingactivities.* For the six months ended June 30, 2008, netcash provided by financing activities was $1.2 million compared to cash used infinancing activities of $5.9 million for the six months ended June 30,2007.  Net cash from financing activities for the six months ended June 30,2008 includes an increase in bank overdrafts of $3.8 million offset by net debtrepayments of $2.7 million.  At June 30, 2008 there were no amountsoutstanding under our revolving credit facility.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

Our primary exposure tomarket risk consists of changes in interest rates on certain of our borrowingsand changes in fuel prices. We have not entered into hedging transactions orused derivative instruments for speculative or trading purposes to mitigate ourexposure to fluctuations in fuel prices.

 

We monitor the risk fromchanging interest rates and evaluate ways to mitigate possible exposures, asappropriate, using derivative and hedging instruments.  Our use of derivative instruments is limitedto highly effective fixed interest rate swap agreements used to managewell-defined interest rate risk exposures. At June 30, 2008, we were party to one interest rate swapagreement.  The swap agreement is withmajor financial institutions and amounts to $200 million of our variable ratedebt.  This swap agreement effectivelyconverts $200 million of variable rate debt to fixed rate debt with aneffective rate of 6.3%.  The Company continues to make interest paymentsbased on the variable rate associated with the debt (based on LIBOR which hadan average rate of 3% at June 30, 2008) and periodically settles with itscounterparties for the difference between the rate paid and the fixedrate.  The swap agreement expires in December 2009.

 

As of June 30, 2008,we had $474.8 million of debt excluding capital leases, of which $23.0 millionwas variable rate debt under our senior secured credit facility ($200 millionof which was fixed through an interest rate swap which expires in December 2009)and the balance was fixed rate debt, including $250.0 million aggregateprincipal amount of our senior subordinated notes. An increase or decrease ininterest rates of 0.125% will change our interest costs on our senior securedcredit facility by less than $0.1 million per year based on outstandingindebtedness at June 30, 2008.

 

**ITEM 4.CONTROLS AND PROCEDURES**

** **

***Evaluation of Disclosure Controls and Procedures***

*** ***

We maintain a system ofdisclosure controls and procedures (as defined in Rule 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”))that are designed to ensure that information required to be disclosed in thereports that we file under the Exchange Act is recorded, processed, summarizedand reported within the time periods specified in the Securities and ExchangeCommission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by an issuer in the reports that it files or furnishesunder the Exchange Act is accumulated and communicated to the issuer’s management,including its principal executive officer or officers and principal financialofficer or officers, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure. In designing andevaluating the disclosure controls and procedures, our management recognizesthat any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives,and management is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

Based on their evaluationof our disclosure controls and procedures conducted within 90 days of the dateof filing this Report on Form 10-Q, our principal executive officer andour principal financial officer have concluded that, as of the date of theirevaluation, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) promulgated under the Exchange Act) areeffective.

 

30

----

Tableof Contents

 

***Changes in Internal Control Over Financial Reporting***

*** ***

There were no changes inour internal control over financial reporting that occurred during our fiscalquarter ended June 30, 2008 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

31

----

Tableof Contents

 

**EMERGENCYMEDICAL SERVICES CORPORATION**

** **

**PART II. OTHER INFORMATION**

** **

**FORTHE THREE AND SIX MONTHS ENDED**

** **

**JUNE30, 2008**

** **

**ITEM 1.LEGAL PROCEEDINGS**

** **

For additionalinformation regarding legal proceedings, please refer to note 6, under thecaption “Commitments and Contingencies” of the notes accompanying theconsolidated financial statements included herein, to our Annual Report on Form 10-Kfiled with the SEC on February 27, 2008 and to our Quarterly Report on Form 10-Qfiled with the SEC on May 9, 2008.

 

**ITEM1A. RISK FACTORS**

** **

There have been nomaterial changes from the risk factors disclosed in the “Risk Factors” sectionof the Company’s Annual Report on Form 10-K for the year ended December 31,2007.

 

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

** **

Our 2008 annual meetingof stockholders was held on May 28, 2008 in Englewood, Colorado.  The matters submitted for a vote at themeeting and the related election results were as follows:

 

1.                                      Electionof one Class III director, Michael L. Smith, to our Board of Directors:

 

For: 327,291,538;Withheld: 524,659

 

Theother directors whose terms of office continued after the meeting were: WilliamA. Sanger, Robert M. Le Blanc, Steven B. Epstein, Paul B. Iannini and James T.Kelly.

 

2.                                      Approvalof the Amended and Restated 2007 Long-Term Incentive Plan:

 

For: 322,978,953;Against: 4,257,091; Abstain: 9,801; Broker Non-Vote: 570,352

 

3.                                      Ratificationof the appointment of Ernst & Young LLP as the Company’s independentregistered public accounting firm for the fiscal year ending December 31,2008:

 

For: 327,803,284; Against: 9,097; Abstain: 3,816;Broker Non-Vote: 0

 

The amendments reflected in the Amended and Restated 2007 Long-TermIncentive Plan permit certain independent contractors associated with us or oursubsidiaries to be eligible to receive stock awards under such Plan.  The material terms of the Amended andRestated 2007 Long-Term Incentive Plan and additional information regarding thematters approved at our 2008 annual meeting of stockholders are set forth inour definitive proxy statement filed with the Securities and ExchangeCommission on April 29, 2008.

 

32

----

Tableof Contents

 

**ITEM 6.EXHIBITS**

 
| 10.16.2 |   | Amended and Restated  2007 Long-Term Incentive Plan (incorporated by reference to Annex A to the  Company’s Proxy Statement for its Annual Stockholders Meeting filed with the  Securities and Exchange Commission on April 29, 2008).                                                        |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.1    |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.2    |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.3    |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.4    |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 32.1    |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                          |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 32.2    |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation, as general partner of Emergency Medical Services L.P.  pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

----

*  Filed with this report

 

33

----

Table of Contents

 

**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrants have dulycaused this report to be signed on their behalf by the undersigned, thereuntoduly authorized.

 
|           | **EMERGENCY  MEDICAL SERVICES CORPORATION** |
|----------------|---------------------------------------------|
|           | ** **                                  |
|           | (registrant)                                |
|           |                                        |   |
| August 7, 2008 |                                        | By: | /s/ William A. Sanger |
| Date           |                                        | William A. Sanger |
|           |                                        | Chairman and Chief Executive Officer |
|           |                                        |   |
| ** **     | **EMERGENCY  MEDICAL SERVICES L.P.**        |
|           | (registrant)                                |
|           |                                        |   |
|           | By:                                         | Emergency Medical  Services Corporation, its General  Partner |
|           |                                        |   |
| August 7, 2008 |                                        | By: | /s/ William A. Sanger |
| Date           |                                        | William A. Sanger |
|           |                                        | Chairman and Chief Executive Officer |

 

34

----

Table of Contents

 

**EXHIBITINDEX**

** **
| 10.16.2 |   | Amended and Restated  2007 Long-Term Incentive Plan (incorporated by reference to Annex A to the  Company’s Proxy Statement for its Annual Stockholders Meeting filed with the  Securities and Exchange Commission on April 29, 2008).                                                        |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.1    |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.2    |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.3    |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 31.4    |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 32.1    |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                          |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 32.2    |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation, as general partner of Emergency Medical Services L.P.  pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

----

*  Filed with this report

 

35

----