**UNITED STATES**

**SECURITIES 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 SECURITIES EXCHANGE ACT OF 1934** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** **                                                                                        |
| **For the  quarterly period ended March 31, 2007**                                                                                                                                                                                                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                |       | ** **                                                                                        |
| **Or**                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** **                                                                                        |
| **o**                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** **                                                                                        |
| **For the  transition period from                                   to                                 ** |

**Commission file numbers:**

**001-32701**

**333-127115**

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**EMERGENCYMEDICAL SERVICES L.P.**

**(Exact nameof Registrants as Specified in their Charters)**

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|                                           |   | **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**

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**Former name, former address and former fiscal year, ifchanged since last report:**

**Notapplicable**

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.    Yes  x    No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): 
| Large accelerated  filer  o |   | Accelerated  filer  x |   | Non-accelerated filer  o |
|---------------------------------------|--------|---------------------------------|--------|------------------------------------|

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

Shares of class A commonstock outstanding at May 1, 2007 – 9,288,848; shares of class B commonstock outstanding at May 1, 2007 – 142,545; LP exchangeable unitsoutstanding at May 1, 2007 – 32,107,500.

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**INDEX TOQUARTERLY REPORT**

**ON FORM 10-Q**

**FOR THETHREE MONTHS ENDED**

**MARCH 31, 2007**
| Part 1. Financial  Information |   |
|--------------------------------|--------|
|                           |   |   |   |
| Item 1.                        |   | Financial  Statements (Unaudited): |   |
|                           |   |   |   |
|                           |   | Statements  of Operations and Comprehensive Income (Loss) |   |
|                           |   |   |   |
|                           |   | Consolidated  Balance Sheets |   |
|                           |   |   |   |
|                           |   | Statements of Cash  Flows |   |
|                           |   |   |   |
|                           |   | Notes to  Financial Statements |   |
|                           |   |   |   |
| Item 2.                        |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                           |   |   |   |
| Item 3.                        |   | Quantitative  and Qualitative Disclosures About Market Risk |   |
|                           |   |   |   |
| Item 4.                        |   | Controls and  Procedures |   |
|                           |   |   |   |
| Part II. Other  Information    |   |
|                           |   |   |   |
| Item 1.                        |   | Legal Proceedings |   |
|                           |   |   |   |
| Item  1A.                      |   | Risk  Factors |   |
|                           |   |   |   |
| Item 6.                   |   | Exhibits |   |
|                           |   |   |   |
| Signatures                     |   |

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FOR THETHREE MONTHS ENDED**

**MARCH 31, 2007**

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

**Emergency Medical Services Corporation**

**Statements of Operations and Comprehensive Income**

**(unaudited; in thousands, except share and per share data)**
| ** **                                                                      | ** ** | **Quarter ended March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                      | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Net revenue                                                                     |       | $                                          | 523,319    |   | $ | 469,124 |   |
| Compensation and  benefits                                                      |       | 354,932                                    |       | 326,047 |   |
| Operating expenses                                                              |       | 79,996                                     |       | 66,454 |   |
| Insurance expense                                                               |       | 18,586                                     |       | 22,907 |   |
| Selling, general and  administrative expenses                                   |       | 13,305                                     |       | 14,839 |   |
| Depreciation and  amortization expense                                          |       | 16,779                                     |       | 15,844 |   |
| Restructuring charges                                                           |       | 2,242                                      |       | — |   |
| Income from  operations                                                         |       | 37,479                                     |       | 23,033 |   |
| Interest expense                                                                |       | (11,234                                    | )          | (11,292 | ) |
| Realized gain (loss) on  investments                                            |       | 37                                         |       | (219 | ) |
| Interest and other  income                                                      |       | 657                                        |       | 352 |   |
| Income before  income taxes and equity in earnings of unconsolidated subsidiary |       | 26,939                                     |       | 11,874 |   |
| Income tax expense                                                              |       | (10,462                                    | )          | (4,628 | ) |
| Income before  equity in earnings of unconsolidated subsidiary                  |       | 16,477                                     |       | 7,246 |   |
| Equity in earnings of  unconsolidated subsidiary                                |       | 154                                        |       | 15 |   |
| Net income                                                                      |       | 16,631                                     |       | 7,261 |   |
| Other comprehensive  income, net of tax:                                        |       |                                       |       |   |   |
| Unrealized  holding gains (losses) during the period                            |       | 298                                        |       | (570 | ) |
| Comprehensive income                                                            |       | $                                          | 16,929     |   | $ | 6,691 |   |
|                                                                            |       |                                       |       |   |   |
| Basic net income per  common share                                              |       | $                                          | 0.40       |   | $ | 0.17 |   |
| Diluted net income per  common share                                            |       | $                                          | 0.39       |   | $ | 0.17 |   |
| Weighted average common  shares outstanding, basic                              |       | 41,521,155                                 |       | 41,497,230 |   |
| Weighted average common shares outstanding, diluted                             |       | 43,029,039                                 |       | 42,397,898 |   |

 

The accompanying notes arean integral part of these financial statements.

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**Emergency Medical Services Corporation**

**Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                             | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                             | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                             | ** ** | **(Unaudited)**    | ** ** | **(Audited)**         | ** ** |
| **Assets**                                                                                                                                             | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                        |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                              |       | $                  | 29,832     |                  | $          | 39,336 |   |
| Insurance collateral                                                                                                                                   |       | 33,073             |       | 29,724                |       |
| Trade and other accounts receivable, net                                                                                                               |       | 444,601            |       | 416,450               |       |
| Parts and supplies inventory                                                                                                                           |       | 18,102             |       | 18,089                |       |
| Prepaids and other current assets                                                                                                                      |       | 22,376             |       | 16,417                |       |
| Current deferred tax assets                                                                                                                            |       | 49,591             |       | 12,473                |       |
| Total current assets                                                                                                                                   |       | 597,575            |       | 532,489               |       |
| Non-current  assets:                                                                                                                                   |       |               |       |                  |       |
| Property, plant and equipment, net                                                                                                                     |       | 149,754            |       | 147,162               |       |
| Intangible assets, net                                                                                                                                 |       | 64,563             |       | 66,789                |       |
| Non-current deferred tax assets                                                                                                                        |       | 103,209            |       | 103,370               |       |
| Insurance collateral                                                                                                                                   |       | 161,058            |       | 163,300               |       |
| Goodwill                                                                                                                                               |       | 274,669            |       | 272,328               |       |
| Other long-term assets                                                                                                                                 |       | 29,007             |       | 32,779                |       |
| Total assets                                                                                                                                           |       | $                  | 1,379,835  |                  | $          | 1,318,217 |   |
| **Liabilities  and Equity**                                                                                                                            | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                                                  |       |               |       |                  |       |
| Accounts payable                                                                                                                                       |       | $                  | 63,042     |                  | $          | 65,172 |   |
| Accrued liabilities                                                                                                                                    |       | 217,658            |       | 231,631               |       |
| Current portion of long-term debt                                                                                                                      |       | 4,594              |       | 4,159                 |       |
| Total current liabilities                                                                                                                              |       | 285,294            |       | 300,962               |       |
| Long-term debt                                                                                                                                         |       | 480,886            |       | 475,616               |       |
| Insurance  reserves and other long-term liabilities                                                                                                    |       | 210,113            |       | 155,599               |       |
| Total liabilities                                                                                                                                      |       | 976,293            |       | 932,177               |       |
| Equity:                                                                                                                                                |       |               |       |                  |       |
| Preferred stock ($0.01 par value; 20,000,000 shares  authorized, 0 issued and outstanding)                                                             |       | —             |       | —                |       |
| Class A common stock ($0.01 par value; 100,000,000  shares authorized, 9,288,848 and 9,262,853 issued and outstanding in 2007 and  2006, respectively) |       | 93                 |       | 93                    |       |
| Class B common stock ($0.01 par value; 40,000,000  shares authorized, 142,545 issued and outstanding in 2007 and 2006)                                 |       | 1                  |       | 1                     |       |
| Class B special voting stock ($0.01 par value; 1  share authorized, issued and outstanding in 2007 and 2006)                                           |       | —             |       | —                |       |
| LP exchangeable units (32,107,500 shares issued and  outstanding in 2007 and 2006)                                                                     |       | 212,361            |       | 212,361               |       |
| Additional paid-in capital                                                                                                                             |       | 115,044            |       | 114,471               |       |
| Retained earnings                                                                                                                                      |       | 75,769             |       | 59,138                |       |
| Accumulated other comprehensive income (loss)                                                                                                          |       | 274                |       | (24                   | )          |
| Total equity                                                                                                                                           |       | 403,542            |       | 386,040               |       |
| Total liabilities and equity                                                                                                                           |       | $                  | 1,379,835  |                  | $          | 1,318,217 |   |

 

The accompanying notes arean integral part of these financial statements.

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**EmergencyMedical Services Corporation**

**Statements of Cash Flows**

**(unaudited; in thousands)**
| ** **                                                                                   | ** ** | **Quarter ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| **Cash  Flows from Operating Activities**                                                    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                                          | 16,631     |   | $ | 7,261 |   |
| Adjustments to  reconcile net income to net cash (used in) provided by operating activities: |       |                                       |       |   |   |
| Depreciation and amortization                                                                |       | 17,268                                     |       | 16,387 |   |
| Gain on disposal of property, plant and equipment                                            |       | (11                                        | )          | (47 | ) |
| Equity-based compensation expense                                                            |       | 400                                        |       | 300 |   |
| Equity in earnings of unconsolidated subsidiary                                              |       | (154                                       | )          | (15 | ) |
| Dividends received                                                                           |       | 416                                        |       | — |   |
| Deferred income taxes                                                                        |       | 10,637                                     |       | 4,244 |   |
| Changes in operating assets/liabilities, net of  acquisitions:                               |       |                                       |       |   |   |
| Trade and other accounts receivable                                                          |       | (28,151                                    | )          | 19,978 |   |
| Parts and supplies inventory                                                                 |       | (13                                        | )          | (77 | ) |
| Prepaids and other current assets                                                            |       | (5,959                                     | )          | (10,612 | ) |
| Accounts payable and accrued liabilities                                                     |       | (19,934                                    | )          | (8,102 | ) |
| Insurance accruals                                                                           |       | 5,024                                      |       | 7,459 |   |
| Net cash (used in) provided by operating activities                                          |       | (3,846                                     | )          | 36,776 |   |
| **Cash  Flows from Investing Activities**                                                    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                                  |       | (8,321                                     | )          | (13,010 | ) |
| Proceeds from  sale of property, plant and equipment                                         |       | 125                                        |       | 110 |   |
| Insurance  collateral                                                                        |       | (910                                       | )          | (5,632 | ) |
| Other investing  activities                                                                  |       | 3,021                                      |       | (757 | ) |
| Net cash used in investing activities                                                        |       | (6,085                                     | )          | (19,289 | ) |
| **Cash  Flows from Financing Activities**                                                    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| EMSC issuance of  class A common stock                                                       |       | 173                                        |       | — |   |
| EMSC equity  issuance costs                                                                  |       | —                                     |       | (822 | ) |
| Repayments of  capital lease obligations and other debt                                      |       | (2,333                                     | )          | (1,986 | ) |
| Increase in bank  overdrafts                                                                 |       | 2,587                                      |       | 6,114 |   |
| Net cash provided by financing activities                                                    |       | 427                                        |       | 3,306 |   |
| Change in cash  and cash equivalents                                                         |       | (9,504                                     | )          | 20,793 |   |
| Cash and cash  equivalents, beginning of period                                              |       | 39,336                                     |       | 18,048 |   |
| Cash and cash  equivalents, end of period                                                    |       | $                                          | 29,832     |   | $ | 38,841 |   |
|                                                                                         |       |                                       |       |   |   |
| **Non-cash  Activities**                                                                     | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Re-financing of  equipment under existing capital lease                                      |       | $                                          | 8,038      |   | $ | — |   |

 

The accompanying notes arean integral part of these financial statements.

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**EmergencyMedical Services Corporation**

**Notes toUnaudited Financial Statements**

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

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

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

The accompanying interimconsolidated financial statements for Emergency Medical Services Corporation (“EMSC”or the “Company”) have been prepared in accordance with U. S. 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 month period ended March 31,2007 are not necessarily indicative of the results that may be expected for thefull year ending December 31, 2007. 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, 2006.

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

The Company is party to amanagement agreement with a wholly-owned subsidiary of Onex Corporation, theCompany’s principal equityholder. In exchange for an annual management fee of$1.0 million, the Onex subsidiary provides the Company with corporate financeand strategic planning consulting services. For each of the three months endedMarch 31, 2007 and 2006, the Company expensed $250 in respect of this fee.

**2.****        ****Summary of SignificantAccounting 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.

***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. Investment income/loss earned on these investments isreported as a component of insurance expense in the statements of operations.

Insurance reserves areestablished for automobile, workers compensation, general liability andprofessional liability claims utilizing policies with both fully-insured andself-insured components. This includes the use of an off-shore captiveinsurance program through a wholly-owned subsidiary for certain professionalliability (malpractice) programs for EmCare. In those instances where theCompany has obtained third-party insurance coverage, the Company generally retainsliability for the first $1 to $2 million of the loss. Insurance reservescover known claims and incidents within the level of Company retention that mayresult in the assertion of additional claims, as well as claims from unknownincidents that may be asserted arising from activities through the balancesheet 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.

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The Company’s most recentactuarial valuation was completed in March 2007. As a result of this actuarialvaluation, in the three months ended March 31, 2007 the Company recorded areduction in its provision for insurance liabilities of approximately $5.2million related to its reserves for losses in prior years.  No reductions of prior year insuranceprovisions were recorded during the same period in 2006.

The long-term portion ofinsurance reserves were $154.1 million and $150.0 million as of March 31, 2007and December 31, 2006, respectively.

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

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

***Revenue Recognition***

Revenue is recognized at thetime of service and is recorded net of provisions for contractual discounts andestimated uncompensated care. Provisions for contractual discounts andestimated uncompensated care as a percentage of gross revenue and gross revenueless contractual discount provisions, are as follows for the three months endedMarch 31:
|                                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Gross revenue                               |       |     | 100.0      | %        |       |   | 100.0 | % |   |
| Provision for  contractual discounts        |       |     | 42.4       | %        |       |   | 43.1 | % |   |
| Provision for  estimated uncompensated care |       |     | 19.5       | %        |       |   | 18.2 | % |   |
| After  contractual provisions               |       |     | 33.8       | %        |       |   | 32.0 | % |   |

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. As a result, there is a reasonable possibility thatrecorded estimates will change materially in the short-term. Retroactiveadjustments may change the amounts realized from third-party payors and areconsidered in the recognition of revenue on an estimated basis in the periodthe related services are rendered. Such amounts are adjusted in future periods,as adjustments become known.  Retroactiveadjustments recorded in the first quarter, which increased revenue, were 2.8%of consolidated net revenue for the three months ended March 31, 2007 comparedto 1.1% of consolidated net revenue for the three months ended March 31, 2006.

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.

The Company holds 22.7% ofthe equity interests in EMS LP. LP exchangeable units, held by personsaffiliated with the Company’s principal equity holder, represent the balance ofthe EMS LP equity. The LP exchangeable units are exchangeable at any time, atthe option of the holder, for shares of the Company’s class B common stock on aone-for-one basis. The holders of the LP exchangeable units have the right tovote, through the trustee holder of the Company’s class B

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special voting stock, at all stockholder meetings atwhich holders of the Company’s class B common stock or class B special votingstock are entitled to vote.

In the EMS LP partnershipagreement, the Company has agreed to maintain the economic equivalency of theLP exchangeable units and the class B common stock, and the holders of the 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 exchangeable units were shares of its common stock,including reporting the LP exchangeable units in the equity section of theCompany’s balance sheet and including the number of outstanding LP exchangeableunits in both its basic and diluted earnings per share calculations.

***Recent Accounting Pronouncements***

On January 1, 2007, theCompany adopted the recognition and disclosure provisions of FASBInterpretation No. 48, “*Accounting for Uncertaintyin Income Taxes - an interpretation of FASB Statement No. 109*” (“FIN48”).  This interpretation addresses the determination of whether taxbenefits claimed or expected to be claimed on a tax return should be recordedin the financial statements.  Under FIN 48, the Company may recognize thetax benefit from an uncertain tax position only if it is more likely than notthat the tax position will be sustained on examination by the taxingauthorities, based on the technical merits of the position. The tax benefitsrecognized in the financial statements from such a position should be measuredbased on the largest benefit that has a greater than fifty percent likelihoodof being realized upon ultimate settlement. FIN 48 also provides guidance onderecognition, classification, interest and penalties on income taxes, andaccounting in interim periods.

As a result of theimplementation of FIN 48 at January 1, 2007, the Company recorded a $49.0million liability with an offsetting increase to net current deferred taxassets.

In accordance with theCompany’s accounting policy, EMSC recognized accrued interest and penaltiesrelated to unrecognized tax benefits as a component of tax expense, which isconsistent with the recognition of these items in prior reportingperiods.  As of January 1, 2007, the Company recorded a liability ofapproximately $4.8 million and $6.1 million for interest and penalties,respectively.  The liability for interest and penalties did not materiallychange as of March 31, 2007.

With limited exception, theCompany is no longer subject to U.S. federal, state, and local income taxaudits by taxing authorities for years through 2002.

**3.****        ****Accrued Liabilities**

Accrued liabilities were asfollows at March 31, 2007 and December 31, 2006:
| ** **                                  | ** ** | **March 31, 2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Accrued wages  and benefits                 |       | $                            | 70,771     |                        | $          | 71,578 |   |
| Accrued paid  time-off                      |       | 23,459                       |       | 22,816                      |       |
| Current portion  of self-insurance reserves |       | 58,373                       |       | 57,596                      |       |
| Accrued  restructuring                      |       | 6,204                        |       | 5,738                       |       |
| Current portion  of compliance and legal    |       | 3,503                        |       | 4,910                       |       |
| Accrued billing  and collection fees        |       | 5,352                        |       | 5,085                       |       |
| Accrued profit  sharing                     |       | 12,584                       |       | 19,695                      |       |
| Accrued interest                            |       | 5,369                        |       | 11,810                      |       |
| Other                                       |       | 32,043                       |       | 32,403                      |       |
| Total accrued  liabilities                  |       | $                            | 217,658    |                        | $          | 231,631 |   |

 

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**4.****        ****Long-Term Debt**

Long-term debt consisted ofthe following at March 31, 2007 and December 31, 2006:
| ** **                                                                       | ** ** | **March 31, 2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Senior  subordinated notes due 2015 (10%)                                        |       | $                            | 250,000    |                        | $          | 250,000 |   |
| Senior secured  term loan due 2012 (7.38% at March 31, 2007)                     |       | 225,896                      |       | 226,472                     |       |
| Notes due at  various dates from 2007 to 2022 with interest rates from 6% to 10% |       | 1,793                        |       | 1,856                       |       |
| Capital lease  obligations due at various dates from 2007 to 2010 (see note 5)   |       | 7,791                        |       | 1,447                       |       |
|                                                                             |       | 485,480                      |       | 479,775                     |       |
| Less current  portion                                                            |       | (4,594                       | )          | (4,159                      | )          |
| Total long-term debt                                                             |       | $                            | 480,886    |                        | $          | 475,616 |   |

 

**5.****        ****Commitments andContingencies**

***Lease Commitments***

The Company leases variousfacilities and equipment under operating lease agreements.

The Company also leasescertain vehicles under a capital lease and during the three months ended March31, 2007 extended the terms of this capital lease for an additional threeyears. Assets under capital lease are capitalized using inherent interest ratesat the inception of each lease. Capital leases are collateralized by the leasedvehicles.

***Services***

The Company is subject tothe Medicare and Medicaid fraud and abuse laws which prohibit, among otherthings, any false claims, or any bribe, kick-back or rebate in return for thereferral of Medicare and Medicaid patients. Violation of these prohibitions mayresult in civil and criminal penalties and exclusion from participation in 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.

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 complaint alleges that AMR billedpatients and third party payors for transports it conducted between 1998 and2005 at higher rates than contractually permitted.  The court has certified a class in this case,but the size and membership of the class has not been determined.  At this time, AMR does not believe that anyincorrect billings are material in amount.

On April 17, 2006, theOffice of Inspector General for the United States Department of Health andHuman Services, or OIG, finalized its draft report requesting that the Company’sMassachusetts subsidiary reimburse the Medicare program for approximately $1.8million in alleged overpayments from Medicare for services performed betweenJuly 1, 2002 and December 31, 2002. The OIG claimsthat these payments were made for services that did not meet Medicaremedical necessity and reimbursement requirements.   On December 10, 2006, AMR paid the $1.8million in alleged overpayments. However, the Company disagrees with the OIG’s finding and has filed anadministrative appeal. If AMR is successful in the administrative appealthe Company may be entitled to repayment of all or part of the $1.8 million.

***Other Legal Matters***

EmCare entered into asettlement agreement with respect to June Belt, et. al. v. EmCare, Inc. et. al.brought by a number of nurse practitioners and physician assistants under theFair Labor Standards Act.  The suit wasfiled on February 25, 2003 in the Eastern District of Texas.  Pursuant to the settlement agreement, EmCarehas paid $1.7 million during the three months ended March 31, 2007 insatisfaction of all claims in the lawsuit.

9

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

**6.****        ****Restructuring Charges**

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

**7.****        ****Equity Based Compensation**

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

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. Options with similar provisions were granted tonon-employee directors. The Company recorded a compensation charge of $300 foreach of the three months ended March 31, 2007 and 2006.

In June 2006, the board ofdirectors adopted an equity compensation program for non-employee directors ofthe Company, other than the Chair of the Compliance Committee (“Directors’ Plan”).Non-employee directors were granted 8,000 Restricted Stock Units (“RSUs”) onJune 1, 2006, each RSU representing one share of the Company’s class Acommon stock. Immediately following each annual stockholder meeting, eachnon-employee director will receive a grant of RSUs having a fair market valueof $100 on the date of grant, based on the closing price of the Company’s classA common stock on the business day immediately preceding the grant date. TheDirectors’ Plan allows directors to defer income from the grant of RSUs. TheRSUs vest immediately prior to the election of directors at the next followingannual stockholder meeting, and will be paid in shares of the Company’s class Acommon stock (one share for each RSU). Each non-employee director (other thanthe Chair of the Compliance Committee) is also entitled to an annual cashretainer of $50 to be paid in four quarterly installments. The Directors’ Planand RSU grants on June 1, 2006 are both subject to stockholder approval atthe 2007 annual stockholder meeting. In connection with this plan, the Companyexpensed $100 in the three months ended March 31, 2007.

**8.****        ****Segment Information**

The Company is organizedaround two separately managed business units: healthcare transportationservices and emergency management services, which have been identified asoperating segments. The healthcare transportation services reportable segmentfocuses on providing a full range of medical transportation services from basicpatient transit to the most advanced emergency care and pre-hospitalassistance. The emergency management services reportable segment providesoutsourced business services to hospitals primarily for emergency departments,urgent care centers and for certain inpatient departments. The Chief ExecutiveOfficer has been identified as the chief operating decision maker (“CODM”) forpurposes of SFAS No. 131 *Disclosuresabout Segments of an Enterprise and Related Information* (“SFAS 131”),as he assesses the performance of the business units and decides how toallocate resources to the business units. Pre-tax income from continuingoperations before interest, taxes and depreciation and amortization (“EBITDA”)is the measure of profit and loss that the CODM uses to assess performance andmake decisions. The accounting policies for reported segments are the same asfor the Company as a whole.

10

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|                                                  | ** ** | **Quarter ended March, 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| **Healthcare Transportation  Services**          | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| Revenue                                          |       | $                                           | 308,108    |   | $ | 295,312 |   |
| Segment EBITDA                                   |       | 24,945                                      |       | 23,159 |   |
| **Emergency Management Services**                | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| Revenue                                          |       | 215,211                                     |       | 173,812 |   |
| Segment  EBITDA                                  |       | 29,313                                      |       | 15,718 |   |
| **Total**                                        | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| Total revenue                                    |       | 523,319                                     |       | 469,124 |   |
| Total EBITDA                                     |       | 54,258                                      |       | 38,877 |   |
| **Reconciliation of EBITDA to Net  Income**      | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| EBITDA                                           |       | $                                           | 54,258     |   | $ | 38,877 |   |
| Depreciation and  amortization expense           |       | (16,779                                     | )          | (15,844 | ) |
| Interest expense                                 |       | (11,234                                     | )          | (11,292 | ) |
| Realized gain (loss) on  investments             |       | 37                                          |       | (219 | ) |
| Interest and other  income                       |       | 657                                         |       | 352 |   |
| Income tax expense                               |       | (10,462                                     | )          | (4,628 | ) |
| Equity in earnings of  unconsolidated subsidiary |       | 154                                         |       | 15 |   |
| Net income                                       |       | $                                           | 16,631     |   | $ | 7,261 |   |

 

**9.****        ****Guarantors of Debt**

EMS LP financed theacquisition of AMR and EmCare in part by issuing $250.0 million principalamount of senior subordinated notes and borrowing $370.2 million under itssenior secured credit facility. Its wholly-owned subsidiaries, AMR HoldCo, Inc.(f/k/a EMSC Management, Inc.) and EmCare HoldCo, Inc., are the issuers of thesenior subordinated notes and the borrowers under the senior secured creditfacility. As part of the transaction, AMR and its subsidiaries becamewholly-owned subsidiaries of AMR HoldCo, Inc. and EmCare and its subsidiariesbecame wholly-owned subsidiaries of EmCare HoldCo, Inc. The senior subordinatednotes and the senior secured credit facility include a full, unconditional andjoint and several guarantee by EMSC, EMS LP and EMSC’s domestic subsidiaries.The senior subordinated notes and senior secured credit facility do not includea guarantee by the Company’s captive insurance subsidiary. All of the operatingincome and cash flow of EMSC, EMS LP, AMR HoldCo, Inc. and EmCare HoldCo, Inc.is generated by AMR, EmCare and their subsidiaries. As a result, fundsnecessary to meet the debt service obligations under the senior secured notesand senior secured credit facility described above are provided by thedistributions or advances from the subsidiary companies, AMR and EmCare.Investments in subsidiary operating companies are accounted for on the equitymethod. Accordingly, entries necessary to consolidate EMSC, EMS LP, AMR HoldCo,Inc., EmCare HoldCo, Inc. and all of their subsidiaries are reflected in theEliminations/Adjustments column. Separate complete financial statements of theissuers, EMS LP and subsidiary guarantors would not provide additional materialinformation that would be useful in assessing the financial composition of theissuers, EMS LP or the subsidiary guarantors. The condensed consolidating andcombining financial statements for EMSC, EMS LP, the issuers, the guarantorsand the non-guarantor are as follows:

11

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**ConsolidatingStatement of Operations**

**For the three months ended March 31, 2007**
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**                  | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**                  | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc. ** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                      |       | $          | —     |            | $          | —                |       | $                      | —     |           | $          | —            |       | $                 | 523,319    |       | $          | 8,640 |   | $ | (8,640 | ) | $ | 523,319 |   |
| Compensation and  benefits                                       |       | —     |       | —          |       | —                |       | —                      |       | 354,932        |       | —            |       | —            |       | 354,932    |       |
| Operating expenses                                               |       | —     |       | —          |       | —                |       | —                      |       | 79,996         |       | —            |       | —            |       | 79,996     |       |
| Insurance expense                                                |       | —     |       | —          |       | —                |       | —                      |       | 18,549         |       | 8,677             |       | (8,640            | )          | 18,586     |       |
| Selling, general and  administrative expenses                    |       | —     |       | —          |       | —                |       | —                      |       | 13,305         |       | —            |       | —            |       | 13,305     |       |
| Depreciation and  amortization expense                           |       | —     |       | —          |       | —                |       | —                      |       | 16,779         |       | —            |       | —            |       | 16,779     |       |
| Restructuring charge                                             |       | —     |       | —          |       | —                |       | —                      |       | 2,242          |       | —            |       | —            |       | 2,242      |       |
| Income  from operations                                          |       | —     |       | —          |       | —                |       | —                      |       | 37,516         |       | (37               | )          | —            |       | 37,479     |       |
| Interest expense                                                 |       | —     |       | —          |       | —                |       | —                      |       | (11,234        | )          | —            |       | —            |       | (11,234    | )          |
| Realized gain on  investments                                    |       | —     |       | —          |       | —                |       | —                      |       | —         |       | 37                |       | —            |       | 37         |       |
| Interest and other  income                                       |       | —     |       | —          |       | —                |       | —                      |       | 657            |       | —            |       | —            |       | 657        |       |
| Income  before income taxes                                      |       | —     |       | —          |       | —                |       | —                      |       | 26,939         |       | —            |       | —            |       | 26,939     |       |
| Income tax expense                                               |       | —     |       | —          |       | —                |       | —                      |       | (10,462        | )          | —            |       | —            |       | (10,462    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                      |       | 16,477         |       | —            |       | —            |       | 16,477     |       |
| Equity in earnings of unconsolidated  subsidiaries               |       | 16,631     |       | 16,631          |       | 2,826                 |       | 13,805                      |       | 154            |       | —            |       | (49,893           | )          | 154        |       |
| Net income                                                       |       | $          | 16,631     |            | $          | 16,631                |       | $                      | 2,826      |           | $          | 13,805            |       | $                 | 16,631     |       | $          | — |   | $ | (49,893 | ) | $ | 16,631 |   |

 

**ConsolidatingStatement of Operations**

**For the three months ended March 31, 2006**
|                                                             |   | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** |   |
|------------------------------------------------------------------|--------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|--------|
|                                                             |   | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** |   |
|                                                             |   | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  |   |
| Net revenue                                                      |   | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 469,124    |       | $      | 9,865 |   | $ | (9,865 | ) | $ | 469,124 |   |
| Compensation and  benefits                                       |   | —     |       | —          |       | —                |       | —                |       | 326,047        |       | —            |       | —            |       | 326,047    |   |
| Operating expenses                                               |   | —     |       | —          |       | —                |       | —                |       | 66,454         |       | —            |       | —            |       | 66,454     |   |
| Insurance expense                                                |   | —     |       | —          |       | —                |       | —                |       | 23,126         |       | 9,646             |       | (9,865            | )          | 22,907     |   |
| Selling, general and  administrative expenses                    |   | —     |       | —          |       | —                |       | —                |       | 14,839         |       | —            |       | —            |       | 14,839     |   |
| Depreciation and  amortization expense                           |   | —     |       | —          |       | —                |       | —                |       | 15,844         |       | —            |       | —            |       | 15,844     |   |
| Income  from operations                                          |   | —     |       | —          |       | —                |       | —                |       | 22,814         |       | 219               |       | —            |       | 23,033     |   |
| Interest expense                                                 |   | —     |       | —          |       | —                |       | —                |       | (11,292        | )          | —            |       | —            |       | (11,292    | )      |
| Realized loss on  investments                                    |   | —     |       | —          |       | —                |       | —                |       | —         |       | (219              | )          | —            |       | (219       | )      |
| Interest and other  income                                       |   | —     |       | —          |       | —                |       | —                |       | 352            |       | —            |       | —            |       | 352        |   |
| Income  before income taxes                                      |   | —     |       | —          |       | —                |       | —                |       | 11,874         |       | —            |       | —            |       | 11,874     |   |
| Income tax expense                                               |   | —     |       | —          |       | —                |       | —                |       | (4,628         | )          | —            |       | —            |       | (4,628     | )      |
| Income  before equity in earnings of unconsolidated subsidiaries |   | —     |       | —          |       | —                |       | —                |       | 7,246          |       | —            |       | —            |       | 7,246      |   |
| Equity in earnings of  unconsolidated subsidiaries               |   | 7,261      |       | 7,261           |       | 2,129                 |       | 5,132                 |       | 15             |       | —            |       | (21,783           | )          | 15         |   |
| Net income                                                       |   | $          | 7,261      |            | $          | 7,261                 |       | $                     | 2,129      |           | $          | 5,132             |       | $                 | 7,261      |       | $      | — |   | $ | (21,783 | ) | $ | 7,261 |   |

 

12

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**ConsolidatingBalance Sheet**

**As of March 31, 2007**
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **            | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Current assets:                           |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Cash  and cash equivalents                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 29,234     |       | $          | 598 |   | $ | — |   | $ | 29,832 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 24,153         |       | 35,866            |       | (26,946           | )          | 33,073     |       |
| Trade  and other accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 443,605        |       | 996               |       | —            |       | 444,601    |       |
| Parts  and supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 18,102         |       | —            |       | —            |       | 18,102     |       |
| Other  current assets                     |       | —     |       | —          |       | —                |       | —                |       | 18,282         |       | 4,689             |       | (595              | )          | 22,376     |       |
| Current  deferred tax assets              |       | —     |       | —          |       | —                |       | —                |       | 46,428         |       | 3,163             |       | —            |       | 49,591     |       |
| Current  assets                           |       | —     |       | —          |       | —                |       | —                |       | 579,804        |       | 45,312            |       | (27,541           | )          | 597,575    |       |
| Non-current assets:                       |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property,  plant, and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 149,754        |       | —            |       | —            |       | 149,754    |       |
| Intercompany  receivable                  |       | 973        |       | 114,165         |       | 279,320               |       | 190,019               |       | —         |       | —            |       | (584,477          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 64,563         |       | —            |       | —            |       | 64,563     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 104,340        |       | (1,131            | )          | —            |       | 103,209    |       |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 59,541         |       | 101,517           |       | —            |       | 161,058    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 274,211        |       | 458               |       | —            |       | 274,669    |       |
| Other  long-term assets                   |       | —     |       | —          |       | 8,223                 |       | 3,717                 |       | 17,067         |       | —            |       | —            |       | 29,007     |       |
| Investment  and advances in subsidiaries  |       | 402,569    |       | 288,404         |       | 209,772               |       | 78,618                |       | 6,994          |       | —            |       | (986,357          | )          | —     |       |
| Assets                                    |       | $          | 403,542    |            | $          | 402,569               |       | $                     | 497,315    |           | $          | 272,354           |       | $                 | 1,256,274  |       | $          | 146,156 |   | $ | (1,598,375 | ) | $ | 1,379,835 |   |
| **Liabilities and Equity**                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **            | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Current liabilities:                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts  payable                         |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 63,042     |       | $          | — |   | $ | — |   | $ | 63,042 |   |
| Accrued  liabilities                      |       | —     |       | —          |       | 3,175                 |       | 2,194                 |       | 182,192        |       | 30,097            |       | —            |       | 217,658    |       |
| Current  portion of long-term debt        |       | —     |       | —          |       | 1,656                 |       | 744                   |       | 2,194          |       | —            |       | —            |       | 4,594      |       |
| Current  liabilities                      |       | —     |       | —          |       | 4,831                 |       | 2,938                 |       | 247,428        |       | 30,097            |       | —            |       | 285,294    |       |
| Long-term debt                            |       | —     |       | —          |       | 282,712               |       | 190,784               |       | 7,390          |       | —            |       | —            |       | 480,886    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 128,589        |       | 109,065           |       | (27,541           | )          | 210,113    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 584,477        |       | —            |       | (584,477          | )          | —     |       |
| Liabilities                               |       | —     |       | —          |       | 287,543               |       | 193,722               |       | 967,884        |       | 139,162           |       | (612,018          | )          | 976,293    |       |
| Equity:                                   |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A common stock                      |       | 93         |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 93         |       |
| Class B common stock                      |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership equity                        |       | 212,361    |       | 326,526         |       | 189,394               |       | 22,967                |       | 212,361        |       | —            |       | (751,248          | )          | 212,361    |       |
| Additional paid-in  capital               |       | 115,044    |       | —          |       | —                |       | —                |       | —         |       | 6,690             |       | (6,690            | )          | 115,044    |       |
| Retained earnings                         |       | 75,769     |       | 75,769          |       | 20,378                |       | 55,391                |       | 75,755         |       | —            |       | (227,293          | )          | 75,769     |       |
| Comprehensive income  (loss)              |       | 274        |       | 274             |       | —                |       | 274                   |       | 274            |       | 274               |       | (1,096            | )          | 274        |       |
| Equity                                    |       | 403,542    |       | 402,569         |       | 209,772               |       | 78,632                |       | 288,390        |       | 6,994             |       | (986,357          | )          | 403,542    |       |
| Liabilities and Equity                    |       | $          | 403,542    |            | $          | 402,569               |       | $                     | 497,315    |           | $          | 272,354           |       | $                 | 1,256,274  |       | $          | 146,156 |   | $ | (1,598,375 | ) | $ | 1,379,835 |   |

 

13

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**ConsolidatingBalance Sheet**

**As of December 31, 2006**
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **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                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 39,329     |       | $          | 7 |   | $ | — |   | $ | 39,336 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 24,912         |       | 4,812             |       | —            |       | 29,724     |       |
| Trade  and other accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 415,290        |       | 1,160             |       | —            |       | 416,450    |       |
| Parts  and supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 18,089         |       | —            |       | —            |       | 18,089     |       |
| Other  current assets                     |       | —     |       | —          |       | —                |       | —                |       | 16,972         |       | 394               |       | (949              | )          | 16,417     |       |
| Current  deferred tax assets              |       | —     |       | —          |       | —                |       | —                |       | 9,310          |       | 3,163             |       | —            |       | 12,473     |       |
| Current  assets                           |       | —     |       | —          |       | —                |       | —                |       | 523,902        |       | 9,536             |       | (949              | )          | 532,489    |       |
| Non-current assets:                       |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property,  plant, and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 147,162        |       | —            |       | —            |       | 147,162    |       |
| Intercompany  receivable                  |       | 400        |       | 114,165         |       | 282,691               |       | 193,177               |       | —         |       | —            |       | (590,433          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 66,789         |       | —            |       | —            |       | 66,789     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 104,501        |       | (1,131            | )          | —            |       | 103,370    |       |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 59,599         |       | 103,701           |       | —            |       | 163,300    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 271,870        |       | 458               |       | —            |       | 272,328    |       |
| Other  long-term assets                   |       | —     |       | —          |       | 8,590                 |       | 3,838                 |       | 20,351         |       | —            |       | —            |       | 32,779     |       |
| Investment  and advances in subsidiaries  |       | 385,640    |       | 271,475         |       | 206,969               |       | 64,492                |       | 6,696          |       | —            |       | (935,272          | )          | —     |       |
| Assets                                    |       | $          | 386,040    |            | $          | 385,640               |       | $                     | 498,250    |           | $          | 261,507           |       | $                 | 1,200,870  |       | $          | 112,564 |   | $ | (1,526,654 | ) | $ | 1,318,217 |   |
| **Liabilities and Equity**                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **            | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Current liabilities:                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts  payable                         |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 65,172     |       | $          | — |   | $ | — |   | $ | 65,172 |   |
| Accrued  liabilities                      |       | —     |       | —          |       | 6,515                 |       | 5,295                 |       | 192,501        |       | 27,320            |       | —            |       | 231,631    |       |
| Current  portion of long-term debt        |       | —     |       | —          |       | 1,656                 |       | 744                   |       | 1,759          |       | —            |       | —            |       | 4,159      |       |
| Current  liabilities                      |       | —     |       | —          |       | 8,171                 |       | 6,039                 |       | 259,432        |       | 27,320            |       | —            |       | 300,962    |       |
| Long-term debt                            |       | —     |       | —          |       | 283,110               |       | 190,962               |       | 1,544          |       | —            |       | —            |       | 475,616    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 78,000         |       | 78,548            |       | (949              | )          | 155,599    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 590,433        |       | —            |       | (590,433          | )          | —     |       |
| Liabilities                               |       | —     |       | —          |       | 291,281               |       | 197,001               |       | 929,409        |       | 105,868           |       | (591,382          | )          | 932,177    |       |
| Equity:                                   |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A common stock                      |       | 93         |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 93         |       |
| Class B common stock                      |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership equity                        |       | 212,361    |       | 326,526         |       | 189,394               |       | 22,967                |       | 212,361        |       | —            |       | (751,248          | )          | 212,361    |       |
| Additional paid-in  capital               |       | 114,471    |       | —          |       | —                |       | —                |       | —         |       | 6,690             |       | (6,690            | )          | 114,471    |       |
| Retained earnings                         |       | 59,138     |       | 59,138          |       | 17,575                |       | 41,563                |       | 59,124         |       | —            |       | (177,400          | )          | 59,138     |       |
| Comprehensive income  (loss)              |       | (24        | )          | (24             | )          | —                |       | (24                   | )          | (24            | )          | (24               | )          | 96                |       | (24        | )          |
| Equity                                    |       | 386,040    |       | 385,640         |       | 206,969               |       | 64,506                |       | 271,461        |       | 6,696             |       | (935,272          | )          | 386,040    |       |
| Liabilities and Equity                    |       | $          | 386,040    |            | $          | 385,640               |       | $                     | 498,250    |           | $          | 261,507           |       | $                 | 1,200,870  |       | $          | 112,564 |   | $ | (1,526,654 | ) | $ | 1,318,217 |   |

 

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**Condensed ConsolidatingStatement of Cash Flows**

**For the three months ended March 31, 2007**
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating  Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Net  cash provided by operating activities              |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | (6,049     | ) | $ | 2,203 |   | $ | (3,846 | ) |
| **Cash Flows from Investing  Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Purchase of property,  plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (8,321         | )          | —             |       | (8,321     | )          |
| Proceeds from sale of  property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 125            |       | —             |       | 125        |       |
| Insurance collateral                                    |       | —     |       | —          |       | —               |       | —               |       | 702            |       | (1,612             | )          | (910       | )          |
| Net change in deposits  and other assets                |       | —     |       | —          |       | —               |       | —               |       | 3,021          |       | —             |       | 3,021      |       |
| Net  cash used in investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (4,473         | )          | (1,612             | )          | (6,085     | )          |
| **Cash Flows from Financing  Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Issuance of EMSC equity                                 |       | 173        |       | —          |       | —               |       | —               |       | —         |       | —             |       | 173        |       |
| Repayments of capital  lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (2,333         | )          | —             |       | (2,333     | )          |
| Net intercompany  borrowings (payments)                 |       | (173       | )          | —          |       | —               |       | —               |       | 173            |       | —             |       | —     |       |
| Increase in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 2,587          |       | —             |       | 2,587      |       |
| Net  cash used in financing activities                  |       | —     |       | —          |       | —               |       | —               |       | 427            |       | —             |       | 427        |       |
| Increase in cash and  cash equivalents                  |       | —     |       | —          |       | —               |       | —               |       | (10,095        | )          | 591                |       | (9,504     | )          |
| Cash and cash equivalents,  beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 39,329         |       | 7                  |       | 39,336     |       |
| Cash and cash equivalents, end of period                |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 29,234     |   | $ | 598 |   | $ | 29,832 |   |

 

**CondensedConsolidating Statement of Cash Flows**

**For the three months ended March 31, 2006**
|                                                    |       | ** ** | ** ** | ** **      | ** ** | **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              |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 36,095     |   | $ | 681 |   | $ | 36,776 |   |
| **Cash Flows from Investing  Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Purchase of property,  plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (13,010        | )          | —             |       | (13,010    | )          |
| Proceeds from sale of  property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 110            |       | —             |       | 110        |       |
| Insurance collateral                                    |       | —     |       | —          |       | —               |       | —               |       | (5,356         | )          | (276               | )          | (5,632     | )          |
| Net change in deposits  and other assets                |       | —     |       | —          |       | —               |       | —               |       | (757           | )          | —             |       | (757       | )          |
| Net  cash used in investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (19,013        | )          | (276               | )          | (19,289    | )          |
| **Cash Flows from Financing  Activities**               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| EMSC equity issuance  costs                             |       | (822       | )          | —          |       | —               |       | —               |       | —         |       | —             |       | (822       | )          |
| Repayments of capital  lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (1,986         | )          | —             |       | (1,986     | )          |
| Net intercompany  borrowings (payments)                 |       | 822        |       | —          |       | —               |       | —               |       | (822           | )          | —             |       | —     |       |
| Increase (decrease) in  bank overdrafts                 |       | —     |       | —          |       | —               |       | —               |       | 6,114          |       | —             |       | 6,114      |       |
| Net  cash provided by (used in) financing activities    |       | —     |       | —          |       | —               |       | —               |       | 3,306          |       | —             |       | 3,306      |       |
| Increase in cash and  cash equivalents                  |       | —     |       | —          |       | —               |       | —               |       | 20,388         |       | 405                |       | 20,793     |       |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 18,001         |       | 47                 |       | 18,048     |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 38,389     |   | $ | 452 |   | $ | 38,841 |   |

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.**

**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 Reports onForm 10-Q. Among the factors that could cause future results to differmaterially from those provided in this Quarterly Report on Form 10-Q are: theimpact on our revenue of changes in transport volume, mix of insured anduninsured patients, and third party reimbursement rates and methods; theadequacy of our insurance coverage and insurance reserves; potential penaltiesor changes to our operations if we fail to comply with extensive and complexgovernment regulation of our industry, both as it exists now and as it maychange in the future; our ability to recruit and retain qualified physiciansand other healthcare professionals, and enforce our non-compete agreements withour physicians; the loss of one or more members of our senior management team;the outcome of government investigations of certain of our business practices;our ability to generate cash flow to service our debt obligations and fund thecost of capital expenditures to maintain and upgrade our vehicle fleet andmedical equipment; and the loss of existing contracts and the accuracy of ourassessment of costs under new contracts.

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

This Report should 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 on March8, 2007.

***Company Overview***

We are a leading provider ofemergency medical services in the United States. We operate our business andmarket our services under the AMR and EmCare brands. AMR is the leadingprovider of ambulance transport services in the United States. EmCare is theleading provider of outsourced emergency department staffing and managementservices in the United States.

**AmericanMedical Response**

Over its more than 50 yearsof operating history, AMR has developed the largest network of ambulancetransport services in the United States based on net revenue and number oftransports. For the three months ended March 31, 2007, approximately 55% of AMR’snet revenue was generated from emergency 9-1-1 ambulance transport services.Non-emergency ambulance transport services, including critical care transfer,wheelchair transports and other interfacility transports, or IFTs, accountedfor 32% of AMR’s net revenue for the same period, with the balance generatedfrom fixed wing medical transportation services, Medicaid managedtransportation services, and the provision of training, dispatch and otherservices to communities and public safety agencies.

**EmCare**

Over its more than 30 yearsof operating history, EmCare has become the largest provider of outsourcedemergency department staffing and related management services to healthcarefacilities based on number of contracts with hospitals and affiliated physiciangroups.

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***Recent Developments***

On January 1, 2007, weadopted the recognition and disclosure provisions of FASB Interpretation No.48, “*Accounting for Uncertainty in Income Taxes - aninterpretation of FASB Statement No. 109*” (“FIN 48”).  Thisinterpretation addresses the determination of whether tax benefits claimed orexpected to be claimed on a tax return should be recorded in the financialstatements.  Under FIN 48, EMSC may recognize the tax benefit from anuncertain tax position only if it is more likely than not that the tax positionwill be sustained on examination by the taxing authorities, based on the technicalmerits of the position. The tax benefits recognized in the financial statementsfrom such a position should be measured based on the largest benefit that has agreater than fifty percent likelihood of being realized upon ultimatesettlement. FIN 48 also provides guidance on derecognition, classification,interest and penalties on income taxes, and accounting in interim periods.

As a result of theimplementation of FIN 48 at January 1, 2007, we recorded a $49.0 millionliability with an offsetting increase to current deferred tax assets.

In accordance with ouraccounting policy, EMSC recognized accrued interest and penalties related tounrecognized tax benefits as a component of tax expense, which is consistentwith the recognition of these items in prior reporting periods.  As ofJanuary 1, 2007, we recorded a liability of approximately $4.8 million and $6.1million for interest and penalties, respectively.  The liability forinterest and penalties did not materially change as of March 31, 2007.

With limited exception, weare no longer subject to U.S. federal, state, and local income tax audits bytaxing authorities for years through 2002.

***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 is gross billings afterprovisions for contractual discounts and estimated uncompensated care.Provisions for contractual discounts and uncompensated care have increasedhistorically primarily as a result of increases in gross billing rates.

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

**AMR**

Approximately 87% of AMR’snet revenue for the three months ended March 31, 2007 was transport revenuederived from the treatment and transportation of patients based on billings tothird party payors, healthcare facilities and patients. The balance of AMR’s netrevenue is derived from direct billings to communities and government agenciesfor the provision of training, dispatch center and other services.  AMR’s measures for net revenue includetransports (segregated into ambulance and wheelchair transports and in certainanalyses weighted) and net revenue per transport.

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

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

We have focused our riskmitigation efforts on employee training for proper patient handling techniques,development of clinical and medical equipment protocols, driving safety,implementation of technology to reduce auto incidents and other

17

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risk mitigation processes which we believe haveresulted in a reduction in the frequency, severity and development of claims.We continue to see positive trends in our claims costs but cannot provideassurance that these trends will continue.

**EmCare**

Of EmCare’s net revenue forthe three months ended March 31, 2007 approximately 99% was derived from ourhospital contracts for emergency department staffing, hospitalist and radiologyservices and other management services. Of this revenue, approximately 73% wasgenerated from billings to third party payors and patients for patient visitsand approximately 27% was generated from billings to hospitals and affiliatedphysician groups for professional services. EmCare’s key net revenue measuresare patient visits, net revenue per patient visit, and number of contracts.

 The change from period to period in the numberof patient visits under our “same store” contracts is influenced by generalcommunity conditions as well as hospital-specific elements, many of which arebeyond our direct control.

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

We have 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 continued reduction in thefrequency, severity and development of claims. We continue to see positivetrends in our claims costs but cannot provide assurance that these trends willcontinue.

***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. Although wehave generally been able to offset inflationary cost increases throughincreased operating efficiencies and successful negotiation of fees andsubsidies, we can provide no assurance that we will be able to offset anyfuture inflationary cost increases through similar efficiencies and feechanges.

***Critical Accounting Policies***

**RevenueRecognition**

Management also regularlyanalyzes the ultimate collectibility of accounts receivable after certainstages of the collection cycle using a look-back analysis to determine theamount of receivables subsequently collected. Retroactive adjustments recorded in the first quarter, which increasedrevenue, were 2.8% of consolidated net revenue for the three months ended March31, 2007 compared to 1.1% of consolidated net revenue for the three monthsended March 31, 2006.

**Results ofOperations**

**ThreeMonths Ended March 31, 2007 Compared to Three Months Ended March 31, 2006**

The following tables presenta comparison of financial data from our unaudited consolidated statements ofoperations for the three months ended March 31, 2007 and for the three monthsended March 31, 2006 for EMSC and our two operating segments.

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**Non-GAAPMeasures**

*EarningsBefore Interest, Taxes, Depreciation and Amortization (“EBITDA”)*

EBITDA is defined asoperating income plus depreciation and amortization expense. EBITDA is commonlyused by management and investors as a measure of leverage capacity, debtservice ability and liquidity. EBITDA is not considered a measure of financialperformance under U.S. generally accepted accounting principles, or GAAP, andthe items excluded from EBITDA are significant components in understanding andassessing our financial performance. EBITDA should not be considered inisolation or as an alternative to such GAAP measures as net income, cash flowsprovided by or used in operating, investing or financing activities or otherfinancial statement data presented in our financial statements as an indicatorof financial performance or liquidity. Since EBITDA is not a measure determinedin accordance with GAAP and is susceptible to varying calculations, EBITDA, aspresented, may not be comparable to other similarly titled measures of othercompanies. The table sets forth a reconciliation of EBITDA to income fromoperations and net income.

 **UnauditedResults of Operations and as a Percentage of Net Revenue**

**(dollars in thousands)**

**EMSC**
|                                                  | ** ** | **Three months ended  March 31, 2007** | ** ** | **Three months ended  March 31, 2006,** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                                 | ** ** | **% of net  revenue**                             | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                      |       | $                                                          | 523,319    |                                                        | 100.0      | % | $ | 469,124 |   | 100.0 | % |
| Compensation and  benefits                       |       | 354,932                                                    |       | 67.8                                                        |       | 326,047 |   | 69.5 |   |
| Operating expenses                               |       | 79,996                                                     |       | 15.3                                                        |       | 66,454 |   | 14.2 |   |
| Insurance expense                                |       | 18,586                                                     |       | 3.6                                                         |       | 22,907 |   | 4.9 |   |
| Selling, general and  administrative expenses    |       | 13,305                                                     |       | 2.5                                                         |       | 14,839 |   | 3.2 |   |
| Restructuring charges                            |       | 2,242                                                      |       | 0.4                                                         |       | — |   | — |   |
| EBITDA                                           |       | 54,258                                                     |       | 10.4                                                        |       | 38,877 |   | 8.3 |   |
| Depreciation and  amortization expenses          |       | 16,779                                                     |       | 3.2                                                         |       | 15,844 |   | 3.4 |   |
| Income from  operations                          |       | 37,479                                                     |       | 7.2                                                         |       | 23,033 |   | 4.9 |   |
| Interest expense                                 |       | (11,234                                                    | )          | (2.1                                                        | )          | (11,292 | ) | (2.4 | ) |
| Realized gain (loss) on  investments             |       | 37                                                         |       | 0.0                                                         |       | (219 | ) | (0.0 | ) |
| Interest and other  income                       |       | 657                                                        |       | 0.1                                                         |       | 352 |   | 0.1 |   |
| Income tax expense                               |       | (10,462                                                    | )          | (2.0                                                        | )          | (4,628 | ) | (1.0 | ) |
| Equity in earnings in  unconsolidated subsidiary |       | 154                                                        |       | 0.0                                                         |       | 15 |   | 0.0 |   |
| Net income                                       |       | $                                                          | 16,631     |                                                        | 3.2        | % | $ | 7,261 |   | 1.5 | % |

 

**AMR**
|                                               | ** ** | **Three months ended  March 31, 2007** | ** ** | **Three months ended  March 31, 2006,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                                 | ** ** | **% of net  revenue**                             | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                   |       | $                                                          | 308,108    |                                                        | 100.0      | % | $ | 295,312 |   | 100.0 | % |
| Compensation and  benefits                    |       | 192,401                                                    |       | 62.4                                                        |       | 190,149 |   | 64.4 |   |
| Operating expenses                            |       | 69,652                                                     |       | 22.6                                                        |       | 58,639 |   | 19.9 |   |
| Insurance expense                             |       | 9,621                                                      |       | 3.1                                                         |       | 12,799 |   | 4.3 |   |
| Selling, general and  administrative expenses |       | 9,247                                                      |       | 3.0                                                         |       | 10,566 |   | 3.6 |   |
| Restructuring charges                         |       | 2,242                                                      |       | 0.7                                                         |       | — |   | — |   |
| EBITDA                                        |       | 24,945                                                     |       | 8.1                                                         |       | 23,159 |   | 7.8 |   |
| Depreciation and  amortization expenses       |       | 13,750                                                     |       | 4.5                                                         |       | 12,610 |   | 4.3 |   |
| Income from operations                        |       | $                                                          | 11,195     |                                                        | 3.6        | % | $ | 10,549 |   | 3.6 | % |

 

19

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**EmCare**
|                                               | ** ** | **Three months ended  March 31, 2007** | ** ** | **Three months ended  March 31, 2006,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                                 | ** ** | **% of net  revenue**                             | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                   |       | $                                                          | 215,211    |                                                        | 100.0      | % | $ | 173,812 |   | 100.0 | % |
| Compensation and  benefits                    |       | 162,531                                                    |       | 75.5                                                        |       | 135,898 |   | 78.2 |   |
| Operating  expenses                           |       | 10,344                                                     |       | 4.8                                                         |       | 7,815 |   | 4.5 |   |
| Insurance  expense                            |       | 8,965                                                      |       | 4.2                                                         |       | 10,108 |   | 5.8 |   |
| Selling, general  and administrative expenses |       | 4,058                                                      |       | 1.9                                                         |       | 4,273 |   | 2.5 |   |
| EBITDA                                        |       | 29,313                                                     |       | 13.6                                                        |       | 15,718 |   | 9.0 |   |
| Depreciation and  amortization expenses       |       | 3,029                                                      |       | 1.4                                                         |       | 3,234 |   | 1.9 |   |
| Income from  operations                       |       | $                                                          | 26,284     |                                                        | 12.2       | % | $ | 12,484 |   | 7.2 | % |

 

***Three months ended March 31, 2007 compared to the threemonths ended March 31, 2006***

***Consolidated***

Our results forthe three months ended March 31, 2007 reflect an increase in net revenueof $54.2 million and an increase in net income of $9.4 million compared to thethree months ended March 31, 2006. The increase in net income isattributable primarily to an increase of $14.4 million in income fromoperations partially offset by an increase in income tax expense. Basic anddiluted earnings per share were $0.40 and $0.39, respectively, for the threemonths ended March 31, 2007. Both basic and diluted earnings per sharewere $0.17 for the same period in 2006.

*Net revenue*

For the threemonths ended March 31, 2007 we generated net revenue of $523.3 millioncompared to net revenue of $469.1 million for the three months endedMarch 31, 2006, representing an increase of 11.6%. The increase isattributable primarily to increases in rates and volumes on existing contractsand increased volume from net new contracts.

*Depreciation and amortizationexpense*

Depreciation andamortization expense for the three months ended March 31, 2007 was $16.8million, or 3.2% of net revenue, compared to $15.8 million, or 3.4% of netrevenue, for the three months ended March 31, 2006. The increase isattributable to higher depreciation expense related to growth in capitalexpenditures during 2006 and changes in the composition and timing of capitalexpenditures.

*Income from operations*

Income fromoperations was $37.5 million, or 7.2% of net revenue, for the three monthsended March 31, 2007 compared to $23.0 million, or 4.9% of net revenue,for the three months ended March 31, 2006. The increase is attributableprimarily to the net impact of revenue growth during the period and continuedimprovement in insurance claims costs.

*Interest expense*

Interest expensefor the three months ended March 31, 2007 was $11.2 million compared to$11.3 million for the three months ended March 31, 2006.  The decrease relates to unscheduledrepayments of $19.4 million of our senior secured credit facility in 2006,partially offset by higher interest rates.

*Income tax expense*

Income tax expenseincreased by $5.8 million for the three months ended March 31, 2007,compared to the same period in 2006, resulting primarily from increasedoperating income.  Our effective tax ratefor the three months ended March 31, 2007 was 38.8% and 39.0% for the sameperiod in 2006.

20

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***AMR***

*Net revenue*

Net revenue for thethree months ended March 31, 2007 was $308.1 million, an increase of $12.8million, or 4.3%, from $295.3 million for the same period in 2006. The increasein net revenue was due primarily to an increase in our net revenue per weightedtransport of approximately 5.2%, or $15.3 million, of which 4.3% was dueto revenue from our fixed wing air transportation services business acquiredduring 2006 and from our Medicaid managed transportation business in Texas, acontract awarded in 2006.  Net revenue pertransport also increased due to rate increases in several markets partiallyoffset by Medicare rate reductions.  Areduction of approximately 34,500 transports and approximately $13.3 million innet revenue during the three months ended March 31, 2007 compared with thesame period in 2006 was primarily the result of the loss of a portion of AMR’s9-1-1 contract with Los Angeles County in 2006 and the restructure of ouroperations in Los Angeles in the first quarter of 2007. Excluding the impact ofthe Los Angeles reductions, ambulance transport volume increased 4.2%, offsetin part by a 6.8% decrease in wheelchair transports for planned reductions incertain markets, resulting in an increase of approximately 28,100 weightedtransports compared with the same period in 2006.

*Compensation and benefits*

Compensation andbenefits costs for the three months ended March 31, 2007 were $192.4million, or 62.4% of net revenue, compared to $190.1 million, or 64.4% of netrevenue, for the three months ended March 31, 2006. Ambulance crew wagesper ambulance unit hour increased by approximately 3.6%, or $3.8 million,principally from annual wage rate increases. Ambulance unit hours decreased period over period by 1.7%, decreasingcompensation by $1.8 million.  Thedecrease is due primarily to the reduction in Los Angeles volumes and theassociated decrease in ambulance unit hours, partially offset by unit hourincreases related to increased volume in other markets.  Non-crew wages increased by $2.6 million, or5.6%, due to annual salary increases and additional compensation expensesincurred under our Texas Medicaid managed transportation contract and our fixedwing transportation services business. Benefits costs decreased by $2.0 million for the three months endedMarch 31, 2007, and decreased 1.8% as a percentage of salaries compared tothe same period in 2006 primarily due to reduced claims costs incurred underour self-insured health plans.

*Operating expenses*

Operating expensesfor the three months ended March 31, 2007 were $69.7 million, or 22.6% ofnet revenue, compared to $58.6 million, or 19.9% of net revenue, for the threemonths ended March 31, 2006. Operating expenses per weighted transportincreased 19.8% in the three months ended March 31, 2007 compared to thesame period in 2006. This change is due to additional operating expensesincurred under our Texas Medicaid managed transportation contract and our fixedwing transportation services business, which totaled $10.0 million for thethree months ended March 31, 2007.

*Insurance expense*

Insurance expensefor the three months ended March 31, 2007 was $9.6 million, or 3.1% of netrevenue, compared to $12.8 million, or 4.3% of net revenue, for the same periodin 2006. The decrease is due to the continued improvement in current and prioryear ultimate claims costs resulting in a reduction of prior year insuranceprovisions of $3.2 million during the quarter ended March 31, 2007.  No reductions of prior year insuranceprovisions were recorded during the same period in 2006.

*Selling, general and administrative*

Selling, generaland administrative expense for the three months ended March 31, 2007 was$9.2 million, or 3.0% of net revenue, compared to $10.6 million, or 3.6% of netrevenue, for the three months ended March 31, 2006. The decrease relatesto lower support costs across our operations.

*Restructuring charges*

Restructuringcharges of $2.2 million were recorded during the three months endedMarch 31, 2007, related to the closure of one of our billing offices andrestructuring our operations in Los Angeles and Orange Counties in California.

*Depreciation and amortization*

Depreciation andamortization expense for the three months ended March 31, 2007 was $13.8million, or 4.5% of net revenue, compared to $12.6 million, or 4.3% of netrevenue, for the same period in 2006. The increase is attributable to higherdepreciation expense related to growth in capital expenditures during 2006.

***EmCare***

*Netrevenue*

Net revenue forthe three months ended March 31, 2007 was $215.2 million, an increase of $41.4million, or 23.8%, from $173.8 million for the three months ended March 31,2006. The increase was due primarily to an increase in patient visits from netnew hospital contracts and net revenue increases in existing contracts. FollowingDecember 31, 2005, we

21

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added 43 net newcontracts which accounted for a net revenue increase of $19.1 million for thethree months ended March 31, 2007.  Ofthe 43 net new contracts added since December 31, 2005, 43 were added in 2006resulting in an increase in net revenue of $19.3 million.  For the three months ended March 31, 2007,EmCare added 17 new contracts and terminated 17 contracts resulting in adecrease in net revenue of $0.2 million. Net revenue under our “same store” contracts (contracts in existence forthe entirety of both periods) increased $22.3 million for the quarter endedMarch 31, 2007 due to a 14.5% increase in net revenue per patient visit from rateincreases from our third-party payors and retroactive revenue adjustments of6.0% recorded in the quarter.  Currentperiod same store patient visits were comparable to prior period visit levels.

*Compensationand benefits*

Compensation andbenefits costs for the three months ended March 31, 2007 were $162.5million, or 75.5% of net revenue, compared to $135.9 million, or 78.2% of netrevenue, for the same period in 2006. Provider compensation and benefits costsincreased $12.3 million from net new contract additions. “Same store” providercompensation and benefits costs increased $10.7 million due to a 10.6% increasein provider compensation per patient visit primarily due to increases in netrevenue per patient visit.  The remainingvariance is related to higher variable compensation costs for our billingfunction due to the increase in patient visits and higher payments onprofitability-based incentive compensation plans for non-clinical employees.

*Operatingexpenses*

Operating expensesfor the three months ended March 31, 2007 were $10.3 million, or 4.8% ofnet revenue, compared to $7.8 million, or 4.5% of net revenue, for the sameperiod in 2006.  Operating expensesincreased primarily due to additional patient visits from net new contracts,additional off-hours radiology coverage for new contracts and increasedprofessional fees related to various Company initiatives.

*Insuranceexpense*

Professionalliability insurance expense for the three months ended March 31, 2007 was$9.0 million, or 4.2% of net revenue, compared to $10.1 million, or 5.8% of netrevenue, for the three months ended March 31, 2006. The decrease is due tothe continued improvement in current and prior year ultimate claims costs.  As a result, a reduction of prior yearinsurance provisions of $2.0 million was recorded during the three months endedMarch 31, 2007.  No reductions of prioryear insurance provisions were recorded during the same period in 2006.

*Selling,general and administrative*

Selling, generaland administrative expense for the three months ended March 31, 2007 was$4.1 million, or 1.9% of net revenue, compared to $4.3 million, or 2.5% of netrevenue, for the three months ended March 31, 2006. The decrease relatesto lower support costs across our operations.

*Depreciationand amortization*

Depreciation andamortization expense for the three months ended March 31, 2007 was $3.0million, or 1.4% of net revenue, compared to $3.2 million, or 1.9% of netrevenue, for the three months ended March 31, 2006.

**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-K forthe year ended December 31, 2006 and incorporated by reference herein. Asof March 31, 2007, there were no significant changes in our critical accountingpolicies or estimation procedures.

**Liquidityand Capital Resources**

Our primary source ofliquidity is cash flows provided by our operating activities. We can also useour revolving senior secured credit facility, described below, to 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.

22

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We believe ourcash and cash equivalents, cash provided by our operating activities, andamounts available under our senior secured credit facility will meet theliquidity requirements of our business through at least the next 12 months. Wehave available to us, upon compliance with customary conditions, $100.0 millionunder the revolving credit facility, less any letters of credit outstanding(which totaled $29.9 million at March 31, 2007). Further, we have a conditionalright under our senior secured credit facility to request new or existinglenders to provide up to an additional $100.0 million of term debt (in $20.0 millionincrements).

**Cash Flow**

Thetable below summarizes cash flow information derived from our statements ofcash flows for the periods indicated, amounts in thousands.
|                                  | ** ** | **Three months ended  March 31, 2007** | ** ** | **Three months ended  March 31, 2006** | ** ** |   |
|----------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|--------|
| Net cash (used  in) provided by: |       |                                                       |       |                                                       |       |
| Operating activities             |       | $                                                          | (3,846     | )                                                          | $          | 36,776 |   |
| Investing activities             |       | (6,085                                                     | )          | (19,289                                                    | )          |
| Financing  activities            |       | $                                                          | 427        |                                                       | $          | 3,306  |   |

 

*Operatingactivities*. Net cashused in operating activities was $3.8 million for the three months ended March31, 2007 compared to $36.8million provided by operating activities for the same period last year.  Operating cash flows were affected byincreased net income, utilization of deferred tax assets, changes in accountsreceivable and timing of incentive compensation plan payments.  Working capital uses included in operatingcash flows were $49.0 million for the three months ended March 31, 2007, whichincluded a $28.2 millionincrease in accounts receivable, and a $19.9 million decrease in accounts payable and accrued liabilities,primarily related to interest and incentive compensation plan payments.  Working capital contributions to operatingcash flow were $8.6 million forthe three months ended March 31, 2006 and included a decrease in accountsreceivable of $20.0 million,including our collection of hurricane-related receivables, an increase inprepaid and other current assets of $10.6 million and a decrease in accountspayable and accrued liabilities of $8.1 million, primarily related to interest payments.

*Investingactivities*. Net cashused in investing activities was $6.1 million for the three months ended March 31, 2007 compared to $19.3 million for the same period in 2006. The $13.2 million decrease is attributable principallyto reductions in capital expenditures and net insurance funding.  Net cash used in investing activities duringthe three months ended March 31, 2007 relates primarily to capital expendituresfor the purchase of new vehicles, medical equipment and technology-relatedassets, which totaled $8.3 million, partially offset by $3.0 million provided by other investingactivities.

*Financingactivities*. For thethree months ended March 31, 2007, net cash provided by financing activities was $0.4 million compared to $3.3 million for the three months ended March 31,2006.  The variance relates primarily tobank overdrafts.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

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

As of March 31, 2007, we had$485.5 million of debt,of which $225.9 million wasvariable rate debt under our senior secured credit facility and the balance wasfixed rate debt, including $250.0million aggregate principal amount of our senior subordinated notes. Over thepast twelve months, prime and LIBOR interest rates have increased byapproximately 0.5% and 0.5%, respectively. Changes to these interestrates may continue to occur. Increases and decreases in interest rates affectour interest costs for our variable rate debt. For comparative purposes, forevery 0.125% change in interest rates, our interest costs on our senior securedcredit facility will change by approximately $0.3 million per year based on our outstanding indebtedness at March 31,2007.

23

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**ITEM 4. CONTROLS AND PROCEDURES**

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

We maintain a system ofdisclosure controls and procedures (as defined in Rule 13a-14 and 15d-14 underthe Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed toensure that information required to be disclosed in the reports that we fileunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’s rulesand forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed byan issuer in the reports that it files or furnishes under the Exchange Act isaccumulated and communicated to the issuer’s management, including itsprincipal executive officer or officers and principal financial officer orofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, our management recognizes that any controlsand procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefit relationshipof 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 Rules13a-14(c) and 15d-14(c) promulgated under the Exchange Act) are effective.

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

There were no changes in ourinternal control over financial reporting that occurred during our fiscalquarter ended March 31, 2007 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

24

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART II. OTHER INFORMATION**

**FOR THETHREE MONTHS ENDED**

**MARCH 31, 2007**

**ITEM 1. LEGAL PROCEEDINGS**

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

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

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

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

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

On April 17, 2006, theOffice of Inspector General for the United States Department of Health andHuman Services, or OIG, finalized its draft report requesting that an AMRMassachusetts subsidiary reimburse the Medicare program for approximately $1.8million in alleged overpayments from Medicare for services performed betweenJuly 1, 2002 and December 31, 2002. The OIG claims that theseoverpayments were made for services that did not meet Medicare medicalnecessity and reimbursement requirements. On December 10, 2006, we paidthe $1.8 million in alleged overpayments. However, we continue to disagree withthe OIG’s finding and we have filed an administrative appeal. If we aresuccessful in the administrative appeal we may be entitled to repayment of allor part of the $1.8 million.

EmCare entered into asettlement agreement with respect to June Belt, et al. v.EmCare, Inc., et al. (U.S. Ct. App.—5th Cir.), brought by a number ofnurse practitioners and physician assistants under the Fair Labor StandardsAct. Pursuant to the settlement agreement, which the Court approved in January 2007,EmCare has paid $1.7 million in satisfaction of all claims in the lawsuit,which amount was accrued previously.

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

For additional informationregarding legal proceedings, please refer to note 5, under the caption “Commitmentsand Contingencies” of the notes accompanying the consolidated financialstatements included herein and to our Annual Report on Form 10-K filed with theSEC on March 8, 2007.

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**ITEM 1A. RISK FACTORS**

There have been no materialchanges from the risk factors disclosed in the “Risk Factors” sections of theCompany’s Annual Report on Form 10-K for the year ended December 31, 2006.

**ITEM 6. EXHIBITS**
| 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 requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrants have duly causedthis report to be signed on their behalf by the undersigned, thereunto dulyauthorized, on the 4th day of May, 2007.
|            | **EMERGENCY MEDICAL SERVICES CORPORATION** |
|------------|--------------------------------------------|
|       | (registrant)                               |
|       |                                       |   |
|       | By:                                        | /s/ William A. Sanger |
|       |                                       | William A. Sanger |
|       |                                       | Chairman and Chief Executive Officer |
|       |                                       |   |
| ** ** | **EMERGENCY MEDICAL SERVICES L.P.**        |
|       | (registrant)                               |
|       |                                       |   |
|       | By:                                        | Emergency Medical Services Corporation, its  General Partner |
|       |                                       |   |
|       | By:                                        | /s/ William A. Sanger |
|       |                                       | William A. Sanger |
|       |                                       | Chairman and Chief Executive Officer |

 

27

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**EXHIBIT INDEX**
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                              |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                         |
| 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

28

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