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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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| **(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,  2009** |
| ** **                                              | ** **                                                                                               | ** ** |
| **Or**                                                  |
| ** **                                              | ** **                                                                                               | ** ** |
| **o**                                                   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                         |                                                                                                          |            |  |

 

**For the transition period from               to**

 

**Commission file numbers:**

**001-32701**

**333-127115**

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**EMERGENCY MEDICAL SERVICES L.P.**

(Exact name of Registrants as Specified in their Charters)

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

 

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

 

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

**Not applicable**

 

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

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).

o  Yes   o  No

 

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

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

 

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

 

Shares of class Acommon stock outstanding at May 4, 2009 — 10,039,272; shares of class Bcommon stock outstanding at May 4, 2009 — 142,545; LP exchangeableunits outstanding at May 4, 2009 — 32,107,500.

 

 

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**INDEXTO QUARTERLY REPORT**

**ONFORM 10-Q**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2009**

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

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2009**

 

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

 

**EmergencyMedical Services Corporation**

**Consolidated Statements of Operationsand Comprehensive Income**

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

** **

| ** **                                                                             | ** ** | **Quarter ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                             | ** ** | **March 31,**     | ** ** |
| ** **                                                                             | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Net revenue                                                                            |       | $                      | 613,022    |   | $ | 565,786 |   |
| Compensation and  benefits                                                             |       | 426,534                |       | 394,351 |   |
| Operating  expenses                                                                    |       | 84,672                 |       | 83,223 |   |
| Insurance  expense                                                                     |       | 22,504                 |       | 20,963 |   |
| Selling, general  and administrative expenses                                          |       | 15,036                 |       | 14,592 |   |
| Depreciation and  amortization expense                                                 |       | 16,768                 |       | 17,717 |   |
| Income from  operations                                                                |       | 47,508                 |       | 34,940 |   |
| Interest income  from restricted assets                                                |       | 1,266                  |       | 1,755 |   |
| Interest expense                                                                       |       | (10,190                | )          | (9,916 | ) |
| Realized gain on  investments                                                          |       | 639                    |       | 672 |   |
| Interest and  other income                                                             |       | 517                    |       | 302 |   |
| Income before  income taxes and equity in earnings (loss) of unconsolidated subsidiary |       | 39,740                 |       | 27,753 |   |
| Income tax  expense                                                                    |       | (15,726                | )          | (10,684 | ) |
| Income before  equity in earnings (loss) of unconsolidated subsidiary                  |       | 24,014                 |       | 17,069 |   |
| Equity in  earnings (loss) of unconsolidated subsidiary                                |       | 57                     |       | (50 | ) |
| Net income                                                                             |       | 24,071                 |       | 17,019 |   |
| Other  comprehensive income (loss), net of tax:                                        |       |                   |       |   |   |
| Unrealized  holding (losses) gains during the period                                   |       | (1,157                 | )          | 1,347 |   |
| Unrealized  holding gains (losses) on derivative financial instruments                 |       | 351                    |       | (2,925 | ) |
| Comprehensive  income                                                                  |       | $                      | 23,265     |   | $ | 15,441 |   |
|                                                                                   |       |                   |       |   |   |
| Basic earnings  per common share                                                       |       | $                      | 0.57       |   | $ | 0.41 |   |
| Diluted earnings  per common share                                                     |       | $                      | 0.56       |   | $ | 0.40 |   |
| Weighted average  common shares outstanding, basic                                     |       | 41,924,218             |       | 41,570,412 |   |
| Weighted average  common shares outstanding, diluted                                   |       | 43,094,597             |       | 43,083,642 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Consolidated Balance Sheets**

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

** **
| ** **                                                                                                                                                  | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                  | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                  |       |                     |       |                        |       |
| Current assets:                                                                                                                                             |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                  |       | $                        | 194,148    |                        | $          | 146,173 |   |
| Insurance  collateral                                                                                                                                       |       | 45,315                   |       | 55,052                      |       |
| Trade and other  accounts receivable, net                                                                                                                   |       | 475,126                  |       | 472,501                     |       |
| Parts and  supplies inventory                                                                                                                               |       | 21,180                   |       | 21,160                      |       |
| Prepaids and  other current assets                                                                                                                          |       | 36,218                   |       | 28,378                      |       |
| Current deferred  tax assets                                                                                                                                |       | 91,249                   |       | 91,910                      |       |
| Total current  assets                                                                                                                                       |       | 863,236                  |       | 815,174                     |       |
| Non-current  assets:                                                                                                                                        |       |                     |       |                        |       |
| Property, plant  and equipment, net                                                                                                                         |       | 119,641                  |       | 124,869                     |       |
| Intangible  assets, net                                                                                                                                     |       | 76,495                   |       | 76,141                      |       |
| Non-current  deferred tax assets                                                                                                                            |       | 22,233                   |       | 36,351                      |       |
| Insurance  collateral                                                                                                                                       |       | 114,914                  |       | 119,644                     |       |
| Goodwill                                                                                                                                                    |       | 341,308                  |       | 346,013                     |       |
| Other long-term  assets                                                                                                                                     |       | 22,728                   |       | 23,027                      |       |
| Total assets                                                                                                                                                |       | $                        | 1,560,555  |                        | $          | 1,541,219 |   |
| **Liabilities  and Equity**                                                                                                                                 |       |                     |       |                        |       |
| Current  liabilities:                                                                                                                                       |       |                     |       |                        |       |
| Accounts payable                                                                                                                                            |       | $                        | 64,383     |                        | $          | 57,318 |   |
| Accrued  liabilities                                                                                                                                        |       | 241,479                  |       | 257,918                     |       |
| Current portion  of long-term debt                                                                                                                          |       | 4,543                    |       | 4,905                       |       |
| Total current  liabilities                                                                                                                                  |       | 310,405                  |       | 320,141                     |       |
| Long-term debt                                                                                                                                              |       | 452,803                  |       | 453,600                     |       |
| Insurance  reserves and other long-term liabilities                                                                                                         |       | 231,121                  |       | 228,439                     |       |
| Total  liabilities                                                                                                                                          |       | 994,329                  |       | 1,002,180                   |       |
| 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, 9,871,084 and  9,606,766 issued and outstanding in 2009 and 2008, respectively) |       | 99                       |       | 96                          |       |
| Class B  common stock ($0.01 par value; 40,000,000 shares authorized, 142,545 issued  and outstanding in 2009 and 2008)                                |       | 1                        |       | 1                           |       |
| Class B  special voting stock ($0.01 par value; 1 share authorized, issued and  outstanding in 2009 and 2008)                                          |       | —                   |       | —                      |       |
| LP exchangeable  units (32,107,500 shares issued and outstanding in 2009 and 2008)                                                                          |       | 212,361                  |       | 212,361                     |       |
| Additional  paid-in capital                                                                                                                                 |       | 128,289                  |       | 124,370                     |       |
| Retained  earnings                                                                                                                                          |       | 227,874                  |       | 203,803                     |       |
| Accumulated  other comprehensive loss                                                                                                                       |       | (2,398                   | )          | (1,592                      | )          |
| Total equity                                                                                                                                                |       | 566,226                  |       | 539,039                     |       |
| Total  liabilities and equity                                                                                                                               |       | $                        | 1,560,555  |                        | $          | 1,541,219 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Consolidated Statements of Cash Flows**

**(unaudited;in thousands)**

** **

| ** **                                                                                   | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| **Cash  Flows from Operating Activities**                                                    | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                                                    | 24,071     |   | $ | 17,019 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                                               |       | 17,080                                               |       | 18,296 |   |
| Gain on disposal  of property, plant and equipment                                           |       | (2                                                   | )          | (13 | ) |
| Equity-based  compensation expense                                                           |       | 650                                                  |       | 562 |   |
| Equity in  (earnings) loss of unconsolidated subsidiary                                      |       | (57                                                  | )          | 50 |   |
| Dividends  received                                                                          |       | 713                                                  |       | — |   |
| Deferred income  taxes                                                                       |       | 14,595                                               |       | 10,356 |   |
| Changes in  operating assets/liabilities, net of acquisitions:                               |       |                                                 |       |   |   |
| Trade and other  accounts receivable                                                         |       | (2,625                                               | )          | (26,308 | ) |
| Parts and  supplies inventory                                                                |       | (20                                                  | )          | (20 | ) |
| Prepaids and  other current assets                                                           |       | (7,840                                               | )          | (5,932 | ) |
| Accounts payable  and accrued liabilities                                                    |       | (8,500                                               | )          | (13,389 | ) |
| Insurance  accruals                                                                          |       | 3,877                                                |       | (3,399 | ) |
| Net cash  provided by (used in) operating activities                                         |       | 41,942                                               |       | (2,778 | ) |
| **Cash  Flows from Investing Activities**                                                    | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                                  |       | (7,207                                               | )          | (2,527 | ) |
| Proceeds from  sale of property, plant and equipment                                         |       | 21                                                   |       | 63 |   |
| Acquisition of  businesses, net of cash received                                             |       | —                                               |       | (13,278 | ) |
| Net change in  insurance collateral                                                          |       | 13,310                                               |       | 2,125 |   |
| Other investing  activities                                                                  |       | (670                                                 | )          | 653 |   |
| Net cash  provided by (used in) investing activities                                         |       | 5,454                                                |       | (12,964 | ) |
| **Cash  Flows from Financing Activities**                                                    | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| EMSC issuance of  class A common stock                                                       |       | 898                                                  |       | 12 |   |
| Borrowings under  revolving credit facility                                                  |       | —                                               |       | 14,000 |   |
| Repayments of  capital lease obligations and other debt                                      |       | (1,159                                               | )          | (15,151 | ) |
| Increase in bank  overdrafts                                                                 |       | 840                                                  |       | 4,122 |   |
| Net cash  provided by financing activities                                                   |       | 579                                                  |       | 2,983 |   |
| Change in cash  and cash equivalents                                                         |       | 47,975                                               |       | (12,759 | ) |
| Cash and cash  equivalents, beginning of period                                              |       | 146,173                                              |       | 28,914 |   |
| Cash and cash  equivalents, end of period                                                    |       | $                                                    | 194,148    |   | $ | 16,155 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Notes to Unaudited ConsolidatedFinancial Statements**

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

 

**1.****     General**

 

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

 

The accompanying interimconsolidated financial statements for Emergency Medical Services Corporation (“EMSC”or the “Company”) have been prepared in accordance with U.S. generally acceptedaccounting principles (“GAAP”) for interim reporting and accordingly, do notinclude all of the disclosures required for annual financial statements. In theopinion of management, all adjustments considered necessary for a fairpresentation have been included. All such adjustments are of a normal,recurring nature. Operating results for the three months ended March 31,2009 are not necessarily indicative of the results that may be expected for thefull year ending December 31, 2009. 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, 2008.

 

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

 

The Company is party to amanagement agreement with a wholly-owned subsidiary of Onex Corporation, theCompany’s principal equityholder. In exchange for an annual management fee of$1.0 million, the Onex subsidiary provides the Company with corporate financeand strategic planning consulting services. For the three months ended March 31,2009 and 2008, the Company expensed $250 in respect of this fee.

 

**2.****     Summary of Significant Accounting Policies**

 

***Consolidation***

 

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

 

***Use of Estimates***

 

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

 

***Insurance***

 

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

 

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

 

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

 

The Company’s most recentactuarial valuation was completed in March 2009. As a result of this andprevious actuarial valuations, the Company recorded an increase in itsprovision for insurance liabilities of approximately $0.7 million in the threemonths ended March 31, 2009 compared to a decrease of $2.8 million duringthe same period in 2008.

 

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The long-term portion ofinsurance reserves was $141.0 million and $139.0 million as of March 31,2009 and December 31, 2008, respectively.

 

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

 

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

 

| ** **                           | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Gross trade  accounts receivable     |       | $                        | 1,792,126  |                        | $          | 1,792,546 |   |
| Allowance for  contractual discounts |       | 882,166                  |       | 885,401                     |       |
| Allowance for  uncompensated care    |       | 513,143                  |       | 514,475                     |       |
| Net trade  accounts receivable       |       | 396,817                  |       | 392,670                     |       |
| Other  receivables, net              |       | 78,309                   |       | 79,831                      |       |
| Net accounts  receivable             |       | $                        | 475,126    |                        | $          | 472,501 |   |

 

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

 

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

 

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

 

***Revenue Recognition***

 

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

 

| ** **                                                                                     | ** ** | **Quarter ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                     | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Gross revenue                                                                                  |       | 100.0                                  | %          | 100.0 | % |
| Provision for  contractual discounts                                                           |       | 47.9                                   | %          | 45.7 | % |
| Revenue net of  contractual discounts                                                          |       | 52.1                                   | %          | 54.3 | % |
| Provision for  uncompensated care as a percentage of gross revenue                             |       | 19.6                                   | %          | 18.7 | % |
| Provision for  uncompensated care as a percentage of gross revenue less contractual  discounts |       | 37.7                                   | %          | 34.4 | % |

 

Healthcare billing andcollection is complex and may involve lengthy delays. Third-party payors arecontinuing their efforts to control expenditures for healthcare, includingproposals to revise reimbursement policies. The Company has from time to timeexperienced delays in reimbursement from third-party payors. In addition,third-party payors may disallow, in whole or in part, claims for reimbursement basedon determinations that certain amounts are not reimbursable under plancoverage, on determinations of medical necessity, or the need for additionalinformation. Laws and regulations governing the Medicare and Medicaid programsare very complex and subject to interpretation. As a result, there is areasonable possibility that recorded estimates will change materially in theshort-term. Retroactive adjustments may change the amounts realized fromthird-party payors and are considered in the recognition of revenue on anestimated basis in the period the related services are rendered. Such amounts,including adjustments between provisions for contractual discounts anduncompensated 

 

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care, are adjusted infuture periods, as adjustments become known. These adjustments were less than 1% of net revenue for the three monthperiods ended March 31, 2009 and 2008.

 

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

 

***Equity Structure***

 

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

 

As of March 31,2009, the Company holds 23.8% of the equity interests in EMS LP. LP exchangeableunits, held by persons affiliated with the Company’s principal equity holder,represent the balance of the EMS LP equity. The LP exchangeable units areexchangeable at any time, at the option of the holder, for shares of theCompany’s class B common stock on a one-for-one basis. The holders of the LPexchangeable units have the right to vote, through the trustee holder of theCompany’s class B special voting stock, at all stockholder meetings at whichholders of the Company’s class B common stock or class B special voting stockare entitled to vote.

 

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

 

***Fair Value Measurement***

 

The Company adoptedStatement of Financial Accounting Standards (“SFAS”) No. 157 *Fair Value Measurements (“SFAS 157”)*effective January 1,2008, which among other things, requires additional disclosures about financialinstruments that are reported at fair value. SFAS 157 establishes a hierarchal disclosure framework which ranks thelevel of market price observability used in measuring financial instruments atfair value. Market price observability is impacted by a number of factors,including the type of instrument and the characteristics specific to theinstrument.  Instruments with readilyavailable active quoted prices or for which fair value can be measured fromactively quoted prices generally will have a higher degree of market priceobservability and a lesser degree of judgment used in measuring fair value.

 

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

 

Level 1 — Quoted pricesare available in active markets for identical assets or liabilities as of thereporting date.  As required by SFAS 157,the Company does not adjust the quoted price for these assets or liabilities.

 

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

 

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

 

The following tablesummarizes the valuation of EMSC’s financial instruments by the above SFAS 157fair value hierarchy levels as of March 31, 2009:

 

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| **Description** | ** ** | **Total** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------|------------|-----------|------------|------------------|------------|------------------|------------|------------------|------------|
| Assets:         |       |      |       |             |       |             |       |             |       |
| Securities      |       | $         | 80,368     |             | $          | 59,006           |       | $                | 21,362     |   | $ | — |   |
| Liabilities:    |       |      |       |             |       |             |       |             |       |
| Derivatives     |       | $         | 5,195      |             | $          | —           |       | $                | 5,195      |   | $ | — |   |

 

FASB Staff Position No. 157-2(“FSP 157-2”) delayed the application of SFAS 157 to nonfinancial assets andliabilities until January 1, 2009. Adoption of FSP 157-2 did not have an impact on the Company’s financialstatements during the three months ended March 31, 2009.

 

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

** **

The Company adopted SFAS No. 141(revised 2007) *Business Combinations* (“SFAS141(R)”) effective January 1, 2009. The impact to the Company’s consolidated financials statements andrelated disclosures will depend on the nature and terms of the businesscombinations entered into subsequent to adoption of SFAS 141(R).  The Company expensed $720 upon adoption ofthis standard during the three months ended March 31, 2009.

 

In January 2009, theCompany entered into an agreement for the acquisition of the air ambulancebusiness of Skyservice Business Aviation Inc. (“Skyservice Air Ambulance”), afixed-wing air ambulance operator based in Montreal, Canada, with operations inQuebec, Ontario and British Columbia. Founded in 1989, Skyservice Air Ambulance provides worldwide airambulance service.  The transaction issubject to customary closing conditions and Canadian regulatory approval.

 

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

** **

Accrued liabilities wereas follows at March 31, 2009 and December 31, 2008:

 
| ** **                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| Accrued wages  and benefits                 |       | $                  | 90,288     |                  | $          | 95,029 |   |
| Accrued paid  time-off                      |       | 26,209             |       | 25,505                |       |
| Current portion  of self-insurance reserves |       | 63,004             |       | 61,099                |       |
| Accrued restructuring                       |       | 195                |       | 200                   |       |
| Current portion  of compliance and legal    |       | 3,799              |       | 2,616                 |       |
| Accrued billing  and collection fees        |       | 3,773              |       | 4,127                 |       |
| Accrued profit  sharing                     |       | 13,963             |       | 22,954                |       |
| Accrued interest                            |       | 3,534              |       | 9,964                 |       |
| Other                                       |       | 36,714             |       | 36,424                |       |
| Total accrued  liabilities                  |       | $                  | 241,479    |                  | $          | 257,918 |   |

 

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

** **

Long-term debt consistedof the following at March 31, 2009 and December 31, 2008:

 
| ** **                                                                       | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Senior  subordinated notes due 2015                                              |       | $                        | 250,000    |                        | $          | 250,000 |   |
| Senior secured  term loan due 2012 (3.02% at March 31, 2009)                |       | 201,338                  |       | 201,862                     |       |
| Notes due at  various dates from 2009 to 2022 with interest rates from 6% to 10% |       | 1,563                    |       | 1,632                       |       |
| Capital lease  obligations due at various dates from 2010 to 2018 (see note 7)   |       | 4,445                    |       | 5,011                       |       |
|                                                                             |       | 457,346                  |       | 458,505                     |       |
| Less current  portion                                                            |       | (4,543                   | )          | (4,905                      | )          |
| Total long-term  debt                                                            |       | $                        | 452,803    |                        | $          | 453,600 |   |

 

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

** **

The Company manages itsexposure to changes in market interest rates. The Company’s use of derivative instruments is limited to highlyeffective fixed interest rate swap agreements used to manage well-definedinterest rate risk exposures.  TheCompany monitors its positions and the credit ratings of its counterparties anddoes not anticipate non-performance by the counterparties.  The Company does not enter into interest rateswap agreements for trading purposes.

 

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In March 2009, theCompany amended the interest rate swap agreement originally entered into in December 2007.  The amendment changed the hedged interestrate from the 3-month LIBOR to the 1-month LIBOR.  The swap agreement is with major financial institutionswith a notional principal balance of $200 million.  The amended swap agreement effectivelyconverts $200 million of variable rate debt to fixed rate debt with aneffective rate of 6.1%.  The Company continues to make interest paymentsbased on the variable rate associated with the debt (based on LIBOR which had arate of 1% at March 31, 2009) and periodically settles with itscounterparties for the difference between the rate paid and the fixed rate. Theswap agreement will expire in December 2009.  The Company recorded a decrease to theliability associated with the fair value of the fixed interest rate swapagreement in the amount of $0.6 million for the three months ended March 31,2009 and an increase of $4.0 million during the same period in 2008 beforeapplicable tax impacts as a component of other comprehensive income.  The net additional interest payments made orreceived under this swap agreement are recognized in interest expense.  Over the remaining term of the agreement, theCompany expects to reclassify $5.2 million of deferred loss before applicabletax impacts, which represents the difference in our fixed interest rate and theprojected variable interest rates, from accumulated other comprehensive loss tointerest expense as related interest payments that are being hedged arerecognized.

 

**7.****                ****Commitments andContingencies**

** **

***Lease Commitments***

*** ***

The Company leasesvarious facilities and equipment under operating lease agreements.

 

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

 

***ForwardPurchase Commitment***

 

In March 2009, AMRentered into a series of forward purchase contracts which fix the price for aportion of its total monthly diesel fuel usage from April 1, 2009 through June 30,2010.  For the nine months ending December 31,2009, the Company is under contract to purchase 200,000 gallons of diesel fuelper month at prices ranging from $2.63 to $2.79 per gallon.  In addition, for the twelve months ending June 30,2010, the Company is under contract to purchase 50,000 gallons of diesel fuelper month at prices ranging from $2.85 to $2.99 per gallon.  These forward purchase contracts representapproximately 40% of the Company’s total monthly diesel fuel usage. Based onthe terms of the contracts, the Company has concluded they do not qualify asderivatives.

 

***Services***

*** ***

The Company is subject tothe Medicare and Medicaid fraud and abuse laws which prohibit, among otherthings, any false claims, or any bribe, kickback or rebate in return for thereferral of Medicare and Medicaid patients. Violation of these prohibitions mayresult in civil and criminal penalties and exclusion from participation in theMedicare and Medicaid programs. Management has implemented policies andprocedures that management believes will assure that the Company is insubstantial compliance with these laws and regulations but there can be noassurance the Company will not be found to have violated certain of these lawsand regulations. From time to time, the Company receives requests forinformation from government agencies pursuant to their regulatory or investigationalauthority. Such requests can include subpoenas or demand letters for documentsto assist the government in audits or investigations. The Company iscooperating with the government agencies conducting these investigations and isproviding requested information to the government agencies. Other than theproceedings described directly below under “Other Legal Matters”, managementbelieves that the outcome of any of these investigations would not have amaterial adverse effect on the Company.

 

***Other Legal Matters***

*** ***

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

 

In December 2006,AMR received a subpoena from the DOJ. The subpoena requested copies of documents for the period from January 2000through the present.  The subpoenarequired AMR to produce a broad range of documents relating to the operationsof certain AMR affiliates in New York. The Company continues to cooperate with governmental requests fordocuments and information.

 

Three different lawsuitspurporting to be class actions have been filed against AMR and certainsubsidiaries in California alleging violations of California wage and hourlaws.  On April 16, 2008, LoriBartoni commenced a suit in the Superior Court for the State of California,County of Alameda, which has since been removed to the United States DistrictCourt, 

 

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Northern District ofCalifornia; on July 8, 2008, Vaughn Banta filed suit in the Superior Courtof the State of California, County of Los Angeles; on January 22, 2009,Laura Karapetian filed suit in the Superior Court of the State of California,County of Los Angeles.  At the presenttime, courts have not certified classes in any of these cases.  Plaintiffs allege principally that the AMRentities failed to pay daily overtime rates pursuant to California law, andfailed to provide required meal breaks or pay premium compensation for missedmeal breaks.  Plaintiffs are seeking tocertify the classes and seeking lost wages, punitive damages, attorneys’ feesand other sanctions permitted under California law for violations of wage and hourlaws.  The Company is unable at this timeto estimate the amount of potential damages, if any.

 

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

** **

The Company adopted theprovisions of SFAS No. 123 (revised 2004)*Share-Based Payment* (“SFAS 123R”) on January 1, 2006 using theprospective transition method. Stock options are valued using theBlack-Scholes valuation method on the date of grant.

 

**EquityOption Plan**

** **

Under the Company’sEquity Option Plan, key employees were granted options that permit theindividuals to purchase class A common shares and vest ratably generally over aperiod of four years. In addition, certain performance measures must be met for50% of the options to become exercisable; these performance measures weresatisfied during the first quarter of 2009 with respect to the options grantedin first quarter of 2005. Options with similar provisions were granted tonon-employee directors. The Company recorded a compensation charge of $97 and$431 for the three months ended March 31, 2009 and 2008,respectively.  Options are no longergranted under the Equity Option Plan, but rather under the Company’s Amendedand Restated 2007 Long-Term Incentive Plan described below.

 

**Long-TermIncentive Plan**

** **

The Company’s original2007 Long-Term Incentive Plan was approved by stockholders in May 2007 andan Amended and Restated 2007 Long-Term Incentive Plan (the “Plan”) was approvedby stockholders in May 2008.  ThePlan provides for the grant of long-term incentives, including variousequity-based incentives, to those persons with responsibility for the successand growth of the Company and its subsidiaries.

 

The Company grantedoptions and restricted stock to key employees during the three months ended March 31,2009 under the Plan. The options permit employees to purchase 206,625 shares ofclass A common stock at a weighted average exercise price of $29.65 pershare, vest ratably over a period of four years and have a maximum term of tenyears.  The Company also granted 206,625shares of restricted stock pursuant to the Plan, which vest ratably over aperiod of three years.

 

The Company recorded acompensation charge of $428 and $31 during the three months ended March 31,2009 and 2008, respectively, in connection with the Plan.

 

**Non-EmployeeDirector Compensation Plan**

** **

The Non-Employee DirectorCompensation Plan, approved in May 2007, is available to non-employeedirectors of the Company, other than the Chair of the ComplianceCommittee.  Under this plan, eligibledirectors are granted Restricted Stock Units (“RSUs”) following each annualstockholder meeting with each RSU representing one share of the Company’s classA common stock.  Eligible directorsreceive a grant of RSUs having a fair market value of $100 on the date of grantbased on the closing price of the Company’s class A common stock on thebusiness day immediately preceding the grant date.  The Non-Employee Director Compensation Planallows directors to defer income from the grant of RSUs, which vest immediatelyprior to the election of directors at the next annual stockholder meeting.  In connection with this plan, the Companygranted 4,145 RSUs per director after the Company’s 2008 annual stockholdermeeting, plus an additional prorated amount of 2,374 RSUs to a director uponhis election to the board of directors in October 2008.  The Company granted 2,705 RSUs per directorin 2007.  The Company expensed $125 and$100 for the three months ended March 31, 2009 and 2008, respectively.

 

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

** **

The Company is organizedaround two separately managed business units: healthcare transportationservices and hospital-based physician services, which have been identified asoperating segments. The healthcare transportation services reportable segmentfocuses on providing a full range of medical transportation services from basicpatient transit to the most advanced emergency care and pre-hospitalassistance. The hospital-based physician services reportable segment providesoutsourced business services to hospitals primarily for emergency departmentsand urgent care centers, as well as for hospitalist/inpatient, radiology andanesthesiology services. The Chief Executive Officer has been identified as thechief operating decision maker (“CODM”) for purposes of SFAS No. 131*Disclosures about Segments of an Enterprise andRelated Information*

 

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(“SFAS 131”), as heassesses the performance of the business units and decides how to allocateresources to the business units.

 

Net income before equityin earnings (loss) of unconsolidated subsidiary, income tax expense, interestand other income, realized gain on investments, interest expense, anddepreciation and amortization (“Adjusted EBITDA”) is the measure of profit andloss that the CODM uses to assess performance, measure liquidity and makedecisions. The accounting policies for reported segments are the same as forthe Company as a whole.

 
| ** **                                              | ** ** | **Quarter ended March 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                              | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| **Healthcare  Transportation Services**                 | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Revenue                                                 |       | $                                          | 336,446    |   | $ | 326,316 |   |
| Segment Adjusted  EBITDA                                |       | 33,888                                     |       | 28,398 |   |
| **Hospital-Based  Physician Services**                  | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Revenue                                                 |       | 276,576                                    |       | 239,470 |   |
| Segment Adjusted  EBITDA                                |       | 31,654                                     |       | 26,014 |   |
| **Total**                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Total revenue                                           |       | 613,022                                    |       | 565,786 |   |
| Total Adjusted  EBITDA                                  |       | 65,542                                     |       | 54,412 |   |
| **Reconciliation  of Adjusted EBITDA to Net Income**    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Adjusted EBITDA                                         |       | $                                          | 65,542     |   | $ | 54,412 |   |
| Depreciation and  amortization expense                  |       | (16,768                                    | )          | (17,717 | ) |
| Interest expense                                        |       | (10,190                                    | )          | (9,916 | ) |
| Realized gain on  investments                           |       | 639                                        |       | 672 |   |
| Interest and  other income                              |       | 517                                        |       | 302 |   |
| Income tax  expense                                     |       | (15,726                                    | )          | (10,684 | ) |
| Equity in  earnings (loss) of unconsolidated subsidiary |       | 57                                         |       | (50 | ) |
| Net income                                              |       | $                                          | 24,071     |   | $ | 17,019 |   |

 

Areconciliation of Adjusted EBITDA to cash flows provided by (used in) operatingactivities is as follows:

 
| ** **                                             | ** ** | **Quarter ended March 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| Adjusted EBITDA                                        |       | $                                          | 65,542     |   | $ | 54,412 |   |
| Interest paid                                          |       | (9,877                                     | )          | (9,337 | ) |
| Change in  accounts receivable                         |       | (2,625                                     | )          | (26,308 | ) |
| Change in other  operating assets/liabilities          |       | (12,483                                    | )          | (22,740 | ) |
| Equity based  compensation                             |       | 650                                        |       | 562 |   |
| Other                                                  |       | 735                                        |       | 633 |   |
| Cash flows  provided by (used in) operating activities |       | $                                          | 41,942     |   | $ | (2,778 | ) |

 

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

** **

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

 

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**Consolidating Statement of Operations**

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

 
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                             |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 613,022    |       | $          | 6,883 |   | $ | (6,883 | ) | $ | 613,022 |   |
| Compensation and  benefits                                              |       | —     |       | —          |       | —                |       | —                |       | 426,534        |       | —            |       | —            |       | 426,534    |       |
| Operating  expenses                                                     |       | —     |       | —          |       | —                |       | —                |       | 84,672         |       | —            |       | —            |       | 84,672     |       |
| Insurance expense                                                       |       | —     |       | —          |       | —                |       | —                |       | 21,154         |       | 8,233             |       | (6,883            | )          | 22,504     |       |
| Selling, general  and administrative expenses                           |       | —     |       | —          |       | —                |       | —                |       | 15,036         |       | —            |       | —            |       | 15,036     |       |
| Depreciation and  amortization expense                                  |       | —     |       | —          |       | —                |       | —                |       | 16,768         |       | —            |       | —            |       | 16,768     |       |
| Income (loss)  from operations                                          |       | —     |       | —          |       | —                |       | —                |       | 48,858         |       | (1,350            | )          | —            |       | 47,508     |       |
| Interest income  from restricted assets                                 |       | —     |       | —          |       | —                |       | —                |       | 555            |       | 711               |       | —            |       | 1,266      |       |
| Interest expense                                                        |       | —     |       | —          |       | —                |       | —                |       | (10,190        | )          | —            |       | —            |       | (10,190    | )          |
| Realized gain on  investments                                           |       | —     |       | —          |       | —                |       | —                |       | —         |       | 639               |       | —            |       | 639        |       |
| Interest and  other income                                              |       | —     |       | —          |       | —                |       | —                |       | 517            |       | —            |       | —            |       | 517        |       |
| Income before  income taxes                                             |       | —     |       | —          |       | —                |       | —                |       | 39,740         |       | —            |       | —            |       | 39,740     |       |
| Income tax  expense                                                     |       | —     |       | —          |       | —                |       | —                |       | (15,726        | )          | —            |       | —            |       | (15,726    | )          |
| Income before  equity in earnings of unconsolidated subsidiaries        |       | —     |       | —          |       | —                |       | —                |       | 24,014         |       | —            |       | —            |       | 24,014     |       |
| Equity in  earnings of unconsolidated subsidiaries                      |       | 24,071     |       | 24,071          |       | 9,344                 |       | 14,728                |       | 57             |       | —            |       | (72,214           | )          | 57         |       |
| Net income                                                              |       | $          | 24,071     |            | $          | 24,071                |       | $                     | 9,344      |           | $          | 14,728            |       | $                 | 24,071     |       | $          | — |   | $ | (72,214 | ) | $ | 24,071 |   |
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **            | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Consolidating Statement of Operations**                               |
| **For the three months ended March 31, 2008**                      |
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **            | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net revenue                                                             |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 565,786    |       | $          | 10,757 |   | $ | (10,757 | ) | $ | 565,786 |   |
| Compensation and  benefits                                              |       | —     |       | —          |       | —                |       | —                |       | 394,351        |       | —            |       | —            |       | 394,351    |       |
| Operating  expenses                                                     |       | —     |       | —          |       | —                |       | —                |       | 83,223         |       | —            |       | —            |       | 83,223     |       |
| Insurance expense                                                       |       | —     |       | —          |       | —                |       | —                |       | 19,218         |       | 12,502            |       | (10,757           | )          | 20,963     |       |
| Selling, general  and administrative expenses                           |       | —     |       | —          |       | —                |       | —                |       | 14,592         |       | —            |       | —            |       | 14,592     |       |
| Depreciation and  amortization expense                                  |       | —     |       | —          |       | —                |       | —                |       | 17,717         |       | —            |       | —            |       | 17,717     |       |
| Income (loss)  from operations                                          |       | —     |       | —          |       | —                |       | —                |       | 36,685         |       | (1,745            | )          | —            |       | 34,940     |       |
| Interest income  from restricted assets                                 |       | —     |       | —          |       | —                |       | —                |       | 682            |       | 1,073             |       | —            |       | 1,755      |       |
| Interest expense                                                        |       | —     |       | —          |       | —                |       | —                |       | (9,916         | )          | —            |       | —            |       | (9,916     | )          |
| Realized gain on  investments                                           |       | —     |       | —          |       | —                |       | —                |       | —         |       | 672               |       | —            |       | 672        |       |
| Interest and  other income                                              |       | —     |       | —          |       | —                |       | —                |       | 302            |       | —            |       | —            |       | 302        |       |
| Income before  income taxes                                             |       | —     |       | —          |       | —                |       | —                |       | 27,753         |       | —            |       | —            |       | 27,753     |       |
| Income tax  expense                                                     |       | —     |       | —          |       | —                |       | —                |       | (10,684        | )          | —            |       | —            |       | (10,684    | )          |
| Income before  equity in earnings (loss) of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 17,069         |       | —            |       | —            |       | 17,069     |       |
| Equity in  earnings (loss) of unconsolidated subsidiaries               |       | 17,019     |       | 17,019          |       | 5,061                 |       | 11,958                |       | (50            | )          | —            |       | (51,057           | )          | (50        | )          |
| Net income                                                              |       | $          | 17,019     |            | $          | 17,019                |       | $                     | 5,061      |           | $          | 11,958            |       | $                 | 17,019     |       | $          | — |   | $ | (51,057 | ) | $ | 17,019 |   |

 

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**Consolidating Balance Sheet**

**As of March 31, 2009**

 
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current assets:                           |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Cash and cash  equivalents                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 177,516    |       | $          | 16,632 |   | $ | — |   | $ | 194,148 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 17,587         |       | 58,496            |       | (30,768           | )          | 45,315     |       |
| Trade and other  accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 474,272        |       | 854               |       | —            |       | 475,126    |       |
| Parts and  supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 21,180         |       | —            |       | —            |       | 21,180     |       |
| Other current  assets                     |       | —     |       | —          |       | —                |       | —                |       | 33,528         |       | 2,690             |       | —            |       | 36,218     |       |
| Current deferred  tax assets              |       | —     |       | —          |       | —                |       | —                |       | 87,415         |       | 3,834             |       | —            |       | 91,249     |       |
| Current assets                            |       | —     |       | —          |       | —                |       | —                |       | 811,498        |       | 82,506            |       | (30,768           | )          | 863,236    |       |
| Non-current  assets:                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property, plant,  and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 119,641        |       | —            |       | —            |       | 119,641    |       |
| Intercompany  receivable                  |       | 14,989     |       | 113,400         |       | 265,042               |       | 182,146               |       | —         |       | —            |       | (575,577          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 76,495         |       | —            |       | —            |       | 76,495     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 26,548         |       | (4,315            | )          | —            |       | 22,233     |       |
| Insurance collateral                      |       | —     |       | —          |       | —                |       | —                |       | 39,588         |       | 72,771            |       | 2,555             |       | 114,914    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 340,850        |       | 458               |       | —            |       | 341,308    |       |
| Other long-term  assets                   |       | —     |       | —          |       | 5,342                 |       | 2,356                 |       | 15,030         |       | —            |       | —            |       | 22,728     |       |
| Investment and  advances in subsidiaries  |       | 551,237    |       | 437,837         |       | 250,380               |       | 187,443               |       | 41,125         |       | —            |       | (1,468,022        | )          | —     |       |
| Assets                                    |       | $          | 566,226    |            | $          | 551,237               |       | $                     | 520,764    |           | $          | 371,945           |       | $                 | 1,470,775  |       | $          | 151,420 |   | $ | (2,071,812 | ) | $ | 1,560,555 |   |
| **Liabilities  and Equity**               |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                     |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts payable                          |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 64,317     |       | $          | 66 |   | $ | — |   | $ | 64,383 |   |
| Accrued  liabilities                      |       | —     |       | —          |       | 1,915                 |       | 1,619                 |       | 204,615        |       | 34,581            |       | (1,251            | )          | 241,479    |       |
| Current portion  of long-term debt        |       | —     |       | —          |       | 1,447                 |       | 650                   |       | 2,446          |       | —            |       | —            |       | 4,543      |       |
| Current  liabilities                      |       | —     |       | —          |       | 3,362                 |       | 2,269                 |       | 271,378        |       | 34,647            |       | (1,251            | )          | 310,405    |       |
| Long-term debt                            |       | —     |       | —          |       | 265,976               |       | 183,265               |       | 3,562          |       | —            |       | —            |       | 452,803    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 187,930        |       | 70,153            |       | (26,962           | )          | 231,121    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 570,082        |       | 5,495             |       | (575,577          | )          | —     |       |
| Liabilities                               |       | —     |       | —          |       | 269,338               |       | 185,534               |       | 1,032,952      |       | 110,295           |       | (603,790          | )          | 994,329    |       |
| Equity:                                   |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A  common stock                |       | 99         |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 99         |       |
| Class B  common stock                |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                       |       | 212,361    |       | 325,761         |       | 189,394               |       | 22,967                |       | 212,361        |       | —            |       | (750,483          | )          | 212,361    |       |
| Additional  paid-in capital               |       | 128,289    |       | —          |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 128,289    |       |
| Retained earnings                         |       | 227,874    |       | 227,874         |       | 64,751                |       | 163,123               |       | 227,860        |       | 33,403            |       | (717,011          | )          | 227,874    |       |
| Comprehensive  income (loss)              |       | (2,398     | )          | (2,398          | )          | (2,719                | )          | 321                   |       | (2,398         | )          | 3,376             |       | 3,818             |       | (2,398     | )          |
| Equity                                    |       | 566,226    |       | 551,237         |       | 251,426               |       | 186,411               |       | 437,823        |       | 41,125            |       | (1,468,022        | )          | 566,226    |       |
| Liabilities and  Equity                   |       | $          | 566,226    |            | $          | 551,237               |       | $                     | 520,764    |           | $          | 371,945           |       | $                 | 1,470,775  |       | $          | 151,420 |   | $ | (2,071,812 | ) | $ | 1,560,555 |   |

 

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**Consolidating Balance Sheet**

**As of December 31, 2008**

 
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current assets:                           |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Cash and cash  equivalents                |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 140,452    |       | $          | 5,721 |   | $ | — |   | $ | 146,173 |   |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 18,618         |       | 40,751            |       | (4,317            | )          | 55,052     |       |
| Trade and other  accounts receivable, net |       | —     |       | —          |       | —                |       | —                |       | 471,546        |       | 955               |       | —            |       | 472,501    |       |
| Parts and  supplies inventory             |       | —     |       | —          |       | —                |       | —                |       | 21,160         |       | —            |       | —            |       | 21,160     |       |
| Other current  assets                     |       | —     |       | —          |       | —                |       | —                |       | 28,339         |       | 39                |       | —            |       | 28,378     |       |
| Current deferred  tax assets              |       | —     |       | —          |       | —                |       | —                |       | 88,076         |       | 3,834             |       | —            |       | 91,910     |       |
| Current assets                            |       | —     |       | —          |       | —                |       | —                |       | 768,191        |       | 51,300            |       | (4,317            | )          | 815,174    |       |
| Non-current  assets:                      |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property, plant,  and equipment, net      |       | —     |       | —          |       | —                |       | —                |       | 124,869        |       | —            |       | —            |       | 124,869    |       |
| Intercompany  receivable                  |       | 11,067     |       | 113,400         |       | 268,581               |       | 185,250               |       | —         |       | —            |       | (578,298          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —          |       | —                |       | —                |       | 76,141         |       | —            |       | —            |       | 76,141     |       |
| Non-current  deferred tax assets          |       | —     |       | —          |       | —                |       | —                |       | 40,666         |       | (4,315            | )          | —            |       | 36,351     |       |
| Insurance  collateral                     |       | —     |       | —          |       | —                |       | —                |       | 39,923         |       | 81,062            |       | (1,341            | )          | 119,644    |       |
| Goodwill                                  |       | —     |       | —          |       | —                |       | —                |       | 345,555        |       | 458               |       | —            |       | 346,013    |       |
| Other long-term  assets                   |       | —     |       | —          |       | 5,496                 |       | 2,513                 |       | 15,018         |       | —            |       | —            |       | 23,027     |       |
| Investment and  advances in subsidiaries  |       | 527,972    |       | 414,572         |       | 241,438               |       | 173,120               |       | 33,216         |       | —            |       | (1,390,318        | )          | —     |       |
| Assets                                    |       | $          | 539,039    |            | $          | 527,972               |       | $                     | 515,515    |           | $          | 360,883           |       | $                 | 1,443,579  |       | $          | 128,505 |   | $ | (1,974,274 | ) | $ | 1,541,219 |   |
| **Liabilities  and Equity**               |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                     |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts payable                          |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 57,260     |       | $          | 58 |   | $ | — |   | $ | 57,318 |   |
| Accrued  liabilities                      |       | —     |       | —          |       | 5,247                 |       | 4,717                 |       | 216,692        |       | 31,263            |       | (1                | )          | 257,918    |       |
| Current portion  of long-term debt        |       | —     |       | —          |       | 1,590                 |       | 715                   |       | 2,600          |       | —            |       | —            |       | 4,905      |       |
| Current  liabilities                      |       | —     |       | —          |       | 6,837                 |       | 5,432                 |       | 276,552        |       | 31,321            |       | (1                | )          | 320,141    |       |
| Long-term debt                            |       | —     |       | —          |       | 266,194               |       | 183,363               |       | 4,043          |       | —            |       | —            |       | 453,600    |       |
| Other long-term  liabilities              |       | —     |       | —          |       | —                |       | —                |       | 175,623        |       | 58,473            |       | (5,657            | )          | 228,439    |       |
| Intercompany                              |       | —     |       | —          |       | —                |       | —                |       | 572,803        |       | 5,495             |       | (578,298          | )          | —     |       |
| Liabilities                               |       | —     |       | —          |       | 273,031               |       | 188,795               |       | 1,029,021      |       | 95,289            |       | (583,956          | )          | 1,002,180  |       |
| Equity:                                   |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A  common stock                |       | 96         |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 96         |       |
| Class B  common stock                |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                       |       | 212,361    |       | 325,761         |       | 189,394               |       | 22,967                |       | 212,361        |       | —            |       | (750,483          | )          | 212,361    |       |
| Additional  paid-in capital               |       | 124,370    |       | —          |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 124,370    |       |
| Retained earnings                         |       | 203,803    |       | 203,803         |       | 55,406                |       | 148,397               |       | 203,789        |       | 24,337            |       | (635,732          | )          | 203,803    |       |
| Comprehensive  income (loss)              |       | (1,592     | )          | (1,592          | )          | (2,316                | )          | 724                   |       | (1,592         | )          | 4,533             |       | 243               |       | (1,592     | )          |
| Equity                                    |       | 539,039    |       | 527,972         |       | 242,484               |       | 172,088               |       | 414,558        |       | 33,216            |       | (1,390,318        | )          | 539,039    |       |
| Liabilities and  Equity                   |       | $          | 539,039    |            | $          | 527,972               |       | $                     | 515,515    |           | $          | 360,883           |       | $                 | 1,443,579  |       | $          | 128,505 |   | $ | (1,974,274 | ) | $ | 1,541,219 |   |

 

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**Condensed Consolidating Statement of Cash Flows**

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

** **
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash  Flows from Operating Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net cash provided  by (used in) operating activities    |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 42,976     |   | $ | (1,034 | ) | $ | 41,942 |   |
| **Cash  Flows from Investing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase of  property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (7,207         | )          | —             |       | (7,207     | )          |
| Proceeds from  sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 21             |       | —             |       | 21         |       |
| Net change in  insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | 1,365          |       | 11,945             |       | 13,310     |       |
| Net change in  deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | (670           | )          | —             |       | (670       | )          |
| Net cash provided  by (used in) investing activities    |       | —     |       | —          |       | —               |       | —               |       | (6,491         | )          | 11,945             |       | 5,454      |       |
| **Cash  Flows from Financing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC issuance of  class A common stock                  |       | 898        |       | —          |       | —               |       | —               |       | —         |       | —             |       | 898        |       |
| Repayments of  capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (1,159         | )          | —             |       | (1,159     | )          |
| Increase in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 840            |       | —             |       | 840        |       |
| Net intercompany  borrowings (payments)                 |       | (898       | )          | —          |       | —               |       | —               |       | 898            |       | —             |       | —     |       |
| Net cash provided  by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 579            |       | —             |       | 579        |       |
| Change in cash  and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | 37,064         |       | 10,911             |       | 47,975     |       |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 140,452        |       | 5,721              |       | 146,173    |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 177,516    |   | $ | 16,632 |   | $ | 194,148 |   |
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| **Condensed Consolidating Statement of Cash Flows**     |
| **For the three months ended March 31, 2008**      |
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash  Flows from Operating Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net cash used in  operating activities                  |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | (1,053     | ) | $ | (1,725 | ) | $ | (2,778 | ) |
| **Cash  Flows from Investing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase of  property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (2,527         | )          | —             |       | (2,527     | )          |
| Proceeds from  sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 63             |       | —             |       | 63         |       |
| Acquisition of  businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (13,278        | )          | —             |       | (13,278    | )          |
| Net change in  insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | 3,500          |       | (1,375             | )          | 2,125      |       |
| Net change in  deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 653            |       | —             |       | 653        |       |
| Net cash used in  investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (11,589        | )          | (1,375             | )          | (12,964    | )          |
| **Cash  Flows from Financing Activities**               |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC issuance of  class A common stock                  |       | 12         |       | —          |       | —               |       | —               |       | —         |       | —             |       | 12         |       |
| Repayments of  capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (15,151        | )          | —             |       | (15,151    | )          |
| Increase in bank  overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 4,122          |       | —             |       | 4,122      |       |
| Borrowings under  revolving credit facility             |       | —     |       | —          |       | —               |       | —               |       | 14,000         |       | —             |       | 14,000     |       |
| Net intercompany  borrowings (payments)                 |       | (12        | )          | —          |       | —               |       | —               |       | 12             |       | —             |       | —     |       |
| Net cash provided  by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 2,983          |       | —             |       | 2,983      |       |
| Change in cash  and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | (9,659         | )          | (3,100             | )          | (12,759    | )          |
| Cash and cash  equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 24,987         |       | 3,927              |       | 28,914     |       |
| Cash and cash  equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 15,328     |   | $ | 827 |   | $ | 16,155 |   |

 

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

 

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

 

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

 

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

 

This Report should beread in conjunction with the Company’s consolidated financial statements andnotes thereto included in our Annual Report on Form 10-K filed with theSEC on February 23, 2009.

 

***Company Overview***

 

We are a leading providerof emergency medical services in the United States. We operate our business andmarket our services under the AMR and EmCare brands.   We believe that AMR, over its more than 50years of operating history, has become the leading provider of ambulancetransport services in the United States. We believe that EmCare, over its more than 35 years of operatinghistory, has become the leading provider of outsourced emergency departmentstaffing and management services in the United States and also provideshospital-based services for hospitalist/inpatient, radiology, andanesthesiology departments.

 

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

 

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

 

We evaluate our revenuenet of provisions for contractual payor discounts and provisions 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 regardingcollectability of charges associated with services we provide to thesepatients, which we refer to as uncompensated care, our net revenue recognitionis based on expected cash collections. Our net revenue is gross billings afterprovisions for contractual discounts and estimated uncompensated care.Provisions for contractual discounts and uncompensated care have increasedhistorically primarily as a result of increases in gross billing rates.

 

The table belowsummarizes our approximate payor mix as a percentage of both net revenue andtotal transports and patient encounters for the quarters ended March 31,2009 and 2008.  In determining the netrevenue payor mix, we use cash collections in the period as an approximation ofnet revenue recorded.

 

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| ** **                             | ** ** | **Percentage of Net Revenue** | ** ** | **Percentage of Total Volume** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **Q1 2009**                   | ** ** | **Q1 2008**                    | ** ** | **Q1 2009** | ** ** | **Q1 2008** | ** ** |
| Medicare                               |       | 23.8                          | %          | 24.9                           | %          | 25.9 | % | 26.8 | % |
| Medicaid                               |       | 4.5                           | %          | 4.6                            | %          | 10.8 | % | 10.6 | % |
| Commercial  insurance and managed care |       | 49.8                          | %          | 49.5                           | %          | 42.2 | % | 41.7 | % |
| Self-pay                               |       | 4.1                           | %          | 4.6                            | %          | 21.1 | % | 20.9 | % |
| Fees and  subsidies                    |       | 17.8                          | %          | 16.5                           | %          | — |   | — |   |
| Total                                  |       | 100.0                         | %          | 100.0                          | %          | 100.0 | % | 100.0 | % |

 

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

 

**AMR**

 

Approximately 88% of AMR’snet revenue for the three months ended March 31, 2009 was transportrevenue derived from the treatment and transportation of patients, includingfixed wing medical transportation services, based on billings to third partypayors, healthcare facilities and patients. The balance of AMR’s net revenue isderived from direct billings to communities and government agencies for theprovision of training, dispatch center and other services.  AMR’s measuresfor net revenue include transports (segregated into ambulance and wheelchairtransports, and weighted in certain of our analyses) and net revenue pertransport.

 

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

 

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

 

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

 

**EmCare**

 

Of EmCare’s net revenuefor the three months ended March 31, 2009, approximately 85% was derivedfrom our hospital contracts for emergency department staffing and approximately15% was derived from hospitalist, anesthesiology, radiology and other hospitalmanagement services. Approximately 79% of EmCare’s net revenue was generatedfrom billings to third party payors and patients for patient encounters andapproximately 21% was generated from billings to hospitals and affiliatedphysician groups for professional services. EmCare’s key net revenue measuresare patient encounters (segregated into emergency department visits, radiologyreads, and anesthesiology and hospitalist encounters, and weighted in certainof our analyses), net revenue per patient encounter, and number ofcontracts.  Due to our expansion in theradiology and anesthesiology markets which typically generate lower net revenueper encounter than emergency room visits, patient encounters are now beingweighted to make net revenue per encounter comparable across all of EmCare’smarkets.

 

 The change fromperiod to period in the number of patient encounters under our “same store”contracts is influenced by general community conditions as well ashospital-specific elements, many of which are beyond our direct control.

 

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

 

We have developedextensive professional liability risk mitigation processes, including risk assessmentson medical professionals and hospitals, extensive incident reporting andtracking processes, clinical fail-safe programs, training and education andother risk mitigation programs which we believe have resulted in a continuedreduction in the frequency, severity and development of claims.

 

***Recent Developments***

 

The Company adopted SFAS No. 141(revised 2007) *Business Combinations* (“SFAS141(R)”) effective January 1, 2009. The new standard replaces FASB Statement No. 141 and establishesrequirements for how an acquirer in a business combination recognizes andmeasures the assets acquired, liabilities assumed and any noncontrollinginterests.  The impact to the Company’s

 

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consolidated financialstatements and related disclosures will depend on the nature and terms of thebusiness combinations entered into subsequent to adoption of SFAS 141(R).

 

***Factors Affecting Operating Results***

 

**Changesin Net New Contracts**

 

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

 

**Inflation**

 

Certain of our expenses,such as wages and benefits, insurance, fuel and equipment repair andmaintenance costs, are subject to normal inflationary pressures. Fuel expenserepresented 8.0% and 13.1% of AMR’s operating expenses for the three monthsended March 31, 2009 and 2008, respectively.  Although we have generally been able tooffset inflationary cost increases through increased operating efficiencies andsuccessful negotiation of fees and subsidies, we can provide no assurance thatwe will be able to offset any future inflationary cost increases throughsimilar efficiencies and fee changes.

 

***Critical Accounting Policies***

 

**RevenueRecognition**

 

Management regularlyanalyzes the ultimate collectibility of accounts receivable after certainstages of the collection cycle using a look-back analysis to determine theamount of receivables subsequently collected. Adjustments related to this analysis were less than 1% of net revenuefor the three month periods ended March 31, 2009 and 2008.

 

**Resultsof Operations**

 

**QuarterEnded March 31, 2009 Compared to the Quarter Ended March 31, 2008**

 

The following tablespresent a comparison of financial data from our unaudited consolidatedstatements of operations for the three months ended March 31, 2009 and2008 for EMSC and our two operating segments.

 

**Non-GAAPMeasures**

 

*AdjustedEBITDA. *AdjustedEBITDA is defined as net income before equity in earnings (loss) ofunconsolidated subsidiary, income tax expense, interest and other income,realized gain on investments, interest expense and depreciation andamortization.  Adjusted EBITDA is commonly used by management andinvestors as a performance measure and liquidity indicator. Adjusted EBITDA isnot considered a measure of financial performance under U.S. generally acceptedaccounting principles, or GAAP, and the items excluded from Adjusted EBITDA aresignificant components in understanding and assessing our financialperformance. Adjusted EBITDA should not be considered in isolation or as analternative to such GAAP measures as net income, cash flows provided by or usedin operating, investing or financing activities or other financial statement datapresented in our financial statements as an indicator of financial performanceor liquidity. Since Adjusted EBITDA is not a measure determined in accordancewith GAAP and is susceptible to varying calculations, Adjusted EBITDA, aspresented, may not be comparable to other similarly titled measures of othercompanies. The tables set forth a reconciliation of Adjusted EBITDA to netincome and cash flows provided by (used in) operating activities.

 

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

**(dollarsin thousands)**

**EMSC**

** **
| ** **                                              | ** ** | **Quarter ended  March 31, 2009** | ** ** | **Quarter ended  March 31, 2008** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                              | ** ** | ** **                                       | ** ** | **% of net  revenue**             | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                             |       | $                                                | 613,022    |                                             | 100.0      | % | $ | 565,786 |   | 100.0 | % |
| Compensation and  benefits                              |       | 426,534                                          |       | 69.6                                             |       | 394,351 |   | 69.7 |   |
| Operating  expenses                                     |       | 84,672                                           |       | 13.8                                             |       | 83,223 |   | 14.7 |   |
| Insurance  expense                                      |       | 22,504                                           |       | 3.7                                              |       | 20,963 |   | 3.7 |   |
| Selling, general  and administrative expenses           |       | 15,036                                           |       | 2.5                                              |       | 14,592 |   | 2.6 |   |
| Interest income  from restricted assets                 |       | (1,266                                           | )          | (0.2                                             | )          | (1,755 | ) | (0.3 | ) |
| Adjusted EBITDA                                         |       | 65,542                                           |       | 10.7                                             |       | 54,412 |   | 9.6 |   |
| Depreciation and  amortization expenses                 |       | (16,768                                          | )          | (2.7                                             | )          | (17,717 | ) | (3.1 | ) |
| Interest expense                                        |       | (10,190                                          | )          | (1.7                                             | )          | (9,916 | ) | (1.8 | ) |
| Realized gain on  investments                           |       | 639                                              |       | 0.1                                              |       | 672 |   | 0.1 |   |
| Interest and  other income                              |       | 517                                              |       | 0.1                                              |       | 302 |   | 0.1 |   |
| Income tax  expense                                     |       | (15,726                                          | )          | (2.6                                             | )          | (10,684 | ) | (1.9 | ) |
| Equity in  earnings (loss) of unconsolidated subsidiary |       | 57                                               |       | 0.0                                              |       | (50 | ) | (0.0 | ) |
| Net income                                              |       | $                                                | 24,071     |                                             | 3.9        | % | $ | 17,019 |   | 3.0 | % |

 

**UnauditedReconciliation of Adjusted EBITDA to Cash Flows Provided by (Used in) OperatingActivities**

**(dollarsin thousands)**

** **
| ** **                                             | ** ** | **Quarter ended March 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Adjusted EBITDA                                        |       | $                                | 65,542     |   | $ | 54,412 |   |
| Interest paid                                          |       | (9,877                           | )          | (9,337 | ) |
| Change in  accounts receivable                         |       | (2,625                           | )          | (26,308 | ) |
| Change in other  operating assets/liabilities          |       | (12,483                          | )          | (22,740 | ) |
| Equity based  compensation                             |       | 650                              |       | 562 |   |
| Other                                                  |       | 735                              |       | 633 |   |
| Cash flows provided  by (used in) operating activities |       | $                                | 41,942     |   | $ | (2,778 | ) |

 

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

**(dollarsin thousands)**

**AMR**

 
| ** **                                                   | ** ** | **Quarter ended  March 31, 2009** | ** ** | **Quarter ended  March 31, 2008** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                       | ** ** | **% of net  revenue**             | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                                  |       | $                                                | 336,446    |                                             | 100.0      | % | $ | 326,316 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 208,274                                          |       | 61.9                                             |       | 203,979 |   | 62.5 |   |
| Operating  expenses                                          |       | 74,535                                           |       | 22.2                                             |       | 74,091 |   | 22.7 |   |
| Insurance  expense                                           |       | 11,088                                           |       | 3.3                                              |       | 11,188 |   | 3.4 |   |
| Selling, general  and administrative expenses                |       | 9,216                                            |       | 2.7                                              |       | 9,342 |   | 2.9 |   |
| Interest income  from restricted assets                      |       | (555                                             | )          | (0.2                                             | )          | (682 | ) | (0.2 | ) |
| Adjusted EBITDA                                              |       | 33,888                                           |       | 10.1                                             |       | 28,398 |   | 8.7 |   |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                             |       |                                             |       |   |   |   |   |
| Adjusted EBITDA                                              |       | 33,888                                           |       | 10.1                                             |       | 28,398 |   | 8.7 |   |
| Depreciation and  amortization expenses                      |       | (12,706                                          | )          | (3.8                                             | )          | (14,386 | ) | (4.4 | ) |
| Interest income  from restricted assets                      |       | (555                                             | )          | (0.2                                             | )          | (682 | ) | (0.2 | ) |
| Income from  operations                                      |       | $                                                | 20,627     |                                             | 6.1        | % | $ | 13,330 |   | 4.1 | % |

 

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**EmCare**

 
| ** **                                                   | ** ** | **Quarter ended  March 31, 2009** | ** ** | **Quarter ended  March 31, 2008** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                       | ** ** | **% of net  revenue**             | ** ** | ** ** | ** ** | **% of net  revenue** | ** ** |
| Net revenue                                                  |       | $                                                | 276,576    |                                             | 100.0      | % | $ | 239,470 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 218,260                                          |       | 78.9                                             |       | 190,372 |   | 79.5 |   |
| Operating  expenses                                          |       | 10,137                                           |       | 3.7                                              |       | 9,132 |   | 3.8 |   |
| Insurance  expense                                           |       | 11,416                                           |       | 4.1                                              |       | 9,775 |   | 4.1 |   |
| Selling, general  and administrative expenses                |       | 5,820                                            |       | 2.1                                              |       | 5,250 |   | 2.2 |   |
| Interest income from  restricted assets                      |       | (711                                             | )          | (0.3                                             | )          | (1,073 | ) | (0.4 | ) |
| Adjusted EBITDA                                              |       | 31,654                                           |       | 11.4                                             |       | 26,014 |   | 10.9 |   |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                             |       |                                             |       |   |   |   |   |
| Adjusted EBITDA                                              |       | 31,654                                           |       | 11.4                                             |       | 26,014 |   | 10.9 |   |
| Depreciation and  amortization expenses                      |       | (4,062                                           | )          | (1.5                                             | )          | (3,331 | ) | (1.4 | ) |
| Interest income  from restricted assets                      |       | (711                                             | )          | (0.3                                             | )          | (1,073 | ) | (0.4 | ) |
| Income from  operations                                      |       | $                                                | 26,881     |                                             | 9.7        | % | $ | 21,610 |   | 9.0 | % |

 

***Quarter ended March 31, 2009 compared to the quarterended March 31, 2008***

 

***Consolidated***

 

Our results for the threemonths ended March 31, 2009 reflect an increase in net revenue of $47.2million and an increase in net income of $7.1 million compared to the threemonths ended March 31, 2008.  The increase in net income isattributable primarily to an increase in operating income of $12.6 millionpartially offset by an increase in income tax expense.  Basic and dilutedearnings per share were $0.57 and $0.56, respectively, for the three monthsended March 31, 2009.  Basic and diluted earnings per share were$0.41 and $0.40, respectively, for the same period in 2008.

 

*Netrevenue. *Forthe three months ended March 31, 2009, we generated net revenue of $613.0million compared to net revenue of $565.8 million for the three months ended March 31,2008, representing an increase of 8.3%.  The increase is attributableprimarily to increases in rates and increased volume from net new contracts andacquisitions.

 

*AdjustedEBITDA.*Adjusted EBITDA was $65.5 million, or 10.7% of netrevenue, for the three months ended March 31, 2009 compared to $54.4million, or 9.6% of net revenue, for the three months ended March 31,2008.

 

*Interestexpense.*Interestexpense for the three months ended March 31, 2009 was $10.2 millioncompared to $9.9 million for the three months ended March 31, 2008.

 

*Incometax expense. *Incometax expense increased by $5.0 million for the three months ended March 31,2009 compared to the same period in 2008. Our effective tax rate for the three months ended March 31, 2009was 39.5%, compared to 38.5% for the same period in 2008.

 

***AMR***

 

*Netrevenue. *Netrevenue for the three months ended March 31, 2009 was $336.4 million, anincrease of $10.1 million, or 3.1%, from $326.3 million for the same period in2008. The increase in net revenue was due primarily to an increase in netrevenue per transport of 7.2%, or $22.5 million, partially offset by a decreaseof 3.8%, or $12.3 million, in weighted transport volume.  Of the increasein net revenue per transport, 4.6% is attributable primarily to various rateincreases, including a Medicare fee increase effective January 1, 2009,and the remainder is due primarily to growth in our managed transportationbusiness.  Weighted transports decreased28,900 from the same quarter last year. The change was due to a decrease in weighted transport volume inexisting markets of 3.3% due primarily to a milder flu season and one less dayin the first quarter of 2009 and a decrease of 12,100 weighted transports fromthe exit of certain markets, partially offset by 7,700 weighted transports fromour entrance into new markets.

 

*Compensationand benefits. *Compensationand benefit costs for the three months ended March 31, 2009 were $208.3million, or 61.9% of net revenue, compared to $204.0 million, or 62.5% of netrevenue, for the same period last year. Ambulance crew wages per ambulance unithour increased by approximately 4.1%, or $4.5 million, attributable primarilyto annual wage rate increases.  Ambulance unit hours decreased period over period by 1.1%, or $1.2million, due primarily to the reduction in volume in existing markets and ourexit of certain markets during 2008, partially offset by entrance into newmarkets.  Compensation and benefitsdecreased as a percentage of net revenue due primarily to improvements in thecost of deployment and the growth in our managed transportation business.  Our managed transportation costs arereflected primarily in operating expenses.

 

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*Operatingexpenses. *Operatingexpenses for the three months ended March 31, 2009 were $74.5 million, or22.2% of net revenue, compared to $74.1 million, or 22.7% of net revenue, forthe three months ended March 31, 2008. Operating expenses per weightedtransport increased 4.6% in the three months ended March 31, 2009 comparedto the same period in 2008.  The changeis due primarily to an increase of $4.1 million in operating expensesassociated with growth in our managed transportation business, partially offsetby decreased fuel costs of $3.7 million, including approximately $3.0 million relatedto lower fuel rates.

 

*Insuranceexpense. *Insuranceexpense for the three months ended March 31, 2009 was $11.1 million, or3.3% of net revenue, compared to $11.2 million, or 3.4% of net revenue, for thesame period in 2008.  We recorded an increase of prior year insuranceprovisions of $0.6 million during the three months ended March 31, 2009compared to a decrease of $1.9 million during the three months ended March 31,2008.  Insurance expense was also reducedby lower premiums and fees in 2009.

 

*Selling,general and administrative. *Selling, general and administrative expense for thethree months ended March 31, 2009 was $9.2 million, or 2.7% of netrevenue, compared to $9.3 million, or 2.9% of net revenue, for the three monthsended March 31, 2008.

 

*Depreciationand amortization. *Depreciation and amortization expense for the three months ended March 31,2009 was $12.7 million, or 3.8% of net revenue, compared to $14.4 million, or4.4% of net revenue, for the same period in 2008.  The decrease is related primarily to reducedannual capital expenditures in 2008.

 

***EmCare***

 

*Netrevenue. *Netrevenue for the three months ended March 31, 2009 was $276.6 million, anincrease of $37.1 million, or 15.5%, from $239.5 million for the three monthsended March 31, 2008. The increase was due primarily to an increase inpatient encounters from net new hospital contracts and net revenue increases inexisting contracts. Following December 31, 2007, we added 86 net newcontracts which accounted for a net revenue increase of $28.1 million for thethree months ended March 31, 2009.  Of the 86 net new contracts addedsince December 31, 2007, 79 were added in 2008 resulting in an incrementalincrease in 2009 net revenue of $26.9 million. Of the 79 contracts added in2008, 45 were from our acquisition of Clinical Partners in August 2008 withrelated management fee revenue totaling $2.0 million during the three monthsended March 31, 2009.  During the three months ended March 31, 2009,EmCare added 24 new contracts and terminated 17 contracts resulting in anincrease in net revenue of $1.2 million.  Net revenue under our “samestore” contracts (contracts in existence for the entirety of both periods)increased $6.7 million, or 3.3%, for the three months ended March 31,2009.  The change is due primarily to a3.9% increase in revenue per weighted patient encounter as a result of rateincreases from our third-party payors.  The number of current period samestore weighted patient encounters decreased 0.6% over same store weightedpatient encounters in the prior period due primarily to a milder flu season andone less day in the first quarter of 2009.

 

*Compensationand benefits. *Compensationand benefits costs for the three months ended March 31, 2009 were $218.3million, or 78.9% of net revenue, compared to $190.4 million, or 79.5% of netrevenue for the same period in 2008. Provider compensation costs increased$20.8 million from net new contract additions. Same store provider compensationcosts were $2.6 million over prior period due primarily to a 2.6% increase inprovider compensation per weighted patient encounter.  Non-provider compensation and benefits costsincreased by $4.5 million due primarily to our recent acquisitions and additionalincentive related accruals.

 

*Operatingexpenses. *Operatingexpenses for the three months ended March 31, 2009 were $10.1 million, or3.7% of net revenue, compared to $9.1 million, or 3.8% of net revenue, for thesame period in 2008.  Operating expenses increased due primarily to theincrease in off-hours radiology coverage for new contracts.

 

*Insuranceexpense. *Professionalliability insurance expense for the three months ended March 31, 2009 was$11.4 million, or 4.1% of net revenue, compared to $9.8 million, or 4.1% of netrevenue, for the three months ended March 31, 2008.  We recorded anincrease of prior year insurance provisions of $0.1 million during the three monthsended March 31, 2009 compared to a decrease of $0.9 million during thethree months ended March 31, 2008.

 

*Selling,general and administrative. *Selling, general and administrative expense for thethree months ended March 31, 2009 was $5.8 million, or 2.1% of netrevenue, compared to $5.3 million, or 2.2% of net revenue, for the three monthsended March 31, 2008.

 

*Depreciationand amortization. *Depreciation and amortization expense for the three months ended March 31,2009 was $4.1 million, or 1.5% of net revenue, compared to $3.3 million, or1.4% of net revenue, for the three months ended March 31, 2008.

 

**CriticalAccounting Policies**

 

For a discussion ofaccounting policies that we consider critical to our business operations andthe understanding of our results of operations that affect the more significantjudgments and estimates used in the preparation of our unaudited condensedconsolidated financial statements, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Policies” contained in our annual report on Form 10-Kfor the year ended

 

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December 31, 2008and incorporated by reference herein. As of March 31, 2009, there were nosignificant changes in our critical accounting policies or estimationprocedures.

 

**Liquidityand Capital Resources**

 

Our primary source ofliquidity is cash flows provided by our operating activities. We can also useour revolving senior secured credit facility, described below, to supplementcash flows provided by our operating activities if we decide to do so forstrategic or operating reasons. Our liquidity needs are primarily to servicelong-term debt and to fund working capital requirements, capital expendituresrelated to the acquisition of vehicles and medical equipment,technology-related assets and insurance-related deposits.

 

We believe our cash andcash equivalents, net cash from our operating activities, and amounts availableunder our senior secured credit facility will meet the liquidity requirementsof our business through at least the next 12 months. We have available to us,upon compliance with customary conditions, $100.0 million under the revolvingcredit facility, less outstanding letters of credit of $43.2 million at March 31,2009. Further, we have a conditional right under our senior secured creditfacility to request new or existing lenders to provide up to an additional$100.0 million of term debt (in $20.0 million increments).

 

**CashFlow**

 

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

 
| ** **                       | ** ** | **Quarter ended March 31,** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Net cash  provided by (used in): |       |                             |       |   |   |
| Operating  activities            |       | $                                | 41,942     |   | $ | (2,778 | ) |
| Investing  activities            |       | 5,454                            |       | (12,964 | ) |
| Financing  activities            |       | 579                              |       | 2,983 |   |
|                                  |            |                                  |            |  |  |  |  |

 

*Operatingactivities*. Netcash provided by operating activities was $41.9 million for the three monthsended March 31, 2009 compared to net cash used in operating activities of$2.8 million for the same period in 2008.  The increase in operating cashflows relates primarily to an increase in net income, further reductions indays sales outstanding, or DSO, and changes in insurance accruals.

 

We regularly analyze DSOwhich is calculated by taking our net revenue for the quarter divided by thenumber of days in the quarter.  The result is divided into net accountsreceivable at the end of the period.  DSO provides us with a gauge tomeasure receivables, revenue and collection activities.  The reductions since December 31, 2008 shownbelow are due to additional collections on accounts receivable as a result ofcontinued billing and collection process enhancements at both AMR and EmCare. The following table outlines our DSO by segment and in total excluding theimpact of AMR’s 2008 deployments under its contract with the Federal EmergencyManagement Agency:

 
| ** ** | ** ** | **Q1 2009** | ** ** | **Q4 2008** | ** ** | **Q3 2008** | ** ** | **Q2 2008** | ** ** | **Q1 2008** | ** ** | **Q4 2007** | ** ** |
|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 74               |       | 79               |       | 83               |       | 86               |       | 87               |       | 89               |       |
| EmCare     |       | 65               |       | 68               |       | 72               |       | 76               |       | 79               |       | 79               |       |
| EMSC       |       | 70               |       | 74               |       | 78               |       | 82               |       | 84               |       | 85               |       |

 

*Investingactivities*. Net cash provided by investing activities was $5.5 million for the three monthsended March 31, 2009 compared to net cash used in investing activities of$13.0 million for the same period in 2008.  The increase relates primarilyto cash used for the acquisition of business of $13.3 million during the threemonths ended March 31, 2008.  Therewas no cash used for acquisitions during the first quarter of 2009.  Net capital expenditure spending was $7.2million during the three months ended March 31, 2009 compared to $2.5million for the same period in 2008 and was due primarily to timing differences.  Cash flows provided by changes in insurancecollateral increased $11.2 million related primarily to timing differences ininsurance funding.

 

*Financingactivities.*Forthe three months ended March 31, 2009, net cash provided by financingactivities was $0.6 million compared to $3.0 million for the same period in2008.  At March 31, 2009, there were no amounts outstanding under ourrevolving credit facility.

 

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

 

Our primary exposure tomarket risk consists of changes in interest rates on certain of ourborrowings.  While we have entered intotransactions to mitigate our exposure to both changes in interest rates andfuel prices, we do not use these instruments for speculative or tradingpurposes.

 

We monitor the risk fromchanging interest rates and evaluate ways to mitigate possible exposures, asappropriate, using derivative and hedging instruments.  Our use of derivative instruments is limitedto highly effective fixed interest rate swap

 

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agreements used to managewell-defined interest rate risk exposures. In March 2009, we amended the interest rate swap agreementoriginally entered into in December 2007. The amendment changed the hedged interest rate from the 3-month LIBOR tothe 1-month LIBOR.  The amended swapagreement is with major financial institutions and amounts to $200 million ofour variable rate debt.  This swapagreement effectively converts $200 million of variable rate debt to fixed ratedebt with an effective rate of 6.1%.  The Company continues to makeinterest payments based on the variable rate associated with the debt (based onLIBOR which had rate of 1% at March 31, 2009) and periodically settleswith its counterparties for the difference between the rate paid and the fixedrate.  The swap agreement expires in December 2009.

 

As of March 31,2009, we had $452.9 million of debt excluding capital leases, of which $1.3million was variable rate debt under our senior secured credit facility and thebalance was fixed rate debt, including $250.0 million aggregate principalamount of our senior subordinated notes. An increase or decrease in interestrates of 0.2% will impact our interest costs by less than $0.1 million.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

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

 

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

 

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

 

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

 

There were no changes inour internal control over financial reporting that occurred during our fiscalquarter ended March 31, 2009 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART II. OTHER INFORMATION**

**FORTHE THREE MONTHS ENDED**

**MARCH 31,2009**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

For additionalinformation regarding legal proceedings, please refer to note 6, under thecaption “Commitments and Contingencies” of the notes accompanying theconsolidated financial statements included herein, and to our Annual Report on Form 10-Kfiled with the SEC on February 23, 2009.

 

**ITEM1A. RISK FACTORS**

 

There have been nomaterial changes from the risk factors disclosed in the “Risk Factors” sectionof the Company’s Annual Report on Form 10-K for the year ended December 31,2008.

 

**ITEM 5. OTHER INFORMATION**

 

In connection with Mark E. Bruning’s promotion asPresident of our American Medical Response segment, effective as of May 4,2009, we approved an increase in Mr. Bruning’s annual base salary to$400,000. Mr. Bruning was deemed a named executive officer for the fiscalyear ended December 31, 2008 in our most recent proxy statement on Form DEF14A, which was filed with the Securities and Exchange Commission on April 22,2009.

 

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**ITEM 6.EXHIBITS**

** **
| 10.1.2 |   | Amendment to Employment  Agreement, dated March 12, 2009, between William A. Sanger and Emergency  Medical Services Corporation.*                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
| 10.3.1 |   | Amendment to Employment  Agreement, dated March 12, 2009, between Randel G. Owen and Emergency  Medical Services Corporation.*                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 10.4.1 |   | Amendment to Employment  Agreement, dated March 12, 2009, between Todd G. Zimmerman and Emergency  Medical Services Corporation.*                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.2   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.3   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.4   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                          |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.2   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation, as general partner of Emergency Medical Services L.P.  pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

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*    Filed with this Report

 

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**SIGNATURES**

 

 

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

 
|             |       | **EMERGENCY  MEDICAL SERVICES CORPORATION** |
|------------------|------------|---------------------------------------------|
|             |       | ** **                                  |
|             |       | (registrant)                                |
|             |       |                                        |
| May 6, 2009 |       | By:                                         | /s/ William A. Sanger |   |
| Date             |       |                                        | William A. Sanger |
|             |       |                                        | Chairman and Chief  Executive Officer |
|             |       |                                        |
| ** **       | ** ** | **EMERGENCY  MEDICAL SERVICES L.P.**        |
|             |       | (registrant)                                |
|             |       |                                        |
|             |       | By:                                         | Emergency Medical  Services Corporation, its General  Partner |
|             |       |                                        |
| May 6, 2009 |       | By:                                         | /s/ William A. Sanger |   |
| Date             |       |                                        | William A. Sanger |
|             |       |                                        | Chairman and Chief  Executive Officer |
|                  |            |                                             |  |  |  |

 

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**EXHIBITINDEX**

** **
| 10.1.2 |   | Amendment to Employment  Agreement, dated March 12, 2009, between William A. Sanger and Emergency  Medical Services Corporation.*                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
| 10.3.1 |   | Amendment to Employment  Agreement, dated March 12, 2009, between Randel G. Owen and Emergency  Medical Services Corporation.*                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 10.4.1 |   | Amendment to Employment  Agreement, dated March 12, 2009, between Todd G. Zimmerman and Emergency  Medical Services Corporation.*                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.2   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.3   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.4   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                          |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.2   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation, as general partner of Emergency Medical Services L.P.  pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

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*    Filedwith this Report

 

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