Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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**(Mark one)**

 

**x**      **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30, 2010**

 

**Or**

 

**o**         **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 nameof 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**

 

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

**Not applicable**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes x  No o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  o Yes  o No

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” inRule 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) |   |                              |

 

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

 

Sharesof class A common stock outstanding at July 30, 2010 — 30,265,888;shares of class B common stock outstanding at July 30, 2010 — 65,052;LP exchangeable units outstanding at July 30, 2010 — 13,724,676.

 

 

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

 

**INDEX TO QUARTERLY REPORT**

 

**ON FORM 10-Q**

 

**FOR THE THREE AND SIX MONTHS ENDED**

 

**JUNE 30, 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 Consolidated Financial Statements                                                  | 6 |
|                                |                                                                                        |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 21 |
|                                |                                                                                        |   |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk                                 | 31 |
|                                |                                                                                        |   |
| Item 4.                             | Controls and  Procedures                                                                    | 32 |
|                                |                                                                                        |   |
| Part II.  Other Information    | 33                                                                                          |
|                                |                                                                                        |   |
| Item 1.                             | Legal Proceedings                                                                           | 33 |
|                                |                                                                                        |   |
| Item 1A.                            | Risk Factors                                                                                | 33 |
|                                |                                                                                        |   |
| Item 6.                        | Exhibits                                                                                    | 34 |
|                                |                                                                                        |   |
| Signatures                          | 35                                                                                          |

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FOR THE THREE AND SIX MONTHS ENDED**

**JUNE 30, 2010**

 

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

 

**Emergency Medical Services Corporation**

**Consolidated Statements of Operations andComprehensive Income**

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

 
| ** **                                                                      | ** ** | **Quarter ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------|------------|------------------------------------|------------|
| ** **                                                                      | ** ** | **2010**                        | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net revenue                                                                     |       | $                               | 708,804    |                               | $          | 637,291 |   | $ | 1,388,158 |   | $ | 1,250,313 |   |
| Compensation and benefits                                                       |       | 496,443                         |       | 438,628                            |       | 976,760 |   | 865,162 |   |
| Operating expenses                                                              |       | 90,586                          |       | 82,173                             |       | 177,115 |   | 166,845 |   |
| Insurance expense                                                               |       | 25,942                          |       | 28,357                             |       | 48,012 |   | 50,861 |   |
| Selling, general and administrative expenses                                    |       | 18,298                          |       | 16,279                             |       | 35,156 |   | 31,315 |   |
| Depreciation and amortization expense                                           |       | 15,692                          |       | 16,157                             |       | 31,872 |   | 32,925 |   |
| Income from operations                                                          |       | 61,843                          |       | 55,697                             |       | 119,243 |   | 103,205 |   |
| Interest income from restricted assets                                          |       | 859                             |       | 1,120                              |       | 1,714 |   | 2,386 |   |
| Interest expense                                                                |       | (5,060                          | )          | (10,279                            | )          | (13,326 | ) | (20,469 | ) |
| Realized gain on investments                                                    |       | 57                              |       | 847                                |       | 149 |   | 1,486 |   |
| Interest and other income                                                       |       | 206                             |       | 423                                |       | 471 |   | 940 |   |
| Loss on early debt extinguishment                                               |       | (19,091                         | )          | —                             |       | (19,091 | ) | — |   |
| Income before income taxes and equity in earnings  of unconsolidated subsidiary |       | 38,814                          |       | 47,808                             |       | 89,160 |   | 87,548 |   |
| Income tax expense                                                              |       | (14,955                         | )          | (18,885                            | )          | (34,365 | ) | (34,611 | ) |
| Income before equity in earnings of unconsolidated  subsidiary                  |       | 23,859                          |       | 28,923                             |       | 54,795 |   | 52,937 |   |
| Equity in earnings of unconsolidated subsidiary                                 |       | 105                             |       | 96                                 |       | 199 |   | 153 |   |
| Net income                                                                      |       | 23,964                          |       | 29,019                             |       | 54,994 |   | 53,090 |   |
| Other comprehensive income (loss), net of tax:                                  |       |                            |       |                               |       |   |   |   |   |
| Unrealized holding gains (losses) during the  period                            |       | 1,101                           |       | (1,377                             | )          | 1,543 |   | (2,534 | ) |
| Unrealized gains (losses) on derivative financial instruments                   |       | (563                            | )          | 916                                |       | (85 | ) | 1,267 |   |
| Comprehensive income                                                            |       | $                               | 24,502     |                               | $          | 28,558 |   | $ | 56,452 |   | $ | 51,823 |   |
|                                                                            |       |                            |       |                               |       |   |   |   |   |
| Basic earnings per common share                                                 |       | $                               | 0.54       |                               | $          | 0.69 |   | $ | 1.26 |   | $ | 1.26 |   |
| Diluted earnings per common share                                               |       | $                               | 0.54       |                               | $          | 0.67 |   | $ | 1.23 |   | $ | 1.23 |   |
| Weighted average common shares outstanding, basic                               |       | 44,011,821                      |       | 42,354,667                         |       | 43,792,979 |   | 42,140,632 |   |
| Weighted average common shares outstanding,  diluted                            |       | 44,703,834                      |       | 43,334,340                         |       | 44,620,562 |   | 43,215,657 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

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**Emergency Medical Services Corporation**

**Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| ** **                                                                                                                                                       | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current  assets:                                                                                                                                                 |       |              |       |                  |       |
| Cash  and cash equivalents                                                                                                                                       |       | $                 | 313,033    |                  | $          | 332,888 |   |
| Insurance  collateral                                                                                                                                            |       | 30,936            |       | 24,986                |       |
| Trade  and other accounts receivable, net                                                                                                                        |       | 483,597           |       | 459,088               |       |
| Parts  and supplies inventory                                                                                                                                    |       | 22,392            |       | 22,270                |       |
| Prepaids  and other current assets                                                                                                                               |       | 32,578            |       | 19,662                |       |
| Current  deferred tax assets                                                                                                                                     |       | —            |       | 6,323                 |       |
| Total  current assets                                                                                                                                            |       | 882,536           |       | 865,217               |       |
| Non-current  assets:                                                                                                                                             |       |              |       |                  |       |
| Property,  plant and equipment, net                                                                                                                              |       | 121,324           |       | 125,855               |       |
| Intangible  assets, net                                                                                                                                          |       | 144,567           |       | 102,654               |       |
| Non-current  deferred tax assets                                                                                                                                 |       | 5,827             |       | 13,468                |       |
| Insurance  collateral                                                                                                                                            |       | 144,740           |       | 143,886               |       |
| Goodwill                                                                                                                                                         |       | 386,500           |       | 381,951               |       |
| Other  long-term assets                                                                                                                                          |       | 19,301            |       | 21,676                |       |
| Total  assets                                                                                                                                                    |       | $                 | 1,704,795  |                  | $          | 1,654,707 |   |
| **Liabilities and Equity**                                                                                                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                                                            |       |              |       |                  |       |
| Accounts  payable                                                                                                                                                |       | $                 | 66,832     |                  | $          | 70,759 |   |
| Accrued  liabilities                                                                                                                                             |       | 267,585           |       | 273,704               |       |
| Current  deferred tax liability                                                                                                                                  |       | 11,494            |       | —                |       |
| Current  portion of long-term debt                                                                                                                               |       | 11,848            |       | 4,676                 |       |
| Total  current liabilities                                                                                                                                       |       | 357,759           |       | 349,139               |       |
| Long-term  debt                                                                                                                                                  |       | 415,687           |       | 449,254               |       |
| Insurance  reserves and other long-term liabilities                                                                                                              |       | 166,574           |       | 170,227               |       |
| Total  liabilities                                                                                                                                               |       | 940,020           |       | 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, 30,285,248****and 29,541,411 issued and outstanding in 2010 and 2009,  respectively) |       | 303               |       | 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 units issued and outstanding in 2010 and 2009)                                                                                |       | 90,776            |       | 90,776                |       |
| Additional  paid-in capital                                                                                                                                      |       | 297,544           |       | 275,316               |       |
| Retained  earnings                                                                                                                                               |       | 374,036           |       | 319,042               |       |
| Accumulated  other comprehensive income                                                                                                                          |       | 2,115             |       | 657                   |       |
| Total  equity                                                                                                                                                    |       | 764,775           |       | 686,087               |       |
| Total  liabilities and equity                                                                                                                                    |       | $                 | 1,704,795  |                  | $          | 1,654,707 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**Emergency Medical Services Corporation**

**Consolidated Statements of Cash Flows**

**(unaudited; in thousands)**

** **
| ** **                                                                         | ** ** | **Quarter ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                        | ** ** | **2009**                                     | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Cash Flows from Operating Activities**                                           | ** ** | ** **                      | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income                                                                        |       | $                               | 23,964     |                                         | $          | 29,019 |   | $ | 54,994 |   | $ | 53,090 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                            |       |                                         |       |   |   |   |   |
| Depreciation  and amortization                                                     |       | 16,321                          |       | 16,661                                       |       | 33,008 |   | 33,741 |   |
| Loss  on disposal of property, plant and equipment                                 |       | 45                              |       | 38                                           |       | 89 |   | 36 |   |
| Equity-based  compensation expense                                                 |       | 1,441                           |       | 1,104                                        |       | 2,545 |   | 1,754 |   |
| Excess  tax benefits from stock-based compensation                                 |       | (2,917                          | )          | —                                       |       | (13,498 | ) | — |   |
| Loss  on early debt extinguishment                                                 |       | 19,091                          |       | —                                       |       | 19,091 |   | — |   |
| Equity  in earnings of unconsolidated subsidiary                                   |       | (105                            | )          | (96                                          | )          | (199 | ) | (153 | ) |
| Dividends  received                                                                |       | —                          |       | —                                       |       | 403 |   | 713 |   |
| Deferred  income taxes                                                             |       | 973                             |       | 17,333                                       |       | 840 |   | 31,928 |   |
| Changes  in operating assets/liabilities, net of acquisitions:                     |       |                            |       |                                         |       |   |   |   |   |
| Trade  and other accounts receivable                                               |       | (21,750                         | )          | 3,499                                        |       | (19,559 | ) | 874 |   |
| Parts  and supplies inventory                                                      |       | 75                              |       | (87                                          | )          | (87 | ) | (107 | ) |
| Prepaids  and other current assets                                                 |       | (8,828                          | )          | 12,530                                       |       | (12,216 | ) | 4,690 |   |
| Accounts  payable and accrued liabilities                                          |       | 7,093                           |       | 20,120                                       |       | 13,099 |   | 11,620 |   |
| Insurance  accruals                                                                |       | 4,754                           |       | (1,124                                       | )          | 6,232 |   | 2,753 |   |
| Net  cash provided by operating activities                                         |       | 40,157                          |       | 98,997                                       |       | 84,742 |   | 140,939 |   |
| **Cash Flows from Investing Activities**                                           | ** ** | ** **                      | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases  of property, plant and equipment                                        |       | (8,652                          | )          | (12,878                                      | )          | (15,168 | ) | (20,085 | ) |
| Proceeds  from sale of property, plant and equipment                               |       | 66                              |       | 39                                           |       | 108 |   | 60 |   |
| Acquisition  of businesses, net of cash received                                   |       | (47,675                         | )          | (133                                         | )          | (50,975 | ) | (133 | ) |
| Net  change in insurance collateral                                                |       | (7,627                          | )          | (15,243                                      | )          | (5,261 | ) | (1,933 | ) |
| Other  investing activities                                                        |       | 10,648                          |       | 27                                           |       | 10,938 |   | (643 | ) |
| Net  cash used in investing activities                                             |       | (53,240                         | )          | (28,188                                      | )          | (60,358 | ) | (22,734 | ) |
| **Cash Flows from Financing Activities**                                           | ** ** | ** **                      | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| EMSC  issuance of class A common stock                                             |       | 1,791                           |       | 3,825                                        |       | 6,193 |   | 4,723 |   |
| Repayments  of capital lease obligations and other debt                            |       | (451,443                        | )          | (1,453                                       | )          | (452,627 | ) | (2,612 | ) |
| Borrowings  under credit facility                                                  |       | 425,000                         |       | —                                       |       | 425,000 |   | — |   |
| Debt  issue costs                                                                  |       | (11,749                         | )          | —                                       |       | (11,749 | ) | — |   |
| Payment  for premiums for debt extinguishment                                      |       | (14,513                         | )          | —                                       |       | (14,513 | ) | — |   |
| Excess  tax benefits from stock-based compensation                                 |       | 2,917                           |       | —                                       |       | 13,498 |   | — |   |
| Net  change in bank overdrafts                                                     |       | (6,942                          | )          | (190                                         | )          | (10,041 | ) | 650 |   |
| Net  cash (used in) provided by financing activities                               |       | (54,939                         | )          | 2,182                                        |       | (44,239 | ) | 2,761 |   |
| Change  in cash and cash equivalents                                               |       | (68,022                         | )          | 72,991                                       |       | (19,855 | ) | 120,966 |   |
| Cash  and cash equivalents, beginning of period                                    |       | 381,055                         |       | 194,148                                      |       | 332,888 |   | 146,173 |   |
| Cash  and cash equivalents, end of period                                          |       | $                               | 313,033    |                                         | $          | 267,139 |   | $ | 313,033 |   | $ | 267,139 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**Emergency Medical Services Corporation**

**Notes to Unaudited Consolidated Financial Statements**

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

 

**1.****             ****General**

 

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

 

The accompanying interimconsolidated financial statements for Emergency Medical Services Corporation (“EMSC”or the “Company”) have been prepared in accordance with U. S. generallyaccepted accounting principles (“GAAP”) for interim reporting, and accordingly,do not include all of the disclosures required for annual financial statements.In the opinion of management, all adjustments considered necessary for fairpresentation have been included. All such adjustments are of a normal,recurring nature. Operating results for the three and six month periods ended June 30,2010 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 consolidated financialstatements of EMSC include those of its direct subsidiary, Emergency MedicalServices 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 and sixmonths ended June 30, 2010 and 2009, the Company expensed $250 and $500,respectively, in respect of this fee.

 

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

 

***Consolidation***

 

The consolidated financialstatements include all wholly-owned subsidiaries of EMSC, including AMR andEmCare and their respective subsidiaries. All significant intercompanytransactions and balances have been eliminated in consolidation.

 

***Use of Estimates***

 

The preparation of financialstatements requires management to make estimates and assumptions relating tothe reporting of results of operations, financial condition and relateddisclosure of contingent assets and liabilities at the date of the financialstatements. Actual results may differ from those estimates under differentassumptions 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 and professionalliability claims utilizing policies with both fully-insured and self-insuredcomponents. This includes the use of an off-shore captive insurance programthrough a wholly-owned subsidiary for certain liability programs for bothEmCare and AMR. In those instances where the Company has obtained third-partyinsurance coverage, the Company generally retains liability for the first $1 to$2 million of the loss. Insurance reserves cover known claims andincidents within the level of Company retention that may result in theassertion of additional claims, as well as 

 

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claims from unknown incidents that may be assertedarising 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 on quarterlyconsultation with third-party independent actuaries using actuarial principlesand assumptions that consider a number of factors, including historical claimpayment patterns (including legal costs) and changes in case reserves and theassumed rate of inflation in healthcare costs and property damage repairs.

 

The Company’s most recentactuarial valuation was completed in June 2010. As a result of this andprevious actuarial valuations, the Company recorded an increase of $1.5 millionin its provision for insurance liabilities related to reserves for losses inprior years during the three months ended June 30, 2010.  A total decrease of $1.3 million was recordedduring the six months ended June 30, 2010. As a result of the actuarial valuation completed in June 2009, theCompany recorded an increase in its provision for insurance liabilities of $4.4million during the three months ended June 30, 2009 and $5.2 millionduring the six months ended June 30, 2009.

 

The long-term portion ofinsurance reserves was $156.1 million and $143.6 million as of June 30,2010 and December 31, 2009, respectively.

 

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

 

The Company estimates itsallowances based on payor reimbursement schedules, historical collections andwrite-off experience and other economic data. The allowances for contractualdiscounts and uncompensated care are reviewed monthly. Account balances arecharged off against the uncompensated care allowance when it is probable thereceivable will not be recovered. Write-offs to the contractual allowance occurwhen payment is received. The allowance for uncompensated care is relatedprincipally to receivables recorded for self-pay patients.  The Company’s accounts receivable andallowances are as follows:

 
| ** **                           | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Gross  trade accounts receivable     |       | $                       | 2,050,884  |                        | $          | 1,955,152 |   |
| Allowance  for contractual discounts |       | 1,058,380               |       | 1,001,285                   |       |
| Allowance  for uncompensated care    |       | 590,954                 |       | 572,015                     |       |
| Net  trade accounts receivable       |       | 401,550                 |       | 381,852                     |       |
| Other  receivables, net              |       | 82,047                  |       | 77,236                      |       |
| Net  accounts receivable             |       | $                       | 483,597    |                        | $          | 459,088 |   |

 

Other receivables representEmCare hospital subsidies and fees and AMR fees for stand-by and special eventsand subsidies from community organizations.

 

AMR contractual allowancesare determined primarily on payor reimbursement schedules that are included andregularly updated in the billing systems, and by historical collectionexperience.  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 at thetime of service and is recorded net of provisions for contractual discounts andestimated uncompensated care. Provisions for estimated contractual discountsare related principally to differences between gross charges and specific payor,including governmental, reimbursement schedules. Provisions for estimateduncompensated care are related principally to the number of self-pay patientstreated in the period. Provisions for contractual discounts and estimateduncompensated care as a 

 

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percentage of gross revenue and as apercentage of gross revenue less provision for contractual discounts are asfollows:

 
| ** **                                                                                     | ** ** | **Quarter ended********June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                     | ** ** | **2010**                               | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Gross revenue                                                                                  |       | 100.0                                  | %          | 100.0                               | %          | 100.0 | % | 100.0 | % |
| Provision for contractual discounts                                                            |       | 53.1                                   | %          | 49.4                                | %          | 52.6 | % | 48.7 | % |
| Revenue net of contractual discounts                                                           |       | 46.9                                   | %          | 50.6                                | %          | 47.4 | % | 51.3 | % |
| Provision for uncompensated care as a percentage  of gross revenue                             |       | 18.3                                   | %          | 20.4                                | %          | 18.5 | % | 20.0 | % |
| Provision  for uncompensated care as a percentage of gross revenue less contractual  discounts |       | 39.0                                   | %          | 40.2                                | %          | 39.1 | % | 39.0 | % |

 

Healthcare reimbursement iscomplex and may involve lengthy delays. Third-party payors are continuing theirefforts to control expenditures for healthcare, including proposals to revisereimbursement policies. The Company has from time to time experienced delays inreimbursement from third-party payors. In addition, third-party payors maydisallow, in whole or in part, claims for reimbursement based on determinationsthat certain amounts are not reimbursable under plan coverage, determinationsof medical necessity, or the need for additional information. Laws andregulations governing the Medicare and Medicaid programs are very complex andsubject to interpretation. Revenue is recognized on an estimated basis in theperiod which related services are rendered. As a result, there is a reasonable possibility that recorded estimateswill change materially in the short-term. Such amounts, including adjustmentsbetween provisions for contractual discounts and uncompensated care, areadjusted in future periods, as adjustments become known.  Theseadjustments were less than 1% of net revenue for the three and six monthperiods ending June 30, 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 shares ofclass A common stock in an initial public offering. Pursuant to thereorganization, EMS LP, the former top-tier holding company of AMR and EmCare,became the consolidated subsidiary of EMSC, a newly formed corporation. Toeffect the reorganization, the holders of the capital stock of the sole generalpartner of EMS LP contributed that capital stock to the Company in exchange forclass B common stock; the general partner was merged into the Company and theCompany became the sole general partner of EMS LP. Concurrently, the holders ofclass B units of EMS LP contributed their units to the Company in exchange forshares of the Company’s class A common stock, and the holders of certain classA units of EMS LP contributed their units to the Company in exchange for sharesof the Company’s class B common stock.

 

As of June 30, 2010,the Company holds 68.9% of the equity interests in EMS LP. LP exchangeableunits, held by persons affiliated with the Company’s principal equity holder,represent the balance of the EMS LP equity. The LP exchangeable units areexchangeable at any time, at the option of the holder, for shares of theCompany’s class B common stock on a one-for-one basis. The holders of the LPexchangeable units have the right to vote, through the trustee holder of theCompany’s class B special voting stock, at all stockholder meetings at whichholders of the Company’s class B common stock or class B special voting stockare entitled to vote.

 

In 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 if one class, and entitle holders to receivedistributions only if the equivalent dividends are declared on the Company’sclass B common stock. Accordingly, the Company accounts for the LP exchangeableunits as if the LP 

 

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exchangeable units were shares of its commonstock, including reporting the LP exchangeable units in the equity section ofthe Company’s balance sheet and including the number of outstanding LPexchangeable units in both its basic and diluted earnings per sharecalculations.

 

***Fair Value Measurement***

 

The Company classifies itsfinancial instruments that are reported at fair value based on a hierarchalframework which ranks the level of market price observability used in measuringfinancial instruments at fair value. Market price observability is impacted bya number of factors, including the type of instrument and the characteristicsspecific to the instrument.  Instrumentswith readily available active quoted prices or for which fair value can bemeasured from actively quoted prices generally will have a higher degree ofmarket price observability and a lesser degree of judgment used in measuringfair value.

 

Financial instrumentsmeasured and reported at fair value are classified and disclosed in one of thefollowing categories:

 

Level 1 — Quoted prices areavailable in active markets for identical assets or liabilities as of thereporting date.  The Company does notadjust the quoted price for these assets or liabilities.

 

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

 

Level 3 — Pricing inputs areunobservable as of the reporting date and reflect the Company’s own assumptionsabout the fair value of the asset or liability.

 

The following tablesummarizes the valuation of EMSC’s financial instruments as of June 30,2010 by the above fair value hierarchy levels:

 
| **Description** | ** ** | **Total** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------|------------|-----------|------------|-------------|------------|-------------|------------|-------------|------------|
| Assets:         |       |      |       |        |       |        |       |        |       |
| Securities      |       | $         | 81,753     |        | $          | 67,827      |       | $           | 13,926     |   | $ | — |   |
| Derivatives     |       | $         | 35         |        | $          | —      |       | $           | 35         |   | $ | — |   |

 

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

 

During the three monthsended March 31, 2010, the Company made a purchase price allocationadjustment related to the acquisition of the management services entity ofPinnacle Anesthesia Consultants, P.A. and Pinnacle Consultants Mid-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.

 

On May 28, 2010, theCompany completed the acquisition of V.I.P. Professional Services, Inc.,the parent of Gold Coast Ambulance Service, which provides emergency andnon-emergency ambulance services in southwest Ventura County, California.  On June 4, 2010, an affiliate of theCompany completed the acquisition of professional entities which provideanesthesiology services for Clinical Partners Management Company, an existingsubsidiary of the Company.  On June 30,2010, the Company completed its acquisition of Affilion, Inc., whichprovides emergency department physician staffing and related managementservices to hospitals in Arizona, New Mexico and Texas.  Also on June 30, 2010, an affiliate ofthe Company completed its acquisition of Fredericksburg Anesthesia Consultants,PLLC, a provider of anesthesia services to facilities in south Texas.  The total cost of these and other smalleracquisitions was $51.0 million and the Company has recorded $35.0 million ofgoodwill, which amount is subject to adjustment based upon completion ofpurchase price allocations.

 

**4.****             ****AccruedLiabilities**

 

Accrued liabilities were asfollows at June 30, 2010 and December 31, 2009:

 

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| ** **                                  | ** ** | **June 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| Accrued  wages and benefits                 |       | $                             | 114,760    |                              | $          | 92,721 |   |
| Accrued  paid time-off                      |       | 27,321                        |       | 24,290                            |       |
| Current  portion of self-insurance reserves |       | 56,542                        |       | 62,832                            |       |
| Accrued  restructuring                      |       | 171                           |       | 181                               |       |
| Current  portion of compliance and legal    |       | 5,758                         |       | 2,814                             |       |
| Accrued  billing and collection fees        |       | 4,168                         |       | 4,093                             |       |
| Accrued  profit sharing                     |       | 18,093                        |       | 34,000                            |       |
| Accrued  interest                           |       | 1,090                         |       | 9,773                             |       |
| Accrued  income taxes payable               |       | —                        |       | 5,454                             |       |
| Other                                       |       | 39,682                        |       | 37,546                            |       |
| Total  accrued liabilities                  |       | $                             | 267,585    |                              | $          | 273,704 |   |

 

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

 

On April 8, 2010, theCompany 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 domestic assets are pledged as collateral under the new seniorsecured credit facilities.  The revolvingfacility is also subject to an annual commitment fee of 0.5% on unutilizedcommitments.

 

In conjunction withcompleting the financing under the new credit facilities, the Company repaidthe balance outstanding on the previous senior secured term loan and redeemedthe Company’s 10% senior subordinated notes. During the three months ended June 30, 2010, the Company recorded aloss on early debt extinguishment of $19.1 million which included certainunamortized debt issuance costs as well as costs associated with the redemptionof the senior subordinated notes.

 

Long-term debt consisted ofthe following at June 30, 2010 and December 31, 2009:

 
| ** **                                                                       | ** ** | **June 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| Senior  subordinated notes                                                       |       | $                             | —     |                              | $          | 250,000 |   |
| Senior  secured term loan due 2015 (3.35% at June 30, 2010)                 |       | 425,000                       |       | 199,765                           |       |
| Notes  due at various dates from 2010 to 2022 with interest rates from 6% to 10% |       | 1,696                         |       | 1,249                             |       |
| Capital  lease obligations due at various dates from 2010 to 2018 (see note 7)   |       | 839                           |       | 2,916                             |       |
|                                                                             |       | 427,535                       |       | 453,930                           |       |
| Less  current portion                                                            |       | (11,848                       | )          | (4,676                            | )          |
| Total  long-term debt                                                            |       | $                             | 415,687    |                              | $          | 449,254 |   |

 

**6.****             ****DerivativeInstruments and Hedging Activities**

 

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 June 30, 2010, theCompany was 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 $2.96 to $3.29 per gallon.The Company purchases the diesel fuel at the market rate and periodicallysettles with its counterparty for the difference between the national averageprice for the period published by the Department of Energy and the agreed uponfixed price. The transactions fix the price for a total of 6.8 milliongallons, which 

 

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represent approximately 32% of the Company’stotal estimated usage over the hedge period, and are spread over periods from July 2010through June 2012.  As of June 30,2010, the Company recorded, as a component of other comprehensive income beforeapplicable tax impacts, an asset associated with the fair value of the fuelhedge of less than $0.1 million, compared to $0.2 million as of December 31,2009. The net additional payments made or received under these hedge agreementsdid not have a material impact on operating expenses during the six monthsended June 30, 2010.

 

**7.****             ****Commitmentsand Contingencies**

 

***Lease Commitments***

 

TheCompany leases various facilities and equipment under operating leaseagreements.

 

The Company also leasescertain 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.

 

***Forward Purchase Commitment***

 

Beginning in March 2009, AMRentered into a series of forward purchase contracts which fixed the price for aportion of its total monthly diesel fuel usage from April 1, 2009 through June30, 2010. Based on the terms of the contracts, the Company has concluded they donot quality as derivatives. There was no material impact to operating expensesrelated to these contracts during the three or six month periods ended June 30,2010.

 

***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, alawsuit purporting to be a class action was commenced against AMR in Spokane,Washington in Washington State Court, Spokane County.  The complaintalleges that AMR billed patients and third party payors for transports itconducted between 1998 and 2005 at higher rates than contractuallypermitted.  The court has certified a class in this case which iscomprised of approximately 15,000 Spokane County residents.  At this time,AMR does not believe that any incorrect billings are material in amount.

 

In December 2006, AMRreceived a subpoena from the Department of Justice (“DOJ”).  The subpoena requested copies of documentsfor the 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.  Thegovernment has identified claims for reimbursement that the government believeslack support for the level billed, and invited the Company to respond to theidentified areas of concern.  The Companyreviewed the information provided by the government, provided its response, andis currently in discussions with the DOJ and the Office of the InspectorGeneral of Health and Human Services regarding resolution of this matter.  During the three months ended June 30,2010, the Company recorded a $3.1 million reserve for its estimate of likelyexposure in this matter.

 

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 theSuperior Court of the State of California, County of Los Angeles; on January 22,2009, Laura Karapetian filed suit in the Superior Court of the State ofCalifornia, County of Los Angeles; and on March 11, 2010, Melanie Aguilarfiled suit in the Superior Court of the State of California County of LosAngeles.  The Banta and Karapetian caseshave been 

 

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coordinated with the Bartoni case in theSuperior 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 pay dailyovertime charges pursuant to California law, and failed to provide required mealbreaks 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 to estimatethe amount of potential damages, if any.

 

The Company is involved inother litigation arising in the ordinary course of business.  Management believes the outcome of theselegal proceedings will not have a material adverse impact on its financial condition,results of operations or liquidity.

 

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

 

The Company’s stock optionsare valued using the Black-Scholes valuation method on the date of grant.  Equity based compensation has been issuedunder the plans described below.

 

**EquityOption Plan**

 

Under the Company’s EquityOption Plan, key employees were granted options that permit the individuals topurchase class A common shares and vest ratably generally over a period of fouryears. In addition, certain performance measures must be met for 50% of theoptions to become exercisable; these performance measures were satisfied during2009 with respect to the options granted under the Equity Option Plan.  As the vesting period for these options wascompleted prior to 2010, the Company did not record a compensation chargeduring each of the three and six months ended June 30, 2010 as well asduring the three months ended June 30, 2009.  A compensation charge of $97 was recorded forthe six months ended June 30, 2009. Options are no longer granted under the Equity Option Plan, but ratherunder the Company’s Second Amended and Restated Long-Term Incentive Plandescribed below.

 

**Long-TermIncentive Plan**

 

The Company’s original 2007Long-Term Incentive Plan was approved by stockholders in May 2007, amendedand restated in May 2008, and a Second Amended and Restated Long-TermIncentive Plan (the “Plan”) was approved by stockholders in May 2010.  The Plan provides for the grant of long-termincentives, including various equity-based incentives, to those persons withresponsibility for the success and growth of the Company and itssubsidiaries.  Options granted under thePlan vest and become exercisable ratably over a period of four years from thedate of grant and have a maximum term of ten years.  In addition, for options granted under thePlan prior to January 1, 2009, certain performance measures were requiredto be met for 50% of these options to become exercisable; these performancemeasures were satisfied during the first quarter of 2010.

 

The Company granted optionsand restricted stock to key employees during the three months ended June 30,2010 under the Plan.  The options permitemployees to purchase a total of 166,500 shares of class A common stock at aweighted average exercise price of $56.34 per share, vest ratably over a periodof four to five years, and have a maximum term of ten years.  The Company also granted 166,500 shares ofrestricted stock pursuant to the Plan, which vest ratably over a period ofthree years.

 

The Company recorded acompensation charge of $1,297 and $979 during the three months ended June 30,2010 and 2009, respectively, and $2,276 and $1,407 during the six months ended June 30,2010 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.  As of May 2010,eligible directors now receive a grant of RSUs having a fair market value of$133 on the date of grant based on the closing price of the Company’s class Acommon stock on the business day immediately preceding the grant date.  The Non-Employee Director 

 

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Compensation Plan allows directors to deferincome from the grant of RSUs, which vest immediately prior to the election ofdirectors at the next annual stockholder meeting.  In connection with this plan, the Companygranted 2,324 RSUs per director in 2010 and 3,018 RSUs per director in2009.  The Company expensed $144 and $125during the three month periods ended June 30, 2010 and 2009, respectively,and $269 and $250 during the six month periods ended June 30, 2010 and2009, respectively.

 

**StockPurchase Plan/Employee Stock Purchase Plan**

 

During the second quarter of2010, the Company commenced an offering of its class A common stock to eligibleemployees and independent contractors associated with the Company and itssubsidiaries pursuant to a Stock Purchase Plan and the Company’s Employee StockPurchase Plan (together, the “SPPs”).  The purchases of stock under theSPPs will occur in October 2010 at a 5% discount to the closing price ofthe Company’s class A common stock on October 15, 2010, and as such nocompensation charge has been recorded for the SPPs in the second quarter of2010.

 

**9.****             ****SegmentInformation**

 

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 emergency care and pre-hospitalassistance. The facility-based physician services reportable segment providesphysician services to hospitals primarily for emergency departments and urgentcare centers, as well as for hospitalist/inpatient, radiology, teleradiologyand anesthesiology services.  The ChiefExecutive Officer 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 equity inearnings of unconsolidated subsidiary, income tax expense, interest and otherincome, realized gain on investments, loss on early debt extinguishment,interest expense and depreciation and amortization (“Adjusted EBITDA”) is themeasure of profit and loss that the CODM uses to assess performance, measureliquidity and make decisions. The accounting policies for reported segments arethe same as for the Company as a whole.

 
| ** **                                           | ** ** | **Quarter ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|------------------------------------|------------|
| ** **                                           | ** ** | **2010**                        | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Healthcare Transportation  Services**              |       |                            |       |                               |       |   |   |   |   |
| Net Revenue                                          |       | $                               | 344,159    |                               | $          | 335,504 |   | $ | 681,121 |   | $ | 671,950 |   |
| Segment Adjusted EBITDA                              |       | 31,760                          |       | 32,425                             |       | 64,162 |   | 66,313 |   |
| **Facility-Based Physician Services**                |       |                            |       |                               |       |   |   |   |   |
| Net Revenue                                          |       | $                               | 364,645    |                               | 301,787    |   | $ | 707,037 |   | 578,363 |   |
| Segment Adjusted EBITDA                              |       | 46,634                          |       | 40,549                             |       | 88,667 |   | 72,203 |   |
| **Total**                                            |       |                            |       |                               |       |   |   |   |   |
| Total Net Revenue                                    |       | $                               | 708,804    |                               | 637,291    |   | $ | 1,388,158 |   | 1,250,313 |   |
| Total Adjusted EBITDA                                |       | 78,394                          |       | 72,974                             |       | 152,829 |   | 138,516 |   |
| **Reconciliation of Adjusted EBITDA  to Net Income** |       |                            |       |                               |       |   |   |   |   |
| Adjusted EBITDA                                      |       | $                               | 78,394     |                               | $          | 72,974 |   | $ | 152,829 |   | $ | 138,516 |   |
| Depreciation and amortization expense                |       | (15,692                         | )          | (16,157                            | )          | (31,872 | ) | (32,925 | ) |
| Interest expense                                     |       | (5,060                          | )          | (10,279                            | )          | (13,326 | ) | (20,469 | ) |
| Realized gain on investments                         |       | 57                              |       | 847                                |       | 149 |   | 1,486 |   |
| Interest and other income                            |       | 206                             |       | 423                                |       | 471 |   | 940 |   |
| Loss on early debt extinguishment                    |       | (19,091                         | )          | —                             |       | (19,091 | ) | — |   |
| Income tax expense                                   |       | (14,955                         | )          | (18,885                            | )          | (34,365 | ) | (34,611 | ) |
| Equity in earnings of unconsolidated subsidiary      |       | 105                             |       | 96                                 |       | 199 |   | 153 |   |
| Net income                                           |       | $                               | 23,964     |                               | $          | 29,019 |   | $ | 54,994 |   | $ | 53,090 |   |

 

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Areconciliation of Adjusted EBITDA to cash flows provided by operatingactivities is as follows:

 
| ** **                                           | ** ** | **For the quarter ended June 30,** | ** ** | **For the six months ended June 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                           | ** ** | **2010**                                | ** ** | **2009**                                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Adjusted  EBITDA                                     |       | $                                       | 78,394     |                                            | $          | 72,974 |   | $ | 152,829 |   | $ | 138,516 |   |
| Interest  paid                                       |       | (4,431                                  | )          | (9,774                                          | )          | (12,190 | ) | (19,651 | ) |
| Change  in accounts receivable                       |       | (21,750                                 | )          | 3,499                                           |       | (19,559 | ) | 874 |   |
| Change  in other operating assets/liabilities        |       | 3,094                                   |       | 31,439                                          |       | 7,028 |   | 18,956 |   |
| Equity  based compensation                           |       | 1,441                                   |       | 1,104                                           |       | 2,545 |   | 1,754 |   |
| Excess  tax benefits from stock-based compensation   |       | (2,917                                  | )          | —                                          |       | (13,498 | ) | — |   |
| Income  tax expense, net of change in deferred taxes |       | (13,982                                 | )          | (1,552                                          | )          | (33,525 | ) | (2,683 | ) |
| Other                                                |       | 308                                     |       | 1,307                                           |       | 1,112 |   | 3,173 |   |
| Cash  flows provided by operating activities         |       | $                                       | 40,157     |                                            | $          | 98,997 |   | $ | 84,742 |   | $ | 140,939 |   |

 

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

 

EMS LP’s wholly-ownedsubsidiaries, AMR HoldCo, Inc. and EmCare HoldCo, Inc., are theborrowers under the senior secured credit facility, which includes a full,unconditional and joint and several guarantee by EMSC, EMS LP and EMSC’sdomestic subsidiaries. The senior secured credit facility does not include aguarantee by the Company’s captive insurance subsidiary and only limitedguarantees from any future non-domestic subsidiaries. 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 creditfacility are provided by the distributions or advances from the subsidiary companies,AMR and EmCare. Investments in subsidiary operating companies are accounted foron the equity method. Accordingly, entries necessary to consolidate EMSC, EMSLP, AMR HoldCo, Inc., EmCare HoldCo, Inc. and all of theirsubsidiaries are reflected in the Eliminations/Adjustments column. Separatecomplete financial statements of the borrowers, EMS LP and subsidiaryguarantors would not provide additional material information that would beuseful in assessing the financial composition of the borrowers, EMS LP or thesubsidiary guarantors. The condensed consolidating financial statements forEMSC,EMS LP, the borrowers, the guarantors and the non-guarantor are asfollows:

 

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**Consolidating Statement of Operations**

**For the quarter ended June 30, 2010**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 708,804    |       | $          | 18,863 |   | $ | (18,863 | ) | $ | 708,804 |   |
| Compensation and  benefits                                       |       | —     |       | —     |       | —                |       | —                |       | 496,443        |       | —            |       | —            |       | 496,443    |       |
| Operating expenses                                               |       | —     |       | —     |       | —                |       | —                |       | 90,586         |       | —            |       | —            |       | 90,586     |       |
| Insurance expense                                                |       | —     |       | —     |       | —                |       | —                |       | 25,370         |       | 19,435            |       | (18,863           | )          | 25,942     |       |
| Selling, general and  administrative expenses                    |       | —     |       | —     |       | —                |       | —                |       | 18,298         |       | —            |       | —            |       | 18,298     |       |
| Depreciation and  amortization expense                           |       | —     |       | —     |       | —                |       | —                |       | 15,692         |       | —            |       | —            |       | 15,692     |       |
| Income (loss) from  operations                                   |       | —     |       | —     |       | —                |       | —                |       | 62,415         |       | (572              | )          | —            |       | 61,843     |       |
| Interest income from  restricted assets                          |       | —     |       | —     |       | —                |       | —                |       | 344            |       | 515               |       | —            |       | 859        |       |
| Interest expense                                                 |       | —     |       | —     |       | —                |       | —                |       | (5,060         | )          | —            |       | —            |       | (5,060     | )          |
| Realized gain on  investments                                    |       | —     |       | —     |       | —                |       | —                |       | —         |       | 57                |       | —            |       | 57         |       |
| Interest and other  income                                       |       | —     |       | —     |       | —                |       | —                |       | 206            |       | —            |       | —            |       | 206        |       |
| Loss on early debt  extinguishment                               |       | —     |       | —     |       | —                |       | —                |       | (19,091        | )          | —            |       | —            |       | (19,091    | )          |
| Income before income  taxes                                      |       | —     |       | —     |       | —                |       | —                |       | 38,814         |       | —            |       | —            |       | 38,814     |       |
| Income tax expense                                               |       | —     |       | —     |       | —                |       | —                |       | (14,955        | )          | —            |       | —            |       | (14,955    | )          |
| Income before equity in  earnings of unconsolidated subsidiaries |       | —     |       | —     |       | —                |       | —                |       | 23,859         |       | —            |       | —            |       | 23,859     |       |
| Equity in earnings of  unconsolidated subsidiaries               |       | 23,964     |       | 23,964     |       | 3,235                 |       | 20,729                |       | 105            |       | —            |       | (71,892           | )          | 105        |       |
| Net income                                                       |       | $          | 23,964     |       | $          | 23,964                |       | $                     | 3,235      |           | $          | 20,729            |       | $                 | 23,964     |       | $          | — |   | $ | (71,892 | ) | $ | 23,964 |   |

 

**Consolidating Statement of Operations**

**For the quarter ended June 30, 2009**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 637,291    |       | $          | 7,147 |   | $ | (7,147 | ) | $ | 637,291 |   |
| Compensation and  benefits                                       |       | —     |       | —     |       | —                |       | —                |       | 438,628        |       | —            |       | —            |       | 438,628    |       |
| Operating expenses                                               |       | —     |       | —     |       | —                |       | —                |       | 82,173         |       | —            |       | —            |       | 82,173     |       |
| Insurance expense                                                |       | —     |       | —     |       | —                |       | —                |       | 26,825         |       | 8,679             |       | (7,147            | )          | 28,357     |       |
| Selling, general and  administrative expenses                    |       | —     |       | —     |       | —                |       | —                |       | 16,279         |       | —            |       | —            |       | 16,279     |       |
| Depreciation and  amortization expense                           |       | —     |       | —     |       | —                |       | —                |       | 16,157         |       | —            |       | —            |       | 16,157     |       |
| Income (loss) from  operations                                   |       | —     |       | —     |       | —                |       | —                |       | 57,229         |       | (1,532            | )          | —            |       | 55,697     |       |
| Interest income from  restricted assets                          |       | —     |       | —     |       | —                |       | —                |       | 435            |       | 685               |       | —            |       | 1,120      |       |
| Interest expense                                                 |       | —     |       | —     |       | —                |       | —                |       | (10,279        | )          | —            |       | —            |       | (10,279    | )          |
| Realized gain on  investments                                    |       | —     |       | —     |       | —                |       | —                |       | —         |       | 847               |       | —            |       | 847        |       |
| Interest and other  income                                       |       | —     |       | —     |       | —                |       | —                |       | 423            |       | —            |       | —            |       | 423        |       |
| Income before income  taxes                                      |       | —     |       | —     |       | —                |       | —                |       | 47,808         |       | —            |       | —            |       | 47,808     |       |
| Income tax expense                                               |       | —     |       | —     |       | —                |       | —                |       | (18,885        | )          | —            |       | —            |       | (18,885    | )          |
| Income before equity in  earnings of unconsolidated subsidiaries |       | —     |       | —     |       | —                |       | —                |       | 28,923         |       | —            |       | —            |       | 28,923     |       |
| Equity in earnings of  unconsolidated subsidiaries               |       | 29,019     |       | 29,019     |       | 8,591                 |       | 20,428                |       | 96             |       | —            |       | (87,057           | )          | 96         |       |
| Net income                                                       |       | $          | 29,019     |       | $          | 29,019                |       | $                     | 8,591      |           | $          | 20,428            |       | $                 | 29,019     |       | $          | — |   | $ | (87,057 | ) | $ | 29,019 |   |

 

15

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**Consolidating Statement of Operations**

**For the six months ended June 30, 2010**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 1,388,158  |       | $          | 26,101 |   | $ | (26,101 | ) | $ | 1,388,158 |   |
| Compensation and  benefits                                       |       | —     |       | —     |       | —                |       | —                |       | 976,760        |       | —            |       | —            |       | 976,760    |       |
| Operating expenses                                               |       | —     |       | —     |       | —                |       | —                |       | 177,115        |       | —            |       | —            |       | 177,115    |       |
| Insurance expense                                                |       | —     |       | —     |       | —                |       | —                |       | 46,837         |       | 27,276            |       | (26,101           | )          | 48,012     |       |
| Selling, general and  administrative expenses                    |       | —     |       | —     |       | —                |       | —                |       | 35,156         |       | —            |       | —            |       | 35,156     |       |
| Depreciation and  amortization expense                           |       | —     |       | —     |       | —                |       | —                |       | 31,872         |       | —            |       | —            |       | 31,872     |       |
| Income (loss) from  operations                                   |       | —     |       | —     |       | —                |       | —                |       | 120,418        |       | (1,175            | )          | —            |       | 119,243    |       |
| Interest income from  restricted assets                          |       | —     |       | —     |       | —                |       | —                |       | 688            |       | 1,026             |       | —            |       | 1,714      |       |
| Interest expense                                                 |       | —     |       | —     |       | —                |       | —                |       | (13,326        | )          | —            |       | —            |       | (13,326    | )          |
| Realized gain on  investments                                    |       | —     |       | —     |       | —                |       | —                |       | —         |       | 149               |       | —            |       | 149        |       |
| Interest and other  income                                       |       | —     |       | —     |       | —                |       | —                |       | 471            |       | —            |       | —            |       | 471        |       |
| Loss on early  extinguishment of debt                            |       | —     |       | —     |       | —                |       | —                |       | (19,091        | )          | —            |       | —            |       | (19,091    | )          |
| Income before income  taxes                                      |       | —     |       | —     |       | —                |       | —                |       | 89,160         |       | —            |       | —            |       | 89,160     |       |
| Income tax expense                                               |       | —     |       | —     |       | —                |       | —                |       | (34,365        | )          | —            |       | —            |       | (34,365    | )          |
| Income before equity in  earnings of unconsolidated subsidiaries |       | —     |       | —     |       | —                |       | —                |       | 54,795         |       | —            |       | —            |       | 54,795     |       |
| Equity in earnings of  unconsolidated subsidiaries               |       | 54,994     |       | 54,994     |       | 13,521                |       | 41,473                |       | 199            |       | —            |       | (164,982          | )          | 199        |       |
| Net income                                                       |       | $          | 54,994     |       | $          | 54,994                |       | $                     | 13,521     |           | $          | 41,473            |       | $                 | 54,994     |       | $          | — |   | $ | (164,982 | ) | $ | 54,994 |   |

 

**Consolidating Statement of Operations**

**For the six months ended June 30, 2009**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 1,250,313  |       | $          | 14,030 |   | $ | (14,030 | ) | $ | 1,250,313 |   |
| Compensation and  benefits                                       |       | —     |       | —     |       | —                |       | —                |       | 865,162        |       | —            |       | —            |       | 865,162    |       |
| Operating expenses                                               |       | —     |       | —     |       | —                |       | —                |       | 166,845        |       | —            |       | —            |       | 166,845    |       |
| Insurance expense                                                |       | —     |       | —     |       | —                |       | —                |       | 47,979         |       | 16,912            |       | (14,030           | )          | 50,861     |       |
| Selling, general and  administrative expenses                    |       | —     |       | —     |       | —                |       | —                |       | 31,315         |       | —            |       | —            |       | 31,315     |       |
| Depreciation and  amortization expense                           |       | —     |       | —     |       | —                |       | —                |       | 32,925         |       | —            |       | —            |       | 32,925     |       |
| Income (loss) from  operations                                   |       | —     |       | —     |       | —                |       | —                |       | 106,087        |       | (2,882            | )          | —            |       | 103,205    |       |
| Interest income from  restricted assets                          |       | —     |       | —     |       | —                |       | —                |       | 990            |       | 1,396             |       | —            |       | 2,386      |       |
| Interest expense                                                 |       | —     |       | —     |       | —                |       | —                |       | (20,469        | )          | —            |       | —            |       | (20,469    | )          |
| Realized gain on  investments                                    |       | —     |       | —     |       | —                |       | —                |       | —         |       | 1,486             |       | —            |       | 1,486      |       |
| Interest and other  income                                       |       | —     |       | —     |       | —                |       | —                |       | 940            |       | —            |       | —            |       | 940        |       |
| Income before income  taxes                                      |       | —     |       | —     |       | —                |       | —                |       | 87,548         |       | —            |       | —            |       | 87,548     |       |
| Income tax expense                                               |       | —     |       | —     |       | —                |       | —                |       | (34,611        | )          | —            |       | —            |       | (34,611    | )          |
| Income before equity in  earnings of unconsolidated subsidiaries |       | —     |       | —     |       | —                |       | —                |       | 52,937         |       | —            |       | —            |       | 52,937     |       |
| Equity in earnings of unconsolidated  subsidiaries               |       | 53,090     |       | 53,090     |       | 17,935                |       | 35,155                |       | 153            |       | —            |       | (159,270          | )          | 153        |       |
| Net income                                                       |       | $          | 53,090     |       | $          | 53,090                |       | $                     | 17,935     |           | $          | 35,155            |       | $                 | 53,090     |       | $          | — |   | $ | (159,270 | ) | $ | 53,090 |   |

 

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**Consolidating Balance Sheet**

**As of June 30, 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                          |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 297,207    |       | $          | 15,826 |   | $ | — |   | $ | 313,033 |   |
| Insurance  collateral                               |       | —     |       | —     |       | —                |       | —                |       | 9,600          |       | 89,010            |       | (67,674           | )          | 30,936     |       |
| Trade  and other accounts receivable, net           |       | —     |       | —     |       | —                |       | —                |       | 483,144        |       | 453               |       | —            |       | 483,597    |       |
| Parts  and supplies inventory                       |       | —     |       | —     |       | —                |       | —                |       | 22,392         |       | —            |       | —            |       | 22,392     |       |
| Prepaids  and other current assets                  |       | —     |       | —     |       | —                |       | —                |       | 28,705         |       | 490               |       | 3,383             |       | 32,578     |       |
| Current  deferred tax assets                        |       | —     |       | —     |       | —                |       | —                |       | (3,834         | )          | 3,834             |       | —            |       | —     |       |
| Current  assets                                     |       | —     |       | —     |       | —                |       | —                |       | 837,214        |       | 109,613           |       | (64,291           | )          | 882,536    |       |
| Non-current  assets:                                |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property,  plant, and equipment, net                |       | —     |       | —     |       | —                |       | —                |       | 121,324        |       | —            |       | —            |       | 121,324    |       |
| Intercompany  receivable                            |       | —     |       | —     |       | 286,520               |       | 127,369               |       | —         |       | —            |       | (413,889          | )          | —     |       |
| Intangible  assets, net                             |       | —     |       | —     |       | —                |       | —                |       | 144,567        |       | —            |       | —            |       | 144,567    |       |
| Non-current  deferred tax assets                    |       | —     |       | —     |       | —                |       | —                |       | 9,953          |       | (6,120            | )          | 1,994             |       | 5,827      |       |
| Insurance  collateral                               |       | —     |       | —     |       | —                |       | —                |       | 34,785         |       | 79,798            |       | 30,157            |       | 144,740    |       |
| Goodwill                                            |       | —     |       | —     |       | —                |       | —                |       | 386,042        |       | 458               |       | —            |       | 386,500    |       |
| Other  long-term assets                             |       | —     |       | —     |       | 8,578                 |       | 3,637                 |       | 7,086          |       | —            |       | —            |       | 19,301     |       |
| Investment  and advances in subsidiaries            |       | 764,775    |       | 764,775    |       | 419,309               |       | 345,452               |       | 35,223         |       | —            |       | (2,329,534        | )          | —     |       |
| Assets                                              |       | $          | 764,775    |       | $          | 764,775               |       | $                     | 714,407    |           | $          | 476,458           |       | $                 | 1,576,194  |       | $          | 183,749 |   | $ | (2,775,563 | ) | $ | 1,704,795 |   |
| **Liabilities and Equity**                          |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                               |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts  payable                                   |       | $          | —     |       | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 66,778     |       | $          | 54 |   | $ | — |   | $ | 66,832 |   |
| Accrued  liabilities                                |       | —     |       | —     |       | 802                   |       | 288                   |       | 238,993        |       | 25,351            |       | 2,151             |       | 267,585    |       |
| Current  deferred tax liability                     |       | —     |       | —     |       | —                |       | —                |       | 11,494         |       | —            |       | —            |       | 11,494     |       |
| Current  portion of long-term debt                  |       | —     |       | —     |       | 7,331                 |       | 3,294                 |       | 1,223          |       | —            |       | —            |       | 11,848     |       |
| Current  liabilities                                |       | —     |       | —     |       | 8,133                 |       | 3,582                 |       | 318,488        |       | 25,405            |       | 2,151             |       | 357,759    |       |
| Long-term  debt                                     |       | —     |       | —     |       | 285,919               |       | 128,456               |       | 1,312          |       | —            |       | —            |       | 415,687    |       |
| Insurance  reserves and other long-term liabilities |       | —     |       | —     |       | —                |       | —                |       | 86,568         |       | 114,297           |       | (34,291           | )          | 166,574    |       |
| Intercompany  payable                               |       | —     |       | —     |       | —                |       | —                |       | 405,065        |       | 8,824             |       | (413,889          | )          | —     |       |
| Liabilities                                         |       | —     |       | —     |       | 294,052               |       | 132,038               |       | 811,433        |       | 148,526           |       | (446,029          | )          | 940,020    |       |
| Equity:                                             |       |       |       |       |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A  common stock                          |       | 303        |       | —     |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 303        |       |
| Class B  common stock                          |       | 1          |       | —     |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                                 |       | 90,776     |       | 388,624    |       | 318,565               |       | 70,059                |       | 387,108        |       | —            |       | (1,164,356        | )          | 90,776     |       |
| Additional  paid-in capital                         |       | 297,544    |       | —     |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 297,544    |       |
| Retained  earnings                                  |       | 374,036    |       | 374,036    |       | 101,780               |       | 272,256               |       | 375,538        |       | 26,522            |       | (1,150,132        | )          | 374,036    |       |
| Comprehensive  income                               |       | 2,115      |       | 2,115      |       | 10                    |       | 2,105                 |       | 2,115          |       | 4,355             |       | (10,700           | )          | 2,115      |       |
| Equity                                              |       | 764,775    |       | 764,775    |       | 420,355               |       | 344,420               |       | 764,761        |       | 35,223            |       | (2,329,534        | )          | 764,775    |       |
| Liabilities  and Equity                             |       | $          | 764,775    |       | $          | 764,775               |       | $                     | 714,407    |           | $          | 476,458           |       | $                 | 1,576,194  |       | $          | 183,749 |   | $ | (2,775,563 | ) | $ | 1,704,795 |   |

 

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** **

**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 |   |

 

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**Condensed Consolidating Statement of Cash Flows**

**For the quarter ended June 30, 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  operating activities              |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 8,856      |   | $ | 31,301 |   | $ | 40,157 |   |
| **Cash  Flows from Investing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| Purchase of property,  plant and equipment              |       | —     |       | —     |       | —           |       | —           |       | (8,652         | )          | —             |       | (8,652     | )          |
| Proceeds from sale of  property, plant and equipment    |       | —     |       | —     |       | —           |       | —           |       | 66             |       | —             |       | 66         |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —     |       | —           |       | —           |       | (47,675        | )          | —             |       | (47,675    | )          |
| Net change in insurance  collateral                     |       | —     |       | —     |       | —           |       | —           |       | 23,208         |       | (30,835            | )          | (7,627     | )          |
| Net change in deposits  and other assets                |       | —     |       | —     |       | —           |       | —           |       | 10,648         |       | —             |       | 10,648     |       |
| Net cash provided by  (used in) investing activities    |       | —     |       | —     |       | —           |       | —           |       | (22,405        | )          | (30,835            | )          | (53,240    | )          |
| **Cash  Flows from Financing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| EMSC issuance of class A  common stock                  |       | 1,791      |       | —     |       | —           |       | —           |       | —         |       | —             |       | 1,791      |       |
| Repayments of capital  lease obligations and other debt |       | —     |       | —     |       | (310,679         | )          | (139,580         | )          | (1,184         | )          | —             |       | (451,443   | )          |
| Borrowings under credit  facility                       |       | —     |       | —     |       | 293,250          |       | 131,750          |       | —         |       | —             |       | 425,000    |       |
| Debt issue costs                                        |       | —     |       | —     |       | (8,107           | )          | (3,642           | )          | —         |       | —             |       | (11,749    | )          |
| Payment of premiums for  debt extinguishment            |       | —     |       | —     |       | (10,014          | )          | (4,499           | )          | —         |       | —             |       | (14,513    | )          |
| Excess tax benefits from  stock-based compensation      |       | —     |       | —     |       | —           |       | —           |       | 2,917          |       | —             |       | 2,917      |       |
| Net change in bank  overdrafts                          |       | —     |       | —     |       | —           |       | —           |       | (6,942         | )          | —             |       | (6,942     | )          |
| Net intercompany  borrowings (payments)                 |       | (1,791     | )          | —     |       | 35,550           |       | 15,971           |       | (49,730        | )          | —             |       | —     |       |
| Net cash used in  financing activities                  |       | —     |       | —     |       | —           |       | —           |       | (54,939        | )          | —             |       | (54,939    | )          |
| Change in cash and cash  equivalents                    |       | —     |       | —     |       | —           |       | —           |       | (68,488        | )          | 466                |       | (68,022    | )          |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —     |       | —           |       | —           |       | 365,695        |       | 15,360             |       | 381,055    |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 297,207    |   | $ | 15,826 |   | $ | 313,033 |   |

 

**Condensed Consolidating Statement of Cash Flows**

**For the quarter ended June 30, 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    |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 101,646    |   | $ | (2,649 | ) | $ | 98,997 |   |
| **Cash  Flows from Investing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| Purchase of property,  plant and equipment              |       | —     |       | —     |       | —           |       | —           |       | (12,878        | )          | —             |       | (12,878    | )          |
| Proceeds from sale of  property, plant and equipment    |       | —     |       | —     |       | —           |       | —           |       | 39             |       | —             |       | 39         |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —     |       | —           |       | —           |       | (133           | )          | —             |       | (133       | )          |
| Net change in insurance  collateral                     |       | —     |       | —     |       | —           |       | —           |       | (1,627         | )          | (13,616            | )          | (15,243    | )          |
| Net change in deposits and  other assets                |       | —     |       | —     |       | —           |       | —           |       | 27             |       | —             |       | 27         |       |
| Net cash used in  investing activities                  |       | —     |       | —     |       | —           |       | —           |       | (14,572        | )          | (13,616            | )          | (28,188    | )          |
| **Cash  Flows from Financing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| EMSC issuance of class A  common stock                  |       | 3,825      |       | —     |       | —           |       | —           |       | —         |       | —             |       | 3,825      |       |
| Repayments of capital  lease obligations and other debt |       | —     |       | —     |       | —           |       | —           |       | (1,453         | )          | —             |       | (1,453     | )          |
| Net change in bank  overdrafts                          |       | —     |       | —     |       | —           |       | —           |       | (190           | )          | —             |       | (190       | )          |
| Net intercompany  borrowings (payments)                 |       | (3,825     | )          | —     |       | —           |       | —           |       | 3,825          |       | —             |       | —     |       |
| Net cash provided by  financing activities              |       | —     |       | —     |       | —           |       | —           |       | 2,182          |       | —             |       | 2,182      |       |
| Change in cash and cash  equivalents                    |       | —     |       | —     |       | —           |       | —           |       | 89,256         |       | (16,265            | )          | 72,991     |       |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —     |       | —           |       | —           |       | 177,516        |       | 16,632             |       | 194,148    |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 266,772    |   | $ | 367 |   | $ | 267,139 |   |

 

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**Condensed Consolidating Statement of Cash Flows**

**For the six months ended June 30, 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  operating activities              |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 56,432     |   | $ | 28,310 |   | $ | 84,742 |   |
| **Cash  Flows from Investing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| Purchase of property,  plant and equipment              |       | —     |       | —     |       | —           |       | —           |       | (15,168        | )          | —             |       | (15,168    | )          |
| Proceeds from sale of  property, plant and equipment    |       | —     |       | —     |       | —           |       | —           |       | 108            |       | —             |       | 108        |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —     |       | —           |       | —           |       | (50,975        | )          | —             |       | (50,975    | )          |
| Net change in insurance  collateral                     |       | —     |       | —     |       | —           |       | —           |       | 22,573         |       | (27,834            | )          | (5,261     | )          |
| Net change in deposits  and other assets                |       | —     |       | —     |       | —           |       | —           |       | 10,938         |       | —             |       | 10,938     |       |
| Net cash (used in)  provided by investing activities    |       | —     |       | —     |       | —           |       | —           |       | (32,524        | )          | (27,834            | )          | (60,358    | )          |
| **Cash  Flows from Financing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| EMSC issuance of class A  common stock                  |       | 6,193      |       | —     |       | —           |       | —           |       | —         |       | —             |       | 6,193      |       |
| Repayments of capital  lease obligations and other debt |       | —     |       | —     |       | (310,338         | )          | (139,427         | )          | (2,862         | )          | —             |       | (452,627   | )          |
| Borrowings under credit  facility                       |       | —     |       | —     |       | 293,250          |       | 131,750          |       | —         |       | —             |       | 425,000    |       |
| Debt issue costs                                        |       | —     |       | —     |       | (8,107           | )          | (3,642           | )          | —         |       | —             |       | (11,749    | )          |
| Payment of premiums for  debt extinguishment            |       | —     |       | —     |       | (10,014          | )          | (4,499           | )          | —         |       | —             |       | (14,513    | )          |
| Excess tax benefits from  stock-based compensation      |       | —     |       | —     |       | —           |       | —           |       | 13,498         |       | —             |       | 13,498     |       |
| Net change in bank  overdrafts                          |       | —     |       | —     |       | —           |       | —           |       | (10,041        | )          | —             |       | (10,041    | )          |
| Net intercompany  borrowings (payments)                 |       | (6,193     | )          | —     |       | 35,209           |       | 15,818           |       | (44,834        | )          | —             |       | —     |       |
| Net cash used in  financing activities                  |       | —     |       | —     |       | —           |       | —           |       | (44,239        | )          | —             |       | (44,239    | )          |
| Change in cash and cash  equivalents                    |       | —     |       | —     |       | —           |       | —           |       | (20,331        | )          | 476                |       | (19,855    | )          |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —     |       | —           |       | —           |       | 317,538        |       | 15,350             |       | 332,888    |       |
| Cash and cash equivalents,  end of period               |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 297,207    |   | $ | 15,826 |   | $ | 313,033 |   |

 

**Condensed Consolidating Statement of Cash Flows**

**For the six months ended June 30, 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    |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 144,622    |   | $ | (3,683 | ) | $ | 140,939 |   |
| **Cash  Flows from Investing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| Purchase of property,  plant and equipment              |       | —     |       | —     |       | —           |       | —           |       | (20,085        | )          | —             |       | (20,085    | )          |
| Proceeds from sale of  property, plant and equipment    |       | —     |       | —     |       | —           |       | —           |       | 60             |       | —             |       | 60         |       |
| Net change in insurance  collateral                     |       | —     |       | —     |       | —           |       | —           |       | (262           | )          | (1,671             | )          | (1,933     | )          |
| Net change in deposits  and other assets                |       | —     |       | —     |       | —           |       | —           |       | (776           | )          | —             |       | (776       | )          |
| Net cash used in  investing activities                  |       | —     |       | —     |       | —           |       | —           |       | (21,063        | )          | (1,671             | )          | (22,734    | )          |
| **Cash  Flows from Financing Activities**               | ** ** | ** ** |       |       |       |             |       |             |       |           |       |               |       |       |       |
| EMSC issuance of class A  common stock                  |       | 4,723      |       | —     |       | —           |       | —           |       | —         |       | —             |       | 4,723      |       |
| Repayments of capital  lease obligations and other debt |       | —     |       | —     |       | —           |       | —           |       | (2,612         | )          | —             |       | (2,612     | )          |
| Net change in bank  overdrafts                          |       | —     |       | —     |       | —           |       | —           |       | 650            |       | —             |       | 650        |       |
| Net intercompany  borrowings (payments)                 |       | (4,723     | )          | —     |       | —           |       | —           |       | 4,723          |       | —             |       | —     |       |
| Net cash provided by  financing activities              |       | —     |       | —     |       | —           |       | —           |       | 2,761          |       | —             |       | 2,761      |       |
| Change in cash and cash  equivalents                    |       | —     |       | —     |       | —           |       | —           |       | 126,320        |       | (5,354             | )          | 120,966    |       |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —     |       | —           |       | —           |       | 140,452        |       | 5,721              |       | 146,173    |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |       | $          | —           |       | $                | —     |           | $          | —             |       | $          | 266,772    |   | $ | 367 |   | $ | 267,139 |   |

 

**11.        Subsequent Events**

 

The Company’s management hasevaluated events subsequent to June 30, 2010 through the issue date ofthis report.  There has been no materialevent noted in this period which would either impact the results reflected inthis report or the Company’s results going forward.

 

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

 

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

 

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

 

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

 

This Report should be readin conjunction with the Company’s consolidated financial statements and notesthereto included in our Annual Report on Form 10-K filed with the SEC onFebruary 19, 2010.

 

***Company Overview***

 

We are a leading provider ofemergency medical services and facility-based physician services in the UnitedStates. We operate our business and market our services under the AMR andEmCare brands. AMR, over its more than 50 years of operating history, is aleading provider of ground and fixed-wing ambulance services in the UnitedStates based on net revenue and number of transports. EmCare, over its morethan 35 years of operating history, is a leading provider of physician servicesin the United States based on number of contracts with hospitals and affiliatedphysician groups.  Through EmCare, weprovide facility-based physician services for emergency departments andhospitalist/inpatient, anesthesiology, radiology, and teleradiology programs.

 

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

 

The key factors and measureswe use to evaluate our business focus on the number of patients we treat andtransport and the costs we incur to provide the necessary care andtransportation for each of our patients.

 

We evaluate our revenue netof provisions for contractual payor discounts and provisions for uncompensatedcare. Medicaid, Medicare and certain other payors receive discounts from ourstandard charges, which we refer to as contractual discounts. In addition,individuals we treat and transport may be personally responsible for adeductible or co-pay under their third party payor coverage, and most of ourcontracts require us to treat and transport patients who have no insurance orother third party payor coverage. Due to the uncertainty regardingcollectibility 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 

 

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contractual discounts andestimated uncompensated care. Provisions for contractual discounts anduncompensated care have increased historically primarily as a result ofincreases in gross billing rates without corresponding increases in payorreimbursement.

 

The table below summarizesour approximate payor mix as a percentage of both net revenue and totaltransports and patient encounters for the three and six months ended June 30,2010 and 2009. In determining the net revenue payor mix, we use cashcollections in the period as an approximation of net revenue recorded.

 
| ** **                            | ** ** | **Percentage of Cash Collections (Net Revenue)** | ** ** | **Percentage of Total Volume**       | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **Quarter ended********June 30,**           | ** ** | **Six months ended   June 30,** | ** ** | **Quarter ended********June 30,** | ** ** | **Six months ended   June 30,** | ** ** |
| ** **                            | ** ** | **2010**                                         | ** ** | **2009**                             | ** ** | **2010** | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Medicare                              |       | 21.7                                             | %          | 23.4                                 | %          | 21.9 | % | 23.6 | % | 24.7 | % | 24.3 | % | 24.9 | % | 25.1 | % |
| Medicaid                              |       | 5.3                                              | %          | 4.6                                  | %          | 5.1 | % | 4.5 | % | 12.7 | % | 11.2 | % | 12.5 | % | 11.0 | % |
| Commercial insurance and managed care |       | 49.9                                             | %          | 51.5                                 | %          | 49.8 | % | 50.7 | % | 43.3 | % | 42.9 | % | 43.0 | % | 42.5 | % |
| Self-pay                              |       | 4.2                                              | %          | 3.9                                  | %          | 4.2 | % | 4.0 | % | 19.3 | % | 21.6 | % | 19.6 | % | 21.4 | % |
| Subsidies & fees             |       | 18.9                                             | %          | 16.6                                 | %          | 19.0 | % | 17.2 | % | — |   | — |   | — |   | — |   |
| Total                                 |       | 100.0                                            | %          | 100.0                                | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |

 

Our 2010 volume mix has beenpositively impacted when compared to the 2009 volume mix primarily due to therecent expansion of our Anesthesia business, which has a much lower percentageof self-pay mix when compared to our emergency department, radiology or inpatientservices businesses, and to a decreased percentage of self-pay patients treatedin 2010. Our payor mix was negatively impacted during the 2009 periodspresented due to an increased level of self-pay patients treated in response tothe H1N1 virus, which did not recur in 2010.

 

In addition to continuallymonitoring our payor mix, we also analyze certain measures in each of ourbusiness segments.

 

**AMR**

 

Approximately 88% of AMR’snet revenue for the six months ended June 30, 2010 was transport revenuederived from the treatment and transportation of patients, including fixed wingmedical transportation services, based on billings to third party payors,healthcare facilities and patients. The balance of AMR’s net revenue is derivedfrom direct billings to communities, government agencies and other contractedcustomers for the provision of training, dispatch center and otherservices.  AMR’s measures for net revenueinclude transports (segregated into ambulance and wheelchair transports andthat we weight in certain analyses) and net revenue per transport.

 

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 for medicalcrews and support personnel, direct and indirect operating costs to providetransportation services, and costs related to accident and insurance claims.AMR’s key cost measures include unit hours and cost per unit hour (to measurecompensation-related costs and the efficiency of our ambulance deployment),operating costs per transport, and accident and insurance claims.

 

We have focused our riskmitigation efforts on employee training for proper patient handling techniques,development of clinical and medical equipment protocols, driving safety,implementation of technology to reduce auto incidents and other risk mitigationprocesses which we believe have resulted in a reduction in the frequency,severity and development of claims.

 

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.

 

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**EmCare**

 

Of EmCare’s net revenue forthe six months ended June 30, 2010, approximately 77% was derived from ourhospital contracts for emergency department staffing and approximately 23% wasderived from hospitalist, anesthesiology, radiology, teleradiology and otherhospital management services. Approximately 77% of EmCare’s net revenue was generated from billings tothird party payors and patients for patient encounters and approximately 23%was generated from billings to hospitals and affiliated physician groups forprofessional services. EmCare’s key net revenue measures are patient encounters(segregated into emergency department visits, radiology reads, andanesthesiology and hospitalist encounters and that we weight in certainanalyses), net revenue per patient encounter, and number of contracts.

 

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 developed extensiveprofessional liability risk mitigation processes, including risk assessments onmedical professionals and hospitals, extensive incident reporting and trackingprocesses, clinical fail-safe programs, training and education and other riskmitigation programs which we believe have resulted in a reduction in thefrequency, severity and development of claims.

 

Our EmCare business segmentis less capital intensive than AMR, and EmCare’s depreciation expense relatesprimarily to charges for usage of computer hardware and software, and othertechnologies.  Amortization expenserelates primarily to intangibles recorded for customer relationships.

 

***Factors Affecting Operating Results***

 

**Changes inNet 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 10.0% and 9.0% of AMR’s operating expenses for the three monthsended June 30, 2010 and 2009, respectively, and 9.8% and 8.5% for the sixmonths ended June 30, 2010 and 2009, respectively.  Although we have generally been able tooffset inflationary and other cost increases through increased operatingefficiencies and successful negotiation of fees and subsidies, we can provideno assurance that we will be able to offset any future inflationary cost increasesthrough similar efficiencies and fee changes.

 

***Critical Accounting Policies***

 

**RevenueRecognition**

 

Management regularlyanalyzes the ultimate collectibility of accounts receivable after certainstages of the 

 

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collection cycle using alook-back analysis to determine the amount of receivables subsequentlycollected. Adjustments related to this analysis were less than 1% of netrevenue for the three and six month periods ended June 30, 2010 and 2009.

 

**Results ofOperations**

 

**Quarter andSix Months Ended June 30, 2010 Compared to the Quarter and Six MonthsEnded June 30, 2009**

 

The following tables presenta comparison of financial data from our unaudited consolidated statements ofoperations for the three and six months ended June 30, 2010 and 2009 forEMSC and our two operating segments.

 

**Non-GAAPMeasures**

 

*AdjustedEBITDA. *Adjusted EBITDA is defined as net income beforeequity in earnings of unconsolidated subsidiary, income tax expense, loss onearly debt extinguishment, 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 becomparable to other similarly titled measures of other companies. The tablesset forth a reconciliation of Adjusted EBITDA to net income and cash flowsprovided by operating activities.

 

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

**(dollars in thousands)**

**EMSC**

** **
| ** **                                       | ** ** | **Quarter ended********June 30, 2010** | ** ** | **Quarter ended********June 30, 2009** | ** ** | **Six months ended********June 30, 2010** | ** ** | **Six months ended********June 30, 2009** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                            | ** ** | **% of net********revenue**                 | ** ** | ** **                                                    | ** ** | **% of net********revenue**                         | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net revenue                                      |       | $                                                     | 708,804    |                                                  | 100.0      | %                                                             | $          | 637,291                                                       |       | 100.0 | % | $ | 1,388,158 |   | 100.0 | % | $ | 1,250,313 |   | 100.0 | % |
| Compensation and  benefits                       |       | 496,443                                               |       | 70.0                                                  |       | 438,628                                                       |       | 68.8                                                          |       | 976,760 |   | 70.4 |   | 865,162 |   | 69.2 |   |
| Operating expenses                               |       | 90,586                                                |       | 12.8                                                  |       | 82,173                                                        |       | 12.9                                                          |       | 177,115 |   | 12.8 |   | 166,845 |   | 13.3 |   |
| Insurance expense                                |       | 25,942                                                |       | 3.7                                                   |       | 28,357                                                        |       | 4.4                                                           |       | 48,012 |   | 3.5 |   | 50,861 |   | 4.1 |   |
| Selling, general and  administrative expenses    |       | 18,298                                                |       | 2.6                                                   |       | 16,279                                                        |       | 2.6                                                           |       | 35,156 |   | 2.5 |   | 31,315 |   | 2.5 |   |
| Interest income from  restricted assets          |       | (859                                                  | )          | (0.1                                                  | )          | (1,120                                                        | )          | (0.2                                                          | )          | (1,714 | ) | (0.1 | ) | (2,386 | ) | (0.2 | ) |
| Adjusted EBITDA                                  |       | $                                                     | 78,394     |                                                  | 11.1       | %                                                             | $          | 72,974                                                        |       | 11.5 | % | $ | 152,829 |   | 11.0 | % | $ | 138,516 |   | 11.1 | % |
| Depreciation and  amortization expenses          |       | (15,692                                               | )          | (2.2                                                  | )          | (16,157                                                       | )          | (2.5                                                          | )          | (31,872 | ) | (2.3 | ) | (32,925 | ) | (2.6 | ) |
| Interest expense                                 |       | (5,060                                                | )          | (0.7                                                  | )          | (10,279                                                       | )          | (1.6                                                          | )          | (13,326 | ) | (1.0 | ) | (20,469 | ) | (1.6 | ) |
| Realized gain on  investments                    |       | 57                                                    |       | 0.0                                                   |       | 847                                                           |       | 0.1                                                           |       | 149 |   | 0.0 |   | 1,486 |   | 0.1 |   |
| Interest and other  income                       |       | 206                                                   |       | 0.0                                                   |       | 423                                                           |       | 0.1                                                           |       | 471 |   | 0.0 |   | 940 |   | 0.1 |   |
| Loss on early debt extinguishment                |       | (19,091                                               | )          | (2.7                                                  | )          | —                                                        |       | —                                                        |       | (19,091 | ) | (1.4 | ) | — |   | — |   |
| Income tax expense                               |       | (14,955                                               | )          | (2.1                                                  | )          | (18,885                                                       | )          | (3.0                                                          | )          | (34,365 | ) | (2.5 | ) | (34,611 | ) | (2.8 | ) |
| Equity in earnings of  unconsolidated subsidiary |       | 105                                                   |       | 0.0                                                   |       | 96                                                            |       | 0.0                                                           |       | 199 |   | 0.0 |   | 153 |   | 0.0 |   |
| Net income                                       |       | $                                                     | 23,964     |                                                  | 3.4        | %                                                             | $          | 29,019                                                        |       | 4.6 | % | $ | 54,994 |   | 4.0 | % | $ | 53,090 |   | 4.2 | % |

 

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**Unaudited Reconciliation of Adjusted EBITDA to Cash FlowsProvided by Operating Activities**

**(dollars in thousands)**

** **
| ** **                                           | ** ** | **For the quarter ended June 30,** | ** ** | **For the six months ended June 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                           | ** ** | **2010**                                | ** ** | **2009**                                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Adjusted  EBITDA                                     |       | $                                       | 78,394     |                                            | $          | 72,974 |   | $ | 152,829 |   | $ | 138,516 |   |
| Interest  paid                                       |       | (4,431                                  | )          | (9,774                                          | )          | (12,190 | ) | (19,651 | ) |
| Change  in accounts receivable                       |       | (21,750                                 | )          | 3,499                                           |       | (19,559 | ) | 874 |   |
| Change  in other operating assets/liabilities        |       | 3,094                                   |       | 31,439                                          |       | 7,028 |   | 18,956 |   |
| Equity  based compensation                           |       | 1,441                                   |       | 1,104                                           |       | 2,545 |   | 1,754 |   |
| Excess  tax benefits from stock-based compensation   |       | (2,917                                  | )          | —                                          |       | (13,498 | ) | — |   |
| Income  tax expense, net of change in deferred taxes |       | (13,982                                 | )          | (1,552                                          | )          | (33,525 | ) | (2,683 | ) |
| Other                                                |       | 308                                     |       | 1,307                                           |       | 1,112 |   | 3,173 |   |
| Cash  flows provided by operating activities         |       | $                                       | 40,157     |                                            | $          | 98,997 |   | $ | 84,742 |   | $ | 140,939 |   |

 

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

**(dollars in thousands)**

**AMR**

** **
| ** **                                                   | ** ** | **Quarter ended********June 30, 2010** | ** ** | **Quarter ended********June 30, 2009** | ** ** | **Six months ended********June 30, 2010** | ** ** | **Six months ended********June 30, 2009** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                            | ** ** | **% of net********revenue**                 | ** ** | ** **                                                    | ** ** | **% of net********revenue**                         | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net revenue                                                  |       | $                                                     | 344,159    |                                                  | 100.0      | %                                                             | $          | 335,504                                                       |       | 100.0 | % | $ | 681,121 |   | 100.0 | % | $ | 671,950 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 211,302                                               |       | 61.4                                                  |       | 207,820                                                       |       | 61.9                                                          |       | 419,653 |   | 61.6 |   | 416,094 |   | 61.9 |   |
| Operating expenses                                           |       | 78,439                                                |       | 22.8                                                  |       | 72,084                                                        |       | 21.5                                                          |       | 154,078 |   | 22.6 |   | 146,619 |   | 21.8 |   |
| Insurance expense                                            |       | 12,775                                                |       | 3.7                                                   |       | 13,928                                                        |       | 4.2                                                           |       | 23,960 |   | 3.5 |   | 25,016 |   | 3.7 |   |
| Selling, general and  administrative expenses                |       | 10,227                                                |       | 3.0                                                   |       | 9,682                                                         |       | 2.9                                                           |       | 19,956 |   | 2.9 |   | 18,898 |   | 2.8 |   |
| Interest income from  restricted assets                      |       | (344                                                  | )          | (0.1                                                  | )          | (435                                                          | )          | (0.1                                                          | )          | (688 | ) | (0.1 | ) | (990 | ) | (0.1 | ) |
| Adjusted EBITDA                                              |       | $                                                     | 31,760     |                                                  | 9.2        | %                                                             | $          | 32,425                                                        |       | 9.7 | % | $ | 64,162 |   | 9.4 | % | $ | 66,313 |   | 9.9 | % |
| Reconciliation of  Adjusted EBITDA to income from operations |       |                                                  |       |                                                  |       |                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                              |       | 31,760                                                |       | 9.2                                                   |       | 32,425                                                        |       | 9.7                                                           |       | 64,162 |   | 9.4 |   | 66,313 |   | 9.9 |   |
| Depreciation and  amortization expense                       |       | (11,070                                               | )          | (3.2                                                  | )          | (12,242                                                       | )          | (3.6                                                          | )          | (22,304 | ) | (3.3 | ) | (24,948 | ) | (3.7 | ) |
| Interest income from  restricted assets                      |       | (344                                                  | )          | (0.1                                                  | )          | (435                                                          | )          | (0.1                                                          | )          | (688 | ) | (0.1 | ) | (990 | ) | (0.1 | ) |
| Income from operations                                       |       | $                                                     | 20,346     |                                                  | 5.9        | %                                                             | $          | 19,748                                                        |       | 5.9 | % | $ | 41,170 |   | 6.0 | % | $ | 40,375 |   | 6.0 | % |
|                                                         |       |                                                  |       |                                                  |       |                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |

 

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**EmCare**

 
| ** **                                                   | ** ** | **Quarter ended********June 30, 2010** | ** ** | **Quarter ended********June 30, 2009** | ** ** | **Six months ended********June 30, 2010** | ** ** | **Six months ended********June 30, 2009** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                            | ** ** | **% of net********revenue**                 | ** ** | ** **                                                    | ** ** | **% of net********revenue**                         | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net revenue                                                  |       | $                                                     | 364,645    |                                                  | 100.0      | %                                                             | $          | 301,787                                                       |       | 100.0 | % | $ | 707,037 |   | 100.0 | % | $ | 578,363 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 285,141                                               |       | 78.2                                                  |       | 230,808                                                       |       | 76.5                                                          |       | 557,107 |   | 78.8 |   | 449,068 |   | 77.6 |   |
| Operating expenses                                           |       | 12,147                                                |       | 3.3                                                   |       | 10,089                                                        |       | 3.3                                                           |       | 23,037 |   | 3.3 |   | 20,226 |   | 3.5 |   |
| Insurance expense                                            |       | 13,167                                                |       | 3.6                                                   |       | 14,429                                                        |       | 4.8                                                           |       | 24,052 |   | 3.4 |   | 25,845 |   | 4.5 |   |
| Selling, general and  administrative expenses                |       | 8,071                                                 |       | 2.2                                                   |       | 6,597                                                         |       | 2.2                                                           |       | 15,200 |   | 2.1 |   | 12,417 |   | 2.1 |   |
| Interest income from  restricted assets                      |       | (515                                                  | )          | (0.1                                                  | )          | (685                                                          | )          | (0.2                                                          | )          | (1,026 | ) | (0.1 | ) | (1,396 | ) | (0.2 | ) |
| Adjusted EBITDA                                              |       | $                                                     | 46,634     |                                                  | 12.8       | %                                                             | $          | 40,549                                                        |       | 13.4 | % | $ | 88,667 |   | 12.5 | % | $ | 72,203 |   | 12.5 | % |
| Reconciliation of  Adjusted EBITDA to income from operations |       |                                                  |       |                                                  |       |                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                              |       | 46,634                                                |       | 12.8                                                  |       | 40,549                                                        |       | 13.4                                                          |       | 88,667 |   | 12.5 |   | 72,203 |   | 12.5 |   |
| Depreciation and  amortization expenses                      |       | (4,622                                                | )          | (1.3                                                  | )          | (3,915                                                        | )          | (1.3                                                          | )          | (9,568 | ) | (1.4 | ) | (7,977 | ) | (1.4 | ) |
| Interest income from  restricted assets                      |       | (515                                                  | )          | (0.1                                                  | )          | (685                                                          | )          | (0.2                                                          | )          | (1,026 | ) | (0.1 | ) | (1,396 | ) | (0.2 | ) |
| Income from operations                                       |       | $                                                     | 41,497     |                                                  | 11.4       | %                                                             | $          | 35,949                                                        |       | 11.9 | % | $ | 78,073 |   | 11.0 | % | $ | 62,830 |   | 10.9 | % |
|                                                         |       |                                                  |       |                                                  |       |                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |

 

***Quarter ended June 30, 2010 compared to the quarter ended June 30,2009***

 

***Consolidated***

 

Our results for the threemonths ended June 30, 2010 reflect an increase in net revenue of $71.5million and a decrease in net income of $5.1 million compared to the threemonths ended June 30, 2009.  The decrease in net income wasattributable primarily to the loss on early debt extinguishment in connectionwith our new credit facilities and was offset by growth in income fromoperations and a decrease in interest expense.  Basic and diluted earningsper share were both $0.54 for the three months ended June 30, 2010. Excluding the impact from the loss on early debt extinguishment of $19.1million and a $3.1 million reserve recorded in connection with a tentativelegal settlement, or the New York Accrual, disclosed in note 7, under thecaption “Commitments and Contingencies” of the notes accompanying the consolidatedfinancial statements, basic and diluted earnings per share were $0.85 and$0.84, respectively, for the three months ended June 30, 2010.  Basic and diluted earnings per share were$0.69 and $0.67, respectively, for the same period in 2009.

 

*Netrevenue. *For the three months ended June 30, 2010, wegenerated net revenue of $708.8 million compared to $637.3 million for thethree months ended June 30, 2009, representing an increase of 11.2%. The increase is attributable primarily to increases in revenues on existingcontracts and increased volume from net new contracts and acquisitions.

 

*AdjustedEBITDA.* Adjusted EBITDA was $78.4 million, or 11.1% of net revenue, for thethree months ended June 30, 2010 compared to $73.0 million, or 11.5% ofnet revenue for the three months ended June 30, 2009.

 

*Interestexpense.* Interest expense for the three months ended June 30,2010 was $5.1 million compared to $10.3 million for the three months ended June 30,2009.  The decrease was due to enteringinto our new credit facility in April 2010 and the redemption of oursenior subordinated notes which resulted in a decrease to our effectiveinterest rate compared to our previous debt structure.

 

*Income taxexpense. *Income tax expense decreased by $3.9 million for thethree months ended June 30, 2010 compared to the same period in2009.  Our effective tax rate for the three months ended June 30,2010 was 38.5% and was 39.5% for the same period in 2009.

 

***AMR***

 

*Net revenue. *Net revenue forthe three months ended June 30, 2010 was $344.2 million, an increase of$8.7 million, or 2.6%, from $335.5 million for the same period in 2009.  The increase in net revenue was due primarilyto 

 

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an increase in net revenueper weighted transport of 4.8%, or $15.7 million, partially offset by adecrease of 2.1%, or $7.0 million, in weighted transport volume.  Netrevenue per weighted transport increased 4.1% from rate increases and 0.7% fromgrowth in our managed transportation business. Weighted transports decreased 15,500 from the same quarter last year. This change was due to a decrease in weighted transport volume in existingmarkets of 2.2%, or 16,000 weighted transports, due to the exit of certaincontracts in existing markets, and a decrease of 6,100 weighted transports fromthe exit of certain markets, which decreases were partially offset by anincrease of 6,600 weighted transports from our entry into new markets.

 

*Compensationand benefits. *Compensation and benefit costs for the three monthsended June 30, 2010 were $211.3 million, or 61.4% of net revenue, comparedto $207.8 million, or 61.9% of net revenue, for the same period last year.Ambulance crew wages per ambulance unit hour increased by approximately 4.4%,or $5.0 million, attributable primarily to annual wage rateincreases.   Ambulance unit hours decreased period over period by2.7%, or $3.1 million, due primarily to the reduction in volume in existingmarkets and increased efficiency in our ambulance unit hour deployment. Compensation and benefits decreased as a percentage of net revenue due in part tothe growth in our managed transportation business.  Our managed transportation costs arereflected primarily in operating expenses.

 

*Operatingexpenses. *Operating expenses for the three months ended June 30,2010 were $78.4 million, or 22.8% of net revenue, compared to $72.1 million, or21.5% of net revenue, for the three months ended June 30, 2009.  The change is due primarily to increased fuelcosts of $1.4 million, increased costs associated with growth in our managedtransportation business of $1.9 million, and a reserve recorded in connectionwith the New York Accrual of $3.1 million.

 

*Insuranceexpense. *Insurance expense for the three months ended June 30,2010 was $12.8 million, or 3.7% of net revenue, compared to $13.9 million, or4.2% of net revenue, for the same period in 2009.  We recorded an increaseof prior year insurance provisions of $1.0 million during the three monthsended June 30, 2010 compared to an increase of $1.3 million during thethree months ended June 30, 2009.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended June 30, 2010 was $10.2million, or 3.0% of net revenue, compared to $9.7 million, or 2.9% of netrevenue, for the three months ended June 30, 2009.

 

*Depreciationand amortization. *Depreciation and amortization expense for thethree months ended June 30, 2010 was $11.1 million, or 3.2% of netrevenue, compared to $12.2 million, or 3.6% of net revenue, for the same periodin 2009.  The decrease was due primarilyto AMR’s ability to utilize fewer ambulances to service its existing contractsand the timing of replacing fully depreciated assets.

 

***EmCare***

 

*Netrevenue. *Net revenue for the three months ended June 30,2010 was $364.6 million, an increase of $62.9 million, or 20.8%, from $301.8million for the three months ended June 30, 2009. The increase was dueprimarily to an increase in patient encounters from net new hospital contractsand net revenue increases in existing contracts. Following March 31, 2009,we added 54 net new contracts which accounted for a net revenue increase of$48.4 million for the three months ended June 30, 2010.  Of the 54net new contracts added since March 31, 2009, 46 were added in 2009resulting in an incremental increase in 2010 net revenue of $45.4 million. EmCarehas added 34 new contracts and terminated 26 contracts to date in 2010,resulting in an increase in net revenue of $3.0 million for the three monthsended June 30, 2010.  Net revenue under our “same store” contracts(contracts in existence for the entirety of both periods) increased $11.8million, or 4.5%, for the three months ended June 30, 2010.  Thechange is due to a 5.7% increase in revenue per weighted patient encounterprimarily as a result of rate increases from our third-party payors, improvementin our payor mix and an increase in acuity. The number of current period same store weighted patient encountersdecreased 1.2% compared to the prior period due to H1N1 volume during thesecond quarter of 2009.

 

*Compensationand benefits. *Compensation and benefits costs for the three monthsended June 30, 2010 were $285.1 million, or 78.2% of net revenue, comparedto $230.8 million, or 76.5% of net revenue, for the same period in 2009.Provider compensation costs increased $39.6 million from net new contract additions.Same store provider 

 

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compensation costs were $9.0million higher than the prior period due primarily to a 6.5% increase inprovider compensation per weighted patient encounter.  Non-providercompensation and total benefits costs increased by $4.9 million due primarilyto our recent acquisitions.

 

*Operatingexpenses. *Operating expenses for the three months endedJune 30, 2010 were $12.1 million, or 3.3% of net revenue, compared to$10.1 million, or 3.3% of net revenue, for the same period in 2009. Operating expenses increased due primarily to higher collection agency andbilling fees incurred in connection with our net new contracts added since March 31,2009 and the expansion of our anesthesiology and radiology businesses.

 

*Insuranceexpense. *Professional liability insurance expense for thethree months ended June 30, 2010 was $13.2 million, or 3.6% of netrevenue, compared to $14.4 million, or 4.8% of net revenue, for the threemonths ended June 30, 2009.  We recorded an increase of prior yearinsurance provisions of $0.5 million during the three months ended June 30,2010 compared to an increase of $3.1 million during the three months ended June 30,2009.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended June 30, 2010 was $8.1million, or 2.2% of net revenue, compared to $6.6 million, or 2.2% of netrevenue, for the three months ended June 30, 2009.  The $1.5 million increase was due primarilyto growth in the number of net new contracts since March 31, 2009.

 

*Depreciationand amortization. *Depreciation and amortization expense for thethree months ended June 30, 2010 was $4.6 million, or 1.3% of net revenue,compared to $3.9 million, or 1.3% of net revenue, for the three months ended June 30,2009.  The $0.7 million increase was dueprimarily to additional amortization expense associated with a contractintangible asset recorded on acquisitions completed subsequent to March 31,2009.

 

***Six months ended June 30, 2010 compared to the six months ended June 30,2009***

 

***Consolidated***

 

Our results for the sixmonths ended June 30, 2010 reflect an increase in net revenue of $137.8million and an increase in net income of $1.9 million compared to the sixmonths ended June 30, 2009. The increase in net income is attributableprimarily to growth in income from operations, a decrease in interest expense,partially offset by the loss on early debt extinguishment.  Basic and diluted earnings per share were$1.26 and $1.23, respectively, for the six months ended June 30, 2010 and2009.

 

*Netrevenue. *For the six months ended June 30, 2010, netrevenue was $1,388.2 million compared to $1,250.3 million for the six monthsended June 30, 2009, representing an increase of 11.0%. The increase isattributable primarily to increases in revenues on existing contracts andincreased volume from net new contracts and acquisitions.

 

*AdjustedEBITDA. *Adjusted EBITDA was $152.8 million, or 11.0% of netrevenue, for the six months ended June 30, 2010 compared to $138.5million, or 11.1% of net revenue for the six months ended June 30, 2009.

 

*Interestexpense. *Interest expense for the six months ended June 30,2010 was $13.3 million compared to $20.5 million for the six months ended June 30,2009.  The decrease was due to entering into our new credit facilityin April 2010 and the redemption of our senior subordinated notes whichresulted in a decrease to our effective interest rate compared to our previousdebt structure.

 

*Income taxexpense. *Income tax expense decreased $0.2 million for thesix months ended June 30, 2010 compared to the same period in 2009. Our effective tax rate for the six months ended June 30, 2010was 38.5% and was 39.5% for the same period in 2009.

 

***AMR***

 

*Netrevenue. *Net revenue for the six months ended June 30,2010 was $681.1 million, an increase of $9.2 

 

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million, or 1.4%, from$672.0 million for the same period in 2009. The increase in net revenue was dueprimarily to an increase in net revenue per weighted transport of 3.7%, or$24.3 million, partially offset by a decrease of 2.3%, or $15.1 million,in weighted transport volume.  Netrevenue per weighted transport increased 3.0% from rate increases and 0.7% fromgrowth in our managed transportation business. Weighted transports decreased 33,200 from the same period lastyear.  This change was due to a decrease in weighted transport volume inexisting markets of 2.2%, or 31,400 weighted transports, due to the exit ofcertain contracts in existing markets, and a decrease of 12,400 weightedtransports from the exit of certain markets, which decreases were partiallyoffset by an increase of 10,600 weighted transports from our entry into newmarkets.

 

*Compensationand benefits. *Compensation and benefit costs for the six months endedJune 30, 2010 were $419.7 million, or 61.6% of net revenue, compared to$416.1 million, or 61.9% of net revenue, for the six months ended June 30,2009. Ambulance crew wages per ambulance unit hour increased by approximately4.5%, or $10.0 million, attributable primarily to annual wage rateincreases.   Ambulance unit hours decreased period over period by3.2%, or $7.4 million, due primarily to the reduction in volume in existingmarkets and increased efficiency in our ambulance unit hour deployment. Compensation and benefits decreased as a percentage of net revenue due in partto the growth in our managed transportation business.  Our managed transportation costs arereflected primarily in operating expenses.

 

*Operatingexpenses. *Operating expenses for the six months ended June 30,2010 were $154.1 million, or 22.6% of net revenue, compared to $146.6 million,or 21.8% of net revenue, for the six months ended June 30, 2009. Thechange is due primarily to increased fuel costs of $2.7 million, increased costsassociated with growth in our managed transportation business of $3.6 million,and a reserve recorded in connection with the New York Accrual of $3.1 million.

 

*Insuranceexpense. *Insurance expense for the six months ended June 30,2010 was $24.0 million, or 3.5% of net revenue, compared to $25.0 million, or3.7% of net revenue, for the same period in 2009. We recorded an increase ofprior year insurance provisions of $0.1 million during the six months ended June 30,2010 compared to an increase of $2.0 million during the six months ended June 30,2009.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the six months ended June 30, 2010 was $20.0million, or 2.9% of net revenue, compared to $18.9 million, or 2.8% of netrevenue, for the six months ended June 30, 2009.

 

*Depreciationand amortization. *Depreciation and amortization expense for thesix months ended June 30, 2010 was $22.3 million, or 3.3% of net revenue,compared to $24.9 million, or 3.7% of net revenue, for the same period in2009.   The decrease was dueprimarily to AMR’s ability to utilize fewer ambulances to service its existingcontracts and the timing of replacing fully depreciated assets.

 

***EmCare***

 

*Netrevenue.* Net revenue for thesix months ended June 30, 2010 was $707.0 million, an increase of $128.7million, or 22.2%, from $578.4 million for the six months ended June 30,2009. The increase was due primarily to an increase in patient encounters fromnet new hospital contracts and net revenue increases in existing contracts.Following December 31, 2008, we added 61 net new contracts which accountedfor a net revenue increase of $94.5 million.  Of the 61 net new contractsadded since December 31, 2008, 53 were added in 2009 resulting in anincrease in 2010 net revenue of $86.6 million.  EmCare hasadded 34 new contracts and terminated 26 contracts to date in 2010, resultingin an increase in net revenue of $7.9 million for the six months ended June 30,2010.  Net revenue under our samestore contracts increased $25.2 million, or 5.2%, for the six months ended June 30,2010. The change is primarily due to a 4.8% increase in revenue perweighted patient encounter primarily as a result of rate increases from ourthird-party payors, improvement in our payor mix and an increase inacuity.  The number of current periodsame store weighted patient encounters increased 0.4% compared to the priorperiod notwithstanding increased volume during the second quarter of 2009 fromthe H1N1 virus and from a milder flu season in 2010.

 

*Compensationand benefits.* Compensation andbenefits costs for the six months ended June 30, 2010 were $557.1 million,or 78.8% of net revenue, compared to $449.1 million, or 77.6% of net revenuefor the same period in 2009. Provider compensation costs increased $76.3million from net new contract additions. Same store provider 

 

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compensationcosts were $21.1 million over the prior period primarily due to a 6.2% increasein provider compensation per weighted patient encounter.  Non-provider compensation and total benefitscosts increased by $11.2 million due primarily to our recent acquisitions.

 

*Operatingexpenses.* Operating expensesfor the six months ended June 30, 2010 were $23.0 million, or 3.3% of netrevenue, compared to $20.2 million, or 3.5% of net revenue, for the same periodin 2009.  Operating expenses increased due primarily to highercollection agency and billing fees incurred in connection with our net newcontracts added since December 31, 2008 and the expansion of ouranesthesiology and radiology businesses.

 

*Insuranceexpense.* Professionalliability insurance expense for the six months ended June 30, 2010 was$24.1 million, or 3.4% of net revenue, compared to $25.8 million, or 4.5% ofnet revenue, for the six months ended June 30, 2009.  We recorded a decrease ofprior year insurance provisions of $1.4 million during the six months ended June 30,2010 compared to an increase of $3.2 million during the six months ended June 30,2009.

 

*Selling,general and administrative.* Selling,general and administrative expense for the six months ended June 30, 2010was $15.2 million, or 2.1% of net revenue, compared to $12.4 million, or 2.1%of net revenue, for the six months ended June 30, 2009.  The $2.8 million increasewas due primarily to growth in the number of net new contracts since December 31,2008.

 

*Depreciationand amortization.* Depreciation andamortization expense for the six months ended June 30, 2010 was $9.6million, or 1.4% of net revenue, compared to $8.0 million, or 1.4% of netrevenue, for the six months ended June 30, 2009.  The $1.6million increase was due primarily to additional amortization expenseassociated with a contract intangible asset recorded on acquisitions completedsubsequent to December 31, 2008.

 

**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 June 30, 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.

 

On April 8, 2010, wecompleted the financing of new senior secured credit facilities, which isfurther described in note 5 of the notes accompanying the consolidatedfinancial statements. In conjunction with completing the financing under thenew credit facilities, we repaid the balance outstanding on the previous seniorsecured term loan and redeemed our 10% senior subordinated notes. These transactionswill reduce our effective interest rate going forward compared to the rateunder our previous debt structure.

 

We believe our cash and cashequivalents, net cash from our operating activities, and amounts availableunder our senior secured credit facility will meet the liquidity requirementsof our business through at least the next 12 months. We have available to us,upon compliance with customary conditions, $150.0 million under the revolvingcredit facility, less outstanding letters of credit of $45.8 million at June 30,2010.

 

**Cash Flow**

 

The table below summarizescash flow information derived from our statements of cash flows for the periodsindicated, amounts in thousands.

 

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| ** **                       | ** ** | **Six months ended********June 30,** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **2010**                                  | ** ** | **2009** | ** ** |
| Net  cash provided by (used in): |       |                                      |       |   |   |
| Operating  activities            |       | $                                         | 84,742     |   | $ | 140,939 |   |
| Investing  activities            |       | (60,358                                   | )          | (22,734 | ) |
| Financing  activities            |       | (44,239                                   | )          | 2,761 |   |
|                                  |            |                                           |            |  |  |  |  |

 

*Operatingactivities*. Net cash provided by operating activities was$84.7 million for the six months ended June 30, 2010 compared to $140.9million for the same period in 2009.  Cash tax payments increased $31.1million due to utilization of net operating loss carryforwards in 2009.  Prepaids and other current assets decreasedcash flows from operations $12.2 million during the six months ended June 30,2010 compared to an increase of $4.7 million during the six months ended June 30,2009 primarily due to the timing of insurance related premium payments.  Trade and other accounts receivable decreasedcash flows from operations $19.6 million during the six months ended June 30,2010 primarily due to revenue growth and a one day increase in days salesoutstanding, or DSO, due to temporary Medicare delays and a system conversionin one AMR region.

 

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 March 31, 2009 shown below are due to additional collections onaccounts receivable as a result of continued billing and collection processenhancements at both AMR and EmCare.  The following table outlines our DSOby segment and in total excluding the impact of acquisitions completed withinthe specific quarter:

 
| ** ** | ** ** | **Q2 2010** | ** ** | **Q1 2010** | ** ** | **Q4 2009** | ** ** | **Q3 2009** | ** ** | **Q2 2009** | ** ** | **Q1 2009** | ** ** |
|------------|------------|-------------|------------|-------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 68          |       | 66          |       | 68               |       | 70               |       | 73               |       | 74               |       |
| EmCare     |       | 55          |       | 56          |       | 60               |       | 58               |       | 61               |       | 65               |       |
| EMSC       |       | 62          |       | 61          |       | 64               |       | 64               |       | 67               |       | 70               |       |

 

*Investingactivities*.  Net cash used in investing activities was$60.4 million for the six months ended June 30, 2010 compared to $22.7million for the same period in 2009.   The increase in cash flows used ininvesting activities relates to $51.0 million used in the acquisition ofbusinesses during 2010.  This is offsetby an increase in cash provided by other investing activities of $11.6 millionprimarily due to a reduction in performance bond collateral during the sixmonths ended June 30, 2010.

 

*Financingactivities.* For the six months ended June 30, 2010, netcash used in financing activities was $44.2 million compared to cash providedby financing activities of $2.8 million for the same period in 2009. During the six months ended June 30, 2010 we incurred $11.7 million indebt issuance costs related to our new credit facility and used $25.0 millionto reduce our total outstanding debt.  Wealso incurred $14.5 million in cash payments related to the redemption of oursenior subordinated notes during the six months ended June 30, 2010.  This is offset by the cash flow benefitrelated to tax deductions for stock-based compensation during the six monthsended June 30, 2010.  At June 30,2010 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 tochanges in market interest rates and fuel prices and, as appropriate, usehighly effective derivative instruments to manage well-defined riskexposures.  As of June 30, 2010, wewere party to a 

 

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series of fuel hedgetransactions with a major financial institution under one masteragreement.  Each of the transactionseffectively fixes the cost of diesel fuel at prices ranging from $2.96 to $3.29per gallon.  We purchase the diesel fuelat the market rate and periodically settle with our counterparty for thedifference between the national average price for the period published by theDepartment of Energy and the agreed upon fixed price.  The transactions fix the price for a total of6.8 million gallons, which represents approximately 32% of our total estimatedusage over the hedge period, and are spread over periods from July 2010through June 2012.

 

As of June 30, 2010, wehad $426.7 million of debt excluding capital leases, of which $425.0 millionwas variable rate debt under our credit facility.  An increase or decrease in interest rates of0.2% will impact our interest costs by $0.9 million annually.

 

**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 evaluation ofour disclosure controls and procedures conducted within 90 days of the date offiling this Report on Form 10-Q, our principal executive officer and ourprincipal 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 in ourinternal control over financial reporting that occurred during our fiscalquarter ended June 30, 2010 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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** **

**EMERGENCY MEDICAL SERVICES CORPORATION**

 

**PART II. OTHER INFORMATION**

 

**FOR THE THREE AND SIX MONTHS ENDED**

 

**JUNE 30, 2010**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

Asreferenced in our Annual Report on Form 10-K for the year ended December 31,2009, we have responded to a subpoena from the Department of Justice, or DOJ,relating to certain AMR affiliates in New York. We are currently in discussionswith the DOJ and the Office of Inspector General of Health and Human Servicesregarding resolution of this matter and have recorded a $3.1 million reserve inconnection with the matter.

 

For additional informationregarding legal proceedings, please refer to note 7, under the caption “Commitmentsand Contingencies” of the notes accompanying the consolidated financialstatements included herein, to our Annual Report on Form 10-K filed withthe SEC on February 19, 2010 and to our Quarterly Report on Form 10-Qfiled with the SEC on May 4, 2010.

 

**ITEM 1A.RISK FACTORS**

 

There have been no materialchanges from the risk factors disclosed in the “Risk Factors” section of theCompany’s Annual Report on Form 10-K for the year ended December 31,2009.

 

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**ITEM 6.EXHIBITS**

 
| 10.3.3  |   | Amendment to Employment  Agreement, dated May 18, 2010, between Randel G. Owen and Emergency  Medical Services Corporation.*                                                                                                                                                                       |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                    |
| 10.19.1 |   | Amendment to Employment  Agreement, dated March 16, 2010, between Mark Bruning and American  Medical Response, Inc.*                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 10.20   |   | EMSC Physician Stock Purchase  Plan (incorporated by reference to Exhibit 4.2 of the Company’s Registration  Statement on Form S-3 filed June 24, 2010).                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 10.21   |   | EMSC Deferred Compensation  Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration  Statement on Form S-8 filed June 24, 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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*  Filed with this report

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrants have duly caused thisreport to be signed on their behalf by the undersigned, thereunto dulyauthorized.

 
|                | **EMERGENCY  MEDICAL SERVICES CORPORATION** |
|---------------------|---------------------------------------------|
|                | ** **                                  |
|                | (registrant)                                |
|                |                                        |   |
| August 5, 2010 |                                        | By: | /s/ William A. Sanger |
| Date                |                                        |   | William A. Sanger |
|                |                                        |   | Chairman and Chief  Executive Officer |
|                |                                        |   |   |
| August 5, 2010 |                                        | By: | /s/ Randel G. Owen |
| Date                |                                        |   | Randel G. Owen |
|                |                                        |   | Chief Financial Officer  and Executive Vice President |
|                |                                        |   |   |
| ** **          | ** **                                  | **EMERGENCY  MEDICAL SERVICES L.P.** |
|                |                                        | (registrant) |
|                |                                        |   |   |
|                |                                        | By: | Emergency Medical Services  Corporation, its General Partner |
|                |                                        |   |   |
| August 5, 2010 |                                        | By: | /s/ William A. Sanger |
| Date                |                                        |   | William A. Sanger |
|                |                                        |   | Chairman and Chief  Executive Officer |
|                |                                        |   |   |
| August 5, 2010 |                                        | By: | /s/ Randel G. Owen |
| Date                |                                        | Randel G. Owen |
|                |                                        | Chief Financial Officer  and Executive Vice President |

 

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**EXHIBIT INDEX**

 
| 10.3.3  |   | Amendment to Employment Agreement, dated  May 18, 2010, between Randel G. Owen and Emergency Medical Services  Corporation.*                                                                                                                                                                       |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                    |
| 10.19.1 |   | Amendment to Employment  Agreement, dated March 16, 2010, between Mark Bruning and American  Medical Response, Inc.*                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 10.20   |   | EMSC Physician Stock  Purchase Plan (incorporated by reference to Exhibit 4.2 of the Company’s  Registration Statement on Form S-3 filed June 24, 2010).                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                    |
| 10.21   |   | EMSC Deferred Compensation  Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration  Statement on Form S-8 filed June 24, 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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*  Filed with this report

 

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