**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

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| **(Mark  one)**                                         | ** **                                                                                              | ** ** |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------|------------|
| **x**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                              | ** **                                                                                              | ** ** |
| **For  the quarterly period ended March 31, 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**

 

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**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 the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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 May 5, 2008 — 9,322,096; shares of class Bcommon stock outstanding at May 5, 2008 — 142,545; LP exchangeableunits outstanding at May 5, 2008 — 32,107,500.

 

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**INDEXTO QUARTERLY REPORT**

**ONFORM 10-Q**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2008**

** **
| 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 Unaudited 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 6.                        |   | Exhibits |
|                                |   |   |
| Signatures                          |   |   |

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2008**

 

**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** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                             | ** ** | **March 31,**     | ** ** |
| ** **                                                                             | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Net revenue                                                                            |       | $                      | 565,786    |   | $ | 523,319 |   |
| Compensation and  benefits                                                             |       | 394,351                |       | 354,932 |   |
| Operating  expenses                                                                    |       | 83,223                 |       | 79,996 |   |
| Insurance  expense                                                                     |       | 20,963                 |       | 20,301 |   |
| Selling, general  and administrative expenses                                          |       | 14,592                 |       | 13,305 |   |
| Depreciation and  amortization expense                                                 |       | 17,717                 |       | 16,779 |   |
| Restructuring  charges                                                                 |       | —                 |       | 2,242 |   |
| Income from  operations                                                                |       | 34,940                 |       | 35,764 |   |
| Interest income  from restricted assets                                                |       | 1,755                  |       | 1,715 |   |
| Interest expense                                                                       |       | (9,916                 | )          | (11,234 | ) |
| Realized gain on  investments                                                          |       | 672                    |       | 37 |   |
| Interest and  other income                                                             |       | 302                    |       | 657 |   |
| Income before  income taxes and equity in earnings (loss) of unconsolidated subsidiary |       | 27,753                 |       | 26,939 |   |
| Income tax  expense                                                                    |       | (10,684                | )          | (10,462 | ) |
| Income before  equity in earnings (loss) of unconsolidated subsidiary                  |       | 17,069                 |       | 16,477 |   |
| Equity in  earnings (loss) of unconsolidated subsidiary                                |       | (50                    | )          | 154 |   |
| Net income                                                                             |       | 17,019                 |       | 16,631 |   |
| Other comprehensive  income, net of tax:                                               |       |                   |       |   |   |
| Unrealized  holding gains during the period                                            |       | 1,347                  |       | 298 |   |
| Unrealized  holding losses on derivative financial instruments                         |       | (2,925                 | )          | — |   |
| Comprehensive  income                                                                  |       | $                      | 15,441     |   | $ | 16,929 |   |
|                                                                                   |       |                   |       |   |   |
| Basic earnings  per common share                                                       |       | $                      | 0.41       |   | $ | 0.40 |   |
| Diluted earnings  per common share                                                     |       | $                      | 0.40       |   | $ | 0.39 |   |
| Weighted average  common shares outstanding, basic                                     |       | 41,570,412             |       | 41,521,155 |   |
| Weighted average  common shares outstanding, diluted                                   |       | 43,083,642             |       | 43,029,039 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Consolidated Balance Sheets**

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

** **
| ** **                                                                                                                                                  | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                  | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                  |       |                     |       |                        |       |
| Current assets:                                                                                                                                             |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                  |       | $                        | 16,155     |                        | $          | 28,914 |   |
| Insurance  collateral                                                                                                                                       |       | 36,678                   |       | 37,776                      |       |
| Trade and other  accounts receivable, net                                                                                                                   |       | 522,602                  |       | 495,348                     |       |
| Parts and  supplies inventory                                                                                                                               |       | 20,130                   |       | 20,010                      |       |
| Prepaids and  other current assets                                                                                                                          |       | 17,647                   |       | 11,715                      |       |
| Current deferred  tax assets                                                                                                                                |       | 75,686                   |       | 76,997                      |       |
| Total current  assets                                                                                                                                       |       | 688,898                  |       | 670,760                     |       |
| Non-current  assets:                                                                                                                                        |       |                     |       |                        |       |
| Property, plant  and equipment, net                                                                                                                         |       | 132,682                  |       | 143,342                     |       |
| Intangible  assets, net                                                                                                                                     |       | 80,353                   |       | 81,717                      |       |
| Non-current  deferred tax assets                                                                                                                            |       | 86,433                   |       | 94,961                      |       |
| Insurance  collateral                                                                                                                                       |       | 147,520                  |       | 146,638                     |       |
| Goodwill                                                                                                                                                    |       | 323,101                  |       | 313,124                     |       |
| Other long-term  assets                                                                                                                                     |       | 27,741                   |       | 29,021                      |       |
| Total assets                                                                                                                                                |       | $                        | 1,486,728  |                        | $          | 1,479,563 |   |
| **Liabilities  and Equity**                                                                                                                                 |       |                     |       |                        |       |
| Current  liabilities:                                                                                                                                       |       |                     |       |                        |       |
| Accounts payable                                                                                                                                            |       | $                        | 69,334     |                        | $          | 64,855 |   |
| Accrued  liabilities                                                                                                                                        |       | 223,345                  |       | 237,319                     |       |
| Current portion  of long-term debt                                                                                                                          |       | 4,766                    |       | 4,717                       |       |
| Total current  liabilities                                                                                                                                  |       | 297,445                  |       | 306,891                     |       |
| Long-term debt                                                                                                                                              |       | 477,136                  |       | 478,166                     |       |
| Insurance  reserves and other long-term liabilities                                                                                                         |       | 246,636                  |       | 245,010                     |       |
| Total  liabilities                                                                                                                                          |       | 1,021,217                |       | 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, 9,322,096 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                                                                                                                                 |       | 117,653                  |       | 117,079                     |       |
| Retained  earnings                                                                                                                                          |       | 135,975                  |       | 118,956                     |       |
| Accumulated  other comprehensive income (loss)                                                                                                              |       | (572                     | )          | 1,006                       |       |
| Total equity                                                                                                                                                |       | 465,511                  |       | 449,496                     |       |
| Total  liabilities and equity                                                                                                                               |       | $                        | 1,486,728  |                        | $          | 1,479,563 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Consolidated Statements of Cash Flows**

**(unaudited;in thousands)**

** **
| ** **                                                                     | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **Cash  Flows from Operating Activities**                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income                                                                     |       | $                                                    | 17,019     |   | $ | 16,631 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                                 |       | 18,296                                               |       | 17,268 |   |
| Gain on disposal  of property, plant and equipment                             |       | (13                                                  | )          | (11 | ) |
| Equity-based  compensation expense                                             |       | 562                                                  |       | 400 |   |
| Equity in loss  (earnings) of unconsolidated subsidiary                        |       | 50                                                   |       | (154 | ) |
| Dividends  received                                                            |       | —                                               |       | 416 |   |
| Deferred income  taxes                                                         |       | 10,356                                               |       | 10,637 |   |
| Changes in  operating assets/liabilities, net of acquisitions:                 |       |                                                 |       |   |   |
| Trade and other  accounts receivable                                           |       | (26,308                                              | )          | (28,151 | ) |
| Parts and  supplies inventory                                                  |       | (20                                                  | )          | (13 | ) |
| Prepaids and  other current assets                                             |       | (5,932                                               | )          | (5,959 | ) |
| Accounts payable  and accrued liabilities                                      |       | (13,389                                              | )          | (19,934 | ) |
| Insurance  accruals                                                            |       | (3,399                                               | )          | 5,024 |   |
| Net cash used in  operating activities                                         |       | (2,778                                               | )          | (3,846 | ) |
| **Cash  Flows from Investing Activities**                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                    |       | (2,527                                               | )          | (8,321 | ) |
| Proceeds from  sale of property, plant and equipment                           |       | 63                                                   |       | 125 |   |
| Acquisition of  businesses, net of cash received                               |       | (13,278                                              | )          | — |   |
| Insurance  collateral                                                          |       | 2,125                                                |       | (910 | ) |
| Other investing  activities                                                    |       | 653                                                  |       | 3,021 |   |
| Net cash used in  investing activities                                         |       | (12,964                                              | )          | (6,085 | ) |
| **Cash  Flows from Financing Activities**                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| EMSC issuance of  class A common stock                                         |       | 12                                                   |       | 173 |   |
| Borrowings under  revolving credit facility                                    |       | 14,000                                               |       | — |   |
| Repayments of  capital lease obligations and other debt                        |       | (15,151                                              | )          | (2,333 | ) |
| Increase in bank  overdrafts                                                   |       | 4,122                                                |       | 2,587 |   |
| Net cash  provided by financing activities                                     |       | 2,983                                                |       | 427 |   |
| Change in cash  and cash equivalents                                           |       | (12,759                                              | )          | (9,504 | ) |
| Cash and cash  equivalents, beginning of period                                |       | 28,914                                               |       | 39,336 |   |
| Cash and cash  equivalents, end of period                                      |       | $                                                    | 16,155     |   | $ | 29,832 |   |
|                                                                           |       |                                                 |       |   |   |
| **Non-cash  Activities**                                                       | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Re-financing of  equipment under existing capital lease                        |       | $                                                    | —     |   | $ | 8,038 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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** **

**EmergencyMedical Services Corporation**

**Notes to Unaudited ConsolidatedFinancial Statements**

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

 

**1.****                                      General**

 

***Basis of Presentatio n of FinancialStatements***

 

Theaccompanying interim consolidated financial statements for Emergency MedicalServices Corporation (“EMSC” or the “Company”) have been prepared in accordancewith U.S. generally accepted accounting principles (“GAAP”) for interimreporting and accordingly, do not include all of the disclosures required forannual financial statements. In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included. All suchadjustments are of a normal, recurring nature. Operating results for the threemonths ended March 31, 2008 are not necessarily indicative of the resultsthat may be expected for the full year ending December 31, 2008. Forfurther information, see the Company’s consolidated financial statements,including the accounting policies and notes thereto, included in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31,2007.

 

Theconsolidated financial statements of EMSC include those of its directsubsidiary, Emergency Medical Services L.P. (“EMS LP”), a Delaware limitedpartnership. EMS LP acquired American Medical Response, Inc. and itssubsidiaries (“AMR”) and EmCare Holdings Inc. and its subsidiaries (“EmCare”)from Laidlaw International, Inc. (“Laidlaw”) on February 10, 2005,with an effective transaction date after the close of business on January 31,2005. On December 21, 2005, the Company effected a reorganization andissued class A common stock in an initial public offering.

 

TheCompany is party to a management agreement with a wholly-owned subsidiary ofOnex Corporation, the Company’s principal equityholder. In exchange for anannual management fee of $1.0 million, the Onex subsidiary provides the Companywith corporate finance and strategic planning consulting services. For thethree months ended March 31, 2008 and 2007, the Company expensed $250 inrespect of this fee.

 

Startingin the periods ended June 30, 2007, the Company reclassified income earnedon insurance related assets as Interest Income from Restricted Assets in theaccompanying consolidated statements of operations and comprehensive income;such income was previously reported as a component of insurance expense.

 

**2.****                                      Summary ofSignificant Accounting Policies**

 

***Consolidation***

 

Theconsolidated financial statements include all wholly-owned subsidiaries ofEMSC, including AMR and EmCare and their respective subsidiaries. Allsignificant intercompany transactions and balances have been eliminated.

 

***Use of Estimates***

 

Thepreparation of financial statements requires management to make estimates andassumptions relating to the reporting of results of operations, financialcondition and related disclosure of contingent assets and liabilities at thedate of the financial statements. Actual results may differ from thoseestimates under different assumptions or conditions.

 

***Insurance***

 

Insurancecollateral is comprised principally of government and investment gradesecurities and cash deposits with third parties and supports the Company’sinsurance program and reserves. Certain of these investments, if sold orotherwise liquidated, would have to be replaced by other suitable financialassurances and are, therefore, considered restricted.

 

Insurancereserves are established for automobile, workers compensation, generalliability and professional liability claims utilizing policies with bothfully-insured and self-insured components. This includes the use of anoff-shore captive insurance program through a wholly-owned subsidiary forcertain professional liability (malpractice) programs for EmCare. In thoseinstances where the Company has obtained third-party insurance coverage, theCompany generally retains liability for the first $1 to $2 million of theloss. Insurance reserves cover known claims and incidents within the level ofCompany retention that may result in the assertion of additional claims, aswell as claims from unknown incidents that may be asserted arising fromactivities through the balance sheet date.

 

TheCompany establishes reserves for claims based upon an assessment of actualclaims and claims incurred but not reported.  The reserves are establishedbased on quarterly consultation with third-party independent actuaries usingactuarial principles and assumptions that consider a number of factors,including historical claim payment patterns (including legal 

 

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costs) and changes incase reserves and the assumed rate of inflation in healthcare costs andproperty damage repairs.

 

TheCompany’s most recent actuarial valuation was completed in March 2008. Asa result of this actuarial valuation, in the three months ended March 31,2008 the Company recorded reductions in its provision for insurance liabilitiesof approximately $2.8 million related to its reserves for losses in prioryears.  In the three months ended March 31, 2007, the Companyrecorded a reduction in its provision for insurance liabilities ofapproximately $5.2 million as a result of an actuarial valuation completed in March 2007.

 

Thelong-term portion of insurance reserves was $141.9 million and $144.7 millionas of March 31, 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:

 

| ** **                           | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Gross trade  accounts receivable     |       | $                        | 1,775,388  |                        | $          | 1,698,862 |   |
| Allowance for  contractual discounts |       | 873,928                  |       | 832,738                     |       |
| Allowance for  uncompensated care    |       | 448,722                  |       | 431,920                     |       |
| Net trade  accounts receivable       |       | 452,738                  |       | 429,204                     |       |
| Other  receivables, net              |       | 69,864                   |       | 66,144                      |       |
| Net accounts  receivable             |       | $                        | 522,602    |                        | $          | 495,348 |   |

 

Otherreceivables represent EmCare hospital subsidies and fees and AMR fees forstand-by and special events and subsidies from community organizations.

 

AMRcontractual allowances are primarily determined on payor reimbursementschedules that are included and regularly updated in the billing systems, andby historical collection experience.  Thebilling systems calculate the difference between payor specific gross billingsand contractually agreed to, or governmentally driven, reimbursementrates.  The allowance for uncompensatedcare at AMR is related principally to receivables recorded for self-paypatients.  AMR’s allowances on self-payaccounts receivable are estimated on claim level, historical write-offexperience.

 

Accountsreceivable allowances at EmCare are estimated based on cash collection andwrite-off experience at a facility level contract and facility specific payormix.  These allowances are reviewed andadjusted monthly through revenue provisions. In addition, an analysis is done after 15 months to compare actual cashcollected on a date of service basis to the revenue recorded for thatperiod.  Any adjustment necessary for anoverage or deficit in these allowances based on actual collections is recordedthrough a retroactive revenue adjustment in the current period.

 

***Revenue Recognition***

 

Revenueis recognized at the time of service and is recorded net of provisions forcontractual discounts and estimated uncompensated care. Provisions forcontractual discounts and estimated uncompensated care as a percentage of grossrevenue and as a percentage of gross revenue less provision for contractualdiscounts are as follows:

 
| ** **                                                                                     | ** ** | **Quarter ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                     | ** ** | **2008**                               | ** ** | **2007** | ** ** |
| Gross revenue                                                                                  |       | 100.0                                  | %          | 100.0 | % |
| Provision for  contractual discounts                                                           |       | 45.7                                   | %          | 42.4 | % |
| Revenue net of  contractual discounts                                                          |       | 54.3                                   | %          | 57.6 | % |
| Provision for  uncompensated care as a percentage of gross revenue                             |       | 18.7                                   | %          | 19.5 | % |
| Provision for  uncompensated care as a percentage of gross revenue less contractual  discounts |       | 34.4                                   | %          | 33.8 | % |

 

Healthcarereimbursement is complex and may involve lengthy delays. Third-party payors arecontinuing their efforts to control expenditures for healthcare, includingproposals to revise reimbursement policies. The Company has from time to timeexperienced delays in reimbursement from third-party payors. In addition,third-party payors may disallow, in whole or in part, claims for reimbursementbased on determinations that certain amounts are not reimbursable under plancoverage, on determinations of medical necessity, or the need for additionalinformation. Laws and regulations governing the Medicare and Medicaid programsare very complex and subject to interpretation. As a result, there is areasonable possibility that recorded estimates will change materially in theshort-term. Retroactive adjustments may change the amounts realized fromthird-party payors and are considered in the recognition of revenue on anestimated basis in the period the related services are rendered. Such amounts,including adjustments between provisions for contractual discounts anduncompensated care, are adjusted in future periods, as adjustments becomeknown.  Retroactive adjustments recorded in the first quarter, whichincreased revenue, were 0.7% and 2.8% of consolidated net revenue for the threemonths ended March 31, 2008 and 2007, respectively.

 

TheCompany also provides services to patients who have no insurance or otherthird-party payor coverage. In certain circumstances, federal law requiresproviders to render services to any patient who requires emergency careregardless 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 

 

7

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Company in exchange forshares of the Company’s class B common stock.

 

TheCompany holds 22.8% of the equity interests in EMS LP. LP exchangeable units,held by persons affiliated with the Company’s principal equity holder,represent the balance of the EMS LP equity. The LP exchangeable units areexchangeable at any time, at the option of the holder, for shares of theCompany’s class B common stock on a one-for-one basis. The holders of the LPexchangeable units have the right to vote, through the trustee holder of theCompany’s class B special voting stock, at all stockholder meetings at whichholders of the Company’s class B common stock or class B special voting stockare entitled to vote.

 

In theEMS LP partnership agreement, the Company has agreed to maintain the economicequivalency of the LP exchangeable units and the class B common stock, and theholders of the LP exchangeable units have no general voting rights. The LPexchangeable units, when considered with the class B special voting stock, havethe same rights, privileges and characteristics of the Company’s class B commonstock. The LP exchangeable units are intended to be economically equivalent tothe class B common stock of the Company in that the LP exchangeable units carrythe right to vote (by virtue of the class B special voting stock) with theholders of class B common stock as 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***

 

 TheCompany adopted SFAS No. 157 *Fair value measurement*(“SFAS 157”) effective January 1, 2008, which among other things, requiresadditional disclosures 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.

 

Investmentsmeasured and reported at fair value are classified and disclosed in one of thefollowing categories.

 

Level1 – Quoted prices are available in active markets for identical investments asof the reporting date.  As required bySFAS 157, the Company does not adjust the quoted price for these investments.

 

Level2 – Pricing inputs are other than quoted prices in active markets, which areeither directly or indirectly observable as of the reporting date, and fairvalue is determined through the use of models or other valuation methodologies.

 

Thefollowing table summarizes the valuation of EMSC’s investments by the aboveSFAS 157 fair value hierarchy levels as of March 31, 2008:

 
| ** **      | ** ** | **Fair value measurements at March 31, 2008  using:** | ** ** |
|-----------------|------------|-------------------------------------------------------------------------------------|------------|
| **Description** | ** ** | **Total**                                                                           | ** ** | **Level 1** | ** ** | **Level 2** | ** ** |
| Assets:         |       |                                                                                |       |   |   |   |   |
| Securities      |       | $                                                                                   | 97,631     |   | $ | 97,631 |   | $ | — |   |
|            |       |                                                                                |       |   |   |   |   |
| Liabilities:    |       |                                                                                |       |   |   |   |   |
| Derivatives     |       | $                                                                                   | 5,856      |   | $ | — |   | $ | 5,856 |   |

 

**3.****                                      Acquisitions**

 

In March 2008,the Company 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.  This acquisition positions theCompany for future expansion in the Arizona market.  The total cost of this acquisition was $13.3million and the Company has recorded $8.6 million of goodwill, which amount issubject to adjustment based upon completion of the purchase price allocation.

 

8

----

 

**4.****                                      AccruedLiabilities**

 

Accruedliabilities were as follows at March 31, 2008 and December 31, 2007:

 
| ** **                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Accrued wages  and benefits                 |       | $                  | 78,957     |                  | $          | 79,781 |   |
| Accrued paid  time-off                      |       | 26,205             |       | 24,687                |       |
| Current portion  of self-insurance reserves |       | 59,236             |       | 59,821                |       |
| Accrued  restructuring                      |       | 591                |       | 600                   |       |
| Current portion  of compliance and legal    |       | 2,566              |       | 2,245                 |       |
| Accrued billing  and collection fees        |       | 5,389              |       | 5,046                 |       |
| Accrued profit  sharing                     |       | 15,389             |       | 23,661                |       |
| Accrued interest                            |       | 3,888              |       | 10,407                |       |
| Other                                       |       | 31,124             |       | 31,071                |       |
| Total accrued  liabilities                  |       | $                  | 223,345    |                  | $          | 237,319 |   |

 

**5.****                                      Long-Term Debt**

 

Long-termdebt consisted of the following at March 31, 2008 and December 31,2007:

 
| ** **                                                                       | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Senior  subordinated notes due 2015                                              |       | $                        | 250,000    |                        | $          | 250,000 |   |
| Senior secured  term loan due 2012 (4.99% at March 31, 2008)                |       | 223,591                  |       | 224,167                     |       |
| Notes due at  various dates from 2008 to 2022 with interest rates from 6% to 10% |       | 2,272                    |       | 2,292                       |       |
| Capital lease  obligations due at various dates from 2008 to 2010 (see note 6)   |       | 6,039                    |       | 6,424                       |       |
|                                                                             |       | 481,902                  |       | 482,883                     |       |
| Less current  portion                                                            |       | (4,766                   | )          | (4,717                      | )          |
| Total long-term  debt                                                            |       | $                        | 477,136    |                        | $          | 478,166 |   |

 

**6.****                                      Commitments andContingencies**

 

***Lease Commitments***

 

TheCompany leases various facilities and equipment under operating leaseagreements.

 

TheCompany also leases certain vehicles under a capital lease and during the firstquarter of 2007 extended the terms of this capital lease for an additionalthree years. Assets under capital lease are capitalized using inherent interestrates at the inception of each lease. Capital leases are collateralized by theleased vehicles.

 

***Services***

 

TheCompany is subject to the Medicare and Medicaid fraud and abuse laws whichprohibit, among other things, any false claims, or any bribe, kick-back orrebate in return for the referral of Medicare and Medicaid patients. Violationof these prohibitions may result in civil and criminal penalties and exclusionfrom participation in the Medicare and Medicaid programs. Management hasimplemented policies and procedures that management believes will assure thatthe Company is in substantial compliance with these laws and regulations but therecan be no assurance the Company will not be found to have violated certain ofthese laws and regulations. From time to time, the Company receives requestsfor information from government agencies pursuant to their regulatory orinvestigational authority. Such requests can include subpoenas or demandletters for documents to assist the government in audits or investigations. TheCompany is cooperating with the government agencies conducting theseinvestigations and is providing requested information to the governmentagencies. Other than the proceedings described below, management believes thatthe outcome of any of these investigations would not have a material adverseeffect on the Company.

 

On April 17,2006, the Office of Inspector General for the United States Department ofHealth and Human Services, or OIG, finalized its draft report requesting thatthe Company’s Massachusetts subsidiary reimburse the Medicare program forapproximately $1.8 million in alleged overpayments from Medicare for servicesperformed between July 1, 2002 and December 31, 2002. The OIG claimsthat these payments were made for services that did not meet Medicaremedical necessity and reimbursement requirements.   On December 10,2006, AMR paid the $1.8 million in alleged overpayments. 

 

9

----

 

However, the Companydisagrees with the OIG’s finding and has filed an administrative appeal. If AMRis successful in the administrative appeal the Company may be entitled torepayment of all or part of the $1.8 million.

 

***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.

 

EmCareentered into a settlement agreement with respect to June Belt, et. al. v.EmCare, Inc. et. al. brought by a number of nurse practitioners andphysician assistants under the Fair Labor Standards Act.  The suit wasfiled on February 25, 2003 in the Eastern District of Texas. Pursuant to the settlement agreement, EmCare paid $1.7 million during the firstquarter of 2007 in satisfaction of all claims in the lawsuit.

 

AMRand the City of Stockton, California, are parties to litigation regarding theterms and enforceability of a memorandum of understanding and a related jointventure agreement between the parties to present a joint bid in response to arequest for proposals to provide emergency ambulance services in the County ofSan Joaquin, California. The suit was filed on June 28, 2005, in theUnited States District Court for the Eastern District of California. Theparties were unable to agree on the final terms of a joint bid. AMR has beenawarded the San Joaquin contract. While we are unable at this time to estimatethe amount of potential damages, we believe that Stockton may claim as damagesa portion of our profit on the contract or the profit Stockton might haverealized had the joint venture proceeded.

 

**7.****                                      RestructuringCharges**

 

TheCompany restructured certain billing functions of AMR and operations in the LosAngeles, California market during the first quarter of 2007 and recorded arestructuring charge of $2.2 million.  This restructuring charge included$0.2 million in lease termination and exit costs and $2.0 million related totermination benefits.

 

**8.****                                      Equity BasedCompensation**

 

TheCompany adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123 (revised 2004)*Share-BasedPayment* (“SFAS 123R”) on January 1, 2006 using the prospectivetransition method. Stock options are valued using the Black-Scholesvaluation method on the date of grant.

 

**EquityOption Plan**

 

Underthe Company’s Equity Option Plan, key employees were granted options thatpermit the individuals to purchase class A common shares and vest ratablygenerally over a period of four years. In addition, certain performancemeasures must be met for 50% of the options to become exercisable. Options withsimilar provisions were granted to non-employee directors. The Company recordeda compensation charge of $431 and $300 for the three months ended March 31,2008 and 2007, respectively.

 

**Non-EmployeeDirector Compensation Plan**

 

TheNon-Employee Director Compensation Plan, approved in May 2007, isavailable to non-employee directors of the Company, other than the Chair of theCompliance Committee.  Under this plan,eligible directors are granted Restricted Stock Units (“RSUs”) immediatelyfollowing each annual stockholder meeting with each RSU representing one shareof the Company’s class A common stock. Eligible directors receive a grant of RSUs having a fair market value of$100 on the date of grant based on the closing price of the Company’s class Acommon stock on the business 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 2,705 and 8,000 RSUs per director in 2007 and 2006,respectively, and expensed $100 for the three months ended March 31, 2008and 2007.

 

**Long-TermIncentive Plan**

 

EMSC’s Long-Term Incentive Plan (the “Plan”) wasapproved by stockholders in May 2007 and provides for the grant oflong-term incentives, including various equity-based incentives, to thosepersons with responsibility for the success and growth of the Company and itssubsidiaries.

 

10

----

 

The Companygranted options to key employees during the three months ended March 31,2008 under the Plan. The options permit employees to purchase 114,250 shares ofclass A common stock at a weighted average exercise price of $29.70 per share, vest ratably over a period of 4 years and have amaximum term of ten years.

 

TheCompany recorded a compensation charge of $31 during the three months ended March 31,2008 in connection with the Plan.

 

**Stock PurchasePlan/Employee Stock Purchase Plan**

 

TheCompany commenced an offering of its class A common stock to eligible employeesand independent contractors associated with the Company during the three monthsended March 31, 2008 pursuant to the Company’s Stock Purchase Plan and Employee Stock Purchase Plan (together, the “SPPs”).  Thepurchases of stock under the SPPs will occur in September 2008 at a 5%discount to the closing price of the Company’s class A common stock on September 15,2008, and as such no compensation charge has been recorded for the SPPs during the threemonths ended March 31, 2008.

 

**9.****                                      SegmentInformation**

 

TheCompany is organized around two separately managed business units: healthcaretransportation services and emergency management services, which have beenidentified as operating segments. The healthcare transportation servicesreportable segment focuses on providing a full range of medical transportationservices from basic patient transit to the most advanced emergency care and pre-hospitalassistance. The emergency management services reportable segment providesoutsourced business services to hospitals primarily for emergency departments,urgent care centers and for certain inpatient departments. The Chief ExecutiveOfficer has been identified as the chief operating decision maker (“CODM”) 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.

 

Netincome before equity in earnings (loss) of unconsolidated subsidiary, incometax expense, interest and other income, realized gain on investments, interestexpense, and depreciation and amortization (“Adjusted EBITDA”) is the measureof profit and loss that the CODM uses to assess performance, measure liquidityand make decisions. The accounting policies for reported segments are the sameas for the Company as a whole.

 
| ** **                                              | ** ** | **Quarter ended March 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| **Healthcare  Transportation Services**                 | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Revenue                                                 |       | $                                          | 326,316    |   | $ | 308,108 |   |
| Segment Adjusted  EBITDA                                |       | 28,398                                     |       | 24,945 |   |
| **Emergency  Management Services**                      | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Revenue                                                 |       | 239,470                                    |       | 215,211 |   |
| Segment Adjusted  EBITDA                                |       | 26,014                                     |       | 29,313 |   |
| **Total**                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Total revenue                                           |       | 565,786                                    |       | 523,319 |   |
| Total Adjusted  EBITDA                                  |       | 54,412                                     |       | 54,258 |   |
| **Reconciliation  of Adjusted EBITDA to Net Income**    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Adjusted EBITDA                                         |       | $                                          | 54,412     |   | $ | 54,258 |   |
| Depreciation and  amortization expense                  |       | (17,717                                    | )          | (16,779 | ) |
| Interest expense                                        |       | (9,916                                     | )          | (11,234 | ) |
| Realized gain on  investments                           |       | 672                                        |       | 37 |   |
| Interest and  other income                              |       | 302                                        |       | 657 |   |
| Income tax  expense                                     |       | (10,684                                    | )          | (10,462 | ) |
| Equity in  earnings (loss) of unconsolidated subsidiary |       | (50                                        | )          | 154 |   |
| Net income                                              |       | $                                          | 17,019     |   | $ | 16,631 |   |

 

11

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Areconciliation of Adjusted EBITDA to cash flows used in operating activities isas follows:

 
| ** **                                    | ** ** | **Quarter ended March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| Adjusted EBITDA                               |       | $                                          | 54,412     |   | $ | 54,258 |   |
| Interest paid                                 |       | (9,337                                     | )          | (10,745 | ) |
| Change in  accounts receivable                |       | (26,308                                    | )          | (28,151 | ) |
| Change in other  operating assets/liabilities |       | (22,740                                    | )          | (20,882 | ) |
| Equity based  compensation                    |       | 562                                        |       | 400 |   |
| Other                                         |       | 633                                        |       | 1,274 |   |
| Cash flows used  in operating activities      |       | $                                          | (2,778     | ) | $ | (3,846 | ) |

 

**10.****                            Guarantorsof Debt**

 

EMS LPfinanced the acquisition of AMR and EmCare in part by issuing$250.0 million principal amount of senior subordinated notes and borrowing$370.2 million under its senior secured credit facility. Its wholly-ownedsubsidiaries, AMR HoldCo, Inc. and EmCare HoldCo, Inc., are the issuersof the senior subordinated notes and the borrowers under the senior securedcredit facility. As part of the transaction, AMR and its subsidiaries becamewholly-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 andsubsidiary guarantors would not provide additional material information thatwould be useful in assessing the financial composition of the issuers, EMS LPor the subsidiary guarantors. The condensed consolidating financial statementsfor EMSC, EMS LP, the issuers, the guarantors and the non-guarantor are asfollows:

 

**ConsolidatingStatement of Operations**

**Forthe quarter ended March 31, 2008**

 
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **             | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|------------------------|------------|-------------------|------------|------------|------------|
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**         | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non–Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                             |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —                 |       | $                 | 565,786    |       | $          | 10,757 |   | $ | (10,757 | ) | $ | 565,786 |   |
| Compensation and  benefits                                              |       | —     |       | —          |       | —                |       | —                |       | 394,351        |       | —                 |       | —            |       | 394,351    |       |
| Operating  expenses                                                     |       | —     |       | —          |       | —                |       | —                |       | 83,223         |       | —                 |       | —            |       | 83,223     |       |
| Insurance expense                                                       |       | —     |       | —          |       | —                |       | —                |       | 19,218         |       | 12,502                 |       | (10,757           | )          | 20,963     |       |
| Selling, general  and administrative expenses                           |       | —     |       | —          |       | —                |       | —                |       | 14,592         |       | —                 |       | —            |       | 14,592     |       |
| Depreciation and  amortization expense                                  |       | —     |       | —          |       | —                |       | —                |       | 17,717         |       | —                 |       | —            |       | 17,717     |       |
| Restructuring  charge                                                   |       | —     |       | —          |       | —                |       | —                |       | —         |       | —                 |       | —            |       | —     |       |
| Income from  operations                                                 |       | —     |       | —          |       | —                |       | —                |       | 36,685         |       | (1,745                 | )          | —            |       | 34,940     |       |
| Interest income  from restricted assets                                 |       | —     |       | —          |       | —                |       | —                |       | 682            |       | 1,073                  |       | —            |       | 1,755      |       |
| Interest expense                                                        |       | —     |       | —          |       | —                |       | —                |       | (9,916         | )          | —                 |       | —            |       | (9,916     | )          |
| Realized gain on  investments                                           |       | —     |       | —          |       | —                |       | —                |       | —         |       | 672                    |       | —            |       | 672        |       |
| Interest and  other income                                              |       | —     |       | —          |       | —                |       | —                |       | 302            |       | —                 |       | —            |       | 302        |       |
| Income before  income taxes                                             |       | —     |       | —          |       | —                |       | —                |       | 27,753         |       | —                 |       | —            |       | 27,753     |       |
| Income tax  expense                                                     |       | —     |       | —          |       | —                |       | —                |       | (10,684        | )          | —                 |       | —            |       | (10,684    | )          |
| Income before  equity in earnings (loss) of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 17,069         |       | —                 |       | —            |       | 17,069     |       |
| Equity in  earnings (loss) of unconsolidated subsidiaries               |       | 17,019     |       | 17,019          |       | 5,061                 |       | 11,958                |       | (50            | )          | —                 |       | (51,057           | )          | (50        | )          |
| Net income                                                              |       | $          | 17,019     |            | $          | 17,019                |       | $                     | 5,061      |           | $          | 11,958                 |       | $                 | 17,019     |       | $          | — |   | $ | (51,057 | ) | $ | 17,019 |   |

 

12

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**ConsolidatingStatement of Operations**

**Forthe quarter ended March 31, 2007**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Issuer**        | ** ** | **Issuer**        | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|-------------------|------------|-------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **AMR**           | ** ** | **EmCare**        | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo,  Inc.** | ** ** | **HoldCo,  Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |       | $          | —            |       | $                 | —     |           | $          | —            |       | $                 | 523,319    |       | $          | 8,640 |   | $ | (8,640 | ) | $ | 523,319 |   |
| Compensation and  benefits                                       |       | —     |       | —     |       | —            |       | —            |       | 354,932        |       | —            |       | —            |       | 354,932    |       |
| Operating  expenses                                              |       | —     |       | —     |       | —            |       | —            |       | 79,996         |       | —            |       | —            |       | 79,996     |       |
| Insurance expense                                                |       | —     |       | —     |       | —            |       | —            |       | 19,269         |       | 9,672             |       | (8,640            | )          | 20,301     |       |
| Selling, general  and administrative expenses                    |       | —     |       | —     |       | —            |       | —            |       | 13,305         |       | —            |       | —            |       | 13,305     |       |
| Depreciation and  amortization expense                           |       | —     |       | —     |       | —            |       | —            |       | 16,779         |       | —            |       | —            |       | 16,779     |       |
| Restructuring  charge                                            |       | —     |       | —     |       | —            |       | —            |       | 2,242          |       | —            |       | —            |       | 2,242      |       |
| Income from  operations                                          |       | —     |       | —     |       | —            |       | —            |       | 36,796         |       | (1,032            | )          | —            |       | 35,764     |       |
| Interest income  from restricted assets                          |       | —     |       | —     |       | —            |       | —            |       | 720            |       | 995               |       | —            |       | 1,715      |       |
| Interest expense                                                 |       | —     |       | —     |       | —            |       | —            |       | (11,234        | )          | —            |       | —            |       | (11,234    | )          |
| Realized gain on  investments                                    |       | —     |       | —     |       | —            |       | —            |       | —         |       | 37                |       | —            |       | 37         |       |
| Interest and  other income                                       |       | —     |       | —     |       | —            |       | —            |       | 657            |       | —            |       | —            |       | 657        |       |
| Income before  income taxes                                      |       | —     |       | —     |       | —            |       | —            |       | 26,939         |       | —            |       | —            |       | 26,939     |       |
| Income tax  expense                                              |       | —     |       | —     |       | —            |       | —            |       | (10,462        | )          | —            |       | —            |       | (10,462    | )          |
| Income before  equity in earnings of unconsolidated subsidiaries |       | —     |       | —     |       | —            |       | —            |       | 16,477         |       | —            |       | —            |       | 16,477     |       |
| Equity in  earnings of unconsolidated subsidiaries               |       | 16,631     |       | 16,631     |       | 2,826             |       | 13,805            |       | 154            |       | —            |       | (49,893           | )          | 154        |       |
| Net income                                                       |       | $          | 16,631     |       | $          | 16,631            |       | $                 | 2,826      |           | $          | 13,805            |       | $                 | 16,631     |       | $          | — |   | $ | (49,893 | ) | $ | 16,631 |   |

 

13

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**ConsolidatingBalance Sheet**

**Asof March 31, 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                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —                 |       | $                 | 15,328     |       | $          | 827 |   | $ | — |   | $ | 16,155 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 23,388         |       | 46,123                 |       | (32,833           | )          | 36,678     |       |
| Trade and other  accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 521,491        |       | 1,111                  |       | —            |       | 522,602    |       |
| Parts and  supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 20,130         |       | —                 |       | —            |       | 20,130     |       |
| Other current  assets                     |       | —     |       | —          |       | —                |       | —                |       | 14,955         |       | 2,692                  |       | —            |       | 17,647     |       |
| Current deferred  tax assets              |       | —     |       | —          |       | —                |       | —                |       | 72,523         |       | 3,163                  |       | —            |       | 75,686     |       |
| Current assets                            |       | —     |       | —          |       | —                |       | —                |       | 667,815        |       | 53,916                 |       | (32,833           | )          | 688,898    |       |
| Non-current  assets:                      |       |       |       |            |       |                  |       |                  |       |           |       |                   |       |              |       |       |       |
| Property, plant,  and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 132,682        |       | —                 |       | —            |       | 132,682    |       |
| Intercompany  receivable                  |       | 4,347      |       | 113,400         |       | 278,172               |       | 189,546               |       | —         |       | —                 |       | (585,465          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 80,353         |       | —                 |       | —            |       | 80,353     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 85,564         |       | 869                    |       | —            |       | 86,433     |       |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 46,806         |       | 103,558                |       | (2,844            | )          | 147,520    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 322,643        |       | 458                    |       | —            |       | 323,101    |       |
| Other long-term  assets                   |       | —     |       | —          |       | 6,759                 |       | 3,016                 |       | 17,966         |       | —                 |       | —            |       | 27,741     |       |
| Investment and  advances in subsidiaries  |       | 461,164    |       | 347,764         |       | 216,161               |       | 131,590               |       | 20,179         |       | —                 |       | (1,176,857        | )          | —     |       |
| Assets                                    |       | $          | 465,511    |            | $          | 461,164               |       | $                     | 501,092    |           | $          | 324,152                |       | $                 | 1,374,008  |       | $          | 158,801 |   | $ | (1,797,999 | ) | $ | 1,486,728 |   |
| **Liabilities  and Equity**               |       |       |       |            |       |                  |       |                  |       |           |       |                   |       |              |       |       |       |
| Current  liabilities:                     |       |       |       |            |       |                  |       |                  |       |           |       |                   |       |              |       |       |       |
| Accounts payable                          |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —                 |       | $                 | 69,236     |       | $          | 98 |   | $ | — |   | $ | 69,334 |   |
| Accrued  liabilities                      |       | —     |       | —          |       | 2,153                 |       | 1,735                 |       | 189,111        |       | 32,847                 |       | (2,501            | )          | 223,345    |       |
| Current portion  of long-term debt        |       | —     |       | —          |       | 1,656                 |       | 744                   |       | 2,366          |       | —                 |       | —            |       | 4,766      |       |
| Current  liabilities                      |       | —     |       | —          |       | 3,809                 |       | 2,479                 |       | 260,713        |       | 32,945                 |       | (2,501            | )          | 297,445    |       |
| Long-term debt                            |       | —     |       | —          |       | 281,122               |       | 190,069               |       | 5,945          |       | —                 |       | —            |       | 477,136    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 174,135        |       | 105,677                |       | (33,176           | )          | 246,636    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 585,465        |       | —                 |       | (585,465          | )          | —     |       |
| Liabilities                               |       | —     |       | —          |       | 284,931               |       | 192,548               |       | 1,026,258      |       | 138,622                |       | (621,142          | )          | 1,021,217  |       |
| 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               |       | 117,653    |       | —          |       | —                |       | —                |       | —         |       | 6,690                  |       | (6,690            | )          | 117,653    |       |
| Retained earnings                         |       | 135,975    |       | 135,975         |       | 28,845                |       | 107,130               |       | 135,961        |       | 8,563                  |       | (416,474          | )          | 135,975    |       |
| Comprehensive  income (loss)              |       | (572       | )          | (572            | )          | (2,079                | )          | 1,507                 |       | (572           | )          | 4,896                  |       | (3,180            | )          | (572       | )          |
| Equity                                    |       | 465,511    |       | 461,164         |       | 216,161               |       | 131,604               |       | 347,750        |       | 20,179                 |       | (1,176,857        | )          | 465,511    |       |
| Liabilities and  Equity                   |       | $          | 465,511    |            | $          | 461,164               |       | $                     | 501,092    |           | $          | 324,152                |       | $                 | 1,374,008  |       | $          | 158,801 |   | $ | (1,797,999 | ) | $ | 1,486,728 |   |

 

14

----

 

**ConsolidatingBalance Sheet**

**Asof December 31, 2007**

 
| ** **                                | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **Issuer  AMR  HoldCo, Inc.** | ** ** | **Issuer  EmCare  HoldCo, Inc.** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non–Guarantor** | ** ** | **Eliminations/  Adjustments** | ** ** | **Total**  | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|------------------------------------|------------|---------------------------------------|------------|----------------------------|------------|------------------------------------|------------|--------------------------------|------------|------------|------------|
| **Assets**                                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **                         | ** ** | ** **                            | ** ** | ** **                 | ** ** | ** **                         | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Current assets:                           |       |       |       |            |       |                               |       |                                  |       |                       |       |                               |       |                           |       |       |       |
| Cash and cash  equivalents                |       | $          | —     |            | $          | —                             |       | $                                     | —     |                       | $          | —                             |       | $                              | 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 |   |

 

15

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**CondensedConsolidating Statement of Cash Flows**

**Forthe three months ended March 31, 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 used in  operating activities                  |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —                  |       | $          | (1,053     | ) | $ | (1,725 | ) | $ | (2,778 | ) |
| **Cash  Flows from Investing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |                    |       |       |       |
| Purchase of  property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (2,527         | )          | —                  |       | (2,527     | )          |
| Proceeds from  sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 63             |       | —                  |       | 63         |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (13,278        | )          | —                  |       | (13,278    | )          |
| Insurance  collateral                                   |       | —     |       | —          |       | —               |       | —               |       | 3,500          |       | (1,375                  | )          | 2,125      |       |
| Net change in  deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 653            |       | —                  |       | 653        |       |
| Net cash used in  investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (11,589        | )          | (1,375                  | )          | (12,964    | )          |
| **Cash  Flows from Financing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |                    |       |       |       |
| EMSC issuance of  class A common stock                  |       | 12         |       | —          |       | —               |       | —               |       | —         |       | —                  |       | 12         |       |
| Repayments of  capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (15,151        | )          | —                  |       | (15,151    | )          |
| Increase in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 4,122          |       | —                  |       | 4,122      |       |
| Borrowings under  revolving credit facility             |       | —     |       | —          |       | —               |       | —               |       | 14,000         |       | —                  |       | 14,000     |       |
| Net intercompany  borrowings (payments)                 |       | (12        | )          | —          |       | —               |       | —               |       | 12             |       | —                  |       | —     |       |
| Net cash provided  by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 2,983          |       | —                  |       | 2,983      |       |
| Decrease in cash  and cash equivalents                  |       | —     |       | —          |       | —               |       | —               |       | (9,659         | )          | (3,100                  | )          | (12,759    | )          |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 24,987         |       | 3,927                   |       | 28,914     |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —                  |       | $          | 15,328     |   | $ | 827 |   | $ | 16,155 |   |

 

**CondensedConsolidating Statement of Cash Flows**

**Forthe three months ended March 31, 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 (used in) operating activities    |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —                  |       | $          | (6,049     | ) | $ | 2,203 |   | $ | (3,846 | ) |
| **Cash  Flows from Investing Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **              | ** ** | ** ** | ** ** |
| Purchase of  property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (8,321         | )          | —                  |       | (8,321     | )          |
| Proceeds from  sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 125            |       | —                  |       | 125        |       |
| Insurance  collateral                                   |       | —     |       | —          |       | —               |       | —               |       | 702            |       | (1,612                  | )          | (910       | )          |
| Net change in  deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 3,021          |       | —                  |       | 3,021      |       |
| Net cash used in  investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (4,473         | )          | (1,612                  | )          | (6,085     | )          |
| **Cash  Flows from Financing Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **              | ** ** | ** ** | ** ** |
| Issuance of EMSC  equity                                |       | 173        |       | —          |       | —               |       | —               |       | —         |       | —                  |       | 173        |       |
| Repayments of  capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (2,333         | )          | —                  |       | (2,333     | )          |
| Net intercompany  borrowings (payments)                 |       | (173       | )          | —          |       | —               |       | —               |       | 173            |       | —                  |       | —     |       |
| Increase in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 2,587          |       | —                  |       | 2,587      |       |
| Net cash provided  by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 427            |       | —                  |       | 427        |       |
| Increase (decrease)  in cash and cash equivalents       |       | —     |       | —          |       | —               |       | —               |       | (10,095        | )          | 591                     |       | (9,504     | )          |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 39,329         |       | 7                       |       | 39,336     |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —                  |       | $          | 29,234     |   | $ | 598 |   | $ | 29,832 |   |

 

16

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** **

**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 complex governmentregulation of our industry, both as it exists now and as it may change in thefuture; our ability to recruit and retain qualified physicians and otherhealthcare professionals, and enforce our non-compete agreements with ourphysicians; the loss of one or more members of our senior management team; theoutcome of government investigations of certain of our business practices; ourability to generate cash flow to service our debt obligations and fund the costof capital expenditures to maintain and upgrade our vehicle fleet and medicalequipment; 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 its subsidiaries,including Emergency Medical Services L.P., or EMS LP. The Company’s business isconducted primarily through two operating subsidiaries, American MedicalResponse, 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. AMR is the leadingprovider of ambulance transport services in the United States. EmCare is theleading provider of outsourced emergency department staffing and managementservices in the United States.

 

**AmericanMedical Response**

 

Over its more than 50years of operating history, AMR has developed the largest network of ambulancetransport services in the United States based on net revenue and number oftransports. For the three months ended March 31, 2008, approximately 57%of AMR’s net revenue was generated from emergency 9-1-1 ambulance transportservices. Non-emergency ambulance transport services, including critical caretransfer, wheelchair transports and other interfacility transports, or IFTs,accounted for 30% of AMR’s net revenue for the same period, with the balancegenerated from fixed wing medical transportation services, Medicaid managedtransportation services, and the provision of training, dispatch and otherservices to communities and public safety agencies.

 

**EmCare**

 

Over its more than 30years of operating history, we believe that EmCare has become the largestprovider of outsourced emergency department staffing and related managementservices to healthcare facilities based on number of contracts with hospitalsand affiliated physician groups.

 

***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 andtransportation for 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 haveno insurance or other 

 

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third party payorcoverage. Due to the uncertainty regarding collectibility of charges associatedwith services we provide to these patients, which we refer to as uncompensatedcare, our net revenue recognition is based on expected cash collections. Ournet revenue is gross billings after provisions for contractual discounts andestimated uncompensated care. Provisions for contractual discounts anduncompensated care have increased historically primarily as a result ofincreases 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 quarters ended March 31, 2008and 2007. In determining the net revenue payor mix, we use cash collections inthe period as an approximation of net revenue recorded.

 
| ** **                             | ** ** | **Percentage of Net** | ** ** | **Percentage of Total** | ** ** |
|----------------------------------------|------------|-----------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **Revenue**           | ** ** | **Volume**              | ** ** |
| ** **                             | ** ** | **Q1 2008**           | ** ** | **Q1 2007**             | ** ** | **Q1 2008** | ** ** | **Q1 2007** | ** ** |
| Medicare                               |       | 24.9                  | %          | 24.4                    | %          | 26.8 | % | 26.7 | % |
| Medicaid                               |       | 4.6                   | %          | 4.7                     | %          | 10.6 | % | 10.7 | % |
| Commercial  insurance and managed care |       | 49.5                  | %          | 49.7                    | %          | 41.7 | % | 41.2 | % |
| Self-pay                               |       | 4.5                   | %          | 4.4                     | %          | 20.9 | % | 21.4 | % |
| Subsidies & fees                   |       | 16.5                  | %          | 16.8                    | %          | — |   | — |   |
| Total                                  |       | 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 90% of AMR’snet revenue for the three months ended March 31, 2008 was transportrevenue derived from the treatment and transportation of patients, includingfixed wing medical transportation services, based on billings to third partypayors, healthcare facilities and patients. The balance of AMR’s net revenue isderived from direct billings to communities and government agencies for theprovision of training, dispatch center and other services.  AMR’s measuresfor net revenue include transports (segregated into ambulance and wheelchairtransports and in certain analyses weighted) 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’s key 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 three months ended March 31, 2008, approximately 99% was derivedfrom our hospital contracts for emergency department staffing, hospitalist andradiology services and other management services. Of this revenue,approximately 78% was generated from billings to third party payors andpatients for patient visits and approximately 22% 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, andnumber of contracts.

 

The change from period toperiod in the number of patient visits under our “same store” contracts isinfluenced by general community conditions as well as hospital-specificelements, many of which 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 adoptedSFAS No. 157 *Fair value measurement* (“SFAS157”) effective January 1, 2008, which among other things, requiresadditional disclosures 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.

 

18

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***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 may reducecertain services, if we determine that we cannot continue to provide suchservices on favorable terms. With respect to expiring contracts we would liketo renew, we may be required to seek renewal through an RFP, and we may not besuccessful in retaining any such contracts, or retaining them on terms that areas favorable as present terms.

 

**Inflation**

 

Certain of our expenses,such as wages and benefits, insurance, fuel and equipment repair andmaintenance costs, are subject to normal inflationary pressures. Although wehave generally been able to offset inflationary cost increases throughincreased operating efficiencies and successful negotiation of fees andsubsidies, we can provide no assurance that we will be able to offset anyfuture inflationary cost increases through similar efficiencies and feechanges.

 

***Critical Accounting Policies***

 

**RevenueRecognition**

 

Management regularlyanalyzes the ultimate collectibility of accounts receivable after certainstages of the collection cycle using a look-back analysis to determine theamount of receivables subsequently collected.  Retroactive adjustmentsrecorded in the first three months of the year, which increased revenue, were0.7% of consolidated net revenue for the three months ended March 31, 2008compared to 2.8% of consolidated net revenue for the three months ended March 31,2007.

 

**Resultsof Operations**

 

**QuarterEnded March 31, 2008 Compared to the Quarter Ended March 31, 2007**

 

The following tablespresent a comparison of financial data from our unaudited consolidatedstatements of operations for the three months ended March 31, 2008 and2007 for EMSC and our two operating segments.

 

**Non-GAAPMeasures**

 

*AdjustedEBITDA. *Adjusted EBITDA is defined as net income beforeequity in earnings (loss) of unconsolidated subsidiary, income tax expense,interest and other income, realized gain on investments, interest expense anddepreciation and amortization.  Adjusted EBITDA is commonly used bymanagement and investors as a measure of leverage capacity, debt service abilityand liquidity. Adjusted EBITDA is not considered a measure of financialperformance under U.S. generally accepted accounting principles, or GAAP, andthe items excluded from Adjusted EBITDA are significant components inunderstanding and assessing our financial performance. Adjusted EBITDA shouldnot be considered in isolation or as an alternative to such GAAP measures asnet income, cash flows provided by or used in operating, investing or financingactivities or other financial statement data presented in our financialstatements as an indicator of financial performance or liquidity. SinceAdjusted EBITDA is not a measure determined in accordance with GAAP and issusceptible to varying calculations, Adjusted EBITDA, as presented, may not becomparable to other similarly titled measures of other companies. The tablesset forth a reconciliation of Adjusted EBITDA to net income and cash flows usedin operating activities.

 

19

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** **

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

**(dollarsin thousands)**

**EMSC**

** **
| ** **                                              | ** ** | **Quarter ended  March 31, 2008** | ** ** | **Quarter ended  March 31, 2007** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                              | ** ** | ** **                                       | ** ** | **% of net  revenue**                  | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                             |       | $                                                | 565,786    |                                             | 100.0      | % | $ | 523,319 |   | 100.0 | % |
| Compensation and  benefits                              |       | 394,351                                          |       | 69.7                                             |       | 354,932 |   | 67.8 |   |
| Operating  expenses                                     |       | 83,223                                           |       | 14.7                                             |       | 79,996 |   | 15.3 |   |
| Insurance  expense                                      |       | 20,963                                           |       | 3.7                                              |       | 20,301 |   | 3.9 |   |
| Selling, general  and administrative expenses           |       | 14,592                                           |       | 2.6                                              |       | 13,305 |   | 2.5 |   |
| Restructuring  charges                                  |       | —                                           |       | —                                           |       | 2,242 |   | 0.4 |   |
| Interest income  from restricted assets                 |       | (1,755                                           | )          | (0.3                                             | )          | (1,715 | ) | (0.3 | ) |
| Adjusted EBITDA                                         |       | 54,412                                           |       | 9.6                                              |       | 54,258 |   | 10.4 |   |
| Depreciation and  amortization expenses                 |       | (17,717                                          | )          | (3.1                                             | )          | (16,779 | ) | (3.2 | ) |
| Interest expense                                        |       | (9,916                                           | )          | (1.8                                             | )          | (11,234 | ) | (2.1 | ) |
| Realized gain on  investments                           |       | 672                                              |       | 0.1                                              |       | 37 |   | 0.0 |   |
| Interest and  other income                              |       | 302                                              |       | 0.1                                              |       | 657 |   | 0.1 |   |
| Income tax  expense                                     |       | (10,684                                          | )          | (1.9                                             | )          | (10,462 | ) | (2.0 | ) |
| Equity in  earnings (loss) of unconsolidated subsidiary |       | (50                                              | )          | 0.0                                              |       | 154 |   | 0.0 |   |
| Net income                                              |       | $                                                | 17,019     |                                             | 3.0        | % | $ | 16,631 |   | 3.2 | % |

 

**UnauditedReconciliation of Adjusted EBITDA to Cash Flows Used in Operating Activities**

**(dollarsin thousands)**

** **
| ** **                                    | ** ** | **Quarter ended March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| Adjusted EBITDA                               |       | $                                          | 54,412     |   | $ | 54,258 |   |
| Interest paid                                 |       | (9,337                                     | )          | (10,745 | ) |
| Change in  accounts receivable                |       | (26,308                                    | )          | (28,151 | ) |
| Change in other  operating assets/liabilities |       | (22,740                                    | )          | (20,882 | ) |
| Equity based  compensation                    |       | 562                                        |       | 400 |   |
| Other                                         |       | 633                                        |       | 1,274 |   |
| Cash flows used  in operating activities      |       | $                                          | (2,778     | ) | $ | (3,846 | ) |

 

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

**(dollarsin thousands)**

 

**AMR**

 
| ** **                                                   | ** ** | **Quarter ended  March 31, 2008** | ** ** | **Quarter ended  March 31, 2007** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                       | ** ** | **% of net  revenue**                  | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                                  |       | $                                                | 326,316    |                                             | 100.0      | % | $ | 308,108 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 203,979                                          |       | 62.5                                             |       | 192,401 |   | 62.4 |   |
| Operating  expenses                                          |       | 74,091                                           |       | 22.7                                             |       | 69,652 |   | 22.6 |   |
| Insurance  expense                                           |       | 11,188                                           |       | 3.4                                              |       | 10,342 |   | 3.4 |   |
| Selling, general  and administrative expenses                |       | 9,342                                            |       | 2.9                                              |       | 9,247 |   | 3.0 |   |
| Restructuring  charges                                       |       | —                                           |       | —                                           |       | 2,242 |   | 0.7 |   |
| Interest income  from restricted assets                      |       | (682                                             | )          | (0.2                                             | )          | (721 | ) | (0.2 | ) |
| Adjusted EBITDA                                              |       | 28,398                                           |       | 8.7                                              |       | 24,945 |   | 8.1 |   |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                             |       |                                             |       |   |   |   |   |
| Adjusted EBITDA                                              |       | 28,398                                           |       | 8.7                                              |       | 24,945 |   | 8.1 |   |
| Depreciation and  amortization expenses                      |       | (14,386                                          | )          | (4.4                                             | )          | (13,750 | ) | (4.5 | ) |
| Interest income  from restricted assets                      |       | (682                                             | )          | (0.2                                             | )          | (721 | ) | (0.2 | ) |
| Income from  operations                                      |       | $                                                | 13,330     |                                             | 4.1        | % | $ | 10,474 |   | 3.4 | % |

 

**EmCare**

 
| ** **                                                   | ** ** | **Quarter ended  March 31, 2008** | ** ** | **Quarter ended  March 31, 2007** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                       | ** ** | **% of net  revenue**                  | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                                  |       | $                                                | 239,470    |                                             | 100.0      | % | $ | 215,211 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 190,372                                          |       | 79.5                                             |       | 162,531 |   | 75.5 |   |
| Operating  expenses                                          |       | 9,132                                            |       | 3.8                                              |       | 10,344 |   | 4.8 |   |
| Insurance  expense                                           |       | 9,775                                            |       | 4.1                                              |       | 9,959 |   | 4.6 |   |
| Selling, general  and administrative expenses                |       | 5,250                                            |       | 2.2                                              |       | 4,058 |   | 1.9 |   |
| Interest income  from restricted assets                      |       | (1,073                                           | )          | (0.4                                             | )          | (994 | ) | (0.5 | ) |
| Adjusted EBITDA                                              |       | 26,014                                           |       | 10.9                                             |       | 29,313 |   | 13.6 |   |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                             |       |                                             |       |   |   |   |   |
| Adjusted EBITDA                                              |       | 26,014                                           |       | 10.9                                             |       | 29,313 |   | 13.6 |   |
| Depreciation and  amortization expenses                      |       | (3,331                                           | )          | (1.4                                             | )          | (3,029 | ) | (1.4 | ) |
| Interest income  from restricted assets                      |       | (1,073                                           | )          | (0.4                                             | )          | (994 | ) | (0.5 | ) |
| Income from  operations                                      |       | $                                                | 21,610     |                                             | 9.0        | % | $ | 25,290 |   | 11.8 | % |

 

***Quarter ended March 31, 2008 compared to the quarterended March 31, 2007***

 

***Consolidated***

 

Our results for the threemonths ended March 31, 2008 reflect an increase in net revenue of $42.5million and an increase in net income of $0.4 million compared to the threemonths ended March 31, 2007.  The increase in net income isattributable primarily to a decrease in interest expense of $1.3 millionpartially offset by increases in depreciation and amortization expense. Basic and diluted earnings per share were $0.41 and $0.40, respectively, forthe three months ended March 31, 2008.  Basic and diluted earningsper share were $0.40 and $0.39, respectively, for the same period in 2007.

 

*Netrevenue. *For the three months ended March 31, 2008,we generated net revenue of $565.8 million compared to net revenue of $523.3million for the three months ended March 31, 2007, representing anincrease of 8.1%.  The increase is attributable primarily to increases inrates and volumes on existing contracts and increased volume from net newcontracts and acquisitions.

 

*AdjustedEBITDA.*AdjustedEBITDA was $54.4 million, or 9.6% of net revenue, for the three months ended March 31,2008 compared to $54.3 million, or 10.4% of net revenue (9.0% excluding the netimpact of increased prior year revenue adjustments at EmCare), for the threemonths ended March 31, 2007.

 

*Depreciationand amortization expense.*Depreciation and amortizationexpense for the three months ended March 31, 2008 

 

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was $17.7 million, or3.1% of net revenue, compared to $16.8 million, or 3.2% of net revenue, for thethree months ended March 31, 2007.

 

*Interestincome from restricted assets.*Interest income fromrestricted assets for the three months ended March 31, 2008 was $1.8million compared to $1.7 million for the same period in 2007.

 

*Interestexpense.*Interest expense for the three months ended March 31,2008 was $9.9 million compared to $11.2 million for the three months ended March 31,2007.  The decrease is attributable primarily to the effectiveness of ourinterest rate swap agreement we entered into, which became effective in thefourth quarter of 2007.  The swap agreementconverts $200.0 million of variable rate debt to fixed rate debt with aneffective rate of 4.3%.

 

*Incometax expense. *Income tax expense increased by $0.2million for the three months ended March 31, 2008 compared to the sameperiod in 2007.  Our effective tax ratefor the three months ended March 31, 2008 was 38.5%, and 38.8% forthe same period in 2007.

 

***AMR***

 

*Netrevenue. *Net revenue for the three months ended March 31,2008 was $326.3 million, an increase of $18.2 million, or 5.9%, from $308.1million for the same period in 2007. The increase in net revenue was dueprimarily to an increase in net revenue per transport of 2.9%, or $9.1 million,and an increase of 3.0%, or $9.1 million, in weighted transport volume. The increase in net revenue per transport is attributable primarily to rateincreases in several markets.  Weightedtransports increased 21,800 from the same quarter last year.  The change was due to an increase in weightedtransports of 41,700 from acquisitions and an increase in transport volume inexisting markets of 1.0% partially offset by a decrease in weighted transportsof 26,800 from the restructuring of certain of our operations and the exit ofother markets.

 

*Compensationand benefits. *Compensation and benefit costs for thethree months ended March 31, 2008 were $204.0 million, or 62.5% of netrevenue, compared to $192.4 million, or 62.4% of net revenue, for the sameperiod last year. Ambulance crew wages per ambulance unit hour increased byapproximately 3.1%, or $3.4 million primarily attributable to annual wage rateincreases.   Ambulance unit hoursincreased period over period by 1.4%, or $1.5 million.  The increase is due to our recentacquisitions and increased transport volume in existing markets partiallyoffset by the restructuring of certain of our operations and exit of othermarkets in 2007.  Non-crew wagesincreased $4.1 million primarily due to additional compensation expenses fromacquisitions of $2.4 million and annual salary increases of 3.4%.  Benefit costs increased by $3.1 million forthe three months ended March 31, 2008 compared to the same period in2007.  The change is attributable tohigher compensation expense and increased health insurance costs.

 

*Operatingexpenses. *Operating expenses for the three months ended March 31,2008 were $74.1 million, or 22.7% of net revenue, compared to $69.7 million, or22.6% of net revenue, for the three months ended March 31, 2007. Operatingexpenses per weighted transport increased 3.3% in the three months ended March 31,2008 compared to the same period in 2007. The change is primarily due to higher aircraft and medical expensesrelated to volume increases and increased fuel costs of $2.3 million.

 

*Insuranceexpense. *Insurance expense for the three months ended March 31,2008 was $11.2 million, or 3.4% of net revenue, compared to $10.3 million, or3.4% of net revenue, for the same period in 2007.  We recorded a reductionof prior year insurance provisions of $1.9 million during the three monthsended March 31, 2008 and $3.2 million during the three months ended March 31,2007.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended March 31, 2008 was $9.3million, or 2.9% of net revenue, compared to $9.2 million, or 3.0% of netrevenue, for the three months ended March 31, 2007.

 

*Restructuringcharges. *Restructuring charges of $2.2 million wererecorded during the three months ended March 31, 2007, related to theclosure of one of our billing offices and the restructuring of our operationsin Los Angeles and Orange Counties in California.

 

*Depreciationand amortization. *Depreciation and amortization expensefor the three months ended March 31, 2008 was $14.4 million, or 4.4% ofnet revenue, compared to $13.8 million, or 4.5% of net revenue, for the same periodin 2007.  The increase is attributable primarilyto amortization expense on additional contract intangible assets recorded onacquisitions since March 31, 2007.

 

***EmCare***

 

*Netrevenue. *Net revenue for the three months ended March 31,2008 was $239.5 million, an increase of $24.3 million, or 11.3% (16.1%excluding revenue adjustments described below), from $215.2 million for thethree months ended March 31, 2007. The increase was due primarily to anincrease in patient visits from net new hospital contracts and net revenueincreases in existing contracts. Following December 31, 2006, we added 23net new contracts which accounted for a net revenue increase of $13.6 millionfor the three months ended March 31, 2008.  Of the 23 net newcontracts added since December 31, 2006, 17 were added in 2007 resultingin an incremental increase in 2008 net revenue of 

 

22

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$9.8 million. During the three months ended March 31, 2008, EmCare added 21 newcontracts and terminated 15 contracts resulting in an increase in net revenueof $3.8 million.  Net revenue under our “same store” contracts (contractsin existence for the entirety of both periods) increased $10.6 million, or5.6%, for the three months ended March 31, 2008.  The change is due to a 0.8% (4.9% excluding increasedrevenue adjustments discussed below) increase in revenue per patient visit as aresult of rate increases from our third-party payors.  Current period samestore patient visits increased 4.9% over same store patient visits in the priorperiod.  Retroactive adjustments, whichincreased revenue for the three months ended March 31, 2008 and 2007, wereapproximately 2% and 6% of EmCare’s net revenue, respectively.

 

*Compensationand benefits. *Compensation and benefits costs for thethree months ended March 31, 2008 were $190.4 million, or 79.5% of netrevenue, compared to $162.5 million, or 75.5% of net revenue (78.3% excludingthe net impact of increased prior year revenue adjustments), for the sameperiod in 2007. Provider compensation and benefits costs increased $13.9million from net new contract additions. Same store provider compensation andbenefits costs were $12.2 million over prior period due to a 5.6% increase inprovider compensation per patient visit attributable primarily to higher netrevenue and patient visits.

 

*Operatingexpenses. *Operating expenses for the three months ended March 31,2008 were $9.1 million, or 3.8% of net revenue, compared to $10.3 million, or4.8% of net revenue, for the same period in 2007.  Operating expensesdecreased primarily due to the reduction in off-hours radiology coverage,reduced state franchise taxes and bank fees of approximately $0.7 million,which under the EMSC support department structure are now included in selling,general and administrative expenses.

 

*Insuranceexpense. *Professional liability insurance expense forthe three months ended March 31, 2008 was $9.8 million, or 4.1% of netrevenue, compared to $10.0 million, or 4.6% of net revenue, for the threemonths ended March 31, 2007.  The decrease is due to a reduction ofprior year insurance provisions of $0.9 million during the three months ended March 31,2008.  A reduction of prior year insurance provisions of $2.0 million wasrecorded during the three months ended March 31, 2007.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended March 31, 2008 was $5.3million, or 2.2% of net revenue, compared to $4.1 million, or 1.9% of netrevenue, for the three months ended March 31, 2007.  The increase isdue primarily to an increase in regional travel expense associated with theincrease in contracts during the period, increased recruiting and relocationcosts and bank fees of approximately $0.7 million, which under the EMSC supportdepartment structure are now included in selling, general and administrativeexpenses.

 

*Depreciationand amortization. *Depreciation and amortization expensefor the three months ended March 31, 2008 was $3.3 million, or 1.4% of netrevenue, compared to $3.0 million, or 1.4% of net revenue, for the three monthsended March 31, 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 March 31, 2008, there were no significant changes in our criticalaccounting policies or estimation procedures.

 

**Liquidity and 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 supplementcash flows provided by our operating activities if we decide to do so forstrategic or operating reasons. Our liquidity needs are primarily to servicelong-term debt and to fund working capital requirements, capital expendituresrelated to the acquisition of vehicles and medical equipment,technology-related assets and insurance-related deposits.

 

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 $29.6 million at March 31,2008. 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.

 

23

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| ** **                       | ** ** | **Quarter ended  March 31, 2008** | ** ** | **Quarter ended  March 31, 2007** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Net cash  provided by (used in): |       |                                             |       |                                             |       |
| Operating  activities            |       | $                                                | (2,778     | )                                                | $          | (3,846 | ) |
| Investing  activities            |       | (12,964                                          | )          | (6,085                                           | )          |
| Financing  activities            |       | 2,983                                            |       | 427                                              |       |
|                                  |            |                                                  |            |                                                  |            |  |  |

 

*Operatingactivities*. Net cash used in operating activities was $2.8million for the three months ended March 31, 2008 compared to $3.8 millionfor the same period last year.  Increases in accounts receivable decreasedoperating cash flows by $26.3 million for the three months ended March 31,2008 compared to $28.2 million for the same period in 2007.  The increase in accounts receivable during2008 is attributable primarily to revenue growth.

 

Weregularly analyze days sales outstanding, or DSO, which is calculated by takingour net revenue for the period divided by the number of days in theperiod.  The result is divided into netaccounts receivable at the end of the period. DSO provides us with a gauge to measure receivables, revenue andcollection activities.  The followingtable outlines our DSO by segment and in total:

 

| ** ** | ** ** | **Q1 2008** | ** ** | **Q4 2007** | ** ** | **Q3 2007** | ** ** | **Q2 2007** | ** ** | **Q1 2007** | ** ** | **Q4 2006** | ** ** |
|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 87               |       | 89               |       | 89               |       | 90               |       | 82               |       | 81               |       |
| EmCare     |       | 79               |       | 79               |       | 81               |       | 78               |       | 69               |       | 70               |       |
| EMSC       |       | 84               |       | 85               |       | 86               |       | 85               |       | 77               |       | 77               |       |

 

Whilereceivables increased, EMSC’s DSO decreased one day in the first quarter 2008,driven by a two day decrease at AMR. The AMR decrease was 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 wasrelated to this conversion.  We expect tocollect the remaining net receivables related to the system conversion by theend of 2008.  

 

AlthoughEmCare receivables continue to be impacted by industry-wide delays in obtainingprovider enrollment numbers for Medicare and Medicaid billings, we have seenimprovement in the amount of time required to obtain provider numbers. Thisresulted in significant decreases in enrollment-delayed amounts over 90 days,although the total amount has only decreased by 6% due to the increase inrecent contract starts. The Company expects to collect these Medicare andMedicaid receivables, which currently represent approximately 7 days ofEmCare's DSO.

 

*Investingactivities*.  Net cash used in investing activities was$13.0 million for the three months ended March 31, 2008 compared to $6.1million for the same period in 2007.   The increase relates primarily tocash used for the acquisition of business of $13.3 million during the threemonths ended March 31, 2008.  Therewere no acquisitions during the same period in 2007.  Net capital expenditure spending was $2.5 millionduring the three months ended March 31, 2008 compared to $8.2 million forthe same period last year and was primarily due to timing differences.

 

*Financingactivities.*For the three months ended March 31, 2008,net cash provided by financing activities was $3.0 million compared to $0.4million for the three months ended March 31, 2007.  Net cash fromfinancing activities for the three months ended March 31, 2008 includes anincrease in bank overdrafts of $4.1 million offset by net debt repayments of $1.2million.  At March 31, 2008 therewere no amounts outstanding 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 March 31, 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 4.3%.  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 March 31, 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 March 31,2008, we had $475.9 million of debt excluding capital leases, of which $23.6million was variable rate debt under our senior secured credit facility and thebalance was fixed rate debt, including $250.0 million aggregate principalamount of our senior subordinated notes. An increase or decrease in interestrates will not materially affect our interest costs.

 

**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’smanagement, including its principal executive officer or officers and principalfinancial officer or officers, or persons performing similar functions, asappropriate to allow timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, our managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management is required to apply its judgment inevaluating the cost-benefit relationship 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 

 

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Exchange Act) areeffective.

 

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

 

There were no changes inour internal control over financial reporting that occurred during our fiscalquarter ended March 31, 2008 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART II. OTHER INFORMATION**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2008**

 

**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, and to our Annual Report on Form 10-Kfiled with the SEC on February 27, 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.

 

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**ITEM 6.EXHIBITS**

 
|   10.2.1 |   | First Amendment to  Employment Agreement, dated as of January 4, 2008, between Don S. Harvey and  Emergency Medical Services Corporation.*                                                                                                                                                              |
|--------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                                                                                    |
| 10.18              |   | Stock Purchase Plan  (incorporated by reference to the Stock Purchase Plan Explanatory Guide and  Prospectus included in the Company’s Registration Statement on Form S-3 filed  with the Securities and Exchange Commission on January 30, 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.* |

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* Filed with this report

 

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**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)                                |   |
|        |       |                                        |
| May 9, 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 |
|        |       |                                        |
| May 9, 2008 |       | By:                                         | /s/ William A. Sanger |
| Date        |       |                                        | William A. Sanger |
|        |       |                                        | Chairman and Chief  Executive Officer |
|             |            |                                             |  |  |

 

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**EXHIBITINDEX**

 
| 10.2.1 |   | First Amendment to  Employment Agreement, dated as of January 4, 2008, between Don S. Harvey and  Emergency Medical Services Corporation.*                                                                                                                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
| 10.18  |   | Stock Purchase Plan  (incorporated by reference to the Stock Purchase Plan Explanatory Guide and  Prospectus included in the Company’s Registration Statement on Form S-3 filed  with the Securities and Exchange Commission on January 30, 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.* |

 

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*                 Filed with this report

 

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