Table of Contents

 

 

 

**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 PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

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

 

**Or**

 

**o****                  ****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from               to                **

 

**Commission file numbers:**

**001-32701**

**333-127115**

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**EMERGENCY MEDICAL SERVICES L.P.**

(Exact nameof Registrants as Specified in their Charters)

 

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

 

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

 

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

**Not applicable**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past90 days.    Yes  x   No  o

 

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

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” inRule 12b-2 of the Exchange Act.

 

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

 

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

 

Shares of class Acommon stock outstanding at October 29, 2010 — 30,315,886; shares of classB common stock outstanding at October 29, 2010 — 65,052; LPexchangeable units outstanding at October 29, 2010 — 13,724,676.

 

 

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

 

**INDEX TO QUARTERLY REPORT**

 

**ON FORM 10-Q**

 

**FOR THE THREE AND NINE MONTHS ENDED**

 

**SEPTEMBER 30, 2010**

** **
| Part 1.  Financial Information | 3                                                                                           |
|-------------------------------------|---------------------------------------------------------------------------------------------|
|                                |                                                                                        |   |
| Item 1.                             | Financial Statements (Unaudited):                                                           | 3 |
|                                |                                                                                        |   |
|                                | Consolidated  Statements of Operations and Comprehensive Income                             | 3 |
|                                |                                                                                        |   |
|                                | Consolidated  Balance Sheets                                                                | 4 |
|                                |                                                                                        |   |
|                                | Consolidated  Statements of Cash Flows                                                      | 5 |
|                                |                                                                                        |   |
|                                | Notes to Unaudited Consolidated Financial Statements                                        | 6 |
|                                |                                                                                        |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 20 |
|                                |                                                                                        |   |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk                                 | 30 |
|                                |                                                                                        |   |
| Item 4.                             | Controls and  Procedures                                                                    | 30 |
|                                |                                                                                        |   |
| Part II.  Other Information    | 31                                                                                          |
|                                |                                                                                        |   |
| Item 1.                             | Legal Proceedings                                                                           | 31 |
|                                |                                                                                        |   |
| Item 1A.                            | Risk Factors                                                                                | 31 |
|                                |                                                                                        |   |
| Item 6.                        | Exhibits                                                                                    | 32 |
|                                |                                                                                        |   |
| Signatures                          |                                                                                        | 33 |

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FOR THE THREE AND NINE MONTHS ENDED**

**SEPTEMBER 30, 2010**

 

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

 

**Emergency Medical Services Corporation**

**Consolidated Statements of Operations andComprehensive Income**

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

** **
| ** **                                                                      | ** ** | **Quarter ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **September 30,** | ** ** | **September 30,**          | ** ** |
| ** **                                                                      | ** ** | **2010**               | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net revenue                                                                     |       | $                      | 737,180    |                            | $          | 665,056 |   | $ | 2,125,338 |   | $ | 1,915,369 |   |
| Compensation and benefits                                                       |       | 523,263                |       | 467,625                         |       | 1,500,023 |   | 1,332,787 |   |
| Operating expenses                                                              |       | 91,023                 |       | 85,510                          |       | 268,138 |   | 252,355 |   |
| Insurance expense                                                               |       | 25,793                 |       | 24,845                          |       | 73,805 |   | 75,706 |   |
| Selling, general and administrative expenses                                    |       | 17,742                 |       | 15,871                          |       | 52,898 |   | 47,186 |   |
| Depreciation and amortization expense                                           |       | 16,528                 |       | 15,733                          |       | 48,400 |   | 48,658 |   |
| Income from operations                                                          |       | 62,831                 |       | 55,472                          |       | 182,074 |   | 158,677 |   |
| Interest income from restricted assets                                          |       | 717                    |       | 1,082                           |       | 2,431 |   | 3,468 |   |
| Interest expense                                                                |       | (4,856                 | )          | (10,280                         | )          | (18,182 | ) | (30,749 | ) |
| Realized gain on investments                                                    |       | 730                    |       | 544                             |       | 879 |   | 2,030 |   |
| Interest and other income                                                       |       | 277                    |       | 502                             |       | 748 |   | 1,442 |   |
| Loss on early debt extinguishment                                               |       | —                 |       | —                          |       | (19,091 | ) | — |   |
| Income before income taxes and equity in earnings  of unconsolidated subsidiary |       | 59,699                 |       | 47,320                          |       | 148,859 |   | 134,868 |   |
| Income tax expense                                                              |       | (22,990                | )          | (18,533                         | )          | (57,355 | ) | (53,144 | ) |
| Income before equity in earnings of unconsolidated  subsidiary                  |       | 36,709                 |       | 28,787                          |       | 91,504 |   | 81,724 |   |
| Equity in earnings of unconsolidated subsidiary                                 |       | 53                     |       | 91                              |       | 252 |   | 244 |   |
| Net income                                                                      |       | 36,762                 |       | 28,878                          |       | 91,756 |   | 81,968 |   |
| Other comprehensive income (loss), net of tax:                                  |       |                   |       |                            |       |   |   |   |   |
| Unrealized holding gains (losses) during the period                             |       | 364                    |       | 761                             |       | 1,907 |   | (1,773 | ) |
| Unrealized gains on derivative financial instruments                            |       | 330                    |       | 1,105                           |       | 245 |   | 2,372 |   |
| Comprehensive income                                                            |       | $                      | 37,456     |                            | $          | 30,744 |   | $ | 93,908 |   | $ | 82,567 |   |
|                                                                            |       |                   |       |                            |       |   |   |   |   |
| Basic earnings per common share                                                 |       | $                      | 0.83       |                            | $          | 0.67 |   | $ | 2.09 |   | $ | 1.93 |   |
| Diluted earnings per common share                                               |       | $                      | 0.82       |                            | $          | 0.66 |   | $ | 2.06 |   | $ | 1.89 |   |
| Weighted average common shares outstanding, basic                               |       | 44,100,239             |       | 42,809,582                      |       | 43,896,524 |   | 42,366,065 |   |
| Weighted average common shares outstanding,  diluted                            |       | 44,699,169             |       | 43,769,788                      |       | 44,648,135 |   | 43,402,818 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**Emergency Medical Services Corporation**

**Consolidated Balance Sheets**

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

** **
| ** **                                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2010**               | ** ** | **2009**              | ** ** |
| ** **                                                                                                                                                       | ** ** | **(Unaudited)**        | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                       | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current  assets:                                                                                                                                                 |       |                   |       |                  |       |
| Cash  and cash equivalents                                                                                                                                       |       | $                      | 345,716    |                  | $          | 332,888 |   |
| Insurance  collateral                                                                                                                                            |       | 28,231                 |       | 24,986                |       |
| Trade  and other accounts receivable, net                                                                                                                        |       | 492,723                |       | 459,088               |       |
| Parts  and supplies inventory                                                                                                                                    |       | 22,759                 |       | 22,270                |       |
| Prepaids  and other current assets                                                                                                                               |       | 17,251                 |       | 19,662                |       |
| Current  deferred tax assets                                                                                                                                     |       | —                 |       | 6,323                 |       |
| Total  current assets                                                                                                                                            |       | 906,680                |       | 865,217               |       |
| Non-current  assets:                                                                                                                                             |       |                   |       |                  |       |
| Property,  plant and equipment, net                                                                                                                              |       | 126,759                |       | 125,855               |       |
| Intangible  assets, net                                                                                                                                          |       | 138,641                |       | 102,654               |       |
| Non-current  deferred tax assets                                                                                                                                 |       | 6,723                  |       | 13,468                |       |
| Insurance  collateral                                                                                                                                            |       | 151,949                |       | 143,886               |       |
| Goodwill                                                                                                                                                         |       | 388,506                |       | 381,951               |       |
| Other  long-term assets                                                                                                                                          |       | 18,748                 |       | 21,676                |       |
| Total  assets                                                                                                                                                    |       | $                      | 1,738,006  |                  | $          | 1,654,707 |   |
| **Liabilities and Equity**                                                                                                                                       | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                                                            |       |                   |       |                  |       |
| Accounts  payable                                                                                                                                                |       | $                      | 68,239     |                  | $          | 70,759 |   |
| Accrued  liabilities                                                                                                                                             |       | 264,603                |       | 273,704               |       |
| Current  deferred tax liability                                                                                                                                  |       | 11,068                 |       | —                |       |
| Current  portion of long-term debt                                                                                                                               |       | 13,953                 |       | 4,676                 |       |
| Total  current liabilities                                                                                                                                       |       | 357,863                |       | 349,139               |       |
| Long-term  debt                                                                                                                                                  |       | 410,307                |       | 449,254               |       |
| Insurance  reserves and other long-term liabilities                                                                                                              |       | 166,152                |       | 170,227               |       |
| Total  liabilities                                                                                                                                               |       | 934,322                |       | 968,620               |       |
| Equity:                                                                                                                                                          |       |                   |       |                  |       |
| Preferred  stock ($0.01 par value; 20,000,000 shares authorized, 0 issued and  outstanding)                                                                      |       | —                 |       | —                |       |
| Class A  common stock ($0.01 par value; 100,000,000 shares authorized, 30,294,976****and 29,541,411 issued and outstanding in 2010 and 2009,  respectively) |       | 303                    |       | 295                   |       |
| Class B  common stock ($0.01 par value; 40,000,000 shares authorized and 65,052 issued  and outstanding in 2010 and 2009, respectively)                     |       | 1                      |       | 1                     |       |
| Class B  special voting stock ($0.01 par value; 1 share authorized, issued and  outstanding in 2010 and 2009)                                               |       | —                 |       | —                |       |
| LP  exchangeable units (13,724,676 units issued and outstanding in 2010 and 2009,  respectively)                                                                 |       | 90,776                 |       | 90,776                |       |
| Treasury  stock at cost (23,437 shares in 2010)                                                                                                                  |       | (1,289                 | )          | —                |       |
| Additional  paid-in capital                                                                                                                                      |       | 300,286                |       | 275,316               |       |
| Retained  earnings                                                                                                                                               |       | 410,798                |       | 319,042               |       |
| Accumulated  other comprehensive income                                                                                                                          |       | 2,809                  |       | 657                   |       |
| Total  equity                                                                                                                                                    |       | 803,684                |       | 686,087               |       |
| Total  liabilities and equity                                                                                                                                    |       | $                      | 1,738,006  |                  | $          | 1,654,707 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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**Emergency Medical Services Corporation**

**Consolidated Statements of Cash Flows**

**(unaudited; in thousands)**

** **
| ** **                                                                         | ** ** | **Quarter ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                                       | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Cash Flows from Operating Activities**                                           | ** ** | ** **                                     | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income                                                                        |       | $                                              | 36,762     |                                                    | $          | 28,878 |   | $ | 91,756 |   | $ | 81,968 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                           |       |                                                    |       |   |   |   |   |
| Depreciation  and amortization                                                     |       | 17,165                                         |       | 16,242                                                  |       | 50,173 |   | 49,983 |   |
| Loss  on disposal of property, plant and equipment                                 |       | 6                                              |       | 33                                                      |       | 95 |   | 69 |   |
| Equity-based  compensation expense                                                 |       | 2,042                                          |       | 1,121                                                   |       | 4,587 |   | 2,875 |   |
| Excess  tax benefits from stock-based compensation                                 |       | (479                                           | )          | —                                                  |       | (13,977 | ) | — |   |
| Loss  on early debt extinguishment                                                 |       | —                                         |       | —                                                  |       | 19,091 |   | — |   |
| Equity  in earnings of unconsolidated subsidiary                                   |       | (53                                            | )          | (91                                                     | )          | (252 | ) | (244 | ) |
| Dividends  received                                                                |       | —                                         |       | —                                                  |       | 403 |   | 713 |   |
| Deferred  income taxes                                                             |       | (1,102                                         | )          | 18,061                                                  |       | (262 | ) | 49,989 |   |
| Changes  in operating assets/liabilities, net of acquisitions:                     |       |                                           |       |                                                    |       |   |   |   |   |
| Trade  and other accounts receivable                                               |       | (10,882                                        | )          | 7,574                                                   |       | (30,441 | ) | 8,448 |   |
| Parts  and supplies inventory                                                      |       | (231                                           | )          | 41                                                      |       | (318 | ) | (66 | ) |
| Prepaids  and other current assets                                                 |       | 14,487                                         |       | (6,270                                                  | )          | 2,271 |   | (1,580 | ) |
| Accounts  payable and accrued liabilities                                          |       | 799                                            |       | (1,007                                                  | )          | 13,898 |   | 10,613 |   |
| Insurance  accruals                                                                |       | (3,891                                         | )          | 4,280                                                   |       | 2,341 |   | 7,033 |   |
| Net  cash provided by operating activities                                         |       | 54,623                                         |       | 68,862                                                  |       | 139,365 |   | 209,801 |   |
| **Cash Flows from Investing Activities**                                           | ** ** | ** **                                     | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases  of property, plant and equipment                                        |       | (16,199                                        | )          | (13,576                                                 | )          | (31,367 | ) | (33,661 | ) |
| Proceeds  from sale of property, plant and equipment                               |       | 12                                             |       | 41                                                      |       | 120 |   | 101 |   |
| Acquisition  of businesses, net of cash received                                   |       | (183                                           | )          | (1,241                                                  | )          | (51,158 | ) | (1,374 | ) |
| Net  change in insurance collateral                                                |       | (4,140                                         | )          | 6,002                                                   |       | (9,401 | ) | 4,069 |   |
| Other  investing activities                                                        |       | 83                                             |       | (166                                                    | )          | 11,021 |   | (809 | ) |
| Net  cash used in investing activities                                             |       | (20,427                                        | )          | (8,940                                                  | )          | (80,785 | ) | (31,674 | ) |
| **Cash Flows from Financing Activities**                                           | ** ** | ** **                                     | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| EMSC  issuance of class A common stock                                             |       | 221                                            |       | 2,437                                                   |       | 6,414 |   | 7,160 |   |
| Class A  common stock repurchased as treasury stock                           |       | (1,289                                         | )          | —                                                  |       | (1,289 | ) | — |   |
| Repayments  of capital lease obligations and other debt                            |       | (3,275                                         | )          | (1,214                                                  | )          | (455,902 | ) | (3,826 | ) |
| Borrowings  under credit facility                                                  |       | —                                         |       | —                                                  |       | 425,000 |   | — |   |
| Debt  issue costs                                                                  |       | (219                                           | )          | —                                                  |       | (11,968 | ) | — |   |
| Payment  for debt extinguishment premiums                                          |       | —                                         |       | —                                                  |       | (14,513 | ) | — |   |
| Excess  tax benefits from stock-based compensation                                 |       | 479                                            |       | —                                                  |       | 13,977 |   | — |   |
| Net  change in bank overdrafts                                                     |       | 2,570                                          |       | 2,821                                                   |       | (7,471 | ) | 3,471 |   |
| Net  cash (used in) provided by financing activities                               |       | (1,513                                         | )          | 4,044                                                   |       | (45,752 | ) | 6,805 |   |
| Change  in cash and cash equivalents                                               |       | 32,683                                         |       | 63,966                                                  |       | 12,828 |   | 184,932 |   |
| Cash  and cash equivalents, beginning of period                                    |       | 313,033                                        |       | 267,139                                                 |       | 332,888 |   | 146,173 |   |
| Cash  and cash equivalents, end of period                                          |       | $                                              | 345,716    |                                                    | $          | 331,105 |   | $ | 345,716 |   | $ | 331,105 |   |

 

The accompanying notes are an integral part of these financial statements.

 

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**Emergency Medical Services Corporation**

**Notes to Unaudited Consolidated Financial Statements**

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

 

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

 

***Basis of Presentation of FinancialStatements***

 

Theaccompanying interim consolidated financial statements for Emergency MedicalServices Corporation (“EMSC” or the “Company”) have been prepared in accordancewith U.S. generally accepted accounting principles (“GAAP”) for interimreporting and accordingly, do not include all of the disclosures required forannual financial statements. In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included. All suchadjustments are of a normal, recurring nature. Operating results for the threeand nine month periods ended September 30, 2010 are not necessarily indicativeof the results that may be expected for the full year ending December 31,2010. For further information, see the Company’s consolidated financialstatements, including the accounting policies and notes thereto, included inthe Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2009.

 

Theconsolidated financial statements of EMSC include those of its directsubsidiary, Emergency Medical Services L.P. (“EMS LP”), a Delaware limitedpartnership. The Company’s business is conducted primarily through twooperating subsidiaries, American Medical Response, Inc. (“AMR”), its healthcaretransportation services segment, and EmCare Holdings Inc. (“EmCare”), itsfacility-based physician services segment.

 

TheCompany is party to a management agreement with a wholly-owned subsidiary ofOnex Corporation, the Company’s principal equityholder. In exchange for anannual management fee of $1.0 million, the Onex subsidiary provides the Companywith corporate finance and strategic planning consulting services. For each ofthe three and nine months ended September 30, 2010 and 2009, the Companyexpensed $250 and $750, respectively, in respect of this fee.

 

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

 

***Consolidation***

 

Theconsolidated financial statements include all wholly-owned subsidiaries ofEMSC, including AMR and EmCare and their respective subsidiaries. All significantintercompany transactions and balances have been eliminated in consolidation.

 

***Use of Estimates***

 

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

 

***Insurance***

 

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

 

Insurancereserves are established for automobile, workers compensation, generalliability and professional liability claims utilizing policies with bothfully-insured and self-insured components. This includes the use of anoff-shore captive insurance program through a wholly-owned subsidiary forcertain liability programs for both EmCare and AMR. In those instances wherethe Company has obtained third-party insurance coverage, the Company generallyretains 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.

 

TheCompany establishes reserves for claims based upon an assessment of actualclaims and claims incurred but not reported. The reserves are established based on quarterly consultation withthird-party independent actuaries using actuarial principles and assumptionsthat consider a number of factors, including historical claim payment patterns(including legal costs), changes in case reserves and the assumed rate ofinflation in healthcare costs and property damage repairs.

 

TheCompany’s most recent actuarial valuation was completed in September 2010. As aresult of this actuarial valuation, the Company recorded an increase of $0.1million in its provision for insurance liabilities related to reserves forlosses in prior years during the three months ended September 30, 2010.  Atotal increase of $0.2 million was recorded during the nine 

 

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months ended September 30,2010.  As a result of the actuarialvaluation completed in September 2009, the Company recorded a decrease of $0.9million in its provision for insurance liabilities during the three monthsended September 30, 2009.  A totalincrease of $4.3 million was recorded during the nine months ended September30, 2009.

 

Thelong-term portion of insurance reserves was $155.2 million and $143.6 millionas of September 30, 2010 and December 31, 2009, respectively.

 

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

 

TheCompany determines its allowances based on payor reimbursement schedules,historical write-off experience and other economic data. The allowances forcontractual discounts and uncompensated care are reviewed monthly. Accountbalances are charged off against the uncompensated care allowance when it isprobable the receivable will not be recovered. Write-offs to the contractualallowance occur when payment is received. The allowance for uncompensated careis related principally to receivables recorded for self-pay patients. TheCompany’s accounts receivable and allowances are as follows:

 

| ** **                           | ** ** | **September 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Gross  trade accounts receivable     |       | $                            | 2,068,202  |                        | $          | 1,955,152 |   |
| Allowance  for contractual discounts |       | 1,088,277                    |       | 1,001,285                   |       |
| Allowance  for uncompensated care    |       | 576,683                      |       | 572,015                     |       |
| Net  trade accounts receivable       |       | 403,242                      |       | 381,852                     |       |
| Other  receivables, net              |       | 89,481                       |       | 77,236                      |       |
| Net  accounts receivable             |       | $                            | 492,723    |                        | $          | 459,088 |   |

 

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

 

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

 

Accountsreceivable allowances at EmCare are estimated based on cash collection andwrite-off experience at a facility level contract and facility specific payormix.  These allowances are reviewed andadjusted monthly through revenue provisions. In addition, a look-back analysis is done, typically after 15 months, tocompare actual cash collected on a date of service basis to the revenuerecorded for that period.  Any adjustmentnecessary for an overage or deficit in these allowances based on actualcollections is recorded through a revenue adjustment in the current period.

 

***Revenue Recognition***

 

Revenueis recognized at the time of service and is recorded net of provisions forcontractual discounts and estimated uncompensated care. Provisions forestimated contractual discounts are related principally to differences betweengross charges and specific payor, including governmental, reimbursementschedules.  Provisions for estimateduncompensated care are related principally to the number of self-pay patientstreated in the period.  Provisions forcontractual discounts and estimated uncompensated care as a percentage of grossrevenue and as a percentage of gross revenue less provision for contractualdiscounts are as follows:

 
| ** **                                                                                     | ** ** | **Quarter ended********September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2010**                                         | ** ** | **2009**                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Gross revenue                                                                                  |       | 100.0                                            | %          | 100.0                                               | %          | 100.0 | % | 100.0 | % |
| Provision for contractual discounts                                                            |       | 52.3                                             | %          | 49.2                                                | %          | 52.5 | % | 48.9 | % |
| Revenue net of contractual discounts                                                           |       | 47.7                                             | %          | 50.8                                                | %          | 47.5 | % | 51.1 | % |
| Provision for uncompensated care as a percentage  of gross revenue                             |       | 19.0                                             | %          | 20.3                                                | %          | 18.7 | % | 20.1 | % |
| Provision  for uncompensated care as a percentage of gross revenue less contractual  discounts |       | 39.9                                             | %          | 39.9                                                | %          | 39.3 | % | 39.3 | % |

 

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Healthcarereimbursement is complex and may involve lengthy delays. Third-party payors arecontinuing their efforts to control expenditures for healthcare, includingproposals to revise reimbursement policies. The Company has from time to timeexperienced delays in reimbursement from third-party payors. In addition,third-party payors may disallow, in whole or in part, claims for reimbursementbased on determinations that certain amounts are not reimbursable under plancoverage, determinations of medical necessity, or the need for additionalinformation. Laws and regulations governing the Medicare and Medicaid programsare very complex and subject to interpretation. Revenue is recognized on anestimated basis in the period which related services are rendered.  As a result, there is a reasonablepossibility that recorded estimates will change materially in the short-term.Such amounts, including adjustments between provisions for contractual discountsand uncompensated care, are adjusted in future periods, as adjustments becomeknown.  These adjustments were less than 1% of net revenue for the threeand nine month periods ending September 30, 2010 and 2009.

 

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

 

***Equity Structure***

 

OnDecember 21, 2005, the Company effected a reorganization and issued8.1 million shares of class A common stock in an initial public offering.Pursuant to the reorganization, EMS LP, the former top-tier holding company ofAMR and EmCare, became the consolidated subsidiary of EMSC, a newly formedcorporation. To effect the reorganization, the holders of the capital stock ofthe sole general partner of EMS LP contributed that capital stock to theCompany in exchange for class B common stock; the general partner was mergedinto the Company and the Company became the sole general partner of EMS LP.Concurrently, the holders of class B units of EMS LP contributed their units tothe Company in exchange for shares of the Company’s class A common stock, andthe holders of certain class A units of EMS LP contributed their units to theCompany in exchange for shares of the Company’s class B common stock.

 

Asof September 30, 2010, the Company holds 68.8% of the equity interests in EMSLP. LP exchangeable units, held by persons affiliated with the Company’sprincipal equity holder, represent the balance of the EMS LP equity. The LPexchangeable units are exchangeable at any time, at the option of the holder,for shares of the Company’s class B common stock on a one-for-one basis. Theholders of the LP exchangeable units have the right to vote, through thetrustee holder of the Company’s class B special voting stock, at allstockholder meetings at which holders of the Company’s class B common stock orclass B special voting stock are entitled to vote.

 

Inthe EMS LP partnership agreement, the Company has agreed to maintain theeconomic equivalency of the LP exchangeable units and the class B common stock,and the holders of the LP exchangeable units have no general voting rights. TheLP exchangeable units, when considered with the class B special voting stock,have the same rights, privileges and characteristics of the Company’s class Bcommon stock. The LP exchangeable units are intended to be economicallyequivalent to the class B common stock of the Company in that the LPexchangeable units carry the right to vote (by virtue of the class B specialvoting stock) with the holders of class B common stock as one class, andentitle holders to receive distributions only if the equivalent dividends aredeclared on the Company’s class B common stock. Accordingly, the Companyaccounts for the LP exchangeable units as if the LP exchangeable units wereshares of its common stock, including reporting the LP exchangeable units inthe equity section of the Company’s balance sheet and including the number ofoutstanding LP exchangeable units in both its basic and diluted earnings pershare calculations.

 

***Fair Value Measurement***

 

TheCompany classifies its financial instruments that are reported at fair valuebased on a hierarchal framework which ranks the level of market priceobservability used in measuring financial instruments at fair value. Marketprice observability is impacted by a number of factors, including the type ofinstrument and the characteristics specific to the instrument.  Instruments with readily available activequoted prices or for which fair value can be measured from actively quotedprices generally will have a higher degree of market price observability and alesser degree of judgment used in measuring fair value.

 

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

 

Level1 — Quoted prices are available in active markets for identical assets orliabilities as of the reporting date. The Company does not adjust the quoted price for these assets orliabilities.

 

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

 

Level3 — Pricing inputs are unobservable as of the reporting date and reflect theCompany’s own assumptions about the 

 

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fair value of the asset orliability.

 

Thefollowing table summarizes the valuation of EMSC’s financial instruments by theabove fair value hierarchy levels as of September 30, 2010:

 
| **Description** | ** ** | **Total**  | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|
| Assets:         | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Securities      |       | $          | 62,152     |             | $          | 49,608           |       | $                | 12,544     |   | $ | — |   |
| Derivatives     |       | $          | 571        |             | $          | —           |       | $                | 571        |   | $ | — |   |

 

***Recent Accounting Pronouncements***

 

InAugust 2010, the FASB further defined the requirements for measurement anddisclosure of charity care provided.  Theamendments require that cost, both direct and indirect, be used as themeasurement basis for charity care disclosure purposes.  These amendments will be effective for theCompany beginning January 1, 2011. Management does not expect the adoption of this guidance to have amaterial effect on the Company’s consolidated financial statements and relateddisclosures.

 

Alsoin August 2010, the FASB clarified that healthcare entities should not netinsurance recoveries against a related claim liability.  These amendments will be effective for theCompany beginning January 1, 2011. Management does not expect the adoption of this guidance to have amaterial effect on the Company’s consolidated financial statements and relateddisclosures.

 

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

 

Duringthe three months ended March 31, 2010, the Company made a purchase priceallocation adjustment related to the acquisition of the management servicesentity of Pinnacle Anesthesia Consultants, P.A. and Pinnacle ConsultantsMid-Atlantic, L.L.C. (together, the Pinnacle Acquisition”) which closed inDecember 2009.  Based on an independentvaluation analysis completed during the first quarter of 2010, $31.1 millionwas reclassified from goodwill to intangible assets, and amortized accordingly.

 

OnMay 28, 2010, the Company completed the acquisition of V.I.P. ProfessionalServices, Inc., the parent of Gold Coast Ambulance Service, which providesemergency and non-emergency ambulance services in southwest Ventura County,California.  On June 4, 2010, anaffiliate of the Company completed the acquisition of professional entitieswhich provide anesthesiology services for Clinical Partners Management Company,an existing subsidiary of the Company. On June 30, 2010, the Company completed its acquisition of Affilion,Inc., which provides emergency department physician staffing and relatedmanagement services to hospitals in Arizona, New Mexico and Texas.  Also on June 30, 2010, an affiliate of theCompany completed its acquisition of Fredericksburg Anesthesia Consultants,PLLC, a provider of anesthesia services to facilities in south Texas.  The total cost of these and other smalleracquisitions was $51.2 million and the Company has recorded $35.7 million ofgoodwill, which amount is subject to adjustment based upon completion ofpurchase price allocations.

 

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

 

Accruedliabilities were as follows at September 30, 2010 and December 31, 2009:

 
| ** **                                  | ** ** | **September 30,********2010** | ** ** | **December 31,******** 2009** | ** ** |
|---------------------------------------------|------------|------------------------------------|------------|-----------------------------------------|------------|
| Accrued  wages and benefits                 |       | $                                  | 113,355    |                                    | $          | 92,721 |   |
| Accrued  paid time-off                      |       | 27,422                             |       | 24,290                                  |       |
| Current  portion of self-insurance reserves |       | 53,593                             |       | 62,832                                  |       |
| Accrued  restructuring                      |       | 165                                |       | 181                                     |       |
| Current  portion of compliance and legal    |       | 7,253                              |       | 2,814                                   |       |
| Accrued  billing and collection fees        |       | 3,800                              |       | 4,093                                   |       |
| Accrued  incentive compensation             |       | 20,253                             |       | 34,000                                  |       |
| Accrued  interest                           |       | 1,003                              |       | 9,773                                   |       |
| Accrued  income taxes payable               |       | —                             |       | 5,454                                   |       |
| Other                                       |       | 37,759                             |       | 37,546                                  |       |
| Total  accrued liabilities                  |       | $                                  | 264,603    |                                    | $          | 273,704 |   |

 

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

 

OnApril 8, 2010, the Company completed the financing of new senior securedcredit facilities consisting of a $425 million term loan and a $150 millionrevolving credit facility.  The term loanbears interest at LIBOR, plus a margin of 3.00%, and requires quarterlyprincipal repayments until maturity in 2015.  The revolving facility bearsinterest at LIBOR, plus a margin of 3.00%, and is repayable at maturity in2015. The senior secured credit facilities can be expanded and the interestrate margins stepped down to 2.75% upon achieving certain leverageratios.  Substantially all of EMS LP’s domestic assets are pledged ascollateral under the new senior secured credit facilities.  The revolving facility is also subject to anannual commitment fee of 0.5% on unutilized commitments.

 

Inconjunction with completing the financing under the new credit facilities, theCompany repaid the balance outstanding on the previous senior secured term loanand redeemed the Company’s 10% senior subordinated notes.  During the three months ended June 30,2010, the Company recorded a loss on early debt extinguishment of $19.1 millionwhich included certain unamortized debt issuance costs as well as costsassociated with the redemption of the senior subordinated notes.

 

Long-termdebt consisted of the following at September 30, 2010 and December 31,2009:

 
| ** **                                                                       | ** ** | **September 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| Senior  subordinated notes                                                       |       | $                                  | —     |                              | $          | 250,000 |   |
| Senior  secured term loan due 2015 (3.28% at September 30, 2010)                 |       | 422,344                            |       | 199,765                           |       |
| Notes  due at various dates from 2010 to 2022 with interest rates from 6% to 10% |       | 1,115                              |       | 1,249                             |       |
| Capital  lease obligations due at various dates from 2010 to 2018 (see note 7)   |       | 801                                |       | 2,916                             |       |
|                                                                             |       | 424,260                            |       | 453,930                           |       |
| Less  current portion                                                            |       | (13,953                            | )          | (4,676                            | )          |
| Total  long-term debt                                                            |       | $                                  | 410,307    |                              | $          | 449,254 |   |

 

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

 

TheCompany manages its exposure to changes in market interest rates and fuelprices and from time to time uses highly effective derivative instruments tomanage well-defined 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 use derivativeinstruments for speculative purposes.

 

AtSeptember 30, 2010, the Company was party to a series of fuel hedgetransactions with a major financial institution under one master agreement.Each of the transactions effectively fixes the cost of diesel fuel at pricesranging from $3.00 to $3.29 per gallon. The Company purchases the diesel fuelat the market rate and periodically settles with its counterparty for thedifference between the national average price for the period published by theDepartment of Energy and the agreed upon fixed price. The transactions fix theprice for a total of 5.9 million gallons, which represent approximately32% of the Company’s total estimated usage over the hedge period, and arespread over periods from October 2010 through June 2012.  As of September 30, 2010, the Companyrecorded, as a component of other comprehensive income before applicable taximpacts, an asset associated with the fair value of the fuel hedge of $0.6million, compared to $0.2 million as of December 31, 2009. The net additionalpayments made or received under these hedge agreements did not have a materialimpact on operating expenses during the nine months ended September 30, 2010.

 

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

 

***Lease Commitments***

 

The Company leases various facilities and equipment under operatinglease agreements.

 

TheCompany also leases certain 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.

 

***Purchase Commitment***

 

Beginningin March 2009, AMR entered into a series of forward purchase contracts whichfixed the price for a portion of its total monthly diesel fuel usage from April1, 2009 through June 30, 2010.  Based onthe terms of the contracts, the Company has concluded they do not qualify asderivatives.  There was no materialimpact to operating expenses related to 

 

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these contracts during thethree and nine month periods ended September 30, 2010 and 2009.

 

***Services***

 

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

 

***Other Legal Matters***

 

OnDecember 13, 2005, a lawsuit purporting to be a class action was commencedagainst AMR in Spokane, Washington in Washington State Court, SpokaneCounty.  The complaint alleged that AMR billed patients and third partypayors for transports it conducted between 1998 and 2005 at higher rates thancontractually permitted.  The court has certified a class in this casewhich is comprised of approximately 15,000 Spokane County residents.  In September2010, the Company and class representatives reached an agreement to resolve theclaims for approximately $1.1 million, which amount includes all remainingrefunds due to class members and attorney’s fees for the plaintiffs’counsel.  The settlement is expected to be approved and finalized by thecourt by the end of January 2011.

 

InDecember 2006, AMR received a subpoena from the Department of Justice(DOJ).  The subpoena requested copies ofdocuments for the period from January 2000 through the present.  The subpoena required AMR to produce a broadrange of documents relating to the operations of certain AMR affiliates in NewYork.  The Company produced documentsresponsive to the subpoena.  Thegovernment has identified claims for reimbursement that the government believeslack support for the level billed, and invited the Company to respond to theidentified areas of concern.  The Companyreviewed the information provided by the government, provided its response, andis currently in discussions with the DOJ and the Office of the InspectorGeneral of Health and Human Services regarding resolution of this matter.  During the three months ended June 30, 2010,the Company recorded a $3.1 million reserve for its estimate of likely exposurein this matter.

 

Fourdifferent lawsuits purporting to be class actions have been filed against AMRand certain subsidiaries in California alleging violations of California wageand hour laws.  On April 16, 2008, LoriBartoni commenced a suit in the Superior Court for the State of California,County of Alameda; on July 8, 2008, Vaughn Banta filed suit in the SuperiorCourt of the State of California, County of Los Angeles; on January 22, 2009,Laura Karapetian filed suit in the Superior Court of the State of California,County of Los Angeles; and on March 11, 2010, Melanie Aguilar filed suit in theSuperior Court of the State of California County of Los Angeles.  The Banta and Karapetian cases have beencoordinated with the Bartoni case in the Superior Court for the State of California,County of Alameda.  At the present time,the courts have not certified classes in any of these cases.  Plaintiffs allege principally that the AMRentities failed to pay daily overtime charges pursuant to California law, andfailed to provide required meal breaks or pay premium compensation for missedmeal breaks.  Plaintiffs are seeking tocertify the classes and are seeking lost wages, punitive damages, attorneys’fees and other sanctions permitted under California law for violations of wagehour laws.  The Company is unable at thistime to estimate the amount of potential damages, if any.

 

TheCompany is involved in other litigation arising in the ordinary course ofbusiness.  Management believes theoutcome of these legal proceedings will not have a material adverse impact onits financial condition, results of operations or liquidity.

 

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

 

TheCompany’s stock options are valued using the Black-Scholes valuation model onthe date of grant.  Equity basedcompensation has been issued under the plans described below.

 

**EquityOption Plan**

 

Underthe Company’s Equity Option Plan, key employees were granted options thatpermit the individuals to purchase class A common shares and vest ratablygenerally over a period of four years. In addition, certain performancemeasures must be met for 50% of the options to become exercisable; theseperformance measures were satisfied during 2009 with respect to 

 

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the options granted underthe Equity Option Plan. As the vesting period for these options was completedprior to 2010, the Company did not record a compensation charge during each ofthe three and nine months ended September 30, 2010 as well as during the threemonths ended September 30, 2009.  Acompensation charge of $97 was recorded for the nine months ended September 30,2009.  Options are no longer grantedunder the Equity Option Plan, but rather under the Company’s Second Amended andRestated Long-Term Incentive Plan described below.

 

**Long-TermIncentive Plan**

 

TheCompany’s original 2007 Long-Term Incentive Plan was approved by stockholdersin May 2007, amended and restated in May 2008, and a Second Amended andRestated Long-Term Incentive Plan (the “Plan”) was approved by stockholders inMay 2010.  The Plan provides for thegrant of long-term incentives, including various equity-based incentives, tothose persons with responsibility for the success and growth of the Company andits subsidiaries.  Options granted underthe Plan vest and become exercisable ratably over a period of four years fromthe date of grant and have a maximum term of ten years.  In addition, for options granted under the Planprior to January 1, 2009, certain performance measures were required to be metfor 50% of these options to become exercisable; these performance measures weresatisfied during the first quarter of 2010. The Company also grants shares of restricted stock under the Plan, whichcurrently lapse ratably over a period of three years from the date ofgrant.  In addition, with respect togrants of restricted stock in May 2010 to the Company’s “named executiveofficers” and persons deemed “covered employees” under section 162(m) of theInternal Revenue Code of 1986, as amended, certain profitability-basedperformance measures must be met within that three-year period for restrictedstock grants to lapse.

 

TheCompany recorded a compensation charge of $1,859 and $996 during the threemonths ended September 30, 2010 and 2009, respectively, and $4,135 and $2,403during the nine months ended September 30, 2010 and 2009, respectively, inconnection with the Plan.

 

**Non-EmployeeDirector Compensation Plan**

 

TheNon-Employee Director Compensation Plan, approved in May 2007, isavailable to non-employee directors of the Company, other than the Chair of theCompliance Committee.  Under this plan,eligible directors are granted Restricted Stock Units (“RSUs”) following each annualstockholder meeting with each RSU representing one share of the Company’s classA common stock.  As of May 2010,eligible directors now receive a grant of RSUs having a fair market value of$133 on the date of grant based on the closing price of the Company’s class Acommon stock on the business day immediately preceding the grant date.  The Non-Employee Director 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 2,324 RSUs per director after the Company’s 2010 annual stockholdermeeting, plus an additional prorated amount of 1,854 RSUs to a director uponhis election to the board of directors in July 2010.  The Company granted 3,018 RSUs per directorin 2009.  The Company expensed $183 and$125 during the three month periods ended September 30, 2010 and 2009,respectively, and $452 and $375 during the nine month periods ended September 30,2010 and 2009, respectively.

 

**StockPurchase Plan/Employee Stock Purchase Plan**

 

Duringthe second quarter of 2010, the Company commenced an offering of its class Acommon stock to eligible employees and independent contractors associated withthe Company and its subsidiaries pursuant to the Company’s Stock Purchase Planand Employee Stock Purchase Plan (together, the “SPPs”).  The purchases ofstock under the SPPs occurred in October 2010 at a 5% discount to theclosing price of the Company’s class A common stock on October 15, 2010,and as such no compensation charge was recorded for these plans during the ninemonths ended September 30, 2010.

 

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

 

TheCompany is organized around two separately managed business units: healthcare transportationservices and facility-based physician services, which have been identified asoperating segments. The healthcare transportation services reportable segmentfocuses on providing a full range of medical transportation services from basicpatient transit to the most advanced emergency care and pre-hospitalassistance. The facility-based physician services reportable segment provides physicianservices to hospitals primarily for emergency departments and urgent carecenters, as well as for hospitalist/ inpatient, radiology, teleradiology andanesthesiology services. The Chief Executive Officer has been identified as thechief operating decision maker (“CODM”) as he assesses the performance ofthe business units and decides how to allocate resources to the business units.

 

Netincome before equity in earnings of unconsolidated subsidiary, income taxexpense, loss on early debt extinguishment, interest and other income, realizedgain on investments, interest expense and depreciation and amortization (“Adjusted

 

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EBITDA”) is the measure ofprofit and loss that the CODM uses to assess performance, measure liquidity andmake decisions. The accounting policies for reported segments are the same asfor the Company as a whole.

 
| ** **                                           | ** ** | **Quarter ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **2010**                                       | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Healthcare Transportation  Services**              |       |                                           |       |                                                    |       |   |   |   |   |
| Net Revenue                                          |       | $                                              | 352,226    |                                                    | $          | 338,768 |   | $ | 1,033,347 |   | $ | 1,010,718 |   |
| Segment Adjusted EBITDA                              |       | 31,449                                         |       | 31,838                                                  |       | 95,611 |   | 98,151 |   |
| **Facility-Based Physician Services**                |       |                                           |       |                                                    |       |   |   |   |   |
| Net Revenue                                          |       | 384,954                                        |       | 326,288                                                 |       | 1,091,991 |   | 904,651 |   |
| Segment Adjusted EBITDA                              |       | 48,627                                         |       | 40,449                                                  |       | 137,294 |   | 112,652 |   |
| **Total**                                            |       |                                           |       |                                                    |       |   |   |   |   |
| Total Net Revenue                                    |       | 737,180                                        |       | 665,056                                                 |       | 2,125,338 |   | 1,915,369 |   |
| Total Adjusted EBITDA                                |       | 80,076                                         |       | 72,287                                                  |       | 232,905 |   | 210,803 |   |
| **Reconciliation of Adjusted EBITDA  to Net Income** |       |                                           |       |                                                    |       |   |   |   |   |
| Adjusted EBITDA                                      |       | $                                              | 80,076     |                                                    | $          | 72,287 |   | $ | 232,905 |   | $ | 210,803 |   |
| Depreciation and amortization expense                |       | (16,528                                        | )          | (15,733                                                 | )          | (48,400 | ) | (48,658 | ) |
| Interest expense                                     |       | (4,856                                         | )          | (10,280                                                 | )          | (18,182 | ) | (30,749 | ) |
| Realized gain on investments                         |       | 730                                            |       | 544                                                     |       | 879 |   | 2,030 |   |
| Interest and other income                            |       | 277                                            |       | 502                                                     |       | 748 |   | 1,442 |   |
| Loss on early debt extinguishment                    |       | —                                         |       | —                                                  |       | (19,091 | ) | — |   |
| Income tax expense                                   |       | (22,990                                        | )          | (18,533                                                 | )          | (57,355 | ) | (53,144 | ) |
| Equity in earnings of unconsolidated subsidiary      |       | 53                                             |       | 91                                                      |       | 252 |   | 244 |   |
| Net income                                           |       | $                                              | 36,762     |                                                    | $          | 28,878 |   | $ | 91,756 |   | $ | 81,968 |   |

 

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

 
| ** **                                           | ** ** | **Quarter ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **2010**                                       | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| Adjusted  EBITDA                                     |       | $                                              | 80,076     |                                                    | $          | 72,287 |   | $ | 232,905 |   | $ | 210,803 |   |
| Interest  paid                                       |       | (4,195                                         | )          | (9,773                                                  | )          | (16,385 | ) | (29,424 | ) |
| Change  in accounts receivable                       |       | (10,882                                        | )          | 7,574                                                   |       | (30,441 | ) | 8,448 |   |
| Change  in other operating assets/liabilities        |       | 11,164                                         |       | (2,956                                                  | )          | 18,192 |   | 16,000 |   |
| Equity  based compensation                           |       | 2,042                                          |       | 1,121                                                   |       | 4,587 |   | 2,875 |   |
| Excess  tax benefits from stock-based compensation   |       | (479                                           | )          | —                                                  |       | (13,977 | ) | — |   |
| Income  tax expense, net of change in deferred taxes |       | (24,092                                        | )          | (472                                                    | )          | (57,617 | ) | (3,155 | ) |
| Other                                                |       | 989                                            |       | 1,081                                                   |       | 2,101 |   | 4,254 |   |
| Cash  flows provided by operating activities         |       | $                                              | 54,623     |                                                    | $          | 68,862 |   | $ | 139,365 |   | $ | 209,801 |   |

 

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

 

EMSLP’s wholly-owned subsidiaries, AMR HoldCo, Inc. and EmCareHoldCo, Inc., are the borrowers under the senior secured credit facility,which includes a full, unconditional and joint and several guarantee by EMSC,EMS LP and EMSC’s domestic subsidiaries. The senior secured credit facilitydoes not include a guarantee by the Company’s captive insurance subsidiary andonly limited guarantees from any future non-domestic subsidiaries. All of theoperating income and cash flow of EMSC, EMS LP, AMR HoldCo, Inc. andEmCare HoldCo, Inc. is generated by AMR, EmCare and their subsidiaries. Asa result, funds necessary to meet the debt service obligations under the seniorsecured credit facility are provided by the distributions or advances from thesubsidiary companies, AMR and EmCare. Investments in subsidiary operatingcompanies are accounted for on the equity method. Accordingly, entriesnecessary to consolidate EMSC, EMS LP, AMR HoldCo, Inc., EmCare HoldCo, Inc.and all of their subsidiaries are reflected in the Eliminations/Adjustmentscolumn. Separate complete financial statements of the borrowers, EMS LP andsubsidiary guarantors would not provide additional material information thatwould be useful in assessing the financial composition of the borrowers, EMS LPor the subsidiary guarantors. The condensed consolidating financial statementsfor EMSC,EMS LP, the borrowers, the guarantors and the non-guarantor are asfollows:

 

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**Consolidating Statement of Operations**

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

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 737,180    |       | $          | 19,164 |   | $ | (19,164 | ) | $ | 737,180 |   |
| Compensation  and benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 523,263        |       | —            |       | —            |       | 523,263    |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 91,023         |       | —            |       | —            |       | 91,023     |       |
| Insurance  expense                                               |       | —     |       | —          |       | —                |       | —                |       | 24,586         |       | 20,371            |       | (19,164           | )          | 25,793     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 17,742         |       | —            |       | —            |       | 17,742     |       |
| Depreciation  and amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 16,528         |       | —            |       | —            |       | 16,528     |       |
| Income  (loss) from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 64,038         |       | (1,207            | )          | —            |       | 62,831     |       |
| Interest  income from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 240            |       | 477               |       | —            |       | 717        |       |
| Interest  expense                                                |       | —     |       | —          |       | —                |       | —                |       | (4,856         | )          | —            |       | —            |       | (4,856     | )          |
| Realized  gain on investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 730               |       | —            |       | 730        |       |
| Interest  and other income                                       |       | —     |       | —          |       | —                |       | —                |       | 277            |       | —            |       | —            |       | 277        |       |
| Income  before income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 59,699         |       | —            |       | —            |       | 59,699     |       |
| Income  tax expense                                              |       | —     |       | —          |       | —                |       | —                |       | (22,990        | )          | —            |       | —            |       | (22,990    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 36,709         |       | —            |       | —            |       | 36,709     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 36,762     |       | 36,762          |       | 10,567                |       | 26,195                |       | 53             |       | —            |       | (110,286          | )          | 53         |       |
| Net  income                                                      |       | $          | 36,762     |            | $          | 36,762                |       | $                     | 10,567     |           | $          | 26,195            |       | $                 | 36,762     |       | $          | — |   | $ | (110,286 | ) | $ | 36,762 |   |

 

**Consolidating Statement of Operations**

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

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 665,056    |       | $          | 7,226 |   | $ | (7,226 | ) | $ | 665,056 |   |
| Compensation  and benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 467,625        |       | —            |       | —            |       | 467,625    |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 85,510         |       | —            |       | —            |       | 85,510     |       |
| Insurance  expense                                               |       | —     |       | —          |       | —                |       | —                |       | 23,714         |       | 8,357             |       | (7,226            | )          | 24,845     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 15,871         |       | —            |       | —            |       | 15,871     |       |
| Depreciation  and amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 15,733         |       | —            |       | —            |       | 15,733     |       |
| Income  (loss) from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 56,603         |       | (1,131            | )          | —            |       | 55,472     |       |
| Interest  income from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 495            |       | 587               |       | —            |       | 1,082      |       |
| Interest  expense                                                |       | —     |       | —          |       | —                |       | —                |       | (10,280        | )          | —            |       | —            |       | (10,280    | )          |
| Realized  gain on investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 544               |       | —            |       | 544        |       |
| Interest  and other income                                       |       | —     |       | —          |       | —                |       | —                |       | 502            |       | —            |       | —            |       | 502        |       |
| Income  before income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 47,320         |       | —            |       | —            |       | 47,320     |       |
| Income  tax expense                                              |       | —     |       | —          |       | —                |       | —                |       | (18,533        | )          | —            |       | —            |       | (18,533    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 28,787         |       | —            |       | —            |       | 28,787     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 28,878     |       | 28,878          |       | 8,409                 |       | 20,469                |       | 91             |       | —            |       | (86,634           | )          | 91         |       |
| Net  income                                                      |       | $          | 28,878     |            | $          | 28,878                |       | $                     | 8,409      |           | $          | 20,469            |       | $                 | 28,878     |       | $          | — |   | $ | (86,634 | ) | $ | 28,878 |   |

 

14

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**Consolidating Statement of Operations**

**For the nine months ended September 30, 2010**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 2,125,338  |       | $          | 45,265 |   | $ | (45,265 | ) | $ | 2,125,338 |   |
| Compensation  and benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 1,500,023      |       | —            |       | —            |       | 1,500,023  |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 268,138        |       | —            |       | —            |       | 268,138    |       |
| Insurance  expense                                               |       | —     |       | —          |       | —                |       | —                |       | 71,423         |       | 47,647            |       | (45,265           | )          | 73,805     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 52,898         |       | —            |       | —            |       | 52,898     |       |
| Depreciation  and amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 48,400         |       | —            |       | —            |       | 48,400     |       |
| Income  (loss) from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 184,456        |       | (2,382            | )          | —            |       | 182,074    |       |
| Interest  income from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 928            |       | 1,503             |       | —            |       | 2,431      |       |
| Interest  expense                                                |       | —     |       | —          |       | —                |       | —                |       | (18,182        | )          | —            |       | —            |       | (18,182    | )          |
| Realized  gain on investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 879               |       | —            |       | 879        |       |
| Interest  and other income                                       |       | —     |       | —          |       | —                |       | —                |       | 748            |       | —            |       | —            |       | 748        |       |
| Loss  on early extinguishment of debt                            |       | —     |       | —          |       | —                |       | —                |       | (19,091        | )          | —            |       | —            |       | (19,091    | )          |
| Income  before income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 148,859        |       | —            |       | —            |       | 148,859    |       |
| Income  tax expense                                              |       | —     |       | —          |       | —                |       | —                |       | (57,355        | )          | —            |       | —            |       | (57,355    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 91,504         |       | —            |       | —            |       | 91,504     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 91,756     |       | 91,756          |       | 24,087                |       | 67,669                |       | 252            |       | —            |       | (275,268          | )          | 252        |       |
| Net  income                                                      |       | $          | 91,756     |            | $          | 91,756                |       | $                     | 24,087     |           | $          | 67,669            |       | $                 | 91,756     |       | $          | — |   | $ | (275,268 | ) | $ | 91,756 |   |

 

**Consolidating Statement of Operations**

**For the nine months ended September 30, 2009**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 1,915,369  |       | $          | 21,256 |   | $ | (21,256 | ) | $ | 1,915,369 |   |
| Compensation  and benefits                                       |       | —     |       | —          |       | —                |       | —                |       | 1,332,787      |       | —            |       | —            |       | 1,332,787  |       |
| Operating  expenses                                              |       | —     |       | —          |       | —                |       | —                |       | 252,355        |       | —            |       | —            |       | 252,355    |       |
| Insurance  expense                                               |       | —     |       | —          |       | —                |       | —                |       | 71,693         |       | 25,269            |       | (21,256           | )          | 75,706     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —          |       | —                |       | —                |       | 47,186         |       | —            |       | —            |       | 47,186     |       |
| Depreciation  and amortization expense                           |       | —     |       | —          |       | —                |       | —                |       | 48,658         |       | —            |       | —            |       | 48,658     |       |
| Income  (loss) from operations                                   |       | —     |       | —          |       | —                |       | —                |       | 162,690        |       | (4,013            | )          | —            |       | 158,677    |       |
| Interest  income from restricted assets                          |       | —     |       | —          |       | —                |       | —                |       | 1,485          |       | 1,983             |       | —            |       | 3,468      |       |
| Interest  expense                                                |       | —     |       | —          |       | —                |       | —                |       | (30,749        | )          | —            |       | —            |       | (30,749    | )          |
| Realized  gain on investments                                    |       | —     |       | —          |       | —                |       | —                |       | —         |       | 2,030             |       | —            |       | 2,030      |       |
| Interest  and other income                                       |       | —     |       | —          |       | —                |       | —                |       | 1,442          |       | —            |       | —            |       | 1,442      |       |
| Income  before income taxes                                      |       | —     |       | —          |       | —                |       | —                |       | 134,868        |       | —            |       | —            |       | 134,868    |       |
| Income  tax expense                                              |       | —     |       | —          |       | —                |       | —                |       | (53,144        | )          | —            |       | —            |       | (53,144    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —          |       | —                |       | —                |       | 81,724         |       | —            |       | —            |       | 81,724     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 81,968     |       | 81,968          |       | 26,344                |       | 55,624                |       | 244            |       | —            |       | (245,904          | )          | 244        |       |
| Net  income                                                      |       | $          | 81,968     |            | $          | 81,968                |       | $                     | 26,344     |           | $          | 55,624            |       | $                 | 81,968     |       | $          | — |   | $ | (245,904 | ) | $ | 81,968 |   |

 

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**Consolidating Balance Sheet**

**As of September 30, 2010**

 
| ** **                                          | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|------------|------------|-----------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| **Assets**                                          | ** ** | ** ** | ** ** | ** **      |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  assets:                                    |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Cash  and cash equivalents                          |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 329,461    |       | $          | 16,255 |   | $ | — |   | $ | 345,716 |   |
| Insurance  collateral                               |       | —     |       | —          |       | —                |       | —                |       | 8,681          |       | 32,053            |       | (12,503           | )          | 28,231     |       |
| Trade  and other accounts receivable, net           |       | —     |       | —          |       | —                |       | —                |       | 492,234        |       | 489               |       | —            |       | 492,723    |       |
| Parts  and supplies inventory                       |       | —     |       | —          |       | —                |       | —                |       | 22,759         |       | —            |       | —            |       | 22,759     |       |
| Prepaids  and other current assets                  |       | —     |       | —          |       | —                |       | —                |       | 24,854         |       | 329               |       | (7,932            | )          | 17,251     |       |
| Current  deferred tax assets                        |       | —     |       | —          |       | —                |       | —                |       | (3,834         | )          | 3,834             |       | —            |       | —     |       |
| Current  assets                                     |       | —     |       | —          |       | —                |       | —                |       | 874,155        |       | 52,960            |       | (20,435           | )          | 906,680    |       |
| Non-current  assets:                                |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property,  plant, and equipment, net                |       | —     |       | —          |       | —                |       | —                |       | 126,759        |       | —            |       | —            |       | 126,759    |       |
| Intercompany  receivable                            |       | —     |       | —          |       | 284,948               |       | 126,640               |       | —         |       | —            |       | (411,588          | )          | —     |       |
| Intangible  assets, net                             |       | —     |       | —          |       | —                |       | —                |       | 138,641        |       | —            |       | —            |       | 138,641    |       |
| Non-current  deferred tax assets                    |       | —     |       | —          |       | —                |       | —                |       | 10,849         |       | (6,120            | )          | 1,994             |       | 6,723      |       |
| Insurance  collateral                               |       | —     |       | —          |       | —                |       | —                |       | 30,977         |       | 124,889           |       | (3,917            | )          | 151,949    |       |
| Goodwill                                            |       | —     |       | —          |       | —                |       | —                |       | 388,048        |       | 458               |       | —            |       | 388,506    |       |
| Other  long-term assets                             |       | —     |       | —          |       | 8,273                 |       | 3,500                 |       | 6,975          |       | —            |       | —            |       | 18,748     |       |
| Investment  and advances in subsidiaries            |       | 803,684    |       | 803,684         |       | 430,943               |       | 372,728               |       | 35,799         |       | —            |       | (2,446,838        | )          | —     |       |
| Assets                                              |       | $          | 803,684    |            | $          | 803,684               |       | $                     | 724,164    |           | $          | 502,868           |       | $                 | 1,612,203  |       | $          | 172,187 |   | $ | (2,880,784 | ) | $ | 1,738,006 |   |
| **Liabilities and Equity**                          | ** ** | ** ** | ** ** | ** **      | ** ** | ** **            | ** ** | ** **            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        |       |       |       |
| Current  liabilities:                               |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts  payable                                   |       | $          | —     |            | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 68,172     |       | $          | 67 |   | $ | — |   | $ | 68,239 |   |
| Accrued  liabilities                                |       | —     |       | —          |       | 758                   |       | 245                   |       | 236,329        |       | 27,272            |       | (1                | )          | 264,603    |       |
| Current  deferred tax liability                     |       | —     |       | —          |       | —                |       | —                |       | 11,068         |       | —            |       | —            |       | 11,068     |       |
| Current  portion of long-term debt                  |       | —     |       | —          |       | 9,164                 |       | 4,117                 |       | 672            |       | —            |       | —            |       | 13,953     |       |
| Current  liabilities                                |       | —     |       | —          |       | 9,922                 |       | 4,362                 |       | 316,241        |       | 27,339            |       | (1                | )          | 357,863    |       |
| Long-term  debt                                     |       | —     |       | —          |       | 282,253               |       | 126,810               |       | 1,244          |       | —            |       | —            |       | 410,307    |       |
| Insurance  reserves and other long-term liabilities |       | —     |       | —          |       | —                |       | —                |       | 88,284         |       | 100,225           |       | (22,357           | )          | 166,152    |       |
| Intercompany  payable                               |       | —     |       | —          |       | —                |       | —                |       | 402,764        |       | 8,824             |       | (411,588          | )          | —     |       |
| Liabilities                                         |       | —     |       | —          |       | 292,175               |       | 131,172               |       | 808,533        |       | 136,388           |       | (433,946          | )          | 934,322    |       |
| Equity:                                             |       |       |       |            |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class  A common stock                               |       | 303        |       | —          |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 303        |       |
| Class  B common stock                               |       | 1          |       | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                                 |       | 90,776     |       | 390,077         |       | 319,292               |       | 70,786                |       | 388,561        |       | —            |       | (1,168,716        | )          | 90,776     |       |
| Treasury  stock at cost                             |       | (1,289     | )          | —          |       | —                |       | —                |       | —         |       | —            |       | —            |       | (1,289     | )          |
| Additional  paid-in capital                         |       | 300,286    |       | —          |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 300,286    |       |
| Retained  earnings                                  |       | 410,798    |       | 410,798         |       | 112,346               |       | 298,452               |       | 412,300        |       | 26,522            |       | (1,260,418        | )          | 410,798    |       |
| Comprehensive  income                               |       | 2,809      |       | 2,809           |       | 351                   |       | 2,458                 |       | 2,809          |       | 4,931             |       | (13,358           | )          | 2,809      |       |
| Equity                                              |       | 803,684    |       | 803,684         |       | 431,989               |       | 371,696               |       | 803,670        |       | 35,799            |       | (2,446,838        | )          | 803,684    |       |
| Liabilities  and Equity                             |       | $          | 803,684    |            | $          | 803,684               |       | $                     | 724,164    |           | $          | 502,868           |       | $                 | 1,612,203  |       | $          | 172,187 |   | $ | (2,880,784 | ) | $ | 1,738,006 |   |

 

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**Consolidating Balance Sheet**

**As of December 31, 2009**

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

 

17

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**Condensed Consolidating Statement of Cash Flows**

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

 
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net  cash provided by operating activities              |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 42,954     |   | $ | 11,669 |   | $ | 54,623 |   |
| **Cash Flows from Investing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase  of property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (16,199        | )          | —             |       | (16,199    | )          |
| Proceeds  from sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 12             |       | —             |       | 12         |       |
| Acquisition  of businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (183           | )          | —             |       | (183       | )          |
| Net  change in insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | 6,634          |       | (10,774            | )          | (4,140     | )          |
| Net change  in deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 83             |       | —             |       | 83         |       |
| Net  cash used in investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (9,653         | )          | (10,774            | )          | (20,427    | )          |
| **Cash Flows from Financing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC  issuance of class A common stock                  |       | 221        |       | —          |       | —               |       | —               |       | —         |       | —             |       | 221        |       |
| Class  A common stock repurchased as treasury stock     |       | (1,289     | )          | —          |       | —               |       | —               |       | —         |       | —             |       | (1,289     | )          |
| Repayments  of capital lease obligations and other debt |       | —     |       | —          |       | (2,157               | )          | (970                 | )          | (148           | )          | —             |       | (3,275     | )          |
| Borrowings  under credit facility                       |       | —     |       | —          |       | —               |       | —               |       | —         |       | —             |       | —     |       |
| Debt  issue costs                                       |       | —     |       | —          |       | (151                 | )          | (68                  | )          | —         |       | —             |       | (219       | )          |
| Payment  of premiums for debt extinguishment            |       | —     |       | —          |       | —               |       | —               |       | —         |       | —             |       | —     |       |
| Excess  tax benefits from stock-based compensation      |       | —     |       | —          |       | —               |       | —               |       | 479            |       | —             |       | 479        |       |
| Net  change in bank overdrafts                          |       | —     |       | —          |       | —               |       | —               |       | 2,570          |       | —             |       | 2,570      |       |
| Net  intercompany borrowings (payments)                 |       | 1,068      |       | —          |       | 2,308                |       | 1,038                |       | (4,414         | )          | —             |       | —     |       |
| Net  cash used in financing activities                  |       | —     |       | —          |       | —               |       | —               |       | (1,513         | )          | —             |       | (1,513     | )          |
| Change  in cash and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | 31,788         |       | 895                |       | 32,683     |       |
| Cash  and cash equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 297,673        |       | 15,360             |       | 313,033    |       |
| Cash  and cash equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 329,461    |   | $ | 16,255 |   | $ | 345,716 |   |

 

**Condensed Consolidating Statement of Cash Flows**

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

 
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net  cash provided by (used in) operating activities    |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 69,172     |   | $ | (310 | ) | $ | 68,862 |   |
| **Cash Flows from Investing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase  of property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (13,576        | )          | —             |       | (13,576    | )          |
| Proceeds  from sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 41             |       | —             |       | 41         |       |
| Acquisition  of businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (1,241         | )          | —             |       | (1,241     | )          |
| Net  change in insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | (9,241         | )          | 15,243             |       | 6,002      |       |
| Net  change in deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | (166           | )          | —             |       | (166       | )          |
| Net  cash (used in) provided by investing activities    |       | —     |       | —          |       | —               |       | —               |       | (24,183        | )          | 15,243             |       | (8,940     | )          |
| **Cash Flows from Financing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC  issuance of class A common stock                  |       | 2,437      |       | —          |       | —               |       | —               |       | —         |       | —             |       | 2,437      |       |
| Repayments  of capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (1,214         | )          | —             |       | (1,214     | )          |
| Increase  in bank overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 2,821          |       | —             |       | 2,821      |       |
| Net  intercompany borrowings (payments)                 |       | (2,437     | )          | —          |       | —               |       | —               |       | 2,437          |       | —             |       | —     |       |
| Net  cash provided by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 4,044          |       | —             |       | 4,044      |       |
| Change  in cash and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | 49,033         |       | 14,933             |       | 63,966     |       |
| Cash  and cash equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 266,772        |       | 367                |       | 267,139    |       |
| Cash  and cash equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 315,805    |   | $ | 15,300 |   | $ | 331,105 |   |

 

18

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Table of Contents

 

**Condensed Consolidating Statement of Cash Flows**

**For the nine months ended September 30, 2010**

 
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net  cash provided by operating activities              |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 99,852     |   | $ | 39,513 |   | $ | 139,365 |   |
| **Cash Flows from Investing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase  of property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (31,367        | )          | —             |       | (31,367    | )          |
| Proceeds  from sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 120            |       | —             |       | 120        |       |
| Acquisition  of businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (51,158        | )          | —             |       | (51,158    | )          |
| Net  change in insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | 29,207         |       | (38,608            | )          | (9,401     | )          |
| Net  change in deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | 11,021         |       | —             |       | 11,021     |       |
| Net  cash used in investing activities                  |       | —     |       | —          |       | —               |       | —               |       | (42,177        | )          | (38,608            | )          | (80,785    | )          |
| **Cash Flows from Financing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC  issuance of class A common stock                  |       | 6,414      |       | —          |       | —               |       | —               |       | —         |       | —             |       | 6,414      |       |
| Class  A common stock repurchased as treasury stock     |       | (1,289     | )          | —          |       | —               |       | —               |       | —         |       | —             |       | (1,289     | )          |
| Repayments  of capital lease obligations and other debt |       | —     |       | —          |       | (312,495             | )          | (140,397             | )          | (3,010         | )          | —             |       | (455,902   | )          |
| Borrowings  under credit facility                       |       | —     |       | —          |       | 293,250              |       | 131,750              |       | —         |       | —             |       | 425,000    |       |
| Debt  issue costs                                       |       | —     |       | —          |       | (8,258               | )          | (3,710               | )          | —         |       | —             |       | (11,968    | )          |
| Payment  of premiums for debt extinguishment            |       | —     |       | —          |       | (10,014              | )          | (4,499               | )          | —         |       | —             |       | (14,513    | )          |
| Excess  tax benefits from stock-based compensation      |       | —     |       | —          |       | —               |       | —               |       | 13,977         |       | —             |       | 13,977     |       |
| Net  change in bank overdrafts                          |       | —     |       | —          |       | —               |       | —               |       | (7,471         | )          | —             |       | (7,471     | )          |
| Net  intercompany borrowings (payments)                 |       | (5,125     | )          | —          |       | 37,517               |       | 16,856               |       | (49,248        | )          | —             |       | —     |       |
| Net  cash used in financing activities                  |       | —     |       | —          |       | —               |       | —               |       | (45,752        | )          | —             |       | (45,752    | )          |
| Change  in cash and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | 11,923         |       | 905                |       | 12,828     |       |
| Cash  and cash equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 317,538        |       | 15,350             |       | 332,888    |       |
| Cash  and cash equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 329,461    |   | $ | 16,255 |   | $ | 345,716 |   |

 

**Condensed Consolidating Statement of Cash Flows**

**For the nine months ended September 30, 2009**

 
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **      | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Net  cash provided by (used in) operating activities    |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 213,794    |   | $ | (3,993 | ) | $ | 209,801 |   |
| **Cash Flows from Investing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase  of property, plant and equipment              |       | —     |       | —          |       | —               |       | —               |       | (33,661        | )          | —             |       | (33,661    | )          |
| Proceeds  from sale of property, plant and equipment    |       | —     |       | —          |       | —               |       | —               |       | 101            |       | —             |       | 101        |       |
| Acquisition  of businesses, net of cash received        |       | —     |       | —          |       | —               |       | —               |       | (1,374         | )          | —             |       | (1,374     | )          |
| Net change  in insurance collateral                     |       | —     |       | —          |       | —               |       | —               |       | (9,503         | )          | 13,572             |       | 4,069      |       |
| Net  change in deposits and other assets                |       | —     |       | —          |       | —               |       | —               |       | (809           | )          | —             |       | (809       | )          |
| Net  cash (used in) provided by investing activities    |       | —     |       | —          |       | —               |       | —               |       | (45,246        | )          | 13,572             |       | (31,674    | )          |
| **Cash Flows from Financing Activities**                |       |       |       |            |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC  issuance of class A common stock                  |       | 7,160      |       | —          |       | —               |       | —               |       | —         |       | —             |       | 7,160      |       |
| Repayments  of capital lease obligations and other debt |       | —     |       | —          |       | —               |       | —               |       | (3,826         | )          | —             |       | (3,826     | )          |
| Increase  in bank overdrafts                            |       | —     |       | —          |       | —               |       | —               |       | 3,471          |       | —             |       | 3,471      |       |
| Net  intercompany borrowings (payments)                 |       | (7,160     | )          | —          |       | —               |       | —               |       | 7,160          |       | —             |       | —     |       |
| Net  cash provided by financing activities              |       | —     |       | —          |       | —               |       | —               |       | 6,805          |       | —             |       | 6,805      |       |
| Change  in cash and cash equivalents                    |       | —     |       | —          |       | —               |       | —               |       | 175,353        |       | 9,579              |       | 184,932    |       |
| Cash  and cash equivalents, beginning of period         |       | —     |       | —          |       | —               |       | —               |       | 140,452        |       | 5,721              |       | 146,173    |       |
| Cash  and cash equivalents, end of period               |       | $          | —     |            | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 315,805    |   | $ | 15,300 |   | $ | 331,105 |   |

 

**11.****                        ****SubsequentEvents**

 

The Company’smanagement has evaluated events subsequent to September 30, 2010 throughthe issue date of this report.  There hasbeen no material event noted in this period which would either impact theresults reflected in this report or the Company’s results going forward.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**

 

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

 

Certain statements andinformation herein may be deemed to be “forward-looking statements” within themeaning of the Federal Private Securities Litigation Reform Act of 1995.Forward-looking statements may include, but are not limited to, statementsrelating to our objectives, plans and strategies, and all statements (otherthan statements of historical facts) that address activities, events ordevelopments that we intend, expect, project, believe or anticipate will or mayoccur in the future. Any forward-looking statements herein are made as of thedate this Quarterly Report on Form 10-Q is filed with the Securities andExchange Commission, and EMSC undertakes no duty to update or revise any suchstatements. Forward-looking statements are not guarantees of future performanceand are subject to risks and uncertainties. Important factors that could causeactual results, developments and business decisions to differ materially fromforward-looking statements are described in EMSC’s filings with the SEC fromtime to time, including in the section entitled “Risk Factors” in EMSC’s mostrecent Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q.Among the factors that could cause future results to differ materially fromthose provided in this Quarterly Report on Form 10-Q are: the impact onour revenue of changes in transport volume, mix of insured and uninsuredpatients, and third party reimbursement rates and methods; the adequacy of ourinsurance coverage and insurance reserves; potential penalties or changes toour operations if we fail to comply with extensive and complex governmentregulation of our industry; the impact of changes in the healthcare industry;our ability to recruit and retain qualified physicians and other healthcareprofessionals, and enforce our non-compete agreements with our physicians; ourability to generate cash flow to service our debt obligations; the cost ofcapital expenditures to maintain and upgrade our vehicle fleet and medicalequipment; the loss of one or more members of our senior management team; theoutcome of government investigations of certain of our business practices; ourability to successfully restructure our operations to comply with futurechanges in government regulation; the loss of existing contracts and theaccuracy of our assessment of costs under new contracts; the high level ofcompetition in our industry; our ability to maintain or implement complexinformation systems; our ability to implement our business strategy; ourability to successfully integrate strategic acquisitions; and our ability tocomply with the terms of our settlement agreements with the government.

 

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

 

This Report should be readin conjunction with EMSC’s consolidated financial statements and notes theretoincluded in our Annual Report on Form 10-K filed with the SEC on February 19,2010.

 

***Company Overview***

 

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

 

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

 

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

 

We evaluate our revenue net ofprovisions for contractual payor discounts and provisions for uncompensatedcare. Medicaid, Medicare and certain other payors receive discounts from ourstandard charges, which we refer to as contractual discounts. In addition,individuals we treat and transport may be personally responsible for adeductible or co-pay under their third party payor coverage, and most of ourcontracts require us to treat and transport patients who have no insurance orother third party payor coverage. Due to the uncertainty regardingcollectibility of charges associated with services we provide to thesepatients, which we refer to as uncompensated care, our net revenue recognitionis based on expected cash collections. Our net revenue represents grossbillings after provisions for contractual discounts and estimated uncompensatedcare. Provisions for contractual discounts and uncompensated care haveincreased historically primarily as a result of increases in gross billingrates without corresponding increases in payor reimbursement.

 

The table below summarizesour approximate payor mix as a percentage of both net revenue and totaltransports and patient visits for the three and nine months ended September 30,2010 and 2009. In determining the net revenue payor mix, we use cash 

 

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collections in the period asan approximation of net revenue recorded.

 
| ** **                            | ** ** | **Percentage of Cash Collections (Net Revenue)** | ** ** | **Percentage of Total Volume**       | ** ** |
|---------------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                            | ** ** | **Quarter ended********September 30,**                          | ** ** | **Nine months ended  September 30,** | ** ** | **Quarter ended********September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
| ** **                            | ** ** | **2010**                                                                  | ** ** | **2009**                                            | ** ** | **2010** | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Medicare                              |       | 22.2                                                                      | %          | 22.4                                                | %          | 22.0 | % | 23.2 | % | 25.5 | % | 23.7 | % | 25.1 | % | 24.6 | % |
| Medicaid                              |       | 5.8                                                                       | %          | 4.9                                                 | %          | 5.4 | % | 4.7 | % | 13.3 | % | 11.4 | % | 12.7 | % | 11.2 | % |
| Commercial insurance and managed care |       | 47.5                                                                      | %          | 50.2                                                | %          | 49.0 | % | 50.5 | % | 41.0 | % | 42.9 | % | 42.4 | % | 42.7 | % |
| Self-pay                              |       | 4.4                                                                       | %          | 3.8                                                 | %          | 4.2 | % | 3.9 | % | 20.2 | % | 22.0 | % | 19.8 | % | 21.5 | % |
| Subsidies & fees             |       | 20.1                                                                      | %          | 18.7                                                | %          | 19.4 | % | 17.7 | % | — |   | — |   | — |   | — |   |
| Total                                 |       | 100.0                                                                     | %          | 100.0                                               | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |

 

Our 2010 volume mix has beenpositively impacted compared to our 2009 volume mix primarily due to the recentexpansion of our anesthesia business, which has a lower percentage of self-paymix when compared to our emergency department, radiology and inpatient servicesbusinesses, and due to a decreased percentage of self-pay patients treated in2010. Our payor mix was negatively impacted during the 2009 periods presenteddue to an increased level of self-pay patients treated in response to the H1N1virus, which did not recur in 2010.

 

Inaddition to continually monitoring our payor mix, we also analyze certainmeasures in each of our business segments.

 

**AMR**

 

Approximately 86% of AMR’snet revenue for the nine months ended September 30, 2010 was transportrevenue derived from the treatment and transportation of patients, includingfixed wing medical transportation services, based on billings to third partypayors, healthcare facilities and patients. The balance of AMR’s net revenue isderived from direct billings to communities, government agencies and othercontracted customers for the provision of training, dispatch center and otherservices.  AMR’s measures for net revenueinclude transports, segregated into ambulance and wheelchair transports andthat we weight in certain analyses, and net revenue per transport.

 

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

 

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

 

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

 

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

 

**EmCare**

 

Of EmCare’s net revenue forthe nine months ended September 30, 2010, approximately 78% was derivedfrom our hospital contracts for emergency department staffing and approximately22% was derived from hospitalist, anesthesiology, radiology, teleradiology andother hospital management services. Approximately 77% of EmCare’s net revenue was generated from billings tothird party payors and patients for patient encounters and approximately 23%was generated from billings to hospitals and affiliated physician groups forprofessional services. EmCare’s key net revenue measures are patientencounters, segregated into emergency department visits, radiology reads, andanesthesiology and hospitalist encounters and that we weight in certainanalyses, net revenue per patient encounter, and number of contracts.

 

The change from period toperiod in the number of patient encounters under our “same store” contracts isinfluenced by 

 

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general communityconditions as well as hospital-specific elements, many of which are beyond ourdirect control.

 

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

 

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

 

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

 

***Factors AffectingOperating Results***

 

**Changes inNet New Contracts**

 

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

 

**Inflation**

 

Certain of our expenses,such as wages and benefits, insurance, fuel and equipment repair andmaintenance costs, are subject to normal inflationary pressures. Fuel expenserepresented 10.6% and 9.7% of AMR’s operating expenses for the three monthsended September 30, 2010 and 2009, respectively, and 10.1% and 8.9% forthe nine months ended September 30, 2010 and 2009, respectively.  Although we have generally been able tooffset inflationary and other cost increases through increased operating efficienciesand successful negotiation of fees and subsidies, we can provide no assurancethat we will be able to offset any future inflationary cost increases throughsimilar efficiencies and fee changes.

 

***Critical Accounting Policies***

 

**RevenueRecognition**

 

Revenue is recognized at thetime of service and is recorded net of provisions for contractual discounts andestimated uncompensated care.  Weestimate our provision for contractual discounts and uncompensated care basedon payor reimbursement schedules, historical collections and write-off experienceand other economic data.  As a result ofthe estimates used in recording the provisions, the nature of healthcarecollections, which may involve lengthy delays, there is a reasonablepossibility that recorded estimates will change materially in the short-term.

 

The changes in theprovisions for contractual discounts and uncompensated care are primarily aresult of changes in our gross fee-for-service rate schedules and grossaccounts receivable balances. These gross fee schedules, including any changesto existing fee schedules, generally are negotiated with various contractingentities, including municipalities and facilities. Fee schedule increases arebilled for all revenue sources and to all payors under that specific contract;however, reimbursement in the case of certain state and federal payors,including Medicare and Medicaid, will not change as a result of the change ingross fee schedules. In certain cases, this results in a higher level ofcontractual and uncompensated care provisions and allowances, requiring ahigher percentage of contractual discount and uncompensated care provisionscompared to gross charges.

 

In addition, managementanalyzes the ultimate collectability of revenue and accounts receivable aftercertain stages of the collection cycle using a look-back analysis to determinethe amount of receivables subsequently collected.  Adjustments related to this analysis arerecorded as a reduction or increase to net revenue each month, and were less than1% of net revenue for the three and nine month periods ended September 30,2010 and 2009.

 

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**Results ofOperations**

 

**Three andNine Months Ended September 30, 2010 Compared to Three and Nine MonthsEnded September 30, 2009**

 

The following tables presenta comparison of financial data from our unaudited consolidated statements ofoperations for the three and nine months ended September 30, 2010 and forthe three and nine months ended September 30, 2009 for EMSC and our twooperating segments.

 

**Non-GAAPMeasures**

 

*AdjustedEBITDA. *Adjusted EBITDA is definedas net income before equity in earnings of unconsolidated subsidiary, incometax expense, loss on early debt extinguishment, interest and other income,realized gain on investments, interest expense and depreciation andamortization.  Adjusted EBITDA iscommonly used by management and investors as a performance measure andliquidity indicator. Adjusted EBITDA is not considered a measure of financialperformance under U.S. generally accepted accounting principles, or GAAP, andthe items excluded from Adjusted EBITDA are significant components inunderstanding and assessing our financial performance. Adjusted EBITDA shouldnot be considered in isolation or as an alternative to such GAAP measures asnet income, cash flows provided by or used in operating, investing or financingactivities or other financial statement data presented in our financialstatements as an indicator of financial performance or liquidity. SinceAdjusted EBITDA is not a measure determined in accordance with GAAP and issusceptible to varying calculations, Adjusted EBITDA, as presented, may not becomparable to other similarly titled measures of other companies. The tablesset forth a reconciliation of Adjusted EBITDA to net income and cash flowsprovided by operating activities.

 

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

**(dollars in thousands)**

 

**EMSC**

** **
| ** **                                       | ** ** | **Quarter ended********September 30, 2010** | ** ** | **Quarter ended********September 30, 2009** | ** ** | **Nine months ended********September 30, 2010** | ** ** | **Nine months ended********September 30, 2009** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                                 | ** ** | **% of net********revenue**                      | ** ** | ** **                                                          | ** ** | **% of net********revenue**                               | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net revenue                                      |       | $                                                          | 737,180    |                                                       | 100.0      | %                                                                   | $          | 665,056                                                             |       | 100.0 | % | $ | 2,125,338 |   | 100.0 | % | $ | 1,915,369 |   | 100.0 | % |
| Compensation and  benefits                       |       | 523,263                                                    |       | 71.0                                                       |       | 467,625                                                             |       | 70.3                                                                |       | 1,500,023 |   | 70.6 |   | 1,332,787 |   | 69.6 |   |
| Operating expenses                               |       | 91,023                                                     |       | 12.3                                                       |       | 85,510                                                              |       | 12.9                                                                |       | 268,138 |   | 12.6 |   | 252,355 |   | 13.2 |   |
| Insurance expense                                |       | 25,793                                                     |       | 3.5                                                        |       | 24,845                                                              |       | 3.7                                                                 |       | 73,805 |   | 3.5 |   | 75,706 |   | 4.0 |   |
| Selling, general and  administrative expenses    |       | 17,742                                                     |       | 2.4                                                        |       | 15,871                                                              |       | 2.4                                                                 |       | 52,898 |   | 2.5 |   | 47,186 |   | 2.5 |   |
| Interest income from  restricted assets          |       | (717                                                       | )          | (0.1                                                       | )          | (1,082                                                              | )          | (0.2                                                                | )          | (2,431 | ) | (0.1 | ) | (3,468 | ) | (0.2 | ) |
| Adjusted EBITDA                                  |       | $                                                          | 80,076     |                                                       | 10.9       | %                                                                   | $          | 72,287                                                              |       | 10.9 | % | $ | 232,905 |   | 11.0 | % | $ | 210,803 |   | 11.0 | % |
| Depreciation and  amortization expense           |       | (16,528                                                    | )          | (2.2                                                       | )          | (15,733                                                             | )          | (2.4                                                                | )          | (48,400 | ) | (2.3 | ) | (48,658 | ) | (2.5 | ) |
| Interest expense                                 |       | (4,856                                                     | )          | (0.7                                                       | )          | (10,280                                                             | )          | (1.5                                                                | )          | (18,182 | ) | (0.9 | ) | (30,749 | ) | (1.6 | ) |
| Realized gain on  investments                    |       | 730                                                        |       | 0.1                                                        |       | 544                                                                 |       | 0.1                                                                 |       | 879 |   | 0.0 |   | 2,030 |   | 0.1 |   |
| Interest and other  income                       |       | 277                                                        |       | 0.0                                                        |       | 502                                                                 |       | 0.1                                                                 |       | 748 |   | 0.0 |   | 1,442 |   | 0.1 |   |
| Loss on early debt  extinguishment               |       | —                                                     |       | —                                                     |       | —                                                              |       | —                                                              |       | (19,091 | ) | (0.9 | ) | — |   | — |   |
| Income tax expense                               |       | (22,990                                                    | )          | (3.1                                                       | )          | (18,533                                                             | )          | (2.8                                                                | )          | (57,355 | ) | (2.7 | ) | (53,144 | ) | (2.8 | ) |
| Equity in earnings of  unconsolidated subsidiary |       | 53                                                         |       | 0.0                                                        |       | 91                                                                  |       | 0.0                                                                 |       | 252 |   | 0.0 |   | 244 |   | 0.0 |   |
| Net income                                       |       | $                                                          | 36,762     |                                                       | 5.0        | %                                                                   | $          | 28,878                                                              |       | 4.3 | % | $ | 91,756 |   | 4.3 | % | $ | 81,968 |   | 4.3 | % |

 

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** **

**Unaudited Reconciliation of Adjusted EBITDA to CashFlows Provided by Operating Activities**

**(dollars in thousands)**

** **
| ** **                                           | ** ** | **Quarter ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **2010**                                       | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| Adjusted  EBITDA                                     |       | $                                              | 80,076     |                                                    | $          | 72,287 |   | $ | 232,905 |   | $ | 210,803 |   |
| Interest  paid                                       |       | (4,195                                         | )          | (9,773                                                  | )          | (16,385 | ) | (29,424 | ) |
| Change  in accounts receivable                       |       | (10,882                                        | )          | 7,574                                                   |       | (30,441 | ) | 8,448 |   |
| Change  in other operating assets/liabilities        |       | 11,164                                         |       | (2,956                                                  | )          | 18,192 |   | 16,000 |   |
| Equity  based compensation                           |       | 2,042                                          |       | 1,121                                                   |       | 4,587 |   | 2,875 |   |
| Excess  tax benefits from stock-based compensation   |       | (479                                           | )          | —                                                  |       | (13,977 | ) | — |   |
| Income  tax expense, net of change in deferred taxes |       | (24,092                                        | )          | (472                                                    | )          | (57,617 | ) | (3,155 | ) |
| Other                                                |       | 989                                            |       | 1,081                                                   |       | 2,101 |   | 4,254 |   |
| Cash  flows provided by operating activities         |       | $                                              | 54,623     |                                                    | $          | 68,862 |   | $ | 139,365 |   | $ | 209,801 |   |

 

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

**(dollars in thousands)**

 

**AMR**

** **
| ** **                                                   | ** ** | **Quarter ended********September 30, 2010** | ** ** | **Quarter ended********September 30, 2009** | ** ** | **Nine months ended********September 30, 2010** | ** ** | **Nine months ended********September 30, 2009** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                                 | ** ** | **% of net********revenue**                      | ** ** | ** **                                                          | ** ** | **% of net********revenue**                               | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net revenue                                                  |       | $                                                          | 352,226    |                                                       | 100.0      | %                                                                   | $          | 338,768                                                             |       | 100.0 | % | $ | 1,033,347 |   | 100.0 | % | $ | 1,010,718 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 221,426                                                    |       | 62.9                                                       |       | 211,921                                                             |       | 62.6                                                                |       | 641,079 |   | 62.0 |   | 628,015 |   | 62.1 |   |
| Operating expenses                                           |       | 79,749                                                     |       | 22.6                                                       |       | 75,677                                                              |       | 22.3                                                                |       | 233,827 |   | 22.6 |   | 222,296 |   | 22.0 |   |
| Insurance expense                                            |       | 9,379                                                      |       | 2.7                                                        |       | 10,417                                                              |       | 3.1                                                                 |       | 33,339 |   | 3.2 |   | 35,433 |   | 3.5 |   |
| Selling, general and  administrative expenses                |       | 10,463                                                     |       | 3.0                                                        |       | 9,410                                                               |       | 2.8                                                                 |       | 30,419 |   | 2.9 |   | 28,308 |   | 2.8 |   |
| Interest income from  restricted assets                      |       | (240                                                       | )          | (0.1                                                       | )          | (495                                                                | )          | (0.1                                                                | )          | (928 | ) | (0.1 | ) | (1,485 | ) | (0.1 | ) |
| Adjusted EBITDA                                              |       | $                                                          | 31,449     |                                                       | 8.9        | %                                                                   | $          | 31,838                                                              |       | 9.4 | % | $ | 95,611 |   | 9.3 | % | $ | 98,151 |   | 9.7 | % |
| Reconciliation of  Adjusted EBITDA to income from operations |       |                                                       |       |                                                       |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                              |       | 31,449                                                     |       | 8.9                                                        |       | 31,838                                                              |       | 9.4                                                                 |       | 95,611 |   | 9.3 |   | 98,151 |   | 9.7 |   |
| Depreciation and  amortization expense                       |       | (11,325                                                    | )          | (3.2                                                       | )          | (12,199                                                             | )          | (3.6                                                                | )          | (33,629 | ) | (3.3 | ) | (37,147 | ) | (3.7 | ) |
| Interest income from  restricted assets                      |       | (240                                                       | )          | (0.1                                                       | )          | (495                                                                | )          | (0.1                                                                | )          | (928 | ) | (0.1 | ) | (1,485 | ) | (0.1 | ) |
| Income from operations                                       |       | $                                                          | 19,884     |                                                       | 5.6        | %                                                                   | $          | 19,144                                                              |       | 5.7 | % | $ | 61,054 |   | 5.9 | % | $ | 59,519 |   | 5.9 | % |

 

**EmCare**

** **
| ** **                                                   | ** ** | **Quarter ended********September 30, 2010** | ** ** | **Quarter ended********September 30, 2009** | ** ** | **Nine months ended********September 30, 2010** | ** ** | **Nine months ended********September 30, 2009** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                                 | ** ** | **% of net********revenue**                      | ** ** | ** **                                                          | ** ** | **% of net********revenue**                               | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net revenue                                                  |       | $                                                          | 384,954    |                                                       | 100.0      | %                                                                   | $          | 326,288                                                             |       | 100.0 | % | $ | 1,091,991 |   | 100.0 | % | $ | 904,651 |   | 100.0 | % |
| Compensation and  benefits                                   |       | 301,837                                                    |       | 78.4                                                       |       | 255,704                                                             |       | 78.4                                                                |       | 858,944 |   | 78.7 |   | 704,772 |   | 77.9 |   |
| Operating expenses                                           |       | 11,274                                                     |       | 2.9                                                        |       | 9,833                                                               |       | 3.0                                                                 |       | 34,311 |   | 3.1 |   | 30,059 |   | 3.3 |   |
| Insurance expense                                            |       | 16,414                                                     |       | 4.3                                                        |       | 14,428                                                              |       | 4.4                                                                 |       | 40,466 |   | 3.7 |   | 40,273 |   | 4.5 |   |
| Selling, general and  administrative expenses                |       | 7,279                                                      |       | 1.9                                                        |       | 6,461                                                               |       | 2.0                                                                 |       | 22,479 |   | 2.1 |   | 18,878 |   | 2.1 |   |
| Interest income from  restricted assets                      |       | (477                                                       | )          | (0.1                                                       | )          | (587                                                                | )          | (0.2                                                                | )          | (1,503 | ) | (0.1 | ) | (1,983 | ) | (0.2 | ) |
| Adjusted EBITDA                                              |       | $                                                          | 48,627     |                                                       | 12.6       | %                                                                   | $          | 40,449                                                              |       | 12.4 | % | $ | 137,294 |   | 12.6 | % | $ | 112,652 |   | 12.5 | % |
| Reconciliation of  Adjusted EBITDA to income from operations |       |                                                       |       |                                                       |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                              |       | 48,627                                                     |       | 12.6                                                       |       | 40,449                                                              |       | 12.4                                                                |       | 137,294 |   | 12.6 |   | 112,652 |   | 12.5 |   |
| Depreciation and  amortization expense                       |       | (5,203                                                     | )          | (1.4                                                       | )          | (3,534                                                              | )          | (1.1                                                                | )          | (14,771 | ) | (1.4 | ) | (11,511 | ) | (1.3 | ) |
| Interest income from  restricted assets                      |       | (477                                                       | )          | (0.1                                                       | )          | (587                                                                | )          | (0.2                                                                | )          | (1,503 | ) | (0.1 | ) | (1,983 | ) | (0.2 | ) |
| Income from operations                                       |       | $                                                          | 42,947     |                                                       | 11.2       | %                                                                   | $          | 36,328                                                              |       | 11.1 | % | $ | 121,020 |   | 11.1 | % | $ | 99,158 |   | 11.0 | % |

 

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

 

***Consolidated***

 

Our results for the threemonths ended September 30, 2010 reflect an increase in net revenue of$72.1 million and an increase in net income of $7.9 million compared to thethree months ended September 30, 2009.  The increase in net incomewas attributable primarily to growth in income from operations and a decreasein interest expense.  Basic and dilutedearnings per share were $0.83 and $0.82, respectively, for the three monthsended September 30, 2010.  Basic and diluted earnings per share were$0.67 and $0.66, respectively, for the same period in 2009.

 

*Net revenue.* For thethree months ended September 30, 2010, we generated net revenue of $737.2million compared to $665.1million for the three months ended September 30,2009, representing an increase of 10.8%.  The increase is attributableprimarily to increases in revenues on existing contracts and increased volumefrom net new contracts and acquisitions.

 

*Adjusted EBITDA.*Adjusted EBITDAwas $80.1 million, or 10.9% of net revenue, for the three months endedSeptember 30, 2010 compared to $72.3 million, or 10.9% of net revenue forthe three months ended September 30, 2009.

 

*Interestexpense.* Interest expense for the three months endedSeptember 30, 2010 was $4.9 million compared to $10.3 million for thethree months ended September 30, 2009. The decrease was due to entering into our new credit facility in April 2010and the redemption of our senior subordinated notes which resulted in adecrease to our effective interest rate compared to our previous debtstructure.

 

*Income taxexpense. *Income tax expense increased by $4.5 million for thethree months ended September 30, 2010 compared to the same period in2009.  Our effective tax rate for the three months endedSeptember 30, 2010 was 38.5%, and 39.2% for the same period in 2009.

 

***AMR***

 

*Netrevenue. *Net revenue for the three months endedSeptember 30, 2010 was $352.2 million, an increase of $13.5 million, or4.0%, from $338.8 million for the same period in 2009.  The increase innet revenue was due primarily to an increase in net revenue per weightedtransport of 2.3%, or $7.6 million, and an increase of 1.7%, or $5.9 million,in weighted transport volume.  The increase in net revenue per weightedtransport was primarily due to growth in our managed transportation businesscombined with other non-transport related revenue increases.  Weighted transports increased 12,500 from thesame period last year.  This change wasdue to an increase in weighted transport volume in existing markets of 0.4%, or3,000 weighted transports, and an increase of 10,600 weighted transports fromour entry into new markets, which increases were offset partially by a decreaseof 1,100 weighted transports from the exit of certain markets.

 

*Compensationand benefits. *Compensation and benefit costs for the three monthsended September 30, 2010 were $221.4 million, or 62.9% of net revenue,compared to $211.9 million, or 62.6% of net revenue, for the same period in2009. Ambulance crew wages per ambulance unit hour increased by approximately5.0%, or $5.9 million attributable primarily to wage rate increases. While weighted transport volume increased from the same period last year,ambulance unit hours decreased by 0.3%, or $0.4 million, due primarily to theincreased efficiency in our ambulance unit hour deployment.  During the three months ended September 30,2010, we incurred $2.5 million in increased medical claim charges associatedwith several large claims in our self-insured health plans compared to the sameperiod in 2009.  We have historically notseen the number and types of large claims we incurred in the third quarter of2010.

 

*Operatingexpenses. *Operating expenses for the three months endedSeptember 30, 2010 were $79.7 million, or 22.6% of net revenue, comparedto $75.7 million, or 22.3% of net revenue, for the three months endedSeptember 30, 2009.  The change is due primarily to increased fuelcosts of $1.0 million, increased costs associated with growth in our managedtransportation business of $0.9 million, and increased costs associated withour entry into new markets of $0.8 million.

 

*Insuranceexpense. *Insurance expense for the three months endedSeptember 30, 2010 was $9.4 million, or 2.7% of net revenue, compared to$10.4 million, or 3.1% of net revenue, for the same period in 2009.  Werecorded a reduction of prior year insurance provisions of $3.0 million duringthe three months ended September 30, 2010 and $2.1 million during thethree months ended September 30, 2009.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended September 30, 2010 was$10.5 million, or 3.0% of net revenue, compared to $9.4 million, or 2.8% of netrevenue, for the three months ended September 30, 2009.

 

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*Depreciationand amortization. *Depreciation and amortization expense for thethree months ended September 30, 2010 was $11.3 million, or 3.2% of netrevenue, compared to $12.2 million, or 3.6% of net revenue, for the same periodin 2009.  The decrease was due primarilyto AMR’s ability to utilize fewer ambulances to service its existing contractsand the timing of replacing fully depreciated assets.

 

***EmCare***

 

*Netrevenue. *Net revenue for the three months endedSeptember 30, 2010 was $385.0 million, an increase of $58.7 million, or18.0%, from $326.3 million for the three months ended September 30, 2009.The increase was due primarily to an increase in patient encounters from netnew hospital contracts and net revenue increases in existing contracts.Following June 30, 2009, we added 39 net new contracts which accounted fora net revenue increase of $51.4 million for the three months endedSeptember 30, 2010.  Of the 39 net new contracts added since June 30,2009, 28 were added in 2009 resulting in an incremental increase in 2010 netrevenue of $43.1 million.  EmCare hasadded 54 new contracts and terminated 43 contracts to date in 2010, resultingin an increase in net revenue of $8.3 million for the three months ended September 30,2010.   Net revenue under our “samestore” contracts (contracts in existence for the entirety of both periods)increased $4.0 million, or 1.4%, for the three months ended September 30,2010.  The change is due to a 2.3% increase in revenue per weightedpatient encounter, offset partially by a decrease in same store weightedpatient encounters of 0.9% from the prior period.

 

*Compensationand benefits. *Compensation and benefits costs for the three monthsended September 30, 2010 were $301.8 million, or 78.4% of net revenue,compared to $255.7 million, or 78.4% of net revenue, for the same period in2009. Provider compensation and benefits costs increased $44.1 million from netnew contract additions. Same store provider compensation and benefits costswere $2.5 million below the prior period due primarily to a 0.9% decrease insame store weighted patient encounters. Non-provider compensation and total benefits costs increased by $4.7million due primarily to our recent acquisitions and $0.5 million due toincreased medical claim charges associated with our self-insured health plans.

 

*Operatingexpenses. *Operating expenses for the three months endedSeptember 30, 2010 were $11.3 million, or 2.9% of net revenue, compared to$9.8 million, or 3.0% of net revenue, for the same period in 2009. Operating expenses increased $1.5 million due primarily to higher collectionagency and billing fees incurred in connection with our net new contracts addedsince June 30, 2009 and the expansion of our anesthesiology and radiologybusinesses.

 

*Insuranceexpense. *Professional liability insurance expense for thethree months ended September 30, 2010 was $16.4 million, or 4.3% of netrevenue, compared to $14.4 million, or 4.4% of net revenue, for the threemonths ended September 30, 2009.  Werecorded an increase in prior year insurance provisions of $3.2 million for thethree months ended September 30, 2010 and $1.3 million for the same periodin 2009.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the three months ended September 30, 2010 was$7.3 million, or 1.9% of net revenue, compared to $6.5 million, or 2.0% of netrevenue, for the three months ended September 30, 2009.

 

*Depreciationand amortization. *Depreciation and amortization expense for thethree months ended September 30, 2010 was $5.2 million, or 1.4% of netrevenue, compared to $3.5 million, or 1.1% of net revenue, for the three monthsended September 30, 2009.  The $1.7million increase was due primarily to additional amortization expenseassociated with contract intangible assets recorded on acquisitions completedsubsequent to June 30, 2009.

 

***Nine months ended September 30, 2010 compared to the nine monthsended September 30, 2009***

 

***Consolidated***

 

Our results for the ninemonths ended September 30, 2010 reflect an increase in net revenue of$210.0 million and an increase in net income of $9.8 million compared to thenine months ended September 30, 2009. The increase in net income is attributable primarily to growth in incomefrom operations and a decrease in interest expense, partially offset by theloss on early debt extinguishment.  Basicand diluted earnings per share were $2.09 and $2.06, respectively, for the ninemonths ended September 30, 2010. Basic and diluted earnings per share were$1.93 and $1.89, respectively, for the same period in 2009.  The basic and diluted earnings per share forthe nine months ended September 30, 2010 include the impact from the losson early debt extinguishment and a reserve recorded in connection with atentative legal settlement relating to certain AMR affiliates in New York.  These items were recorded in the secondquarter of 2010 and account for basic and diluted earnings per share of $0.31and $0.30, respectively, for the nine months ended September 30, 2010.

 

*Netrevenue. *For the nine months ended September 30, 2010,net revenue was $2,125.3 million compared to $1,915.4 million for the ninemonths ended September 30, 2009, representing an increase of 11.0%. Theincrease is attributable primarily to 

 

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increases in revenues onexisting contracts and increased volume from net new contracts andacquisitions.

 

*AdjustedEBITDA. *Adjusted EBITDA was $232.9 million, or 11.0% of netrevenue, for the nine months ended September 30, 2010 compared to $210.8million, or 11.0% of net revenue for the nine months ended September 30,2009.

 

*Interestexpense. *Interest expense for the nine months endedSeptember 30, 2010 was $18.2 million compared to $30.7 million for thenine months ended September 30, 2009.  The decrease was due toentering into our new credit facility in April 2010 and the redemption ofour senior subordinated notes which resulted in a decrease to our effectiveinterest rate compared to our previous debt structure.

 

*Income taxexpense. *Income tax expense increased $4.2 million for thenine months ended September 30, 2010, compared to the same period in2009.  Our effective tax rate for the nine months ended September 30,2010 was 38.5% compared with 39.4% for the same period in 2009.

 

***AMR***

 

*Netrevenue. *Net revenue for the nine months endedSeptember 30, 2010 was $1,033.3 million, an increase of $22.6 million, or2.2%, from $1,010.7 million for the same period in 2009.  The increase in net revenue was due primarilyto an increase in net revenue per weighted transport of 3.2%, or $32.2 million,partially offset by a decrease of 0.9%, or $9.6 million, in weighted transportvolume.  The increase in net revenue perweighted transport of 3.2% was due to a 1.8% increase in rates with theremaining increase coming from growth in our managed transportation businesscombined with other non-transport related revenue increases.  Weighted transports decreased 20,700 from thesame period last year.  This change was due to a decrease in weightedtransport volume in existing markets of 1.3%, or 28,400 weighted transports,due to the exit of certain contracts in existing markets, and a decrease of13,500 weighted transports from the exit of certain markets, which decreaseswere partially offset by an increase of 21,200 weighted transports from ourentry into new markets.

 

*Compensationand benefits. *Compensation and benefit costs for the nine monthsended September 30, 2010 were $641.1 million, or 62.0% of net revenue,compared to $628.0 million, or 62.1% of net revenue, for the same period in2009. Ambulance crew wages per ambulance unit hour increased by approximately4.7%, or $16.0 million attributable primarily to annual wage rateincreases.   Ambulance unit hours decreased period over period by2.2%, or $7.8 million, due primarily to the reduction in volume in existingmarkets and increased efficiency in our ambulance unit hour deployment.  During the nine months ended September 30,2010, we incurred $2.5 million in increased medical claim charges associatedwith several large claims in our self-insured health plans compared to the sameperiod in 2009.  We have historically notseen the number and types of large claims we incurred in the third quarter of2010.

 

*Operatingexpenses. *Operating expenses for the nine months endedSeptember 30, 2010 were $233.8 million, or 22.6% of net revenue, comparedto $222.3 million, or 22.0% of net revenue, for the nine months endedSeptember 30, 2009.  The change isdue primarily to increased fuel costs of $3.8 million, increased costsassociated with growth in our managed transportation business of $4.5 million,and a $3.1 million reserve recorded in connection with a previously disclosedtentative legal settlement relating to certain AMR affiliates in New York.

 

*Insuranceexpense. *Insurance expense for the nine months endedSeptember 30, 2010 was $33.3 million, or 3.2% of net revenue, compared to$35.4 million, or 3.5% of net revenue, for the same period in 2009.  Werecorded a reduction of prior year insurance provisions of $2.9 million duringthe nine months ended September 30, 2010 and $0.2 million during the sameperiod in 2009.

 

*Selling,general and administrative. *Selling, general andadministrative expense for the nine months ended September 30, 2010 was$30.4 million, or 2.9% of net revenue, compared to $28.3 million, or 2.8% ofnet revenue, for the nine months ended September 30, 2009.

 

*Depreciationand amortization. *Depreciation and amortization expense for thenine months ended September 30, 2010 was $33.6 million, or 3.3% of netrevenue, compared to $37.1 million, or 3.7% of net revenue, for the same periodin 2009.  The decrease was due to a $2.6 million reduction indepreciation expense related primarily to AMR’s ability to utilize fewerambulances to service its existing contracts and the timing of replacing fullydepreciated assets.  Amortization expensealso decreased by $0.9 million as certain contract-related intangible assetswere fully amortized.

 

***EmCare***

 

*Netrevenue. *Net revenue for the nine months endedSeptember 30, 2010 was $1,092.0 million, an increase of $187.3 million, or20.7%, from $904.7 million for the nine months ended September 30, 2009.The increase was due primarily to an increase in 

 

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patient encounters from netnew hospital contracts and net revenue increases in existing contracts.Following December 31, 2008, we added 64 net new contracts which accountedfor a net revenue increase of $137.1 million for the nine months endedSeptember 30, 2010.  Of the 64 net new contracts added since December 31,2008, 53 were added in 2009 resulting in an incremental increase in 2010 netrevenue of $117.8 million.  EmCare hasadded 54 new contracts and terminated 43 contracts to date in 2010, resultingin an increase in net revenue of $19.3 million for the nine months ended September 30,2010.   Net revenue under our “samestore” contracts (contracts in existence for the entirety of both periods)increased $37.9 million, or 5.3%, for the nine months ended September 30,2010.  The change is due to a 4.0% increase in revenue per weightedpatient encounter and an increase in same store weighted patient encounters of1.3% over the prior period.  The number ofcurrent period same store weighted patient encounters increased 1.3% comparedto the prior period notwithstanding increased volume during 2009 from the H1N1virus and from a milder flu season in 2010.

 

*Compensationand benefits. *Compensation and benefits costs for the nine monthsended September 30, 2010 were $858.9 million, or 78.7% of net revenue,compared to $704.8 million, or 77.9% of net revenue, for the same period in2009. Provider compensation and benefits costs increased $113.0 million fromnet new contract additions. Same store provider compensation and benefits costswere $25.9 million over the prior period due to a 4.1% increase in providercompensation per weighted patient encounter and a 1.3% increase in same storeweighted patient encounters.  Non-providercompensation and total benefits costs increased by $16.0 million due primarilyto our recent acquisitions and $0.5 million due to increased medical claim chargesassociated with our self-insured health plans.

 

*Operatingexpenses.* Operating expenses for the nine months endedSeptember 30, 2010 were $34.3 million, or 3.1% of net revenue, compared to$30.1 million, or 3.3% of net revenue, for the same period in 2009. Operating expenses increased $4.2 million due primarily to higher collectionagency and billing fees incurred in connection with our net new contracts addedsince December 31, 2008 and the expansion of our anesthesiology andradiology businesses.

 

*Insuranceexpense.* Professional liability insurance expense forthe nine months ended September 30, 2010 was $40.5 million, or 3.7% of netrevenue, compared to $40.3 million, or 4.5% of net revenue, for the nine monthsended September 30, 2009. We recorded an increase of prior year insuranceprovisions of $3.2 million during the nine months ended September 30, 2010and $4.5 million during the same period in 2009.

 

*Selling,general and administrative.* Selling, general andadministrative expense for the nine months ended September 30, 2010 was$22.5 million, or 2.1% of net revenue, compared to $18.9 million, or 2.1% ofnet revenue, for the nine months ended September 30, 2009.  The $3.6million increase was due primarily to growth in the number of net new contractssince December 31, 2008.

 

*Depreciationand amortization.* Depreciation and amortization expense for thenine months ended September 30, 2010 was $14.8 million, or 1.4% of netrevenue, compared to $11.5 million, or 1.3% of net revenue, for the nine monthsended September 30, 2009.  The $3.3million increase was due primarily to additional amortization expenseassociated with contract intangible assets recorded on acquisitions completedsubsequent to December 31, 2008.

 

**CriticalAccounting Policies**

 

For a discussion ofaccounting policies that we consider critical to our business operations andthe understanding of our results of operations that affect the more significantjudgments and estimates used in the preparation of our unaudited condensedconsolidated financial statements, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Policies” contained in our annual report on Form 10-Kfor the year ended December 31, 2009 and incorporated by reference herein.As of September 30, 2010, there were no significant changes in ourcritical accounting policies or estimation procedures.

 

**Liquidityand Capital Resources**

 

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

 

On April 8, 2010, wecompleted the financing of new senior secured credit facilities, which isfurther described in note 5 of the notes accompanying the unauditedconsolidated financial statements.  Inconjunction with completing this financing, we repaid the balance outstandingon the previous senior secured term loan and redeemed our 10% seniorsubordinated notes.  These transactionsreduce our effective interest rate compared to the rate under our previous debtstructure.

 

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We believe our cash and cashequivalents, cash provided by our operating activities, and amounts availableunder our senior secured credit facility will meet the liquidity requirementsof our business through at least the next 12 months. We have available to us,upon compliance with customary conditions, $150.0 million under the revolvingcredit facility, less outstanding letters of credit of $47.3 million at September 30,2010.

 

**Cash Flow**

 

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

 
| ** **                       | ** ** | **Nine months ended********September 30, 2010** | ** ** | **Nine months ended********September 30, 2009** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| Net  cash provided by (used in): |       |                                                                |       |                                                                |       |
| Operating  activities            |       | $                                                                   | 139,365    |                                                                | $          | 209,801 |   |
| Investing  activities            |       | (80,785                                                             | )          | (31,674                                                             | )          |
| Financing  activities            |       | (45,752                                                             | )          | 6,805                                                               |       |
|                                  |            |                                                                     |            |                                                                     |            |  |  |

 

*Operatingactivities*. Net cash provided by operating activities was$139.4 million for the nine months ended September 30, 2010 compared to$209.8 million for the same period last year.  Cash paid for income taxes increased$45.7 million due to utilization of our net operating loss carryforwards in2009.  Trade and other accountsreceivable decreased cash flows from operations $30.4 million during the ninemonths ended September 30, 2010 primarily due to revenue growth andincreased days sales outstanding, or DSO, in our AMR segment due to temporaryMedicare and Medicaid delays and the timing of receipts for our expandedmanaged transportation business, which represented 3 days of AMR’s DSO as of September 30,2010.

 

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 reductionssince June 30, 2009 shown below are due to additional collections onaccounts receivable as a result of continued billing and collection processenhancements at both AMR and EmCare.  Thefollowing table outlines our DSO by segment and in total excluding the impactof acquisitions completed within the specific quarter:

 
| ** ** | ** ** | **Q3 2010** | ** ** | **Q2 2010** | ** ** | **Q1 2010** | ** ** | **Q4 2009** | ** ** | **Q3 2009** | ** ** | **Q2 2009** | ** ** |
|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 70               |       | 68               |       | 66               |       | 68               |       | 70               |       | 73               |       |
| EmCare     |       | 54               |       | 55               |       | 56               |       | 60               |       | 58               |       | 61               |       |
| EMSC       |       | 61               |       | 62               |       | 61               |       | 64               |       | 64               |       | 67               |       |

 

*Investingactivities*.  Net cash used in investing activities was$80.8 million for the nine months ended September 30, 2010 compared to$31.7 million for the same period in 2009.   The increase in cash used ininvesting activities relates to $51.2 million used in the acquisition ofbusinesses during 2010.  Additionally,cash used for insurance collateral requirements increased by $13.5 millionduring the nine months ended September 30, 2010 compared to the sameperiod in 2009.  These changes in cashused in investing activities were offset by an increase in cash provided byother investing activities of $11.8 million during the nine months ended September 30,2010 compared to the same period in 2009 due primarily to the return ofperformance bond collateral.

 

*Financingactivities.* For the nine months ended September 30, 2010,net cash used in financing activities was $45.8 million compared to $6.8million in net cash provided by financing activities for the nine months endedSeptember 30, 2009.  During the ninemonths ended September 30, 2010 we incurred $12.0 million in debt issuancecosts related to our new credit facility and used $25.0 million to reduce ourtotal outstanding debt.  We also incurred$14.5 million in cash payments related to the redemption of our senior subordinatednotes during the nine months ended September 30, 2010.  This is offset by the cash flow benefitrelated to tax deductions for stock-based compensation during the nine monthsended September 30, 2010.  At September 30,there were no amounts outstanding under our revolving credit facility.

 

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

 

Our primary exposure tomarket risk consists of changes in interest rates on certain of our borrowingsand changes in fuel prices. While we have from time to time entered intotransactions to mitigate our exposure to both changes in interest rates and fuelprices, we do not use these instruments for speculative or trading purposes.

 

We manage our exposure tochanges in market interest rates and fuel prices and, as appropriate, usehighly effective derivative instruments to manage well-defined risk exposures.  As of September 30, 2010, we were partyto a series of fuel hedge transactions with a major financial institution underone master agreement. Each of the transactions effectively fixes the cost ofdiesel fuel at prices ranging from $3.00 to $3.29 per gallon. We purchase thediesel fuel at the market rate and periodically settle with our counterpartyfor the difference between the national average price for the period publishedby the Department of Energy and the agreed upon fixed price. The transactionsfix the price for a total of 5.9 million gallons, which representapproximately 32% of our total estimated usage over the hedge period, and arespread over periods from October 2010 through June 2012. As ofDecember 31, 2009, we were party to a series of transactions under the samemaster agreement with fuel prices ranging from $2.91 to $3.15 per gallon for2.7 million gallons of fuel, or 26% of our total estimated usage at that time.

 

As of September 30,2010, we had $423.5 million of debt excluding capital leases, of which $422.3million was variable rate debt under our credit facility. An increase ordecrease in interest rates of 0.2% will impact our interest costs by $0.8million annually.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

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

 

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

 

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

 

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

 

There were no changes in ourinternal control over financial reporting that occurred during our fiscalquarter ended September 30, 2010 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**PART II. OTHER INFORMATION**

**FOR THE THREE AND NINE MONTHS ENDED**

**SEPTEMBER 30, 2010**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

As referenced in our AnnualReport on Form 10-K for the year ended December 31, 2009, a lawsuit purportingto be a class action was commenced against AMR in Spokane, Washington inWashington State Court, Spokane County. In September 2010, we reached anagreement with class representatives to resolve the claims for approximately$1.1 million, which amount includes all remaining refunds due to class membersand attorney’s fees for the plaintiffs’ counsel.  The settlement is expected to be approved andfinalized by the court by the end of January 2011.

 

For additional informationregarding legal proceedings, please refer to note 7, under the caption “Commitmentsand Contingencies” of the notes accompanying the consolidated financialstatements included herein, to our Annual Report on Form 10-K filed withthe SEC on February 19, 2010 and to our Quarterly Reports on Form 10-Qfiled with the SEC on May 4, 2010 and August 5, 2010.

 

**ITEM 1A.RISK FACTORS**

 

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

 

**ITEM 2.ISSUER PURCHASES OF EQUITY SECURITIES**

** **
| **Period**                                         | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  Per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number (or  Approximate Dollar  Value) of Shares that may  yet be Purchased under  the Plans or Programs** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                               |       |                                             |       |                                         |       |                                                                                                                             |       |                                                                                                                                                                                  |       |
| July 1,  2010 through July 31, 2010      |       | —                                           |       | —                                       |       | —                                                                                                                           |       | N/A                                                                                                                                                                                   |       |
| August 1,  2010 through August 31, 2010       |       | —                                           |       | —                                       |       | —                                                                                                                           |       | N/A                                                                                                                                                                                   |       |
| September 1,  2010 through September 30, 2010 |       | 23,437                                           | (1)        | $                                            | 54.99      |                                                                                                                             | —     |                                                                                                                                                                                  | N/A        |   |
|                                                    |            |                                                  |            |                                              |            |                                                                                                                                  |            |                                                                                                                                                                                       |            |  |

 

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(1)                                  Representsshares delivered to the Company from shares of restricted stock under the Company’sAmended and Restated Long-Term Incentive Plan held bycertain employees upon vesting for the purpose of covering the recipients’ taxwithholding obligation.

 

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**ITEM 6.EXHIBITS**

 
| 10.14.4 |   | Form of 2007 LTIP  Revised Named Executive Officer Restricted Stock Agreement.*                                                                                                                                                                                                                     |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                     |
| 10.14.5 |   | Form of 2007 LTIP  Revised Restricted Stock Agreement.*                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                     |
| 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

**   Furnished with this Report

 

32

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Table of Contents

 

**SIGNATURES**

 

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

 
|       |                  |       | **EMERGENCY  MEDICAL SERVICES CORPORATION** |
|------------|-----------------------|------------|---------------------------------------------|
|       |                  |       | ** **                                  |
|       |                  |       | (registrant)                                |
|       |                  |       |                                        |
|       | November 4, 2010 |       | By:                                         | /s/ William A. Sanger |
|       | Date                  |       |                                        | William A. Sanger |
|       |                  |       |                                        | Chairman and Chief  Executive Officer |
|       |                  |       |                                        |
|       |                  |       | By:                                         | /s/ Randel G. Owen |
|       |                  |       |                                        | Randel G. Owen |
|       |                  |       |                                        | Chief Financial Officer  and Executive Vice President |
|       |                  |       |                                        |
| ** ** | ** **            | ** ** | **EMERGENCY  MEDICAL SERVICES L.P.**        |
|       |                  |       | (registrant)                                |
|       |                  |       |                                        |
|       |                  |       | By:                                         | Emergency Medical Services  Corporation, its General Partner |
|       |                  |       |                                        |
|       | November 4, 2010 |       | By:                                         | /s/ William A. Sanger |
|       | Date                  |       |                                        | William A. Sanger |
|       |                  |       |                                        | Chairman and Chief  Executive Officer |
|       |                  |       |                                        |
|       |                  |       | By:                                         | /s/ Randel G. Owen |
|       |                  |       |                                        | Randel G. Owen |
|       |                  |       |                                        | Chief Financial Officer  and Executive Vice President |

 

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Table of Contents

 

**EXHIBIT INDEX**

** **
| 10.14.4 |   | Form of 2007 LTIP  Revised Named Executive Officer Restricted Stock Agreement.*                                                                                                                                                                                                                     |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                     |
| 10.14.5 |   | Form of 2007 LTIP  Revised Restricted Stock Agreement.*                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                     |
| 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

**   Furnished with this Report

 

34

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