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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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**(Markone)**

 

| **x**  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------|---------------------------------------------------------------------------------------------------------|
|   |                                                                                                    |
|   | **For  the quarterly period ended March 31, 2010**                                                 |
|   |                                                                                                    |
|   | **Or**                                                                                                  |
|   |                                                                                                    |
| **o**  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from               to                **

 

**Commission file numbers:**

**001-32701**

**333-127115**

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**EMERGENCY MEDICAL SERVICES L.P.**

(Exact name of Registrants 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 sincelast report:

**Not applicable**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past90 days.    Yes  x    No  o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes  o    No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

Shares of class Acommon stock outstanding at April 29, 2010 — 30,129,904; shares of class Bcommon stock outstanding at April 29, 2010 — 65,052; LP exchangeableunits outstanding at April 29, 2010 — 13,724,676.

 

 

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**INDEXTO QUARTERLY REPORT**

**ONFORM 10-Q**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2010**

** **
| Part 1.  Financial Information |         | 3                                                                                           |
|-------------------------------------|--------------|---------------------------------------------------------------------------------------------|
|                                |         |                                                                                        |   |
|                                | Item 1.      | Financial  Statements (Unaudited):                                                          |   | 3 |
|                                |         |                                                                                        |   |   |
|                                |         | Consolidated Statements of Operations and  Comprehensive Income                             |   | 3 |
|                                |         |                                                                                        |   |   |
|                                |         | Consolidated  Balance Sheets                                                                |   | 4 |
|                                |         |                                                                                        |   |   |
|                                |         | Consolidated Statements of Cash Flows                                                       |   | 5 |
|                                |         |                                                                                        |   |   |
|                                |         | Notes to Unaudited Consolidated Financial Statements                                        |   | 6 |
|                                |         |                                                                                        |   |   |
|                                | Item 2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 17 |
|                                |         |                                                                                        |   |   |
|                                | Item 3.      | Quantitative  and Qualitative Disclosures About Market Risk                                 |   | 24 |
|                                |         |                                                                                        |   |   |
|                                | Item 4.      | Controls and  Procedures                                                                    |   | 24 |
|                                |         |                                                                                        |   |   |
| Part II.  Other Information    |         | 25                                                                                          |
|                                |         |                                                                                        |   |   |
|                                | Item 1.      | Legal Proceedings                                                                           |   | 25 |
|                                |         |                                                                                        |   |   |
|                                | Item 1A.     | Risk Factors                                                                                |   | 25 |
|                                |         |                                                                                        |   |   |
|                                | Item 6. | Exhibits                                                                                    |   | 26 |
|                                |         |                                                                                        |   |   |
| Signatures                          |         | 27                                                                                          |

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2010**

 

**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,** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                      |
| ** **                                                                      | ** ** | **2010**                           | ** ** | **2009** | ** ** |
| Net  revenue                                                                    |       | $                                  | 679,354    |   | $ | 613,022 |   |
| Compensation  and benefits                                                      |       | 480,317                            |       | 426,534 |   |
| Operating  expenses                                                             |       | 86,529                             |       | 84,672 |   |
| Insurance  expense                                                              |       | 22,070                             |       | 22,504 |   |
| Selling,  general and administrative expenses                                   |       | 16,858                             |       | 15,036 |   |
| Depreciation  and amortization expense                                          |       | 16,180                             |       | 16,768 |   |
| Income  from operations                                                         |       | 57,400                             |       | 47,508 |   |
| Interest  income from restricted assets                                         |       | 855                                |       | 1,266 |   |
| Interest  expense                                                               |       | (8,266                             | )          | (10,190 | ) |
| Realized  gain on investments                                                   |       | 92                                 |       | 639 |   |
| Interest  and other income                                                      |       | 265                                |       | 517 |   |
| Income  before income taxes and equity in earnings of unconsolidated subsidiary |       | 50,346                             |       | 39,740 |   |
| Income  tax expense                                                             |       | (19,410                            | )          | (15,726 | ) |
| Income  before equity in earnings of unconsolidated subsidiary                  |       | 30,936                             |       | 24,014 |   |
| Equity  in earnings of unconsolidated subsidiary                                |       | 94                                 |       | 57 |   |
| Net  income                                                                     |       | 31,030                             |       | 24,071 |   |
| Other  comprehensive income (loss), net of tax:                                 |       |                               |       |   |   |
| Unrealized  holding gains (losses) during the period                            |       | 442                                |       | (1,157 | ) |
| Unrealized  gains on derivative financial instruments                           |       | 478                                |       | 351 |   |
| Comprehensive  income                                                           |       | $                                  | 31,950     |   | $ | 23,265 |   |
|                                                                            |       |                               |       |   |   |
| Basic  earnings per common share                                                |       | $                                  | 0.71       |   | $ | 0.57 |   |
| Diluted  earnings per common share                                              |       | $                                  | 0.70       |   | $ | 0.56 |   |
| Weighted  average common shares outstanding, basic                              |       | 43,571,705                         |       | 41,924,218 |   |
| Weighted  average common shares outstanding, diluted                            |       | 44,534,858                         |       | 43,094,597 |   |

 

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,  2010** | ** ** | **December 31,********2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                    | ** ** | **(Unaudited)**          | ** ** | ** **                        | ** ** |
| **Assets**                                                                                                                                                    |       |                     |       |                              |       |
| Current  assets:                                                                                                                                              |       |                     |       |                              |       |
| Cash  and cash equivalents                                                                                                                                    |       | $                        | 381,055    |                              | $          | 332,888 |   |
| Insurance  collateral                                                                                                                                         |       | 26,127                   |       | 24,986                            |       |
| Trade  and other accounts receivable, net                                                                                                                     |       | 456,897                  |       | 459,088                           |       |
| Parts  and supplies inventory                                                                                                                                 |       | 22,467                   |       | 22,270                            |       |
| Prepaids  and other current assets                                                                                                                            |       | 23,050                   |       | 19,662                            |       |
| Current  deferred tax assets                                                                                                                                  |       | 6,090                    |       | 6,323                             |       |
| Total  current assets                                                                                                                                         |       | 915,686                  |       | 865,217                           |       |
| Non-current  assets:                                                                                                                                          |       |                     |       |                              |       |
| Property,  plant and equipment, net                                                                                                                           |       | 122,556                  |       | 125,855                           |       |
| Intangible  assets, net                                                                                                                                       |       | 128,448                  |       | 102,654                           |       |
| Non-current  deferred tax assets                                                                                                                              |       | 13,508                   |       | 13,468                            |       |
| Insurance  collateral                                                                                                                                         |       | 140,821                  |       | 143,886                           |       |
| Goodwill                                                                                                                                                      |       | 351,979                  |       | 381,951                           |       |
| Other  long-term assets                                                                                                                                       |       | 23,044                   |       | 21,676                            |       |
| Total  assets                                                                                                                                                 |       | $                        | 1,696,042  |                              | $          | 1,654,707 |   |
| **Liabilities and Equity**                                                                                                                                    |       |                     |       |                              |       |
| Current  liabilities:                                                                                                                                         |       |                     |       |                              |       |
| Accounts  payable                                                                                                                                             |       | $                        | 68,417     |                              | $          | 70,759 |   |
| Accrued  liabilities                                                                                                                                          |       | 262,289                  |       | 273,704                           |       |
| Current  portion of long-term debt                                                                                                                            |       | 5,368                    |       | 4,676                             |       |
| Total  current liabilities                                                                                                                                    |       | 336,074                  |       | 349,139                           |       |
| Long-term  debt                                                                                                                                               |       | 448,610                  |       | 449,254                           |       |
| Insurance  reserves and other long-term liabilities                                                                                                           |       | 177,234                  |       | 170,227                           |       |
| Total  liabilities                                                                                                                                            |       | 961,918                  |       | 968,620                           |       |
| 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, 30,126,263 and  29,541,411 issued and outstanding in 2010 and 2009, respectively) |       | 301                      |       | 295                               |       |
| Class B  common stock ($0.01 par value; 40,000,000 shares authorized, 65,052 issued  and outstanding in 2010 and 2009)                                   |       | 1                        |       | 1                                 |       |
| Class B  special voting stock ($0.01 par value; 1 share authorized, issued and  outstanding in 2010 and 2009)                                            |       | —                   |       | —                            |       |
| LP  exchangeable units (13,724,676 shares issued and outstanding in 2010 and  2009)                                                                           |       | 90,776                   |       | 90,776                            |       |
| Additional  paid-in capital                                                                                                                                   |       | 291,397                  |       | 275,316                           |       |
| Retained  earnings                                                                                                                                            |       | 350,072                  |       | 319,042                           |       |
| Accumulated  other comprehensive income                                                                                                                       |       | 1,577                    |       | 657                               |       |
| Total  equity                                                                                                                                                 |       | 734,124                  |       | 686,087                           |       |
| Total  liabilities and equity                                                                                                                                 |       | $                        | 1,696,042  |                              | $          | 1,654,707 |   |

 

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)**

** **
| ** **                                                                         | ** ** | **Quarter ended March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
| **Cash Flows from Operating Activities**                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Net  income                                                                        |       | $                                          | 31,030     |   | $ | 24,071 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                       |       |   |   |
| Depreciation  and amortization                                                     |       | 16,687                                     |       | 17,080 |   |
| Loss  (gain) on disposal of property, plant and equipment                          |       | 44                                         |       | (2 | ) |
| Equity-based  compensation expense                                                 |       | 1,104                                      |       | 650 |   |
| Excess  tax benefits from stock-based compensation                                 |       | (10,581                                    | )          | — |   |
| Equity  in earnings of unconsolidated subsidiary                                   |       | (94                                        | )          | (57 | ) |
| Dividends  received                                                                |       | 403                                        |       | 713 |   |
| Deferred  income taxes                                                             |       | (133                                       | )          | 14,595 |   |
| Changes  in operating assets/liabilities, net of acquisitions:                     |       |                                       |       |   |   |
| Trade  and other accounts receivable                                               |       | 2,191                                      |       | (2,625 | ) |
| Parts  and supplies inventory                                                      |       | (162                                       | )          | (20 | ) |
| Prepaids  and other current assets                                                 |       | (3,388                                     | )          | (7,840 | ) |
| Accounts  payable and accrued liabilities                                          |       | 6,006                                      |       | (8,500 | ) |
| Insurance  accruals                                                                |       | 1,478                                      |       | 3,877 |   |
| Net  cash provided by operating activities                                         |       | 44,585                                     |       | 41,942 |   |
| **Cash Flows from Investing Activities**                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Purchases  of property, plant and equipment                                        |       | (6,516                                     | )          | (7,207 | ) |
| Proceeds  from sale of property, plant and equipment                               |       | 42                                         |       | 21 |   |
| Acquisition  of businesses, net of cash received                                   |       | (3,300                                     | )          | — |   |
| Net  change in insurance collateral                                                |       | 2,366                                      |       | 13,310 |   |
| Other  investing activities                                                        |       | 290                                        |       | (670 | ) |
| Net  cash (used in) provided by investing activities                               |       | (7,118                                     | )          | 5,454 |   |
| **Cash Flows from Financing Activities**                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| EMSC  issuance of class A common stock                                             |       | 4,402                                      |       | 898 |   |
| Repayments  of capital lease obligations and other debt                            |       | (1,184                                     | )          | (1,159 | ) |
| Excess  tax benefits from stock-based compensation                                 |       | 10,581                                     |       | — |   |
| Net  change in bank overdrafts                                                     |       | (3,099                                     | )          | 840 |   |
| Net  cash provided by financing activities                                         |       | 10,700                                     |       | 579 |   |
| Change  in cash and cash equivalents                                               |       | 48,167                                     |       | 47,975 |   |
| Cash  and cash equivalents, beginning of period                                    |       | 332,888                                    |       | 146,173 |   |
| Cash  and cash equivalents, end of period                                          |       | $                                          | 381,055    |   | $ | 194,148 |   |

 

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 Presentation of Financial Statements***

 

The accompanying interimconsolidated financial statements for Emergency Medical Services Corporation (“EMSC”or the “Company”) have been prepared in accordance with U.S. generally acceptedaccounting principles (“GAAP”) for interim reporting and accordingly, do notinclude all of the disclosures required for annual financial statements. In theopinion of management, all adjustments considered necessary for a fairpresentation have been included. All such adjustments are of a normal,recurring nature. Operating results for the three months ended March 31,2010 are not necessarily indicative of the results that may be expected for thefull year ending December 31, 2010. For further information, see theCompany’s consolidated financial statements, including the accounting policiesand notes thereto, included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009.

 

The consolidatedfinancial statements of EMSC include those of its direct subsidiary, EmergencyMedical Services L.P. (“EMS LP”), a Delaware limited partnership. The Company’sbusiness is conducted primarily through two operating subsidiaries, AmericanMedical Response, Inc. (“AMR”), its healthcare transportation servicessegment, and EmCare Holdings Inc. (“EmCare”), its facility-based physicianservices segment.

 

The Company is party to amanagement agreement with a wholly-owned subsidiary of Onex Corporation, theCompany’s principal equityholder. In exchange for an annual management fee of$1.0 million, the Onex subsidiary provides the Company with corporate financeand strategic planning consulting services. For each of the three months ended March 31,2010 and 2009, the Company expensed $250 in respect of this fee.

 

**2.****             ****Summary of Significant AccountingPolicies**

 

***Consolidation***

 

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

 

***Use of Estimates***

 

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

 

***Insurance***

 

Insurance collateral iscomprised principally of government and investment grade securities and cashdeposits with third parties and supports the Company’s insurance program andreserves. Certain of these investments, if sold or otherwise liquidated, wouldhave to be replaced by other suitable financial assurances and are, therefore,considered restricted.

 

Insurance reserves areestablished for automobile, workers compensation, general liability andprofessional liability claims utilizing policies with both fully-insured andself-insured components. This includes the use of an off-shore captive insuranceprogram through a wholly-owned subsidiary for certain professional liability(malpractice) programs for EmCare. In those instances where the Company hasobtained third-party insurance coverage, the Company normally retains liabilityfor the first $1 to $2 million of the loss. Insurance reserves cover knownclaims and incidents within the level of Company retention that may result inthe assertion of additional claims, as well as claims from unknown incidentsthat may be asserted arising from activities through the balance sheet date.

 

The Company establishesreserves for claims based upon an assessment of actual claims and claimsincurred but not reported.  The reserves are established based onquarterly consultation with third-party independent actuaries using actuarialprinciples and assumptions that consider a number of factors, includinghistorical claim payment patterns (including legal costs) and changes in casereserves and the assumed rate of inflation in healthcare costs and propertydamage repairs.

 

The Company’s most recentactuarial valuation was completed in March 2010. As a result of this andprevious actuarial valuations, the Company recorded a decrease in itsprovisions for insurance liabilities of approximately $2.8 million in the threemonths ended March 31, 2010 compared to an increase of $0.7 million duringthe same period in 2009 related to 

 

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reserves for losses inprior years.

 

The long-term portion ofinsurance reserves was $150.2 million and $143.6 million as of March 31,2010 and December 31, 2009, 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’s accounts receivable andallowances are as follows:

 
| ** **                           | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Gross trade accounts  receivable     |       | $                       | 1,973,460  |                       | $          | 1,955,152 |   |
| Allowance for  contractual discounts |       | 1,026,073               |       | 1,001,285                  |       |
| Allowance for  uncompensated care    |       | 569,385                 |       | 572,015                    |       |
| Net trade accounts  receivable       |       | 378,002                 |       | 381,852                    |       |
| Other receivables, net               |       | 78,895                  |       | 77,236                     |       |
| Net accounts receivable              |       | $                       | 456,897    |                       | $          | 459,088 |   |

 

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

 

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

 

Accounts receivableallowances at EmCare are estimated based on cash collection and write-offexperience at a facility level contract and facility specific payor mix.  These allowances are reviewed and adjustedmonthly through revenue provisions.  Inaddition, a look-back analysis is done, typically after 15 months, to compareactual cash collected on a date of service basis to the revenue recorded forthat period.  Any adjustment necessaryfor an overage or deficit in these allowances based on actual collections isrecorded through a revenue adjustment in the current period.

 

***Revenue Recognition***

 

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

 
| ** **                                                                                     | ** ** | **Quarter ended********March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| Gross  revenue                                                                                 |       | 100.0                                        | %          | 100.0 | % |
| Provision  for contractual discounts                                                           |       | 52.1                                         | %          | 47.9 | % |
| Revenue  net of contractual discounts                                                          |       | 47.9                                         | %          | 52.1 | % |
| Provision  for uncompensated care as a percentage of gross revenue                             |       | 18.8                                         | %          | 19.6 | % |
| Provision  for uncompensated care as a percentage of gross revenue less contractual  discounts |       | 39.2                                         | %          | 37.7 | % |

 

Healthcare reimbursementis complex and may involve lengthy delays. Third-party payors are continuingtheir efforts to control expenditures for healthcare, including proposals torevise reimbursement policies. The Company has from time to time experienceddelays in reimbursement from third-party payors. In addition, third-partypayors may disallow, in whole or in part, claims for reimbursement based ondeterminations that certain amounts are not reimbursable under plan coverage,on determinations of medical necessity, or the need for additional information.Laws and regulations governing the Medicare and Medicaid programs are verycomplex and subject to interpretation. Revenue is recognized on an estimatedbasis in the period in which related services are rendered.  As a result, there is a reasonablepossibility that recorded estimates will 

 

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change materially in theshort-term. Such amounts, including adjustments between provisions forcontractual discounts and uncompensated care, are adjusted in future periods,as adjustments become known.  Theseadjustments were less than 1% of net revenue for the three month periods ended March 31,2010 and 2009.

 

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

 

***Equity Structure***

 

On December 21,2005, the Company effected a reorganization and issued 8.1 million sharesof class A common stock in an initial public offering. Pursuant to thereorganization, EMS LP, the former top-tier holding company of AMR and EmCare,became the consolidated subsidiary of EMSC, a newly formed corporation. Toeffect the reorganization, the holders of the capital stock of the sole generalpartner of EMS LP contributed that capital stock to the Company in exchange forclass B common stock; the general partner was merged into the Company and theCompany became the sole general partner of EMS LP. Concurrently, the holders ofclass B units of EMS LP contributed their units to the Company in exchange forshares of the Company’s class A common stock, and the holders of certain classA units of EMS LP contributed their units to the Company in exchange for sharesof the Company’s class B common stock.

 

As of March 31,2010, the Company holds 68.7% of the equity interests in EMS LP. LPexchangeable units, held by persons affiliated with the Company’s principal equityholder, represent the balance of the EMS LP equity. The LP exchangeable unitsare exchangeable 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 the EMS LP partnershipagreement, the Company has agreed to maintain the economic equivalency of theLP exchangeable units and the class B common stock, and the holders of the LPexchangeable units have no general voting rights. The LP exchangeable units,when considered with the class B special voting stock, have the same rights,privileges and characteristics of the Company’s class B common stock. The LPexchangeable units are intended to be economically equivalent to the class Bcommon stock of the Company in that the LP exchangeable units carry the rightto vote (by virtue of the class B special voting stock) with the holders ofclass B common stock as one class, and entitle holders to receive distributionsonly if the equivalent dividends are declared on the Company’s class B commonstock. Accordingly, the Company accounts for the LP exchangeable units as ifthe LP exchangeable units were shares of its common stock, including reportingthe LP exchangeable units in the equity section of the Company’s balance sheetand including the number of outstanding LP exchangeable units in both its basicand diluted earnings per share calculations.

 

***Fair Value Measurement***

 

The Companyclassifies its financial instruments that are reported at fair value based on ahierarchal framework which ranks the level of market price observability usedin measuring financial instruments at fair value. Market price observability isimpacted by a number of factors, including the type of instrument and thecharacteristics specific to the instrument. Instruments with readily availableactive quoted prices or for which fair value can be measured from activelyquoted prices generally will have a higher degree of market price observabilityand a lesser degree of judgment used in measuring fair value.

 

Financialinstruments measured and reported at fair value are classified and disclosed inone of the following categories:

 

Level 1—Quotedprices are available in active markets for identical assets or liabilities asof the reporting date. The Company does not adjust the quoted price for theseassets or liabilities.

 

Level 2—Pricinginputs are other than quoted prices in active markets, which are eitherdirectly or indirectly observable as of the reporting date, and fair value isdetermined through the use of models or other valuation methodologies.

 

Level 3—Pricinginputs are unobservable as of the reporting date and reflect the Company’s ownassumptions about the fair value of the asset or liability.

 

The followingtable summarizes the valuation of EMSC’s financial instruments as of March 31,2010 by the above fair value hierarchy levels:

 

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| **Description** | ** ** | **Total** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------|------------|-----------|------------|-------------|------------|-------------|------------|-------------|------------|
| Assets:         |       |      |       |        |       |        |       |        |       |
| Securities      |       | $         | 83,548     |        | $          | 69,151      |       | $           | 14,397     |   | $ | — |   |
| Derivatives     |       | $         | 520        |        | $          | —      |       | $           | 520        |   | $ | — |   |

 

The Company alsoestimates the fair value of its fixed rate, senior subordinated notes based onquoted market prices.  The estimated fairvalue of the senior subordinated notes at March 31, 2010 was approximately$263 million with a carrying value of $250 million.

 

**3.****                ****Acquisitions**

 

Duringthe three months ended March 31, 2010, the Company made a purchase priceallocation adjustment related to the acquisition of the management servicesentity of Pinnacle Anesthesia Consultants, P.A. and Pinnacle ConsultantsMid-Atlantic, L.L.C. (together, the “Pinnacle Acquisition”) which closed in December 2009.  Based on an independent valuation analysisperformed, $31.1 million was reclassified from goodwill to intangible assets, and,as a result, an adjustment was also made to amortization expense.

 

**4.****                ****Accrued Liabilities**

 

Accrued liabilities wereas follows at March 31, 2010 and December 31, 2009:

 
| ** **                                  | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Accrued  wages and benefits                 |       | $                        | 106,977    |                        | $          | 92,721 |   |
| Accrued  paid time-off                      |       | 26,473                   |       | 24,290                      |       |
| Current  portion of self-insurance reserves |       | 57,717                   |       | 62,832                      |       |
| Accrued  restructuring                      |       | 175                      |       | 181                         |       |
| Current  portion of compliance and legal    |       | 3,432                    |       | 2,814                       |       |
| Accrued  billing and collection fees        |       | 3,674                    |       | 4,093                       |       |
| Accrued  profit sharing                     |       | 14,714                   |       | 34,000                      |       |
| Accrued  interest                           |       | 3,510                    |       | 9,773                       |       |
| Accrued  income taxes payable               |       | 7,402                    |       | 5,454                       |       |
| Other                                       |       | 38,215                   |       | 37,546                      |       |
| Total  accrued liabilities                  |       | $                        | 262,289    |                        | $          | 273,704 |   |

 

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

 

Long-term debt consistedof the following at March 31, 2010 and December 31, 2009:

 
| ** **                                                                      | ** ** | **March 31,********2010** | ** ** | **December 31,********2009** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| Senior  subordinated notes due 2015                                             |       | $                              | 250,000    |                              | $          | 250,000 |   |
| Senior  secured term loan due 2012 (2.23% at March 31, 2010)               |       | 199,240                        |       | 199,765                           |       |
| Notes  due at various dates from 2010 to 2022 with interest rates from 6% to 8% |       | 2,256                          |       | 1,249                             |       |
| Capital  lease obligations due at various dates from 2010 to 2018 (see note 7)  |       | 2,482                          |       | 2,916                             |       |
|                                                                            |       | 453,978                        |       | 453,930                           |       |
| Less  current portion                                                           |       | (5,368                         | )          | (4,676                            | )          |
| Total  long-term debt                                                           |       | $                              | 448,610    |                              | $          | 449,254 |   |

 

**6.****             ****Derivative Instruments and HedgingActivities**

 

The Company manages itsexposure to changes in market interest rates and fuel prices and from time totime uses highly effective derivative instruments to manage well-defined riskexposures.  The Company monitors itspositions and the credit ratings of its counterparties and does not anticipatenon-performance by the counterparties. The Company does not use derivative instruments for speculativepurposes.

 

At March 31,2010, the Company was party to a series of fuel hedge transactions with a majorfinancial institution under one master agreement. Each of the transactionseffectively fixes the cost of diesel fuel at prices ranging from $2.88 to $3.15per gallon. The Company purchases the diesel fuel at the market rate andperiodically settles with its counterparty for the 

 

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difference between thenational average price for the period published by the Department of Energy andthe agreed upon fixed price. The transactions fix the price for a total of4.4 million gallons, which represents approximately 33% of the Company’stotal estimated usage over the hedge period, and are spread over periods from April 2010through June 2011.  As of March 31,2010, the Company recorded, as a component of other comprehensive income beforeapplicable tax impacts, an asset associated with the fair value of the fuelhedge in the amount of $0.5 million, compared to $0.2 million as of December 31,2009. The net additional payments made or received under these hedge agreementsresulted in an increase in operating expenses of less than $0.1 million duringthe three months ended March 31, 2010.

 

**7.****             ****Commitments and Contingencies**

 

***Lease Commitments***

 

The Company leasesvarious facilities and equipment under operating lease agreements.

 

The Company also leasescertain vehicles and leasehold improvements under capital leases.  Assets under capital leases are capitalizedusing inherent interest rates at the inception of each lease. Capital leasesare collateralized by the underlying assets.

 

***ForwardPurchase Commitment***

 

Beginning in March 2009,AMR entered into a series of forward purchase contracts which fix the price fora portion of its total monthly diesel fuel usage from April 1, 2009through June 30, 2010. For the three months ending June 30, 2010, theCompany is under contract to purchase 50,000 gallons of diesel fuel per monthat $2.99 per gallon. These forward purchase contracts represent approximately6% of the Company’s total monthly diesel fuel usage. Based on the terms of thecontracts, the Company has concluded they do not qualify as derivatives. Therewas no material impact to operating expenses related to these contracts duringthe three months ended March 31, 2010.

 

***Services***

 

The Company is subject tothe Medicare and Medicaid fraud and abuse laws which prohibit, among otherthings, any false claims, or any bribe, kickback or rebate in return for thereferral of Medicare and Medicaid patients. Violation of these prohibitions mayresult in civil and criminal penalties and exclusion from participation in theMedicare and Medicaid programs. Management has implemented policies andprocedures that management believes will assure that the Company is insubstantial compliance with these laws and regulations but there can be noassurance the Company will not be found to have violated certain of these lawsand regulations. From time to time, the Company receives requests forinformation 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.

 

***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.

 

In December 2006,AMR received a subpoena from the Department of Justice.  The subpoena requested copies of documents forthe period from January 2000 through the present.  The subpoena required AMR to produce a broadrange of documents relating to the operations of certain AMR affiliates in NewYork.  The Company produced documentsresponsive to the subpoena. The government has identified claims forreimbursement that the government believes lack support for the level billed,and invited the Company to respond to the identified areas of concern. TheCompany reviewed the information provided by the government and provided itsresponse. The Company does not believe the identified claims will result in amaterial adverse effect on the financial condition or results of operations ofEMSC.

 

Four different lawsuitspurporting to be class actions have been filed against AMR and certainsubsidiaries in California alleging violations of California wage and hourlaws.  On April 16, 2008, LoriBartoni commenced a suit in the Superior Court for the State of California,County of Alameda; on July 8, 2008, Vaughn Banta filed suit in the SuperiorCourt of the State of California, County of Los Angeles; on January 22,2009, Laura Karapetian filed suit in the Superior Court of the State of California,County of Los Angeles; and on March 11, 2010, Melanie Aguilar filed suitin Superior Court of the State of California, 

 

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County of Los Angeles. The Banta and Karapetian cases have been coordinated with the Bartonicase in the Superior Court for the State of California, County of Alameda.  At the present time, the courts have notcertified classes in any of these cases. Plaintiffs allege principally that the AMR entities failed to payovertime charges pursuant to California law, and failed to provide requiredmeal breaks or pay premium compensation for missed meal breaks.  Plaintiffs are seeking to certify the classesand are seeking lost wages, punitive damages, attorneys’ fees and othersanctions permitted under California law for violations of wage hour laws.  The Company is unable at this time toestimate the amount of potential damages, if any.

 

The Company is involvedin other litigation arising in the ordinary course of business.  Management believes the outcome of theselegal proceedings will not have a material adverse effect on its financialcondition, results of operations or liquidity.

 

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

 

The Company’s stockoptions are valued using the Black-Scholes valuation method on the date ofgrant.  Equity based compensation hasbeen issued under the plans described below.

 

**EquityOption Plan**

 

Under the Company’sEquity Option Plan, key employees were granted options that permit theindividuals to purchase class A common shares and vest ratably generally over aperiod of four years. In addition, certain performance measures must be met for50% of the options to become exercisable; these performance measures weresatisfied during the first quarter of 2009 with respect to the options grantedin first quarter of 2005, and in the first quarter of 2010 for the balance ofthe options under the Equity Option Plan. As the vesting period for these shares was completed during the firstquarter of 2009, the Company did not record a compensation charge for the threemonths ended March 31, 2010.  Acompensation charge of $97 was recorded for the three months ended March 31,2009.  Options are no longer grantedunder the Equity Option Plan, but rather under the Company’s Amended andRestated 2007 Long-Term Incentive Plan described below.

 

**Long-TermIncentive Plan**

 

The Company’soriginal 2007 Long-Term Incentive Plan was approved by stockholders in May 2007and an Amended and Restated 2007 Long-Term Incentive Plan (the “Plan”) wasapproved by stockholders in May 2008. The Plan provides for the grant of long-term incentives, includingvarious equity-based incentives, to those persons with responsibility for thesuccess and growth of the Company and its subsidiaries.  Options granted under the Plan vest andbecome exercisable ratably over a period of four years from the date of grantand have a maximum term of ten years.  Inaddition, for options granted under the plan prior to January 1, 2009, certainperformance measures were required to be met for 50% of certain of theseoptions to become exercisable; these performance measures were satisfied duringthe first quarter of 2010.

 

The Company grantedoptions under the Plan to key employees during the three months ended March 31,2010.  The options permit employees topurchase an aggregate of 75,000 shares of class A common stock at aweighted average exercise price of $52.06 per share, vest ratably over a periodof 4 years from the date of grant and have a maximum term of ten years.

 

The Company recorded acompensation charge of $979 and $428 during the three months ended March 31,2010 and 2009, respectively, in connection with the Plan.

 

**Non-EmployeeDirector Compensation Plan**

 

The Non-Employee DirectorCompensation Plan, approved in May 2007, is available to non-employeedirectors of the Company, other than the Chair of the ComplianceCommittee.  Under this plan, eligibledirectors are granted Restricted Stock Units (“RSUs”) following each annualstockholder meeting with each RSU representing one share of the Company’s classA common stock.  Eligible directorsreceive a grant of RSUs having a fair market value of $100 on the date of grantbased on the closing price of the Company’s class A common stock on thebusiness day immediately preceding the grant date.  The Non-Employee Director Compensation Planallows directors to defer income from the grant of RSUs, which vest immediatelyprior to the election of directors at the next annual stockholder meeting.  In connection with this plan, the Companygranted 3,018 RSUs per director in 2009. As described above, RSU grants in 2010 pursuant to this plan will bemade following the annual stockholder meeting to be held in the second quarterof 2010.  The Company expensed $125 forthe three months ended March 31, 2010 and 2009.

 

**9.****             ****Segment Information**

 

The Company is organizedaround two separately managed business units: healthcare transportationservices and facility-based physician services, which have been identified asoperating segments. The healthcare transportation services reportable segmentfocuses on providing a full range of medical transportation services from basicpatient transit to the most advanced 

 

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emergency care andpre-hospital assistance. The facility-based physician services reportablesegment provides physician services to hospitals primarily for emergencydepartments and urgent care centers, as well as for hospitalist/inpatient,radiology, teleradiology and anesthesiology services. The Chief ExecutiveOfficer has been identified as the chief operating decision maker (“CODM”) ashe assesses the performance of the business units and decides how to allocateresources to the business units.

 

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

 
| ** **                                          | ** ** | **Quarter  ended March 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                          | ** ** | **2010**                          | ** ** | **2009** | ** ** |
| **Healthcare Transportation Services**              | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Net  revenue                                        |       | $                                 | 336,962    |   | $ | 336,446 |   |
| Segment  Adjusted EBITDA                            |       | 32,402                            |       | 33,888 |   |
| **Facility-Based Physician Services**               | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Net  revenue                                        |       | 342,392                           |       | 276,576 |   |
| Segment  Adjusted EBITDA                            |       | 42,033                            |       | 31,654 |   |
| **Total**                                           | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Total  net revenue                                  |       | 679,354                           |       | 613,022 |   |
| Total  Adjusted EBITDA                              |       | 74,435                            |       | 65,542 |   |
| **Reconciliation of Adjusted EBITDA to Net Income** | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Adjusted  EBITDA                                    |       | $                                 | 74,435     |   | $ | 65,542 |   |
| Depreciation  and amortization expense              |       | (16,180                           | )          | (16,768 | ) |
| Interest  expense                                   |       | (8,266                            | )          | (10,190 | ) |
| Realized  gain on investments                       |       | 92                                |       | 639 |   |
| Interest  and other income                          |       | 265                               |       | 517 |   |
| Income  tax expense                                 |       | (19,410                           | )          | (15,726 | ) |
| Equity  in earnings of unconsolidated subsidiary    |       | 94                                |       | 57 |   |
| Net  income                                         |       | $                                 | 31,030     |   | $ | 24,071 |   |

 

A reconciliation of AdjustedEBITDA to cash flows provided by operating activities is as follows:

 
| ** **                                           | ** ** | **Quarter  ended March 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                           | ** ** | **2010**                          | ** ** | **2009** | ** ** |
| Adjusted EBITDA                                      |       | $                                 | 74,435     |   | $ | 65,542 |   |
| Interest  paid                                       |       | (7,759                            | )          | (9,877 | ) |
| Change in accounts receivable                        |       | 2,191                             | ** ** | (2,625 | ) |
| Change  in other operating assets/liabilities        |       | 3,934                             |       | (12,483 | ) |
| Equity  based compensation                           |       | 1,104                             |       | 650 |   |
| Excess  tax benefits from stock-based compensation   |       | (10,581                           | )          | — |   |
| Income  tax expense, net of change in deferred taxes |       | (19,543                           | )          | (1,131 | ) |
| Other                                                |       | 804                               |       | 1,866 |   |
| Cash  flows provided by operating activities         |       | $                                 | 44,585     |   | $ | 41,942 |   |

 

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

 

EMS LP financed theacquisition of AMR and EmCare in part by issuing $250.0 million principalamount of senior subordinated notes and borrowing $370.2 million under itssenior secured credit facility. Its wholly-owned subsidiaries, AMR HoldCo, Inc.and EmCare HoldCo, Inc., are the issuers of the senior subordinated notesand the borrowers under the senior secured credit facility. As part of thetransaction, AMR and its subsidiaries became wholly-owned subsidiaries of AMRHoldCo, Inc. and EmCare and its subsidiaries became wholly-ownedsubsidiaries of EmCare HoldCo, Inc. The senior subordinated notes and thesenior secured credit facility include a full, unconditional and joint andseveral guarantee by EMSC, EMS LP and EMSC’s domestic subsidiaries. The seniorsubordinated notes and senior secured credit facility do not include aguarantee by the Company’s captive insurance subsidiary. All of the operatingincome and cash flow of EMSC, EMS LP, AMR HoldCo, Inc. and EmCare HoldCo, Inc.is generated by AMR, EmCare and their subsidiaries. As a result, fundsnecessary to meet the debt service obligations under the senior secured notesand senior secured credit facility described 

 

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above are provided by thedistributions or advances from the subsidiary companies, AMR and EmCare.Investments in subsidiary operating companies are accounted for on the equitymethod. Accordingly, entries necessary to consolidate EMSC, EMS LP, AMR HoldCo, Inc.,EmCare HoldCo, Inc. and all of their subsidiaries are reflected in theEliminations/Adjustments column. Separate complete financial statements of theissuers, EMS LP and subsidiary guarantors would not provide additional materialinformation that would be useful in assessing the financial composition of theissuers, EMS LP or the subsidiary guarantors. The condensed consolidatingfinancial statements for EMSC, EMS LP, the issuers, the guarantors and thenon-guarantor are as follows:

 

**ConsolidatingStatement of Operations**

**For the quarter ended March 31, 2010**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS  LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 679,354    |       | $          | 7,238 |   | $ | (7,238 | ) | $ | 679,354 |   |
| Compensation  and benefits                                       |       | —     |       | —      |       | —                |       | —                |       | 480,317        |       | —            |       | —            |       | 480,317    |       |
| Operating  expenses                                              |       | —     |       | —      |       | —                |       | —                |       | 86,529         |       | —            |       | —            |       | 86,529     |       |
| Insurance  expense                                               |       | —     |       | —      |       | —                |       | —                |       | 21,467         |       | 7,841             |       | (7,238            | )          | 22,070     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —      |       | —                |       | —                |       | 16,858         |       | —            |       | —            |       | 16,858     |       |
| Depreciation  and amortization expense                           |       | —     |       | —      |       | —                |       | —                |       | 16,180         |       | —            |       | —            |       | 16,180     |       |
| Income  (loss) from operations                                   |       | —     |       | —      |       | —                |       | —                |       | 58,003         |       | (603              | )          | —            |       | 57,400     |       |
| Interest  income from restricted assets                          |       | —     |       | —      |       | —                |       | —                |       | 344            |       | 511               |       | —            |       | 855        |       |
| Interest  expense                                                |       | —     |       | —      |       | —                |       | —                |       | (8,266         | )          | —            |       | —            |       | (8,266     | )          |
| Realized  gain on investments                                    |       | —     |       | —      |       | —                |       | —                |       | —         |       | 92                |       | —            |       | 92         |       |
| Interest  and other income                                       |       | —     |       | —      |       | —                |       | —                |       | 265            |       | —            |       | —            |       | 265        |       |
| Income  before income taxes                                      |       | —     |       | —      |       | —                |       | —                |       | 50,346         |       | —            |       | —            |       | 50,346     |       |
| Income  tax expense                                              |       | —     |       | —      |       | —                |       | —                |       | (19,410        | )          | —            |       | —            |       | (19,410    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —      |       | —                |       | —                |       | 30,936         |       | —            |       | —            |       | 30,936     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 31,030     |       | 31,030      |       | 10,285                |       | 20,744                |       | 94             |       | —            |       | (93,089           | )          | 94         |       |
| Net  income                                                      |       | $          | 31,030     |        | $          | 31,030                |       | $                     | 10,285     |           | $          | 20,744            |       | $                 | 31,030     |       | $          | — |   | $ | (93,089 | ) | $ | 31,030 |   |

 

**ConsolidatingStatement of Operations**

**Forthe quarter ended March 31, 2009**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS  LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 613,022    |       | $          | 6,883 |   | $ | (6,883 | ) | $ | 613,022 |   |
| Compensation  and benefits                                       |       | —     |       | —      |       | —                |       | —                |       | 426,534        |       | —            |       | —            |       | 426,534    |       |
| Operating  expenses                                              |       | —     |       | —      |       | —                |       | —                |       | 84,672         |       | —            |       | —            |       | 84,672     |       |
| Insurance  expense                                               |       | —     |       | —      |       | —                |       | —                |       | 21,154         |       | 8,233             |       | (6,883            | )          | 22,504     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —      |       | —                |       | —                |       | 15,036         |       | —            |       | —            |       | 15,036     |       |
| Depreciation  and amortization expense                           |       | —     |       | —      |       | —                |       | —                |       | 16,768         |       | —            |       | —            |       | 16,768     |       |
| Income  (loss) from operations                                   |       | —     |       | —      |       | —                |       | —                |       | 48,858         |       | (1,350            | )          | —            |       | 47,508     |       |
| Interest  income from restricted assets                          |       | —     |       | —      |       | —                |       | —                |       | 555            |       | 711               |       | —            |       | 1,266      |       |
| Interest  expense                                                |       | —     |       | —      |       | —                |       | —                |       | (10,190        | )          | —            |       | —            |       | (10,190    | )          |
| Realized  gain on investments                                    |       | —     |       | —      |       | —                |       | —                |       | —         |       | 639               |       | —            |       | 639        |       |
| Interest  and other income                                       |       | —     |       | —      |       | —                |       | —                |       | 517            |       | —            |       | —            |       | 517        |       |
| Income  before income taxes                                      |       | —     |       | —      |       | —                |       | —                |       | 39,740         |       | —            |       | —            |       | 39,740     |       |
| Income  tax expense                                              |       | —     |       | —      |       | —                |       | —                |       | (15,726        | )          | —            |       | —            |       | (15,726    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —      |       | —                |       | —                |       | 24,014         |       | —            |       | —            |       | 24,014     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 24,071     |       | 24,071      |       | 9,344                 |       | 14,728                |       | 57             |       | —            |       | (72,214           | )          | 57         |       |
| Net  income                                                      |       | $          | 24,071     |        | $          | 24,071                |       | $                     | 9,344      |           | $          | 14,728            |       | $                 | 24,071     |       | $          | — |   | $ | (72,214 | ) | $ | 24,071 |   |

 

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**Consolidating Balance Sheet**

**As of March 31, 2010**

 
| ** **                                          | ** ** | ** ** | ** ** | ** **  | ** ** | **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                          |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 365,695    |       | $          | 15,360 |   | $ | — |   | $ | 381,055 |   |
| Insurance  collateral                               |       | —     |       | —      |       | —                |       | —                |       | 10,367         |       | 20,841            |       | (5,081            | )          | 26,127     |       |
| Trade  and other accounts receivable, net           |       | —     |       | —      |       | —                |       | —                |       | 456,256        |       | 641               |       | —            |       | 456,897    |       |
| Parts  and supplies inventory                       |       | —     |       | —      |       | —                |       | —                |       | 22,467         |       | —            |       | —            |       | 22,467     |       |
| Prepaids  and other current assets                  |       | —     |       | —      |       | —                |       | —                |       | 21,156         |       | 1,894             |       | —            |       | 23,050     |       |
| Current  deferred tax assets                        |       | —     |       | —      |       | —                |       | —                |       | 2,256          |       | 3,834             |       | —            |       | 6,090      |       |
| Current  assets                                     |       | —     |       | —      |       | —                |       | —                |       | 878,197        |       | 42,570            |       | (5,081            | )          | 915,686    |       |
| Non-current  assets:                                |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property,  plant, and equipment, net                |       | —     |       | —      |       | —                |       | —                |       | 122,556        |       | —            |       | —            |       | 122,556    |       |
| Intercompany  receivable                            |       | —     |       | —      |       | 264,803               |       | 181,915               |       | —         |       | —            |       | (446,718          | )          | —     |       |
| Intangible  assets, net                             |       | —     |       | —      |       | —                |       | —                |       | 128,448        |       | —            |       | —            |       | 128,448    |       |
| Non-current  deferred tax assets                    |       | —     |       | —      |       | —                |       | —                |       | 19,628         |       | (6,120            | )          | —            |       | 13,508     |       |
| Insurance  collateral                               |       | —     |       | —      |       | —                |       | —                |       | 57,227         |       | 81,039            |       | 2,555             |       | 140,821    |       |
| Goodwill                                            |       | —     |       | —      |       | —                |       | —                |       | 351,521        |       | 458               |       | —            |       | 351,979    |       |
| Other  long-term assets                             |       | —     |       | —      |       | 4,114                 |       | 1,932                 |       | 16,998         |       | —            |       | —            |       | 23,044     |       |
| Investment  and advances in subsidiaries            |       | 734,124    |       | 734,124     |       | 413,281               |       | 320,829               |       | 33,227         |       | —            |       | (2,235,585        | )          | —     |       |
| Assets                                              |       | $          | 734,124    |        | $          | 734,124               |       | $                     | 682,198    |           | $          | 504,676           |       | $                 | 1,607,802  |       | $          | 117,947 |   | $ | (2,684,829 | ) | $ | 1,696,042 |   |
| **Liabilities and Equity**                          |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                               |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts  payable                                   |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 68,325     |       | $          | 92 |   | $ | — |   | $ | 68,417 |   |
| Accrued  liabilities                                |       | —     |       | —      |       | 1,895                 |       | 1,615                 |       | 231,860        |       | 28,170            |       | (1,251            | )          | 262,289    |       |
| Current  portion of long-term debt                  |       | —     |       | —      |       | 1,447                 |       | 650                   |       | 3,271          |       | —            |       | —            |       | 5,368      |       |
| Current  liabilities                                |       | —     |       | —      |       | 3,342                 |       | 2,265                 |       | 303,456        |       | 28,262            |       | (1,251            | )          | 336,074    |       |
| Long-term  debt                                     |       | —     |       | —      |       | 264,529               |       | 182,614               |       | 1,467          |       | —            |       | —            |       | 448,610    |       |
| Insurance  reserves and other long-term liabilities |       | —     |       | —      |       | —                |       | —                |       | 130,875        |       | 47,634            |       | (1,275            | )          | 177,234    |       |
| Intercompany  payable                               |       | —     |       | —      |       | —                |       | —                |       | 437,894        |       | 8,824             |       | (446,718          | )          | —     |       |
| Liabilities                                         |       | —     |       | —      |       | 267,871               |       | 184,879               |       | 873,692        |       | 84,720            |       | (449,244          | )          | 961,918    |       |
| Equity:                                             |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A  common stock                          |       | 301        |       | —      |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 301        |       |
| Class B  common stock                          |       | 1          |       | —      |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                                 |       | 90,776     |       | 382,475     |       | 315,491               |       | 66,984                |       | 382,475        |       | —            |       | (1,147,425        | )          | 90,776     |       |
| Additional  paid-in capital                         |       | 291,397    |       | —      |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 291,397    |       |
| Retained  earnings                                  |       | 350,072    |       | 350,072     |       | 98,544                |       | 251,528               |       | 350,058        |       | 26,522            |       | (1,076,724        | )          | 350,072    |       |
| Comprehensive  income                               |       | 1,577      |       | 1,577       |       | 292                   |       | 1,285                 |       | 1,577          |       | 2,359             |       | (7,090            | )          | 1,577      |       |
| Equity                                              |       | 734,124    |       | 734,124     |       | 414,327               |       | 319,797               |       | 734,110        |       | 33,227            |       | (2,235,585        | )          | 734,124    |       |
| Liabilities  and Equity                             |       | $          | 734,124    |        | $          | 734,124               |       | $                     | 682,198    |           | $          | 504,676           |       | $                 | 1,607,802  |       | $          | 117,947 |   | $ | (2,684,829 | ) | $ | 1,696,042 |   |

 

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Table of Contents

 

**Consolidating Balance Sheet**

**As of December 31, 2009**

 
| ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** | **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                          |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 317,538    |       | $          | 15,350 |   | $ | — |   | $ | 332,888 |   |
| Insurance collateral                               |       | —     |       | —     |       | —                |       | —                |       | 10,792         |       | 19,450            |       | (5,256            | )          | 24,986     |       |
| Trade and other accounts receivable, net           |       | —     |       | —     |       | —                |       | —                |       | 458,558        |       | 530               |       | —            |       | 459,088    |       |
| Parts and supplies inventory                       |       | —     |       | —     |       | —                |       | —                |       | 22,270         |       | —            |       | —            |       | 22,270     |       |
| Prepaids and other current assets                  |       | —     |       | —     |       | —                |       | —                |       | 19,650         |       | 12                |       | —            |       | 19,662     |       |
| Current deferred tax assets                        |       | —     |       | —     |       | —                |       | —                |       | 2,489          |       | 3,834             |       | —            |       | 6,323      |       |
| Current assets                                     |       | —     |       | —     |       | —                |       | —                |       | 831,297        |       | 39,176            |       | (5,256            | )          | 865,217    |       |
| Non-current assets:                                |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property, plant, and equipment, net                |       | —     |       | —     |       | —                |       | —                |       | 125,855        |       | —            |       | —            |       | 125,855    |       |
| Intercompany receivable                            |       | —     |       | —     |       | 268,220               |       | 185,153               |       | —         |       | —            |       | (453,373          | )          | —     |       |
| Intangible assets, net                             |       | —     |       | —     |       | —                |       | —                |       | 102,654        |       | —            |       | —            |       | 102,654    |       |
| Non-current deferred tax assets                    |       | —     |       | —     |       | —                |       | —                |       | 19,588         |       | (6,120            | )          | —            |       | 13,468     |       |
| Insurance collateral                               |       | —     |       | —     |       | —                |       | —                |       | 56,166         |       | 85,165            |       | 2,555             |       | 143,886    |       |
| Goodwill                                           |       | —     |       | —     |       | —                |       | —                |       | 381,493        |       | 458               |       | —            |       | 381,951    |       |
| Other long-term assets                             |       | —     |       | —     |       | 4,281                 |       | 1,898                 |       | 15,497         |       | —            |       | —            |       | 21,676     |       |
| Investment and advances in subsidiaries            |       | 686,087    |       | 686,087    |       | 394,715               |       | 291,358               |       | 34,343         |       | —            |       | (2,092,590        | )          | —     |       |
| Assets                                             |       | $          | 686,087    |       | $          | 686,087               |       | $                     | 667,216    |           | $          | 478,409           |       | $                 | 1,566,893  |       | $          | 118,679 |   | $ | (2,548,664 | ) | $ | 1,654,707 |   |
| **Liabilities and Equity**                         |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current liabilities:                               |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts payable                                   |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 70,696     |       | $          | 63 |   | $ | — |   | $ | 70,759 |   |
| Accrued liabilities                                |       | —     |       | —     |       | 5,117                 |       | 4,656                 |       | 231,855        |       | 32,077            |       | (1                | )          | 273,704    |       |
| Current portion of long-term debt                  |       | —     |       | —     |       | 1,447                 |       | 650                   |       | 2,579          |       | —            |       | —            |       | 4,676      |       |
| Current liabilities                                |       | —     |       | —     |       | 6,564                 |       | 5,306                 |       | 305,130        |       | 32,140            |       | (1                | )          | 349,139    |       |
| Long-term debt                                     |       | —     |       | —     |       | 264,891               |       | 182,777               |       | 1,586          |       | —            |       | —            |       | 449,254    |       |
| Insurance reserves and other long-term liabilities |       | —     |       | —     |       | —                |       | —                |       | 129,555        |       | 43,372            |       | (2,700            | )          | 170,227    |       |
| Intercompany payable                               |       | —     |       | —     |       | —                |       | —                |       | 444,549        |       | 8,824             |       | (453,373          | )          | —     |       |
| Liabilities                                        |       | —     |       | —     |       | 271,455               |       | 188,083               |       | 880,820        |       | 84,336            |       | (456,074          | )          | 968,620    |       |
| Equity:                                            |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A common stock                          |       | 295        |       | —     |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 295        |       |
| Class B common stock                          |       | 1          |       | —     |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership equity                                 |       | 90,776     |       | 366,388    |       | 307,447               |       | 58,941                |       | 366,388        |       | —            |       | (1,099,164        | )          | 90,776     |       |
| Additional paid-in capital                         |       | 275,316    |       | —     |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 275,316    |       |
| Retained earnings                                  |       | 319,042    |       | 319,042    |       | 88,261                |       | 230,781               |       | 319,028        |       | 28,080            |       | (985,192          | )          | 319,042    |       |
| Comprehensive income                               |       | 657        |       | 657        |       | 53                    |       | 604                   |       | 657            |       | 1,917             |       | (3,888            | )          | 657        |       |
| Equity                                             |       | 686,087    |       | 686,087    |       | 395,761               |       | 290,326               |       | 686,073        |       | 34,343            |       | (2,092,590        | )          | 686,087    |       |
| Liabilities and Equity                             |       | $          | 686,087    |       | $          | 686,087               |       | $                     | 667,216    |           | $          | 478,409           |       | $                 | 1,566,893  |       | $          | 118,679 |   | $ | (2,548,664 | ) | $ | 1,654,707 |   |

 

**Condensed Consolidating Statement of Cash Flows**

**For the three months ended March 31, 2010**

 
|                                                    |   | ** ** | ** ** | ** ** | ** ** | **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    |   | $          | —     |       | $          | —          |       | $               | —     |           | $          | —             |       | $          | 47,576     |   | $ | (2,991 | ) | $ | 44,585 |   |
| **Cash Flows from Investing  Activities**               |   |       |       |       |       |            |       |            |       |           |       |               |       |       |       |
| Purchase of property, plant and equipment               |   | —     |       | —     |       | —          |       | —          |       | (6,516         | )          | —             |       | (6,516     | )          |
| Proceeds from sale of property, plant and  equipment    |   | —     |       | —     |       | —          |       | —          |       | 42             |       | —             |       | 42         |       |
| Acquisition of businesses, net of cash received         |   | —     |       | —     |       | —          |       | —          |       | (3,300         | )          | —             |       | (3,300     | )          |
| Net change in insurance collateral                      |   | —     |       | —     |       | —          |       | —          |       | (635           | )          | 3,001              |       | 2,366      |       |
| Net change in deposits and other assets                 |   | —     |       | —     |       | —          |       | —          |       | 290            |       | —             |       | 290        |       |
| Net cash (used in) provided by investing  activities    |   | —     |       | —     |       | —          |       | —          |       | (10,119        | )          | 3,001              |       | (7,118     | )          |
| **Cash Flows from Financing  Activities**               |   |       |       |       |       |            |       |            |       |           |       |               |       |       |       |
| EMSC issuance of class A common stock                   |   | 4,402      |       | —     |       | —          |       | —          |       | —         |       | —             |       | 4,402      |       |
| Repayments of capital lease obligations and other  debt |   | —     |       | —     |       | —          |       | —          |       | (1,184         | )          | —             |       | (1,184     | )          |
| Excess tax benefits from share-based compensation       |   | —     |       | —     |       | —          |       | —          |       | 10,581         |       | —             |       | 10,581     |       |
| Increase in bank overdrafts                             |   | —     |       | —     |       | —          |       | —          |       | (3,099         | )          | —             |       | (3,099     | )          |
| Net intercompany borrowings (payments)                  |   | (4,402     | )          | —     |       | —          |       | —          |       | 4,402          |       | —             |       | —     |       |
| Net cash provided by financing activities               |   | —     |       | —     |       | —          |       | —          |       | 10,700         |       | —             |       | 10,700     |       |
| Change in cash and cash equivalents                     |   | —     |       | —     |       | —          |       | —          |       | 48,157         |       | 10                 |       | 48,167     |       |
| Cash and cash equivalents, beginning of period          |   | —     |       | —     |       | —          |       | —          |       | 317,538        |       | 15,350             |       | 332,888    |       |
| Cash and cash equivalents, end of period                |   | $          | —     |       | $          | —          |       | $               | —     |           | $          | —             |       | $          | 365,695    |   | $ | 15,360 |   | $ | 381,055 |   |

 

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**Condensed Consolidating Statement of Cash Flows**

**For the three months ended March 31, 2009**

 
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **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     |       | $          | —     |       | $          | —          |       | $               | —     |           | $          | —             |       | $          | 42,976     |   | $ | (1,034 | ) | $ | 41,942 |   |
| **Cash Flows from Investing Activities**                |       |       |       |       |       |            |       |            |       |           |       |               |       |       |       |
| Purchase of property, plant and equipment               |       | —     |       | —     |       | —          |       | —          |       | (7,207         | )          | —             |       | (7,207     | )          |
| Proceeds from sale of property, plant and equipment     |       | —     |       | —     |       | —          |       | —          |       | 21             |       | —             |       | 21         |       |
| Net change in insurance collateral                      |       | —     |       | —     |       | —          |       | —          |       | 1,365          |       | 11,945             |       | 13,310     |       |
| Net change in deposits and other assets                 |       | —     |       | —     |       | —          |       | —          |       | (670           | )          | —             |       | (670       | )          |
| Net cash provided by (used in) investing activities     |       | —     |       | —     |       | —          |       | —          |       | (6,491         | )          | 11,945             |       | 5,454      |       |
| **Cash Flows from Financing  Activities**               |       |       |       |       |       |            |       |            |       |           |       |               |       |       |       |
| EMSC issuance of class A common stock                   |       | 898        |       | —     |       | —          |       | —          |       | —         |       | —             |       | 898        |       |
| Repayments of capital lease obligations and other  debt |       | —     |       | —     |       | —          |       | —          |       | (1,159         | )          | —             |       | (1,159     | )          |
| Net change in bank overdrafts                           |       | —     |       | —     |       | —          |       | —          |       | 840            |       | —             |       | 840        |       |
| Net intercompany borrowings (payments)                  |       | (898       | )          | —     |       | —          |       | —          |       | 898            |       | —             |       | —     |       |
| Net cash provided by financing activities               |       | —     |       | —     |       | —          |       | —          |       | 579            |       | —             |       | 579        |       |
| Change in cash and cash equivalents                     |       | —     |       | —     |       | —          |       | —          |       | 37,064         |       | 10,911             |       | 47,975     |       |
| Cash and cash equivalents, beginning of period          |       | —     |       | —     |       | —          |       | —          |       | 140,452        |       | 5,721              |       | 146,173    |       |
| Cash and cash equivalents, end of period                |       | $          | —     |       | $          | —          |       | $               | —     |           | $          | —             |       | $          | 177,516    |   | $ | 16,632 |   | $ | 194,148 |   |

 

**11.****        ****Subsequent Events**

 

The Company’s managementhas evaluated events subsequent to March 31, 2010 through the issue dateof this report to identify any necessary changes to the consolidated financialstatements or related disclosures.  Belowis a description of events for which disclosure was deemed necessary.

 

On April 8, 2010,the Company completed the financing of new senior secured credit facilitiesconsisting of a $425 million term loan and a $150 million revolving creditfacility.  The term loan bears interestat LIBOR, plus a margin of 3.00%, and requires quarterly principal repaymentsuntil maturity in 2015.  The revolving facility bears interest at LIBOR,plus a margin of 3.00%, and is repayable at maturity in 2015. The seniorsecured credit facilities can be expanded and the interest rate margins steppeddown to 2.75% upon achieving certain leverage ratios.  Substantially allof EMS LP’s assets are pledged as collateral under the new senior securedcredit facilities.

 

On April 28, 2010, theCompany entered into an agreement for the acquisition of V.I.P. ProfessionalServices, Inc., the parent of Gold Coast Ambulance Service, which providesemergency and non-emergency ambulance services in southwest Ventura County,California. Also on April 28, 2010, an affiliate of the Company entered into anagreement for the acquisition of professional corporations which provide anesthesiologyservices and are related to Clinical Partners Management Company, an existingsubsidiary of the Company. These transactions are subject to customary closingconditions.

 

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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 EMSC’s mostrecent Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q.Among the factors that could cause future results to differ materially fromthose provided in this Quarterly Report on Form 10-Q are: the impact onour revenue of changes in transport volume, mix of insured and uninsuredpatients, and third party reimbursement rates and methods; the adequacy of ourinsurance coverage and insurance reserves; potential penalties or changes toour 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 itssubsidiaries, including Emergency Medical Services L.P., or EMS LP. Ourbusiness is conducted primarily through two operating subsidiaries, AmericanMedical Response, Inc., or AMR, and EmCare Holdings Inc., or EmCare.

 

This Report should beread in conjunction with the Company’s consolidated financial statements andnotes thereto included in our Annual Report on Form 10-K filed with theSEC on February 19, 2010.

 

***Company Overview***

 

We are a leading providerof emergency medical services and facility-based physician services in theUnited States. We operate our business and market our services under the AMRand EmCare brands.  AMR, over its morethan 50 years of operating history, is a leading provider of ground andfixed-wing ambulance services in the United States based on net revenue andnumber of transports.  EmCare, over itsmore than 35 years of operating history, is a leading provider of physicianservices in the United States based on number of contracts with hospitals andaffiliated physician groups.  ThroughEmCare, we provide facility-based physician services for emergency departmentsand hospitalist/inpatient, anesthesiology, radiology, and teleradiologyprograms.

 

***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 contractual discounts.In addition, individuals we treat and transport may be personally responsiblefor a deductible or co-pay under their third party payor coverage, and most ofour contracts require us to treat and transport patients who have no insuranceor other third party payor coverage. Due to the uncertainty regardingcollectability of charges associated with services we provide to thesepatients, which we refer to as uncompensated care, our net revenue recognitionis based on expected cash collections. Our net revenue represents grossbillings after provisions for contractual discounts and estimated uncompensatedcare. Provisions for contractual discounts and uncompensated care haveincreased historically primarily as a result of increases in gross billingrates without corresponding increases in payor reimbursement.

 

The table belowsummarizes our approximate payor mix as a percentage of both net revenue andtotal transports and patient encounters for the quarters ended March 31,2010 and 2009.  In determining the netrevenue payor mix, we use cash collections in the period as an approximation ofnet revenue recorded.

 

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| ** **                             | ** ** | **Percentage  of Net Revenue** | ** ** | **Percentage  of Total Volume** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | **Q1  2010**                   | ** ** | **Q1  2009**                    | ** ** | **Q1  2010** | ** ** | **Q1  2009** | ** ** |
| Medicare                               |       | 22.1                           | %          | 23.8                            | %          | 25.0 | % | 25.9 | % |
| Medicaid                               |       | 5.0                            | %          | 4.5                             | %          | 12.2 | % | 10.8 | % |
| Commercial insurance and  managed care |       | 49.6                           | %          | 49.8                            | %          | 42.8 | % | 42.2 | % |
| Self-pay                               |       | 4.2                            | %          | 4.1                             | %          | 20.0 | % | 21.1 | % |
| Fees and subsidies                     |       | 19.1                           | %          | 17.8                            | %          | — |   | — |   |
| 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 88% of AMR’snet revenue for the three months ended March 31, 2010 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 that we weight in certain analyses) and net revenue pertransport.

 

The change from period toperiod in the number of transports is influenced by changes 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 and marketsAMR has exited.

 

The costs we incur in ourAMR business segment consist primarily of compensation and benefits forambulance crews and support personnel, direct and indirect operating costs toprovide transportation services, and costs related to accident and insuranceclaims. AMR’s key cost measures include unit hours and cost per unit hour (tomeasure compensation-related costs and the efficiency of our ambulancedeployment), 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.

 

Our AMR business segmentrequires various investments in long-term assets and depreciation expenserelates primarily to charges for usage of these assets, including vehicles,computer hardware and software, equipment, and other technologies.  Amortization expense relates primarily tointangibles recorded for customer relationships.

 

**EmCare**

 

Of EmCare’s net revenuefor the three months ended March 31, 2010, approximately 81% was derivedfrom our hospital contracts for emergency department staffing and approximately19% was derived from hospitalist, anesthesiology, radiology, teleradiology andother hospital management services. Approximately 77% of EmCare’s net revenuewas generated from billings to third party payors and patients for patientencounters and approximately 23% was generated from billings to hospitals andaffiliated physician groups for professional services. EmCare’s key net revenuemeasures are patient encounters (segregated into emergency department visits,radiology reads, and anesthesiology and hospitalist encounters and that we weightin certain analyses), net revenue per patient encounter, and number ofcontracts.

 

The change from period toperiod in the number of patient encounters 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 encounter 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.

 

Our EmCare businesssegment is less capital intensive than AMR, and EmCare’s depreciation expenserelates primarily to 

 

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charges for usage ofcomputer hardware and software, and other technologies. Amortization expenserelates primarily to intangibles recorded for customer relationships.

 

***Factors Affecting Operating Results***

 

**Changesin Net New Contracts**

 

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

 

**Inflation**

 

Certain of our expenses,such as wages and benefits, insurance, fuel and equipment repair andmaintenance costs, are subject to normal inflationary pressures. Fuel expenserepresented 9.6% and 8.0% of AMR’s operating expenses for the three monthsended March 31, 2010 and 2009, respectively.  Although we have generally been able tooffset inflationary cost increases through increased operating efficiencies andsuccessful negotiation of fees and subsidies, we can provide no assurance thatwe will be able to offset any future inflationary cost increases throughsimilar efficiencies and fee changes.

 

***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. Adjustments related to this analysis were less than 1% of net revenuefor the three month periods ended March 31, 2010 and 2009.

 

**Resultsof Operations**

 

**QuarterEnded March 31, 2010 Compared to the Quarter Ended March 31, 2009**

 

The following tablespresent a comparison of financial data from our unaudited consolidatedstatements of operations for the three months ended March 31, 2010 and2009 for EMSC and our two operating segments.

 

**Non-GAAPMeasures**

 

*AdjustedEBITDA. *AdjustedEBITDA is defined as net income before equity in earnings of unconsolidatedsubsidiary, income tax expense, interest and other income, realized gain oninvestments, interest expense and depreciation and amortization.  AdjustedEBITDA is commonly used by management and investors as a performance measureand liquidity indicator. Adjusted EBITDA is not considered a measure offinancial performance under U.S. generally accepted accounting principles, orGAAP, and the 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 be comparableto other similarly titled measures of other companies. The tables set forth areconciliation of Adjusted EBITDA to net income and cash flows provided byoperating activities.

 

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

**(dollarsin thousands)**

**EMSC**

** **
| ** **                                      | ** ** | **Quarter ended********March 31, 2010** | ** ** | **Quarter ended********March 31, 2009** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                      | ** ** | ** **                                        | ** ** | **% of net**                            | ** ** | ** ** | ** ** | **% of net** | ** ** |
| ** **                                      | ** ** | ** **                                        | ** ** | **revenue**                                       | ** ** | ** ** | ** ** | **revenue** | ** ** |
| Net revenue                                     |       | $                                                 | 679,354    |                                              | 100.0      | % | $ | 613,022 |   | 100.0 | % |
| Compensation and benefits                       |       | 480,317                                           |       | 70.7                                              |       | 426,534 |   | 69.6 |   |
| Operating expenses                              |       | 86,529                                            |       | 12.7                                              |       | 84,672 |   | 13.8 |   |
| Insurance expense                               |       | 22,070                                            |       | 3.2                                               |       | 22,504 |   | 3.7 |   |
| Selling, general and administrative expenses    |       | 16,858                                            |       | 2.5                                               |       | 15,036 |   | 2.5 |   |
| Interest income from restricted assets          |       | (855                                              | )          | (0.1                                              | )          | (1,266 | ) | (0.2 | ) |
| Adjusted EBITDA                                 |       | 74,435                                            |       | 11.0                                              |       | 65,542 |   | 10.7 |   |
| Depreciation and amortization expenses          |       | (16,180                                           | )          | (2.4                                              | )          | (16,768 | ) | (2.7 | ) |
| Interest expense                                |       | (8,266                                            | )          | (1.2                                              | )          | (10,190 | ) | (1.7 | ) |
| Realized gain on investments                    |       | 92                                                |       | 0.0                                               |       | 639 |   | 0.1 |   |
| Interest and other income                       |       | 265                                               |       | 0.0                                               |       | 517 |   | 0.1 |   |
| Income tax expense                              |       | (19,410                                           | )          | (2.9                                              | )          | (15,726 | ) | (2.6 | ) |
| Equity in earnings of unconsolidated subsidiary |       | 94                                                |       | 0.0                                               |       | 57 |   | 0.0 |   |
| Net income                                      |       | $                                                 | 31,030     |                                              | 4.6        | % | $ | 24,071 |   | 3.9 | % |

 

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

**(dollarsin thousands)**

 
| ** **                                           | ** ** | **Quarter  ended March 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                           | ** ** | **2010**                          | ** ** | **2009** | ** ** |
| Adjusted EBITDA                                      |       | $                                 | 74,435     |   | $ | 65,542 |   |
| Interest  paid                                       |       | (7,759                            | )          | (9,877 | ) |
| Change in accounts receivable                        |       | 2,191                             |       | (2,625 | ) |
| Change  in other operating assets/liabilities        |       | 3,934                             |       | (12,483 | ) |
| Equity  based compensation                           |       | 1,104                             |       | 650 |   |
| Excess  tax benefits from stock-based compensation   |       | (10,581                           | )          | — |   |
| Income  tax expense, net of change in deferred taxes |       | (19,543                           | )          | (1,131 | ) |
| Other                                                |       | 804                               |       | 1,866 |   |
| Cash  flows provided by operating activities         |       | $                                 | 44,585     |   | $ | 41,942 |   |

 

 **Unaudited Segment Results of Operations and as aPercentage of Net Revenue**

**(dollarsin thousands)**

**AMR**

 
| ** **                                                   | ** ** | **Quarter ended********March 31, 2010** | ** ** | **Quarter ended********March 31, 2009** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                        | ** ** | **% of net**                            | ** ** | ** ** | ** ** | **% of net** | ** ** |
| ** **                                                   | ** ** | ** **                                        | ** ** | **Revenue**                                       | ** ** | ** ** | ** ** | **revenue** | ** ** |
| Net revenue                                                  |       | $                                                 | 336,962    |                                              | 100.0      | % | $ | 336,446 |   | 100.0 | % |
| Compensation and benefits                                    |       | 208,351                                           |       | 61.8                                              |       | 208,274 |   | 61.9 |   |
| Operating expenses                                           |       | 75,639                                            |       | 22.4                                              |       | 74,535 |   | 22.2 |   |
| Insurance expense                                            |       | 11,185                                            |       | 3.3                                               |       | 11,088 |   | 3.3 |   |
| Selling, general and administrative expenses                 |       | 9,729                                             |       | 2.9                                               |       | 9,216 |   | 2.7 |   |
| Interest income from restricted assets                       |       | (344                                              | )          | (0.1                                              | )          | (555 | ) | (0.2 | ) |
| Adjusted EBITDA                                              |       | 32,402                                            |       | 9.6                                               |       | 33,888 |   | 10.1 |   |
| Reconciliation of Adjusted EBITDA to income from  operations |       |                                              |       |                                              |       |   |   |   |   |
| Adjusted EBITDA                                              |       | 32,402                                            |       | 9.6                                               |       | 33,888 |   | 10.1 |   |
| Depreciation and amortization expenses                       |       | (11,234                                           | )          | (3.3                                              | )          | (12,706 | ) | (3.8 | ) |
| Interest income from restricted assets                       |       | (344                                              | )          | (0.1                                              | )          | (555 | ) | (0.2 | ) |
| Income from operations                                       |       | $                                                 | 20,824     |                                              | 6.2        | % | $ | 20,627 |   | 6.1 | % |

 

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**EmCare**

 
| ** **                                                  | ** ** | **Quarter ended  March 31, 2010** | ** ** | **Quarter ended********March 31, 2009** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                                  | ** ** | **% of net**                            | ** ** | ** ** | ** ** | **% of net** | ** ** |
| ** **                                                  | ** ** | ** **                                  | ** ** | **revenue**                                       | ** ** | ** ** | ** ** | **revenue** | ** ** |
| Net revenue                                                 |       | $                                           | 342,392    |                                              | 100.0      | % | $ | 276,576 |   | 100.0 | % |
| Compensation and benefits                                   |       | 271,966                                     |       | 79.4                                              |       | 218,260 |   | 78.9 |   |
| Operating expenses                                          |       | 10,890                                      |       | 3.2                                               |       | 10,137 |   | 3.7 |   |
| Insurance expense                                           |       | 10,885                                      |       | 3.2                                               |       | 11,416 |   | 4.1 |   |
| Selling, general and administrative expenses                |       | 7,129                                       |       | 2.1                                               |       | 5,820 |   | 2.1 |   |
| Interest income from restricted assets                      |       | (511                                        | )          | (0.1                                              | )          | (711 | ) | (0.3 | ) |
| Adjusted EBITDA                                             |       | 42,033                                      |       | 12.3                                              |       | 31,654 |   | 11.4 |   |
| Reconciliation of Adjusted EBITDA to income from operations |       |                                        |       |                                              |       |   |   |   |   |
| Adjusted EBITDA                                             |       | 42,033                                      |       | 12.3                                              |       | 31,654 |   | 11.4 |   |
| Depreciation and amortization expenses                      |       | (4,946                                      | )          | (1.4                                              | )          | (4,062 | ) | (1.5 | ) |
| Interest income from restricted assets                      |       | (511                                        | )          | (0.1                                              | )          | (711 | ) | (0.3 | ) |
| Income from operations                                      |       | $                                           | 36,576     |                                              | 10.7       | % | $ | 26,881 |   | 9.7 | % |

 

***Quarter ended March 31, 2010 compared to the quarterended March 31, 2009***

 

***Consolidated***

 

Our results for the threemonths ended March 31, 2010 reflect an increase in net revenue of $66.3million and an increase in net income of $7.0 million compared to the threemonths ended March 31, 2009.  The increase in net income wasattributable primarily to an increase in Adjusted EBITDA of $8.9 million and adecrease in interest expense of $1.9 million, partially offset by an increasein income tax expense of $3.7 million.  Basic and diluted earnings pershare were $0.71 and $0.70, respectively, for the three months ended March 31,2010.  Basic and diluted earnings per share were $0.57 and $0.56,respectively, for the three months ended March 31, 2009.

 

*Netrevenue. *Forthe three months ended March 31, 2010, we generated net revenue of $679.4million compared to net revenue of $613.0 million for the three months ended March 31,2009, representing an increase of 10.8%.  The increase was attributableprimarily to increases in rates and volumes on existing contracts combined withincreased volume from net new contracts and acquisitions.

 

*AdjustedEBITDA.*Adjusted EBITDA was $74.4 million, or 11.0% of netrevenue, for the three months ended March 31, 2010 compared to $65.5million, or 10.7% of net revenue for the three months ended March 31,2009.

 

*Interestexpense.*Interestexpense for the three months ended March 31, 2010 was $8.3 millioncompared to $10.2 million for the three months ended March 31, 2009. The decrease was due to reduced interest rates on our variable rate debt causedby the expiration of our interest rate swap agreement in December 2009. Theagreement converted $200 million of our variable rate debt to fixed rate debt.

*Incometax expense. *Incometax expense increased by $3.7 million for the three months ended March 31,2010 compared to the same period in 2009. Our effective tax rate for the three months ended March 31, 2010was 38.6% and was 39.5% for the same period in 2009.

 

***AMR***

 

*Netrevenue. *Netrevenue for the three months ended March 31, 2010 was $337.0 million, anincrease of $0.5 million, or 0.2%, from $336.4 million for the same period in2009. The increase in net revenue was due primarily to an increase in netrevenue per weighted transport of 2.6%, or $8.7 million, partially offset by adecrease of 2.4%, or $8.2 million, in weighted transport volume.  Netrevenue per transport increased 1.9% from rate increases and 0.7% from growthin our managed transportation business. Weighted transports decreased 17,800from the same quarter last year.  Thechange was due to a decrease in weighted transport volume in existing marketsof 2.1% resulting from a mild flu season in the first quarter of 2010 and adecrease of 6,300 weighted transports from the exit of certain markets,partially offset by 4,000 weighted transports from our entry into new markets.

 

*Compensationand benefits. *Compensationand benefit costs for the three months ended March 31, 2010 were $208.4million, or 61.8% of net revenue, compared to $208.3 million, or 61.9% of netrevenue, for the same period last year. Ambulance crew wages per ambulance unithour increased by approximately 4.5%, or $5.0 million attributable primarily toannual wage rate increases.  Ambulanceunit hours decreased period over period by 3.7%, or $4.3 million, due primarilyto the reduction in volume in existing markets and increased efficiency in ourambulance unit hour deployment.

 

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*Operatingexpenses. *Operatingexpenses for the three months ended March 31, 2010 were $75.6 million, or22.4% of net revenue, compared to $74.5 million, or 22.2% of net revenue, forthe three months ended March 31, 2009. The change was due primarily to an increase in fuel costs of $1.3million.

 

*Insuranceexpense. *Insuranceexpense for the three months ended March 31, 2010 was $11.2 million, or3.3% of net revenue, compared to $11.1 million, or 3.3% of net revenue, for thesame period in 2009.  We recorded a decrease of prior year insuranceprovisions of $0.9 million during the three months ended March 31, 2010compared to an increase of $0.6 million during the three months ended March 31,2009.

 

*Selling,general and administrative. *Selling, general and administrative expense for thethree months ended March 31, 2010 was $9.7 million, or 2.9% of netrevenue, compared to $9.2 million, or 2.7% of net revenue, for the three monthsended March 31, 2009.

 

*Depreciationand amortization. *Depreciation and amortization expense for the three months ended March 31,2010 was $11.2 million, or 3.3% of net revenue, compared to $12.7 million, or3.8% of net revenue, for the same period in 2009.  The decrease was due primarily to AMR’sability to utilize fewer ambulances to service its existing contracts and thetiming of replacing fully depreciated assets.

 

***EmCare***

 

*Netrevenue. *Netrevenue for the three months ended March 31, 2010 was $342.4 million, anincrease of $65.8 million, or 23.8%, from $276.6 million for the three monthsended March 31, 2009. The increase was due primarily to an increase inpatient encounters from net new hospital contracts and net revenue increases inexisting contracts. Following December 31, 2008, we added 51 net newcontracts which accounted for a net revenue increase of $45.4 million for thethree months ended March 31, 2010.  Of the 51 net new contracts addedsince December 31, 2008, 53 were added in 2009 resulting in an incrementalincrease in 2010 net revenue of $41.7 million.  Of the 53 net newcontracts added in 2009, 23 were from our acquisition of the managementservices entity of Pinnacle Anesthesia Consultants, P.A. and PinnacleConsultants Mid-Atlantic L.L.C., or the Pinnacle Acquisition, which waseffective December 19, 2009.  Duringthe three months ended March 31, 2010, EmCare added 13 new contracts andterminated 15 contracts.  These contractchanges resulted in an increase in net revenue of $3.7 million during the quarter. Net revenue under our “same store” contracts (contracts in existence for theentirety of both periods) increased $20.7 million, or 8.9%, for the threemonths ended March 31, 2010.  Thechange was due primarily to a 6.6% increase in revenue per weighted patientencounter primarily as a result of rate increases from our third-party payors,improvement in our payor mix and an increase in acuity. The number of currentperiod same store weighted patient encounters increased 2.3% over the priorperiod primarily from our new service lines offset by a mild flu season in thefirst quarter of 2010.

 

*Compensationand benefits. *Compensationand benefits costs for the three months ended March 31, 2010 were $272.0million, or 79.4% of net revenue, compared to $218.3 million, or 78.9% of netrevenue for the same period in 2009. Provider compensation costs increased$36.7 million from net new contract additions. Same store provider compensationcosts were $12.1 million higher than the prior period due primarily to a 5.2%increase in provider compensation per weighted patient encounter.  Non-provider compensation and total benefitscosts increased by $6.3 million due primarily to our recent acquisitions andorganic growth, partially offset by reductions to incentive related accruals.

 

*Operatingexpenses. *Operatingexpenses for the three months ended March 31, 2010 were $10.9 million, or3.2% of net revenue, compared to $10.1 million, or 3.7% of net revenue, for thesame period in 2009.  Operating expenses increased $0.8 million dueprimarily to higher collection agency and billing fees incurred in connectionwith the expansion of our anesthesiology and radiology businesses.

 

*Insuranceexpense. *Professionalliability insurance expense for the three months ended March 31, 2010 was$10.9 million, or 3.2% of net revenue, compared to $11.4 million, or 4.1% ofnet revenue, for the three months ended March 31, 2009.  We recordeda decrease of prior year insurance provisions of $1.9 million during the threemonths ended March 31, 2010 compared to an increase of $0.1 million duringthe three months ended March 31, 2009.

 

*Selling,general and administrative. *Selling, general and administrative expense for thethree months ended March 31, 2010 was $7.1 million, or 2.1% of net revenue,compared to $5.8 million, or 2.1% of net revenue, for the three months ended March 31,2009.  The $1.3 million increase was due primarily to growth in the numberof contracts since December 31, 2008.

 

*Depreciationand amortization. *Depreciation and amortization expense for the three months ended March 31,2010 was $4.9 million, or 1.4% of net revenue, compared to $4.1 million, or1.5% of net revenue, for the three months ended March 31, 2009.  The$0.8 million increase was due primarily to additional amortization expenseassociated with a contract intangible asset recorded on acquisitions completedin 2009.

 

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**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, 2009 and incorporated by reference herein.As of March 31, 2010, there were no significant changes in our criticalaccounting policies or estimation procedures.

 

**Liquidityand Capital Resources**

 

Our primary source ofliquidity is cash flows provided by our operating activities. We can also useour revolving senior secured credit facility, described below, to 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. As of March 31, 2010,we had available to us, upon compliance with customary conditions, $100.0million under the revolving credit facility, less outstanding letters of creditof $43.8 million. Further, we had a conditional right under our senior securedcredit facility to request new or existing lenders to provide up to anadditional $100.0 million of term debt (in $20.0 million increments).

 

On April 8, 2010, wecompleted the financing of new senior secured credit facilities consisting of a$425.0 million term loan and a $150.0 million revolving credit facility.

 

**CashFlow**

 

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

 
| ** **                       | ** ** | **Quarter  ended March 31,** | ** **   |
|----------------------------------|------------|-----------------------------------|--------------|
| ** **                       | ** ** | **2010**                          | ** **   | **2009** | ** ** |
| Net  cash provided by (used in): |       |                              |         |   |   |
| Operating  activities            |       | $                                 |  44,585 |   | $ |  41,942 |   |
| Investing  activities            |       | (7,118                            | )            | 5,454 |   |
| Financing  activities            |       | 10,700                            |         | 579 |   |
|                                  |            |                                   |              |  |  |  |  |

 

*Operatingactivities*. Netcash provided by operating activities was $44.6 million for the three monthsended March 31, 2010 compared to $41.9 million for the same period in2009.  The change in operating cash flows was affected primarily by anincrease in net income combined with changes in operating assets andliabilities and the cash flow benefit related to tax deductions fromstock-based compensation.  Accountspayable and accrued liabilities increased cash flows from operations $6.0million during the three months ended March 31, 2010 compared to areduction of $8.5 million during the three months ended March 31,2009.  The change was due primarily tothe timing of compensation related payments. Accounts receivable decreased $2.2 million and days sales outstanding,or DSO, decreased 3 days during the three months ended March 31, 2010.

 

We regularly analyze DSOwhich is calculated by dividing our net revenue for the quarter by the numberof days in the quarter.  The result is divided into net accountsreceivable at the end of the period.  DSO provides us with a gauge tomeasure receivables, revenue and collection activities.  The reductionssince December 31, 2008 shown below are due to additional collections onaccounts receivable as a result of continued billing and collectionenhancements at both AMR and EmCare.  Thefollowing table outlines our DSO by segment and in total excluding the impactof AMR’s 2008 deployments under its contract with the Federal EmergencyManagement Agency and Q4 2009 excludes EmCare’s acquisition of Pinnacle in December 2009:

 
| ** ** | ** ** | **Q1 2010** | ** ** | **Q4 2009** | ** ** | **Q3 2009** | ** ** | **Q2 2009** | ** ** | **Q1 2009** | ** ** | **Q4 2008** | ** ** |
|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 66               |       | 68               |       | 70               |       | 73               |       | 74               |       | 79               |       |
| EmCare     |       | 56               |       | 60               |       | 58               |       | 61               |       | 65               |       | 68               |       |
| EMSC       |       | 61               |       | 64               |       | 64               |       | 67               |       | 70               |       | 74               |       |

 

*Investingactivities*. Net cash used in investing activities was $7.1 million for the three monthsended March 31, 2010 

 

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compared to cash providedby investing activities of $5.5 million for the same period in 2009.  Thedecrease relates to changes in cash provided by insurance collateral, whichamounted to $2.4 million during the three months ended March 31, 2010compared to $13.3 million during the same period in 2009.  Additionally, cash used for the acquisitionof businesses totaled $3.3 million during the three months ended March 31,2010.

 

*Financingactivities.*Forthe three months ended March 31, 2010, net cash provided by financingactivities was $10.7 million compared to $0.6 million for the same period in2009.  The variance relates primarily to increased cash flows from theexercise of stock options and the cash flow benefit related to tax deductionsfor stock-based compensation during the three months ended March 31, 2010compared to the same period in 2009.  At March 31,2010, there were 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.  While wehave from time to time entered into transactions to mitigate our exposure toboth changes in interest rates and fuel prices, we do not use these instrumentsfor speculative or trading purposes.

 

We manage our exposure to changes in market interestrates and fuel prices and, as appropriate, use highly effective derivativeinstruments to manage well-defined risk exposures. As of March 31, 2010,we were party to a series of fuel hedge transactions with a major financialinstitution under one master agreement. Each of the transactions effectivelyfixes the cost of diesel fuel at prices ranging from $2.88 to $3.15 per gallon.We purchase the diesel fuel at the market rate and periodically settle with ourcounterparty for the difference between the national average price for theperiod published by the Department of Energy and the agreed upon fixed price.The transactions fix the price for a total of 4.4 million gallons, whichrepresents approximately 33% of our total estimated usage over the hedge period,and are spread over periods from April 2010 through June 2011.

 

For the three months ending June 30, 2010, we are alsounder contract to purchase 50,000 gallons of diesel fuel per month at $2.99 pergallon.  This forward purchase contractrepresents approximately 6% of our total monthly diesel fuel usage.

 

As of March 31,2010, we had $451.5 million of debt excluding capital leases, of which $199.2million 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 of 0.125% will impact our interest costs by $0.2 million.

 

**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 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, 2010 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 31,2010**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

As referenced in ourAnnual Report on Form 10-K for the year ended December 31, 2009, threedifferent lawsuits purporting to be class actions have been filed against AMRand certain subsidiaries in California alleging violations of California wageand hour laws. During the three months ended March 31, 2010, Melanie Aguilarfiled suit in the Superior Court of the State of California on substantiallyidentical claims.

 

For additional informationregarding legal proceedings, please refer to note 7, under the caption “Commitmentsand Contingencies” of the notes accompanying the consolidated financialstatements included herein, and to our Annual Report on Form 10-K filedwith the SEC on February 19, 2010.

 

**ITEM1A. RISK FACTORS**

 

There have been nomaterial changes from the risk factors disclosed in the “Risk Factors” sectionof our Annual Report on Form 10-K for the year ended December 31,2009.

 

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**ITEM 6.EXHIBITS**

** **
|   | 10.4.3 | Amendment to Employment  Agreement, dated April 1, 2010, between Todd G. Zimmerman and Emergency  Medical Services Corporation.*                                                                                                                                                                   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
|   | 10.10  | Credit Agreement, dated  as of April 8, 2010, among AMR HoldCo, Inc., EmCare HoldCo, Inc., Emergency  Medical Services, L.P., Bank of America, N.A. and the other lenders party  thereto (incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K  filed on April 14, 2010).           |
|   |   |                                                                                                                                                                                                                                                                                                    |
|   | 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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*    Filedwith 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 4, 2010 |       | By:                                         | /s/ William A. Sanger |
| Date             |       |                                        | William A. Sanger |
|             |       |                                        | Chairman and Chief  Executive Officer |
|             |       |                                        |   |
|             |       | By:                                         | /s/ Randel G. Owen |
|             |       |                                        | Randel G. Owen |
|             |       |                                        | Chief Financial Officer  and Executive Vice President |
|             |       |                                        |   |
| ** **       | ** ** | **EMERGENCY  MEDICAL SERVICES L.P.**        |
|             |       | (registrant)                                |
|             |       |                                        |   |
|             |       | By:                                         | Emergency Medical  Services Corporation, its General Partner |
|             |       |                                        |   |
| May 4, 2010 |       | By:                                         | /s/ William A. Sanger |
| Date             |       |                                        | William A. Sanger |
|             |       |                                        | Chairman and Chief  Executive Officer |
|             |       |                                        |   |
|             |       | By:                                         | /s/ Randel G. Owen |
|             |       |                                        | Randel G. Owen |
|             |       |                                        | Chief Financial Officer  and Executive Vice President |

 

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**EXHIBITINDEX**

 
| 10.4.3 | Amendment to Employment  Agreement, dated April 1, 2010, between Todd G. Zimmerman and Emergency  Medical Services Corporation.*                                                                                                                                                                   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                    |
| 10.10  | Credit Agreement, dated  as of April 8, 2010, among AMR HoldCo, Inc., EmCare HoldCo, Inc., Emergency  Medical Services L.P., Bank of America, N.A. and the other lenders party  thereto (incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K  filed on April 14, 2010).            |
|   |                                                                                                                                                                                                                                                                                                    |
| 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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*    Filedwith this Report

 

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