Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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**(Markone)**

 

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

 

**For the quarterly period ended September 30,2009**

 

**Or**

 

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

 

**For the transition period from               to               **

 

**Commission file numbers:**

**001-32701**

**333-127115**

 

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**EMERGENCY MEDICAL SERVICES CORPORATION**

**EMERGENCY MEDICAL SERVICES L.P.**

(Exact name of Registrants as Specified in their Charters)

 

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

 

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

 

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

**Not applicable**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x No o

 

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

 

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

 

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

 

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

 

Shares of class Acommon stock outstanding at October 30, 2009 — 19,865,513; shares of classB common stock outstanding at October 30, 2009 — 133,957; LPexchangeable units outstanding at October 30, 2009 — 22,916,088.

 

 

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**INDEXTO QUARTERLY REPORT**

**ONFORM 10-Q**

**FORTHE THREE AND NINE MONTHS ENDED**

**SEPTEMBER30, 2009**

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

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART I. FINANCIAL INFORMATION**

**FORTHE THREE AND NINE MONTHS ENDED**

**SEPTEMBER30, 2009**

 

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

 

**EmergencyMedical Services Corporation**

**Consolidated Statements of Operationsand Comprehensive Income**

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

** **
| ** **                                                                      | ** ** | **Quarter ended**      | ** ** | **Nine months ended**  | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                      | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                      | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net revenue                                                                     |       | $                      | 665,056    |                   | $          | 679,328 |   | $ | 1,915,369 |   | $ | 1,816,193 |   |
| Compensation and benefits                                                       |       | 467,625                |       | 426,755                |       | 1,332,787 |   | 1,221,607 |   |
| Operating expenses                                                              |       | 85,510                 |       | 135,087                |       | 252,355 |   | 302,014 |   |
| Insurance expense                                                               |       | 24,845                 |       | 25,109                 |       | 75,706 |   | 63,640 |   |
| Selling, general and administrative expenses                                    |       | 15,871                 |       | 20,509                 |       | 47,186 |   | 50,621 |   |
| Depreciation and amortization expense                                           |       | 15,733                 |       | 16,993                 |       | 48,658 |   | 52,156 |   |
| Income from operations                                                          |       | 55,472                 |       | 54,875                 |       | 158,677 |   | 126,155 |   |
| Interest income from restricted assets                                          |       | 1,082                  |       | 1,623                  |       | 3,468 |   | 5,113 |   |
| Interest expense                                                                |       | (10,280                | )          | (11,117                | )          | (30,749 | ) | (31,387 | ) |
| Realized gain on investments                                                    |       | 544                    |       | 768                    |       | 2,030 |   | 3,011 |   |
| Interest and other income                                                       |       | 502                    |       | 508                    |       | 1,442 |   | 1,097 |   |
| Income  before income taxes and equity in earnings of unconsolidated subsidiary |       | 47,320                 |       | 46,657                 |       | 134,868 |   | 103,989 |   |
| Income tax expense                                                              |       | (18,533                | )          | (18,138                | )          | (53,144 | ) | (40,170 | ) |
| Income  before equity in earnings of unconsolidated subsidiary                  |       | 28,787                 |       | 28,519                 |       | 81,724 |   | 63,819 |   |
| Equity in earnings of unconsolidated subsidiary                                 |       | 91                     |       | 98                     |       | 244 |   | 152 |   |
| Net income                                                                      |       | 28,878                 |       | 28,617                 |       | 81,968 |   | 63,971 |   |
| Other comprehensive income (loss), net of tax:                                  |       |                   |       |                   |       |   |   |   |   |
| Unrealized holding gains (losses) during the period                             |       | 761                    |       | (869                   | )          | (1,773 | ) | (2,629 | ) |
| Unrealized  gains (losses) on derivative financial instruments                  |       | 1,105                  |       | 205                    |       | 2,372 |   | (555 | ) |
| Comprehensive income                                                            |       | $                      | 30,744     |                   | $          | 27,953 |   | $ | 82,567 |   | $ | 60,787 |   |
|                                                                            |       |                   |       |                   |       |   |   |   |   |
| Basic earnings per common share                                                 |       | $                      | 0.67       |                   | $          | 0.69 |   | $ | 1.93 |   | $ | 1.54 |   |
| Diluted earnings per common share                                               |       | $                      | 0.66       |                   | $          | 0.66 |   | $ | 1.89 |   | $ | 1.49 |   |
| Weighted average common shares outstanding, basic                               |       | 42,809,582             |       | 41,637,765             |       | 42,366,065 |   | 41,594,270 |   |
| Weighted average common shares outstanding, diluted                             |       | 43,769,788             |       | 43,062,364             |       | 43,402,818 |   | 43,058,904 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Consolidated Balance Sheets**

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

** **
| ** **                                                                                                                                                      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                      | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| ** **                                                                                                                                                      | ** ** | **(Unaudited)**        | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                      | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current  assets:                                                                                                                                                |       |                   |       |                  |       |
| Cash  and cash equivalents                                                                                                                                      |       | $                      | 331,105    |                  | $          | 146,173 |   |
| Insurance  collateral                                                                                                                                           |       | 30,192                 |       | 55,052                |       |
| Trade  and other accounts receivable, net                                                                                                                       |       | 464,241                |       | 472,501               |       |
| Parts  and supplies inventory                                                                                                                                   |       | 21,226                 |       | 21,160                |       |
| Prepaids  and other current assets                                                                                                                              |       | 40,657                 |       | 28,378                |       |
| Current  deferred tax assets                                                                                                                                    |       | 17,874                 |       | 91,910                |       |
| Total  current assets                                                                                                                                           |       | 905,295                |       | 815,174               |       |
| Non-current  assets:                                                                                                                                            |       |                   |       |                  |       |
| Property,  plant and equipment, net                                                                                                                             |       | 123,520                |       | 124,869               |       |
| Intangible  assets, net                                                                                                                                         |       | 73,034                 |       | 76,141                |       |
| Non-current  deferred tax assets                                                                                                                                |       | —                 |       | 36,351                |       |
| Insurance  collateral                                                                                                                                           |       | 138,662                |       | 119,644               |       |
| Goodwill                                                                                                                                                        |       | 337,433                |       | 346,013               |       |
| Other  long-term assets                                                                                                                                         |       | 22,067                 |       | 23,027                |       |
| Total  assets                                                                                                                                                   |       | $                      | 1,600,011  |                  | $          | 1,541,219 |   |
| **Liabilities and Equity**                                                                                                                                      | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                                                           |       |                   |       |                  |       |
| Accounts  payable                                                                                                                                               |       | $                      | 67,844     |                  | $          | 57,318 |   |
| Accrued  liabilities                                                                                                                                            |       | 262,866                |       | 257,918               |       |
| Current  portion of long-term debt                                                                                                                              |       | 3,462                  |       | 4,905                 |       |
| Total  current liabilities                                                                                                                                      |       | 334,172                |       | 320,141               |       |
| Long-term  debt                                                                                                                                                 |       | 451,751                |       | 453,600               |       |
| Non-current  deferred tax liability                                                                                                                             |       | 5,673                  |       | —                |       |
| Insurance  reserves and other long-term liabilities                                                                                                             |       | 167,013                |       | 228,439               |       |
| Total  liabilities                                                                                                                                              |       | 958,609                |       | 1,002,180             |       |
| Equity:                                                                                                                                                         |       |                   |       |                  |       |
| Preferred  stock ($0.01 par value; 20,000,000 shares authorized, 0 issued and  outstanding)                                                                     |       | —                 |       | —                |       |
| Class A  common stock ($0.01 par value; 100,000,000 shares authorized, 19,823,327****and 9,606,766 issued and outstanding in 2009 and 2008,  respectively) |       | 198                    |       | 96                    |       |
| Class B  common stock ($0.01 par value; 40,000,000 shares authorized, 133,957 and  142,545 issued and outstanding in 2009 and 2008, respectively)          |       | 1                      |       | 1                     |       |
| Class B  special voting stock ($0.01 par value; 1 share authorized, issued and  outstanding in 2009 and 2008)                                              |       | —                 |       | —                |       |
| LP  exchangeable units (22,916,088 and 32,107,500 shares issued and outstanding  in 2009 and 2008, respectively)                                                |       | 151,568                |       | 212,361               |       |
| Additional  paid-in capital                                                                                                                                     |       | 204,857                |       | 124,370               |       |
| Retained  earnings                                                                                                                                              |       | 285,771                |       | 203,803               |       |
| Accumulated  other comprehensive loss                                                                                                                           |       | (993                   | )          | (1,592                | )          |
| Total  equity                                                                                                                                                   |       | 641,402                |       | 539,039               |       |
| Total  liabilities and equity                                                                                                                                   |       | $                      | 1,600,011  |                  | $          | 1,541,219 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Consolidated Statements of Cash Flows**

**(unaudited;in thousands)**

** **
| ** **                                                                         | ** ** | **Quarter  ended September 30,** | ** ** | **Nine  months ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                              | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Cash Flows from Operating Activities**                                           | ** ** | ** **                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income                                                                        |       | $                                     | 28,878     |                                                | $          | 28,617 |   | $ | 81,968 |   | $ | 63,971 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                  |       |                                                |       |   |   |   |   |
| Depreciation  and amortization                                                     |       | 16,242                                |       | 17,465                                              |       | 49,983 |   | 53,734 |   |
| Loss  (gain) on disposal of property, plant and equipment                          |       | 33                                    |       | (41                                                 | )          | 69 |   | (144 | ) |
| Equity-based  compensation expense                                                 |       | 1,121                                 |       | 717                                                 |       | 2,875 |   | 1,841 |   |
| Equity  in earnings of unconsolidated subsidiary                                   |       | (91                                   | )          | (98                                                 | )          | (244 | ) | (152 | ) |
| Dividends  received                                                                |       | —                                |       | —                                              |       | 713 |   | — |   |
| Deferred  income taxes                                                             |       | 18,061                                |       | 17,827                                              |       | 49,989 |   | 36,449 |   |
| Changes  in operating assets/liabilities, net of acquisitions:                     |       |                                  |       |                                                |       |   |   |   |   |
| Trade  and other accounts receivable                                               |       | 7,574                                 |       | (40,747                                             | )          | 8,448 |   | (54,499 | ) |
| Parts  and supplies inventory                                                      |       | 41                                    |       | (53                                                 | )          | (66 | ) | (67 | ) |
| Prepaids  and other current assets                                                 |       | (6,270                                | )          | (2,763                                              | )          | (1,580 | ) | (7,401 | ) |
| Accounts  payable and accrued liabilities                                          |       | (1,007                                | )          | 52,316                                              |       | 10,613 |   | 42,027 |   |
| Insurance  accruals                                                                |       | 4,280                                 |       | 1,807                                               |       | 7,033 |   | (5,333 | ) |
| Net  cash provided by operating activities                                         |       | 68,862                                |       | 75,047                                              |       | 209,801 |   | 130,426 |   |
| **Cash Flows from Investing Activities**                                           | ** ** | ** **                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases  of property, plant and equipment                                        |       | (13,576                               | )          | (11,574                                             | )          | (33,661 | ) | (21,754 | ) |
| Proceeds  from sale of property, plant and equipment                               |       | 41                                    |       | 127                                                 |       | 101 |   | 347 |   |
| Acquisition  of businesses, net of cash received                                   |       | (1,241                                | )          | (8,368                                              | )          | (1,374 | ) | (28,325 | ) |
| Net  change in insurance collateral                                                |       | 6,002                                 |       | 1,127                                               |       | 4,069 |   | 15,983 |   |
| Other  investing activities                                                        |       | (166                                  | )          | 764                                                 |       | (809 | ) | 3,392 |   |
| Net  cash used in investing activities                                             |       | (8,940                                | )          | (17,924                                             | )          | (31,674 | ) | (30,357 | ) |
| **Cash Flows from Financing Activities**                                           | ** ** | ** **                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| EMSC  issuance of class A common stock                                             |       | 2,437                                 |       | 1,875                                               |       | 7,160 |   | 1,920 |   |
| Repayments  of capital lease obligations and other debt                            |       | (1,214                                | )          | (1,285                                              | )          | (3,826 | ) | (18,006 | ) |
| Increase  in bank overdrafts                                                       |       | 2,821                                 |       | 4,950                                               |       | 3,471 |   | 8,785 |   |
| Borrowings  under revolving credit facility                                        |       | —                                |       | —                                              |       | — |   | 14,000 |   |
| Net  cash provided by financing activities                                         |       | 4,044                                 |       | 5,540                                               |       | 6,805 |   | 6,699 |   |
| Change  in cash and cash equivalents                                               |       | 63,966                                |       | 62,663                                              |       | 184,932 |   | 106,768 |   |
| Cash  and cash equivalents, beginning of period                                    |       | 267,139                               |       | 73,019                                              |       | 146,173 |   | 28,914 |   |
| Cash  and cash equivalents, end of period                                          |       | $                                     | 331,105    |                                                | $          | 135,682 |   | $ | 331,105 |   | $ | 135,682 |   |
|                                                                               |       |                                  |       |                                                |       |   |   |   |   |
| **Non-cash Activities**                                                            | ** ** | ** **                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital  lease obligations incurred                                                |       | $                                     | —     |                                                | $          | — |   | $ | — |   | $ | 682 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

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**EmergencyMedical Services Corporation**

**Notes to Unaudited ConsolidatedFinancial Statements**

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

 

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

 

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

 

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, 2009 are not necessarilyindicative of the results that may be expected for the full year ending December 31,2009. 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 ended December 31,2008.

 

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”), itshealthcare transportation services segment, and EmCare Holdings Inc. (“EmCare”),its outsourced hospital-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, 2009 and 2008, the Companyexpensed $250 and $750, respectively, in respect of this fee.

 

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

 

***Consolidation***

 

Theconsolidated financial statements include all wholly-owned subsidiaries ofEMSC, including AMR and EmCare and their respective subsidiaries. Allsignificant intercompany transactions and balances have been eliminated inconsolidation.

 

***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 professional liability (malpractice) programs for EmCare. In thoseinstances where the Company has obtained third-party insurance coverage, theCompany generally retains liability for the first $1 to $2 million of theloss. Insurance reserves cover known claims and incidents within the level ofCompany retention that may result in the assertion of additional claims, as wellas claims from unknown incidents that may be asserted arising from activitiesthrough the balance 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) and 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 2009.As a result of this actuarial valuation, the Company recorded a decrease of$0.9 million during the three months ended September 30, 2009 in itsprovision for 

 

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insurance liabilitiesrelated to reserves for losses in prior years.  A total increase of $4.3million was recorded during the nine months ended September 30, 2009.  As a result of the actuarial valuationcompleted in September 2008, the Company recorded an increase in itsprovision for insurance liabilities of approximately $2.1 million during thethree months ended September 30, 2008. For the nine months ended September 30, 2008, the Company recordeda reduction of approximately $4.0 million related to its reserves for losses inprior years.

 

Thelong-term portion of insurance reserves was $138.3 million and $139.0 millionas of September 30, 2009 and December 31, 2008, 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,  2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Gross  trade accounts receivable     |       | $                            | 1,925,672  |                        | $          | 1,792,546 |   |
| Allowance  for contractual discounts |       | 970,660                      |       | 885,401                     |       |
| Allowance  for uncompensated care    |       | 573,135                      |       | 514,475                     |       |
| Net  trade accounts receivable       |       | 381,877                      |       | 392,670                     |       |
| Other  receivables, net              |       | 82,364                       |       | 79,831                      |       |
| Net  accounts receivable             |       | $                            | 464,241    |                        | $          | 472,501 |   |

 

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 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,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2009**                                    | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| Gross revenue                                                                                  |       | 100.0                                       | %          | 100.0                                     | %          | 100.0 | % | 100.0 | % |
| Provision for contractual discounts                                                            |       | 49.2                                        | %          | 43.4                                      | %          | 48.9 | % | 45.0 | % |
| Revenue net of contractual discounts                                                           |       | 50.8                                        | %          | 56.6                                      | %          | 51.1 | % | 55.0 | % |
| Provision for uncompensated care as a percentage of  gross revenue                             |       | 20.3                                        | %          | 19.7                                      | %          | 20.1 | % | 19.2 | % |
| Provision  for uncompensated care as a percentage of gross revenue less contractual  discounts |       | 39.9                                        | %          | 34.8                                      | %          | 39.3 | % | 35.0 | % |

 

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 time 

 

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experienced delays inreimbursement from third-party payors. In addition, third-party payors maydisallow, in whole or in part, claims for reimbursement based on determinationsthat certain amounts are not reimbursable under plan coverage, determinationsof medical necessity, or the need for additional information. Laws andregulations governing the Medicare and Medicaid programs are very complex andsubject to interpretation. Revenue is recognized on an estimated basis in theperiod which related services are rendered. As a result, there is a reasonable possibility that recorded estimateswill change materially in the short-term. Such amounts, including adjustmentsbetween provisions for contractual discounts and uncompensated care, areadjusted in future periods, as adjustments become known.  Theseadjustments were less than 1% of net revenue for the three and nine monthperiods ending September 30, 2009 and 2008.

 

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***

 

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

 

On August 12,2009, a public secondary offering was closed in which 9.2 million shares ofclass A common stock were sold by certain persons who are affiliated with theCompany’s principal equity holder. In order to affect the secondary offering,holders of LP exchangeable units exchanged 9.2 million units into class Bcommon stock.  Upon transfer, the class Bcommon stock converted automatically into the 9.2 million shares of class Acommon stock sold in the offering. Proceeds from the offering were paidentirely to the selling stockholders.

 

As of September 30,2009, the Company holds 46.5% of the equity interests in EMS LP. LPexchangeable units, held by persons affiliated with the Company’s principalequity holder, represent the balance of the EMS LP equity. The LP exchangeableunits are exchangeable at any time, at the option of the holder, for shares ofthe Company’s class B common stock on a one-for-one basis. The holders of theLP exchangeable units have the right to vote, through the trustee holder of theCompany’s class B special voting stock, at all stockholder meetings at whichholders of the Company’s class B common stock or class B special voting stockare entitled to vote.

 

In theEMS LP partnership agreement, the Company has agreed to maintain the economicequivalency of the LP exchangeable units and the class B common stock, and theholders of the LP exchangeable units have no general voting rights. The LPexchangeable units, when considered with the class B special voting stock, havethe same rights, privileges and characteristics of the Company’s class B commonstock. The LP exchangeable units are intended to be economically equivalent tothe class B common stock of the Company in that the LP exchangeable units carrythe right to vote (by virtue of the class B special voting stock) with theholders of class B common stock as one class, and entitle holders to receivedistributions only if the equivalent dividends are declared on the Company’sclass B common stock. Accordingly, the Company accounts for the LP exchangeableunits as if the LP exchangeable units were shares of its common stock,including reporting the LP exchangeable units in the equity section of theCompany’s balance sheet and including the number of outstanding LP exchangeableunits in both its basic and diluted earnings per share calculations.

 

***Fair Value Measurement***

 

EffectiveJanuary 1, 2008, the Company began providing additional disclosures aboutfinancial instruments that are reported at fair value.  Balances are classified based on a hierarchalframework which ranks the level of market price observability used in measuringfinancial instruments at fair value. Market price observability is impacted bya number of factors, including the type of instrument and the characteristicsspecific to the instrument.  Instrumentswith readily available active quoted prices or for which fair value can bemeasured from actively quoted prices generally will have a higher degree ofmarket price observability and a lesser degree of judgment used in measuringfair value.

 

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 or liabilities.

 

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.

 

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Level3 – Pricing inputs are unobservable as of the reporting date and reflect theCompany’s own assumptions about the fair value of the asset or liability.

 

Thefollowing table summarizes the valuation of EMSC’s financial instruments by theabove fair value hierarchy levels as of September 30, 2009:

 
| **Description**  | ** ** | **Total**  | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|------------------|------------|------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Assets:**      | ** ** | ** ** | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Securities**   |       | $          | 85,771     |        | $          | 67,804      |       | $           | 17,967     |   | $ | — |   |
| **Liabilities:** |       |       |       |        |       |        |       |        |       |
| **Derivatives**  |       | $          | 1,920      |        | $          | —      |       | $           | 1,920      |   | $ | — |   |

 

TheCompany also estimates the fair value of its fixed rate, senior subordinatednotes based on quoted market prices. The estimated fair value of the seniorsubordinated notes at September 30, 2009 was approximately $266 million with acarrying value of $250 million.

 

***Recent Accounting Pronouncements***

 

In June 2009,the Financial Accounting Standards Board (“FASB”) modified the analysisrequired to identify controlling financial interest in variable interestentities.  The new requirements areeffective for the Company beginning on January 1, 2010.  Management does not expect the adoption ofthese new requirements to have a material effect on the Company’s consolidatedfinancial statements and related disclosures.

 

In June 2009,the FASB clarified circumstances under which a transferor has surrenderedcontrol and, thus, should remove the asset together with any relatedliabilities from its balance sheet.  Theguidance is effective for the Company beginning on January 1, 2010.  Management does not expect the adoption of thisguidance to have a material effect on the Company’s consolidated financialstatements and related disclosures.

 

In May 2009,the FASB defined further disclosure requirements for events which occur afterthe balance sheet date but before financial statements are issued.  The new requirements are effective for theCompany beginning on April 1, 2009. In accordance with these requirements, the Company’s management hasevaluated events subsequent to September 30, 2009 through November 4,2009 which is the issuance date of this report. There has been no material event noted in this period which would impactthe results reflected in this report, the Company’s results going forward, orrequire additional disclosure.

 

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

 

EffectiveJanuary 1, 2009, the Company adopted changes in requirements for recordingcosts associated with business combinations. The impact to the Company’s consolidated financials statements andrelated disclosures will depend on the nature and terms of the businesscombinations entered into subsequent to January 1, 2009.  The Company expensed $257 upon adoption ofthe new requirements and expensed a total of $911 during the nine months ended September 30,2009.  There were no associated costsexpensed during the three months ended September 30, 2009.  These costs are included in operatingexpenses on the accompanying statement of operations and previously would havebeen recorded as a component of goodwill.

 

In January 2009,the Company entered into an agreement for the acquisition of the air ambulancebusiness of Skyservice Business Aviation Inc. (“Skyservice Air Ambulance”), afixed-wing air ambulance operator based in Montreal, Canada, with operations inQuebec, Ontario and British Columbia. Founded in 1989, Skyservice Air Ambulance provides worldwide airambulance service.  Completion of thetransaction is subject to currently pending Canadian regulatory approval.

 

**4.****             ****Income Taxes**

 

TheCompany operates in multiple taxing jurisdictions and in the normal course ofbusiness is examined by federal and state tax authorities.  In preparation for such examinations, theCompany established reserves for uncertain tax positions beginning in the firstquarter of 2007.  The Companyperiodically assesses the amount of such reserves and adjusts the reservebalances as necessary.  During the thirdquarter of 2009, the Company reduced its unrecognized tax benefits by $64.4million related to prior year tax positions, which were recorded in InsuranceReserves and Other Long-term Liabilities on the accompanying balancesheets.  The reduction to these taxliabilities was offset primarily in Current Deferred Tax Assets.

 

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**5.****             ****Accrued Liabilities**

 

Accruedliabilities were as follows at September 30, 2009 and December 31,2008:

 
| ** **                                  | ** ** | **September 30,   2009** | ** ** | **December 31,********2008** | ** ** |
|---------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| Accrued  wages and benefits                 |       | $                                  | 98,820     |                              | $          | 95,029 |   |
| Accrued  paid time-off                      |       | 25,817                             |       | 25,505                            |       |
| Current  portion of self-insurance reserves |       | 68,840                             |       | 61,099                            |       |
| Accrued  restructuring                      |       | 186                                |       | 200                               |       |
| Current  portion of compliance and legal    |       | 3,614                              |       | 2,616                             |       |
| Accrued  billing and collection fees        |       | 4,455                              |       | 4,127                             |       |
| Accrued  profit sharing                     |       | 27,066                             |       | 22,954                            |       |
| Accrued  interest                           |       | 3,551                              |       | 9,964                             |       |
| Other                                       |       | 30,517                             |       | 36,424                            |       |
| Total  accrued liabilities                  |       | $                                  | 262,866    |                              | $          | 257,918 |   |

 

**6.****             ****Long-Term Debt**

 

Long-termdebt consisted of the following at September 30, 2009 and December 31,2008:

 
| ** **                                                                       | ** ** | **September 30,  2009** | ** ** | **December 31,********2008** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| Senior  subordinated notes due 2015                                              |       | $                            | 250,000    |                              | $          | 250,000 |   |
| Senior  secured term loan due 2012 (2.26% at September 30, 2009)            |       | 200,289                      |       | 201,862                           |       |
| Notes  due at various dates from 2009 to 2022 with interest rates from 6% to 10% |       | 1,378                        |       | 1,632                             |       |
| Capital  lease obligations due at various dates from 2010 to 2018 (see note 8)   |       | 3,546                        |       | 5,011                             |       |
|                                                                             |       | 455,213                      |       | 458,505                           |       |
| Less  current portion                                                            |       | (3,462                       | )          | (4,905                            | )          |
| Total  long-term debt                                                            |       | $                            | 451,751    |                              | $          | 453,600 |   |

 

**7.****             ****Derivative Instruments and HedgingActivities**

 

TheCompany manages its exposure to changes in market interest rates.  The Company’s use of derivative instrumentsis limited to highly effective fixed interest rate swap agreements used tomanage well-defined interest rate risk exposures.  The Company monitors its positions and thecredit ratings of its counterparties and does not anticipate non-performance bythe counterparties.  The Company does notenter into interest rate swap agreements for speculative purposes.

 

In March 2009,the Company amended the interest rate swap agreement originally entered into inDecember 2007.  The amendmentchanged the hedged interest rate from the 3-month LIBOR to the 1-monthLIBOR.  The swap agreement is with majorfinancial institutions with a notional principal balance of $200 million.  The amended swap agreement effectivelyconverts $200 million of variable rate debt to fixed rate debt with an effectiverate of 6.1%.  The Company continues to make interest payments based onthe variable rate associated with the debt (based on LIBOR which had a rate ofless than 1% at September 30, 2009) and periodically settles with itscounterparties for the difference between the rate paid and the fixed rate. Theswap agreement will expire in December 2009.  The Company recorded, as a component of othercomprehensive income, a decrease to the liability associated with the fairvalue of the fixed interest rate swap agreement in the amount of $1.8 millionand $3.9 million for the three and nine months ended September 30, 2009,respectively, and an increase of $1.0 million and $1.1 million during the sameperiods in 2008, in each case before applicable tax impacts.  The net additional interest payments made orreceived under this swap agreement are recognized in interest expense.  Over the remaining term of the agreement, theCompany expects to reclassify $1.9 million of deferred loss before applicabletax impacts from accumulated other comprehensive loss to interest expense asrelated interest payments that are being hedged are recognized.

 

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**8.****             ****Commitments and Contingencies**

 

***Lease Commitments***

 

TheCompany leases various facilities and equipment under operating leaseagreements.

 

TheCompany also leases certain vehicles and records certain leasehold improvementsunder capital leases. Assets under capital leases are capitalized usinginherent interest rates at the inception of each lease. Capital leases arecollateralized by the underlying assets.

 

***Forward Purchase Commitment***

 

Beginning in March 2009,AMR entered into a series of forward purchase contracts which fix the price fora portion of its total monthly diesel fuel usage from April 1, 2009through June 30, 2010.  For thethree months ending December 31, 2009, the Company is under contract topurchase 200,000 gallons of diesel fuel per month at a price of $2.79 pergallon.  For the nine months ending June 30,2010, the Company is under contract to purchase 50,000 gallons of diesel fuelper month at prices ranging from $2.91 to $2.99 per gallon.  These forward purchase contracts representapproximately 40% of the Company’s total monthly diesel fuel usage.  Based on the terms of the contracts, theCompany has concluded they do not qualify as derivatives.  The impact related to these contracts duringthe nine months ended September 30, 2009 was additional operating expenseof $0.1 million.  There was not amaterial impact to operating expense related to these contracts during thethree months ended September 30, 2009.

 

***Services***

 

TheCompany is subject to the Medicare and Medicaid fraud and abuse laws whichprohibit, among other things, any false claims, or any bribe, kick-back 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***

 

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

 

In December 2006,AMR received a subpoena from the Department of Justice.  The subpoena requested copies of documentsfor the period from January 2000 through the present.  The subpoena required AMR to produce a broadrange of documents relating to the operations of certain AMR affiliates in NewYork.  The Company continues to cooperatewith governmental requests for documents and information.

 

Threedifferent 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,Lori Bartoni commenced a suit in the Superior Court for the State ofCalifornia, County of Alameda, which has since been removed to the UnitedStates District Court, Northern District of California; on July 8, 2008,Vaughn Banta filed suit in the Superior Court of the State of California,County of Los Angeles; on January 22, 2009, Laura Karapetian filed suit inthe Superior Court of the State of California, County of Los Angeles.  At the present time, courts have notcertified classes in any of these cases. Plaintiffs allege principally that the AMR entities failed to pay dailyovertime charges pursuant to California law, and failed to provide requiredmeal breaks or pay premium compensation for missed meal breaks.  Plaintiffs are seeking to certify the classesand are seeking lost wages, punitive damages, attorneys’ fees and othersanctions permitted under California law for violations of wage hour laws.  The Company is unable at this time toestimate the amount of potential damages, if any.

 

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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.

 

**9.****             ****Equity Based 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 the first quarter of 2009 withrespect to the options granted in the first quarter of 2005. Options with similarprovisions were granted to non-employee directors. As the vesting period forthese shares was complete during the first quarter of 2009, the Company did notrecord a compensation charge for the three months ended September 30,2009.  A compensation charge of $431 wasrecorded for the three months ended September 30, 2008.  The compensation charge recorded for the ninemonths ended September 30, 2009 and 2008 was $97 and $1,293, respectively.

 

**Long-TermIncentive Plan**

 

TheCompany’s original 2007 Long-Term Incentive Plan was approved by stockholdersin May 2007 and an Amended and Restated 2007 Long-Term Incentive Plan (the“Plan”) was approved by stockholders in May 2008.  The Plan provides for the grant of long-termincentives, including various equity-based incentives, to those persons withresponsibility for the success and growth of the Company and its subsidiaries.

 

TheCompany granted options under the Plan to key employees during the three monthsended September 30, 2009.  Theoptions permit employees to purchase an aggregated 3,750 shares of class Acommon stock at a weighted average exercise price of $42.47 per share, vestratably over a period of 4 years and have a maximum term of ten years.  The Company also granted 3,750 shares of restrictedstock pursuant to the Plan during such period, which vest ratably over a periodof three years.

 

TheCompany recorded a compensation charge of $996 and $186 during the three monthsended September 30, 2009 and 2008, respectively, and $2,403 and $248during the nine months ended September 30, 2009 and 2008, 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 eachannual stockholder meeting with each RSU representing one share of the Company’sclass A common stock.  Eligible directorsreceive a grant of RSUs having a fair market value of $100 on the date of grantbased on the closing price of the Company’s class A common stock on thebusiness day immediately preceding the grant date.  The Non-Employee Director Compensation Planallows directors to defer income from the grant of RSUs, which vest immediatelyprior to the election of directors at the next annual stockholder meeting. Inconnection with this plan, the Company granted 3,018 RSUs per director in 2009.  The Company granted 4,145 RSUs per directorfollowing the 2008 annual stockholder meeting and granted an additional 2,374RSUs to a director upon his election to the board of directors in October 2008.  The Company expensed $125 and $100 for eachof the three month periods ended September 30, 2009 and 2008,respectively, and $375 and $300 for the nine month periods ended September 30,2009 and 2008, respectively.

 

**StockPurchase Plan/Employee Stock Purchase Plan**

 

Duringthe second quarter of 2009, the Company commenced an offering of its class Acommon stock to eligible employees and independent contractors associated withthe Company and its subsidiaries pursuant to a Stock Purchase Plan and theCompany’s Employee Stock Purchase Plan (together, the “SPPs”).  The purchasesof stock under the SPPs occurred in October 2009 at a 5% discount to theclosing price of the Company’s class A common stock on October 15,2009.  No compensation charge has beenrecorded for the SPPs in the nine month period ended September 30, 2009.

 

**10.****      ****Segment Information**

 

TheCompany is organized around two separately managed business units: healthcaretransportation services and hospital-based physician services, which have beenidentified as operating segments. The healthcare transportation servicesreportable 

 

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segment focuses onproviding a full range of medical transportation services from basic patienttransit to the most advanced emergency care and pre-hospital assistance. Thehospital-based physician services reportable segment provides outsourcedbusiness services to hospitals primarily for emergency departments and urgentcare centers, as well as for certain hospitalist/ inpatient, radiology 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, interest and other income, realized gain on investments, interestexpense and depreciation and amortization (“Adjusted 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,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|---------------|------------------------------------------|------------|
| ** **                                           | ** ** | **2009**                             | ** **    | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Healthcare Transportation Services**               |       |                                 |          |                                     |       |   |   |   |   |
| Revenue                                              |       | $                                    |  338,768 |                                     | $          |  425,335 |   | $ |  1,010,718 |   | $ |  1,075,323 |   |
| Segment Adjusted EBITDA                              |       | 31,838                               |          | 47,184                                   |       | 98,151 |   | 101,558 |   |
| **Emergency Management Services**                    |       |                                 |          |                                     |       |   |   |   |   |
| Revenue                                              |       | 326,288                              |          | 253,993                                  |       | 904,651 |   | 740,870 |   |
| Segment Adjusted EBITDA                              |       | 40,449                               |          | 26,307                                   |       | 112,652 |   | 81,866 |   |
| **Total**                                            |       |                                 |          |                                     |       |   |   |   |   |
| Total revenue                                        |       | 665,056                              |          | 679,328                                  |       | 1,915,369 |   | 1,816,193 |   |
| Total Adjusted EBITDA                                |       | 72,287                               |          | 73,491                                   |       | 210,803 |   | 183,424 |   |
| **Reconciliation of Adjusted EBITDA  to Net Income** |       |                                 |          |                                     |       |   |   |   |   |
| Adjusted EBITDA                                      |       | $                                    |  72,287  |                                     | $          |  73,491 |   | $ |  210,803 |   | $ |  183,424 |   |
| Depreciation and amortization expense                |       | (15,733                              | )             | (16,993                                  | )          | (48,658 | ) | (52,156 | ) |
| Interest expense                                     |       | (10,280                              | )             | (11,117                                  | )          | (30,749 | ) | (31,387 | ) |
| Realized gain on investments                         |       | 544                                  |          | 768                                      |       | 2,030 |   | 3,011 |   |
| Interest and other income                            |       | 502                                  |          | 508                                      |       | 1,442 |   | 1,097 |   |
| Income tax expense                                   |       | (18,533                              | )             | (18,138                                  | )          | (53,144 | ) | (40,170 | ) |
| Equity in earnings of unconsolidated subsidiary      |       | 91                                   |          | 98                                       |       | 244 |   | 152 |   |
| Net income                                           |       | $                                    |  28,878  |                                     | $          |  28,617 |   | $ |  81,968 |   | $ |  63,971 |   |

 

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

 
| ** **                                    | ** ** | **Quarter  ended September 30,** | ** **   | **Nine  months ended September 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|--------------|------------------------------------------------|------------|
| ** **                                    | ** ** | **2009**                              | ** **   | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| Adjusted  EBITDA                              |       | $                                     |  72,287 |                                           | $          |  73,491 |   | $ |  210,803 |   | $ |  183,424 |   |
| Interest  paid                                |       | (9,773                                | )            | (10,644                                        | )          | (29,424 | ) | (29,808 | ) |
| Change  in accounts receivable                |       | 7,574                                 |         | (40,747                                        | )          | 8,448 |   | (54,499 | ) |
| Change  in other operating assets/liabilities |       | (2,956                                | )            | 51,307                                         |       | 16,000 |   | 29,226 |   |
| Equity  based compensation                    |       | 1,121                                 |         | 717                                            |       | 2,875 |   | 1,841 |   |
| Other                                         |       | 609                                   |         | 923                                            |       | 1,099 |   | 242 |   |
| Cash  flows provided by operating activities  |       | $                                     |  68,862 |                                           | $          |  75,047 |   | $ |  209,801 |   | $ |  130,426 |   |

 

**11.****      ****Guarantors of Debt**

 

EMS LPfinanced the acquisition of AMR and EmCare in part by issuing$250.0 million principal amount of senior subordinated notes and borrowing$370.2 million under its senior secured credit facility. Its wholly-ownedsubsidiaries, AMR HoldCo, Inc. (f/k/a EMSC Management, Inc.) andEmCare HoldCo, Inc., are the issuers of the senior subordinated notes andthe borrowers under the senior secured credit facility. As part of thetransaction, AMR and its subsidiaries became wholly-owned subsidiaries of AMRHoldCo, Inc. and EmCare and its subsidiaries became wholly-ownedsubsidiaries of EmCare HoldCo, Inc. The senior subordinated notes and thesenior secured credit facility include a full, unconditional and joint andseveral guarantee by EMSC, EMS LP and EMSC’s domestic subsidiaries. The seniorsubordinated notes and senior secured 

 

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credit facility do notinclude a guarantee by the Company’s captive insurance subsidiary. 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 notes and senior secured credit facility described above are providedby the distributions or advances from the subsidiary companies, AMR and EmCare.Investments in subsidiary operating companies are accounted for on the equitymethod. Accordingly, entries necessary to consolidate EMSC, EMS LP, AMR HoldCo, Inc.,EmCare HoldCo, Inc. and all of their subsidiaries are reflected in theEliminations/Adjustments column. Separate complete financial statements of theissuers, EMS LP and subsidiary guarantors would not provide additional materialinformation that would be useful in assessing the financial composition of theissuers, EMS LP or the subsidiary guarantors. The condensed consolidatingfinancial statements for EMSC, EMS LP, the issuers, the guarantors and thenon-guarantor are as follows:

 

**ConsolidatingStatement of Operations**

**Forthe 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 |   |

 

**ConsolidatingStatement of Operations**

**Forthe quarter ended September 30, 2008**

 
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS  LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 679,328    |       | $          | 8,845 |   | $ | (8,845 | ) | $ | 679,328 |   |
| Compensation  and benefits                                       |       | —     |       | —      |       | —                |       | —                |       | 426,755        |       | —            |       | —            |       | 426,755    |       |
| Operating  expenses                                              |       | —     |       | —      |       | —                |       | —                |       | 135,087        |       | —            |       | —            |       | 135,087    |       |
| Insurance  expense                                               |       | —     |       | —      |       | —                |       | —                |       | 23,423         |       | 10,531            |       | (8,845            | )          | 25,109     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —      |       | —                |       | —                |       | 20,509         |       | —            |       | —            |       | 20,509     |       |
| Depreciation  and amortization expense                           |       | —     |       | —      |       | —                |       | —                |       | 16,993         |       | —            |       | —            |       | 16,993     |       |
| Restructuring  charge                                            |       | —     |       | —      |       | —                |       | —                |       | —         |       | —            |       | —            |       | —     |       |
| Income  (loss) from operations                                   |       | —     |       | —      |       | —                |       | —                |       | 56,561         |       | (1,686            | )          | —            |       | 54,875     |       |
| Interest  income from restricted assets                          |       | —     |       | —      |       | —                |       | —                |       | 705            |       | 918               |       | —            |       | 1,623      |       |
| Interest  expense                                                |       | —     |       | —      |       | —                |       | —                |       | (11,117        | )          | —            |       | —            |       | (11,117    | )          |
| Realized  gain on investments                                    |       | —     |       | —      |       | —                |       | —                |       | —         |       | 768               |       | —            |       | 768        |       |
| Interest  and other income                                       |       | —     |       | —      |       | —                |       | —                |       | 508            |       | —            |       | —            |       | 508        |       |
| Income  before income taxes                                      |       | —     |       | —      |       | —                |       | —                |       | 46,657         |       | —            |       | —            |       | 46,657     |       |
| Income  tax expense                                              |       | —     |       | —      |       | —                |       | —                |       | (18,138        | )          | —            |       | —            |       | (18,138    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —      |       | —                |       | —                |       | 28,519         |       | —            |       | —            |       | 28,519     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 28,617     |       | 28,617      |       | 16,768                |       | 11,849                |       | 98             |       | —            |       | (85,851           | )          | 98         |       |
| Net  income                                                      |       | $          | 28,617     |        | $          | 28,617                |       | $                     | 16,768     |           | $          | 11,849            |       | $                 | 28,617     |       | $          | — |   | $ | (85,851 | ) | $ | 28,617 |   |

 

14

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Table of Contents

 

**ConsolidatingStatement of Operations**

**Forthe 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 |   |

 

**ConsolidatingStatement of Operations**

**Forthe nine months ended September 30, 2008**

** **
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **Issuer**            | ** ** | **Issuer**            | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-------------|------------|-----------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | **AMR**               | ** ** | **EmCare**            | ** ** | **Subsidiary** | ** ** | **Subsidiary**    | ** ** | **Eliminations/** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **EMSC**   | ** ** | **EMS  LP** | ** ** | **HoldCo, Inc.** | ** ** | **HoldCo, Inc.** | ** ** | **Guarantors** | ** ** | **Non-Guarantor** | ** ** | **Adjustments**   | ** ** | **Total**  | ** ** |
| Net  revenue                                                     |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 1,816,193  |       | $          | 27,554 |   | $ | (27,554 | ) | $ | 1,816,193 |   |
| Compensation  and benefits                                       |       | —     |       | —      |       | —                |       | —                |       | 1,221,607      |       | —            |       | —            |       | 1,221,607  |       |
| Operating  expenses                                              |       | —     |       | —      |       | —                |       | —                |       | 302,014        |       | —            |       | —            |       | 302,014    |       |
| Insurance  expense                                               |       | —     |       | —      |       | —                |       | —                |       | 57,585         |       | 33,609            |       | (27,554           | )          | 63,640     |       |
| Selling,  general and administrative expenses                    |       | —     |       | —      |       | —                |       | —                |       | 50,621         |       | —            |       | —            |       | 50,621     |       |
| Depreciation  and amortization expense                           |       | —     |       | —      |       | —                |       | —                |       | 52,156         |       | —            |       | —            |       | 52,156     |       |
| Restructuring  charge                                            |       | —     |       | —      |       | —                |       | —                |       | —         |       | —            |       | —            |       | —     |       |
| Income  (loss) from operations                                   |       | —     |       | —      |       | —                |       | —                |       | 132,210        |       | (6,055            | )          | —            |       | 126,155    |       |
| Interest  income from restricted assets                          |       | —     |       | —      |       | —                |       | —                |       | 2,069          |       | 3,044             |       | —            |       | 5,113      |       |
| Interest  expense                                                |       | —     |       | —      |       | —                |       | —                |       | (31,387        | )          | —            |       | —            |       | (31,387    | )          |
| Realized  gain on investments                                    |       | —     |       | —      |       | —                |       | —                |       | —         |       | 3,011             |       | —            |       | 3,011      |       |
| Interest  and other income                                       |       | —     |       | —      |       | —                |       | —                |       | 1,097          |       | —            |       | —            |       | 1,097      |       |
| Income  before income taxes                                      |       | —     |       | —      |       | —                |       | —                |       | 103,989        |       | —            |       | —            |       | 103,989    |       |
| Income  tax expense                                              |       | —     |       | —      |       | —                |       | —                |       | (40,170        | )          | —            |       | —            |       | (40,170    | )          |
| Income  before equity in earnings of unconsolidated subsidiaries |       | —     |       | —      |       | —                |       | —                |       | 63,819         |       | —            |       | —            |       | 63,819     |       |
| Equity  in earnings of unconsolidated subsidiaries               |       | 63,971     |       | 63,971      |       | 25,466                |       | 38,505                |       | 152            |       | —            |       | (191,913          | )          | 152        |       |
| Net  income                                                      |       | $          | 63,971     |        | $          | 63,971                |       | $                     | 25,466     |           | $          | 38,505            |       | $                 | 63,971     |       | $          | — |   | $ | (191,913 | ) | $ | 63,971 |   |

 

15

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Table of Contents

 

**ConsolidatingBalance Sheet**

**Asof September 30, 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                |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 315,805    |       | $          | 15,300 |   | $ | — |   | $ | 331,105 |   |
| Insurance  collateral                     |       | —     |       | —      |       | —                |       | —                |       | 11,880         |       | 31,360            |       | (13,048           | )          | 30,192     |       |
| Trade  and other accounts receivable, net |       | —     |       | —      |       | —                |       | —                |       | 463,564        |       | 677               |       | —            |       | 464,241    |       |
| Parts  and supplies inventory             |       | —     |       | —      |       | —                |       | —                |       | 21,226         |       | —            |       | —            |       | 21,226     |       |
| Other  current assets                     |       | —     |       | —      |       | —                |       | —                |       | 39,757         |       | 900               |       | —            |       | 40,657     |       |
| Current  deferred tax assets              |       | —     |       | —      |       | —                |       | —                |       | 14,040         |       | 3,834             |       | —            |       | 17,874     |       |
| Current  assets                           |       | —     |       | —      |       | —                |       | —                |       | 866,272        |       | 52,071            |       | (13,048           | )          | 905,295    |       |
| Non-current  assets:                      |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Property,  plant, and equipment, net      |       | —     |       | —      |       | —                |       | —                |       | 123,520        |       | —            |       | —            |       | 123,520    |       |
| Intercompany  receivable                  |       | —     |       | —      |       | 264,973               |       | 182,134               |       | —         |       | —            |       | (447,107          | )          | —     |       |
| Intangible  assets, net                   |       | —     |       | —      |       | —                |       | —                |       | 73,034         |       | —            |       | —            |       | 73,034     |       |
| Non-current  deferred tax assets          |       | —     |       | —      |       | —                |       | —                |       | 6,276          |       | (6,276            | )          | —            |       | —     |       |
| Insurance  collateral                     |       | —     |       | —      |       | —                |       | —                |       | 53,206         |       | 82,901            |       | 2,555             |       | 138,662    |       |
| Goodwill                                  |       | —     |       | —      |       | —                |       | —                |       | 336,975        |       | 458               |       | —            |       | 337,433    |       |
| Other  long-term assets                   |       | —     |       | —      |       | 4,635                 |       | 2,050                 |       | 15,382         |       | —            |       | —            |       | 22,067     |       |
| Investment  and advances in subsidiaries  |       | 641,402    |       | 641,402     |       | 382,609               |       | 258,840               |       | 38,514         |       | —            |       | (1,962,767        | )          | —     |       |
| Assets                                    |       | $          | 641,402    |        | $          | 641,402               |       | $                     | 652,217    |           | $          | 443,024           |       | $                 | 1,513,179  |       | $          | 129,154 |   | $ | (2,420,367 | ) | $ | 1,600,011 |   |
| **Liabilities and Equity**                |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Current  liabilities:                     |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Accounts  payable                         |       | $          | —     |        | $          | —                |       | $                     | —     |           | $          | —            |       | $                 | 67,781     |       | $          | 63 |   | $ | — |   | $ | 67,844 |   |
| Accrued  liabilities                      |       | —     |       | —      |       | 1,924                 |       | 1,627                 |       | 220,549        |       | 39,392            |       | (626              | )          | 262,866    |       |
| Current  portion of long-term debt        |       | —     |       | —      |       | 1,447                 |       | 650                   |       | 1,365          |       | —            |       | —            |       | 3,462      |       |
| Current  liabilities                      |       | —     |       | —      |       | 3,371                 |       | 2,277                 |       | 289,695        |       | 39,455            |       | (626              | )          | 334,172    |       |
| Long-term  debt                           |       | —     |       | —      |       | 265,252               |       | 182,939               |       | 3,560          |       | —            |       | —            |       | 451,751    |       |
| Long-term  deferred tax liability         |       | —     |       | —      |       | —                |       | —                |       | 5,673          |       | —            |       | —            |       | 5,673      |       |
| Other  long-term liabilities              |       | —     |       | —      |       | —                |       | —                |       | 131,174        |       | 45,706            |       | (9,867            | )          | 167,013    |       |
| Intercompany                              |       | —     |       | —      |       | —                |       | —                |       | 441,628        |       | 5,479             |       | (447,107          | )          | —     |       |
| Liabilities                               |       | —     |       | —      |       | 268,623               |       | 185,216               |       | 871,730        |       | 90,640            |       | (457,600          | )          | 958,609    |       |
| Equity:                                   |       |       |       |        |       |                  |       |                  |       |           |       |              |       |              |       |       |       |
| Class A  common stock                |       | 198        |       | —      |       | —                |       | —                |       | —         |       | 30                |       | (30               | )          | 198        |       |
| Class B  common stock                |       | 1          |       | —      |       | —                |       | —                |       | —         |       | —            |       | —            |       | 1          |       |
| Partnership  equity                       |       | 151,568    |       | 356,624     |       | 302,565               |       | 54,059                |       | 356,625        |       | —            |       | (1,069,873        | )          | 151,568    |       |
| Additional  paid-in capital               |       | 204,857    |       | —      |       | —                |       | —                |       | —         |       | 4,316             |       | (4,316            | )          | 204,857    |       |
| Retained  earnings                        |       | 285,771    |       | 285,771     |       | 81,751                |       | 204,020               |       | 285,757        |       | 31,408            |       | (888,707          | )          | 285,771    |       |
| Comprehensive  income (loss)              |       | (993       | )          | (993        | )          | (722                  | )          | (271                  | )          | (933           | )          | 2,760             |       | 159               |       | (993       | )          |
| Equity                                    |       | 641,402    |       | 641,402     |       | 383,594               |       | 257,808               |       | 641,449        |       | 38,514            |       | (1,962,767        | )          | 641,402    |       |
| Liabilities  and Equity                   |       | $          | 641,402    |        | $          | 641,402               |       | $                     | 652,217    |           | $          | 443,024           |       | $                 | 1,513,179  |       | $          | 129,154 |   | $ | (2,420,367 | ) | $ | 1,600,011 |   |

 

16

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Tableof Contents

 

**ConsolidatingBalance Sheet**

**Asof December 31, 2008**

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

 

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**CondensedConsolidating Statement of Cash Flows**

**Forthe 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 |   |

 

**CondensedConsolidating Statement of Cash Flows**

**Forthe quarter ended September 30, 2008**

 
| ** **                                              | ** ** | ** ** | ** ** | ** **  | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **  | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS  LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                |       |       |       |        |       |                 |       |                 |       |           |       |               |       |       |       |
| Net  cash provided by operating activities              |       | $          | —     |        | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 72,801     |   | $ | 2,246 |   | $ | 75,047 |   |
| **Cash Flows from Investing Activities**                |       |       |       |        |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase  of property, plant and equipment              |       | —     |       | —      |       | —               |       | —               |       | (11,574        | )          | —             |       | (11,574    | )          |
| Proceeds  from sale of property, plant and equipment    |       | —     |       | —      |       | —               |       | —               |       | 127            |       | —             |       | 127        |       |
| Acquisition  of businesses, net of cash received        |       | —     |       | —      |       | —               |       | —               |       | (8,368         | )          | —             |       | (8,368     | )          |
| Net  change in insurance collateral                     |       | —     |       | —      |       | —               |       | —               |       | 4,109          |       | (2,982             | )          | 1,127      |       |
| Net  change in deposits and other assets                |       | —     |       | —      |       | —               |       | —               |       | 764            |       | —             |       | 764        |       |
| Net  cash used in investing activities                  |       | —     |       | —      |       | —               |       | —               |       | (14,942        | )          | (2,982             | )          | (17,924    | )          |
| **Cash Flows from Financing Activities**                |       |       |       |        |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC issuance  of class A common stock                  |       | 1,875      |       | —      |       | —               |       | —               |       | —         |       | —             |       | 1,875      |       |
| Repayments  of capital lease obligations and other debt |       | —     |       | —      |       | —               |       | —               |       | (1,285         | )          | —             |       | (1,285     | )          |
| Increase  in bank overdrafts                            |       | —     |       | —      |       | —               |       | —               |       | 4,950          |       | —             |       | 4,950      |       |
| Net  intercompany borrowings (payments)                 |       | (1,875     | )          | —      |       | —               |       | —               |       | 1,875          |       | —             |       | —     |       |
| Net  cash provided by financing activities              |       | —     |       | —      |       | —               |       | —               |       | 5,540          |       | —             |       | 5,540      |       |
| Change  in cash and cash equivalents                    |       | —     |       | —      |       | —               |       | —               |       | 63,399         |       | (736               | )          | 62,663     |       |
| Cash  and cash equivalents, beginning of period         |       | —     |       | —      |       | —               |       | —               |       | 61,981         |       | 11,038             |       | 73,019     |       |
| Cash  and cash equivalents, end of period               |       | $          | —     |        | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 125,380    |   | $ | 10,302 |   | $ | 135,682 |   |

 

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**CondensedConsolidating Statement of Cash Flows**

**Forthe 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 |   |

 

**CondensedConsolidating Statement of Cash Flows**

**Forthe nine months ended September 30, 2008**

 
| ** **                                              | ** ** | ** ** | ** ** | ** **  | ** ** | **Issuer**           | ** ** | **Issuer**           | ** ** | ** **     | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-------------|------------|----------------------|------------|----------------------|------------|----------------|------------|--------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** **  | ** ** | **AMR**              | ** ** | **EmCare**           | ** ** | **Subsidiary** | ** ** | **Subsidiary**     | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **EMSC**   | ** ** | **EMS  LP** | ** ** | **HoldCo Inc.** | ** ** | **HoldCo Inc.** | ** ** | **Guarantors** | ** ** | **Non-guarantors** | ** ** | **Total**  | ** ** |
| **Cash Flows from Operating Activities**                |       |       |       |        |       |                 |       |                 |       |           |       |               |       |       |       |
| Net  cash provided by operating activities              |       | $          | —     |        | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 127,295    |   | $ | 3,131 |   | $ | 130,426 |   |
| **Cash Flows from Investing Activities**                |       |       |       |        |       |                 |       |                 |       |           |       |               |       |       |       |
| Purchase  of property, plant and equipment              |       | —     |       | —      |       | —               |       | —               |       | (21,754        | )          | —             |       | (21,754    | )          |
| Proceeds  from sale of property, plant and equipment    |       | —     |       | —      |       | —               |       | —               |       | 347            |       | —             |       | 347        |       |
| Acquisition  of businesses, net of cash received        |       | —     |       | —      |       | —               |       | —               |       | (28,325        | )          | —             |       | (28,325    | )          |
| Net  change in insurance collateral                     |       | —     |       | —      |       | —               |       | —               |       | 12,739         |       | 3,244              |       | 15,983     |       |
| Net  change in deposits and other assets                |       | —     |       | —      |       | —               |       | —               |       | 3,392          |       | —             |       | 3,392      |       |
| Net  cash (used in) provided by investing activities    |       | —     |       | —      |       | —               |       | —               |       | (33,601        | )          | 3,244              |       | (30,357    | )          |
| **Cash Flows from Financing Activities**                |       |       |       |        |       |                 |       |                 |       |           |       |               |       |       |       |
| EMSC  issuance of class A common stock                  |       | 1,920      |       | —      |       | —               |       | —               |       | —         |       | —             |       | 1,920      |       |
| Repayments  of capital lease obligations and other debt |       | —     |       | —      |       | —               |       | —               |       | (18,006        | )          | —             |       | (18,006    | )          |
| Increase  in bank overdrafts                            |       | —     |       | —      |       | —               |       | —               |       | 8,785          |       | —             |       | 8,785      |       |
| Borrowings  under revolving credit facility             |       | —     |       | —      |       | —               |       | —               |       | 14,000         |       | —             |       | 14,000     |       |
| Net  intercompany borrowings (payments)                 |       | (1,920     | )          | —      |       | —               |       | —               |       | 1,920          |       | —             |       | —     |       |
| Net  cash provided by financing activities              |       | —     |       | —      |       | —               |       | —               |       | 6,699          |       | —             |       | 6,699      |       |
| Change  in cash and cash equivalents                    |       | —     |       | —      |       | —               |       | —               |       | 100,393        |       | 6,375              |       | 106,768    |       |
| Cash  and cash equivalents, beginning of period         |       | —     |       | —      |       | —               |       | —               |       | 24,987         |       | 3,927              |       | 28,914     |       |
| Cash  and cash equivalents, end of period               |       | $          | —     |        | $          | —               |       | $                    | —     |           | $          | —             |       | $          | 125,380    |   | $ | 10,302 |   | $ | 135,682 |   |

 

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

 

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

 

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

 

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

 

This Report should beread in conjunction with EMSC’s consolidated financial statements and notesthereto included in our Annual Report on Form 10-K filed with the SEC on February 23,2009.

 

***Company Overview***

 

We are a leading providerof emergency medical services in the United States. We operate our business andmarket our services under the AMR and EmCare brands. We believe that AMR, overits more than 50 years of operating history, has become the leading provider ofambulance transport services in the United States. We believe that EmCare, overits more than 35 years of operating history, has become the leading provider ofoutsourced emergency department staffing and management services in the UnitedStates and also provides hospital-based services for hospitalist/inpatient,radiology, and anesthesiology departments.

 

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

 

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

 

We evaluate our revenuenet of provisions for contractual payor discounts and provisions foruncompensated care. Medicaid, Medicare and certain other payors receivediscounts from our standard charges, which we refer to as contractualdiscounts. In addition, individuals we treat and transport may be personallyresponsible for a deductible or co-pay under their third party payor coverage,and most of our contracts require us to treat and transport patients who haveno insurance or other third party payor coverage. Due to the uncertaintyregarding collectability of charges associated with services we provide tothese patients, which we refer to as uncompensated care, our net revenuerecognition is based on expected cash collections. Our net revenue is 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.

 

The table belowsummarizes our approximate payor mix as a percentage of both net revenue andtotal transports and patient visits for the three and nine months ended September 30,2009 and 2008. In determining the net revenue payor mix, we use cash 

 

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collections in the periodas an approximation of net revenue recorded. The 2008 FEMA deployment revenue is included in Subsidies and fees.

 
| ** **                             | ** ** | **Percentage  of Net Revenue**               | ** ** | **Percentage  of Total Volume**           | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                             | ** ** | **Quarter  ended********September 30,** | ** ** | **Nine  months ended September 30,** | ** ** | **Quarter  ended********September 30,** | ** ** | **Nine  months ended September 30,** | ** ** |
| ** **                             | ** ** | **2009**                                     | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
| Medicare                               |       | 22.4                                         | %          | 20.4                                      | %          | 23.2 | % | 23.1 | % | 23.7 | % | 25.2 | % | 24.6 | % | 25.9 | % |
| Medicaid                               |       | 4.9                                          | %          | 3.7                                       | %          | 4.7 | % | 4.3 | % | 11.4 | % | 10.8 | % | 11.2 | % | 10.8 | % |
| Commercial insurance and  managed care |       | 50.2                                         | %          | 42.6                                      | %          | 50.5 | % | 47.0 | % | 42.9 | % | 41.9 | % | 42.7 | % | 41.9 | % |
| Self-pay                               |       | 3.8                                          | %          | 4.0                                       | %          | 3.9 | % | 4.3 | % | 22.0 | % | 22.2 | % | 21.5 | % | 21.4 | % |
| Subsidies & fees              |       | 18.7                                         | %          | 29.3                                      | %          | 17.7 | % | 21.3 | % | — |   | — |   | — |   | — |   |
| Total                                  |       | 100.0                                        | %          | 100.0                                     | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |

 

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

 

**AMR**

 

Approximately 88% of AMR’snet revenue for the nine months ended September 30, 2009 was transportrevenue derived from the treatment and transportation of patients, includingfixed wing medical transportation services, based on billings to third partypayors, healthcare facilities and patients. The balance of AMR’s net revenue isderived from direct billings to communities and government agencies for theprovision of training, dispatch center and other services.  AMR’s measuresfor net revenue include transports (segregated into ambulance and wheelchairtransports and weighted in certain analyses) and net revenue per transport.

 

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

 

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

 

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

 

**EmCare**

 

Of EmCare’s net revenuefor the nine months ended September 30, 2009, approximately 85% wasderived from our hospital contracts for emergency department staffing andapproximately 15% was derived from hospitalist, anesthesiology, radiology andother hospital management services. Approximately 80% of EmCare’s net revenuewas generated from billings to third party payors and patients for patientencounters and approximately 20% was generated from billings to hospitals andaffiliated physician groups for professional services. EmCare’s key net revenuemeasures are patient encounters (segregated into emergency department visits,radiology reads, and anesthesiology and hospitalist encounters, and weighted incertain analyses), net revenue per patient encounter, and number ofcontracts.  Due to our expansion in theradiology and anesthesiology markets which typically generate lower net revenueper encounter than emergency room visits, patient encounters are now beingweighted to make net revenue per encounter comparable across all of EmCare’smarkets.

 

The change from period toperiod in the number of patient encounters under our “same store” contracts isinfluenced by general community conditions as well as hospital-specificelements, many of which are beyond our direct control.

 

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

 

We have developedextensive professional liability risk mitigation processes, including riskassessments on medical 

 

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professionals andhospitals, extensive incident reporting and tracking processes, clinicalfail-safe programs, training and education and other risk mitigation programswhich we believe have resulted in a continued reduction in the frequency,severity and development of claims.

 

***Recent Developments***

 

Effective January 1,2009, we adopted changes in requirements for how an acquirer in a businesscombination recognizes and measures the assets acquired, liabilities assumedand any noncontrolling interests.  The impact to our consolidatedfinancial statements and related disclosures will depend on the nature andterms of the business combinations entered into subsequent to January 1,2009.

 

***FactorsAffecting Operating Results***

 

**FederalEmergency Management Agency Contract**

 

In 2007, the FederalEmergency Management Agency, or FEMA, awarded AMR with a national contract toprovide ambulance, para-transit, and rotary and fixed-wing air ambulancetransportation services to supplement federal and military responses todisasters, acts of terrorism and other public health emergencies.  The contract covered the 21 states along theGulf and Atlantic coasts and was expanded by FEMA to the full 48 contiguousstates on October 1, 2009.  FEMA hasthe option to renew the contract for different zones in the contract at variouspoints during 2010 and 2011.  In August 2008,AMR was deployed under this contract to provide patient evacuations anddisaster relief efforts in three Gulf Coast states for hurricanes Gustav andIke and recorded approximately $101 million in net revenue, which includedapproximately $11 million of expense pass-throughs, during the three months andnine months ended September 30, 2008. There were no FEMA related deployments during the three months ended September 30,2009.

 

**Changesin Net New Contracts**

 

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

 

**Inflation**

 

Certain of our expenses,such as wages and benefits, insurance, fuel and equipment repair andmaintenance costs, are subject to normal inflationary pressures. Excluding theimpact of the FEMA contract in 2008, fuel expense represented 9.7% and 16.2% ofAMR’s operating expenses for the three months ended September 30, 2009 and2008, respectively, and 8.9% and 15.2% for the nine months ended September 30,2009 and 2008, respectively.  Although wehave generally been able to offset inflationary and other cost increasesthrough increased operating efficiencies and successful negotiation of fees andsubsidies, we can provide no assurance that we will be able to offset anyfuture fuel and inflationary cost increases through similar efficiencies andfee changes.

 

***Critical Accounting Policies***

 

**RevenueRecognition**

 

Management regularlyanalyzes the ultimate collectability of accounts receivable after certainstages of the collection cycle using a look-back analysis to determine theamount of receivables subsequently collected. Adjustments related to this analysis were less than 1% of net revenuefor the three and nine month periods ended September 30, 2009 and 2008.

 

**Resultsof Operations**

 

**Threeand Nine Months Ended September 30, 2009 Compared to Three and Nine MonthsEnded September 30, 2008**

 

The following tablespresent a comparison of financial data from our unaudited consolidatedstatements of operations for the three and nine months ended September 30,2009 and for the three and nine months ended September 30, 2008 for EMSCand our two operating segments.

 

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**Non-GAAPMeasures**

 

*AdjustedEBITDA. *Adjusted EBITDA is defined as net income before equityin earnings of unconsolidated subsidiary, income tax expense, interest andother income, realized gain on investments, interest expense and depreciationand amortization.  Adjusted EBITDA 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.

 

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

**(dollarsin thousands)**

 

**EMSC**

 
| ** **                                       | ** ** | **Quarter ended********September 30, 2009** | ** ** | **Quarter ended********September 30, 2008** | ** ** | **Nine months ended********September 30, 2009** | ** ** | **Nine months ended********September 30, 2008** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                                 | ** ** | **% of net********revenue**                      | ** ** | ** **                                                          | ** ** | **% of net********revenue**                               | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net  revenue                                     |       | $                                                          | 665,056    |                                                       | 100.0      | %                                                                   | $          | 679,328                                                             |       | 100.0 | % | $ | 1,915,369 |   | 100.0 | % | $ | 1,816,193 |   | 100.0 | % |
| Compensation  and benefits                       |       | 467,625                                                    |       | 70.3                                                       |       | 426,755                                                             |       | 62.8                                                                |       | 1,332,787 |   | 69.6 |   | 1,221,607 |   | 67.3 |   |
| Operating  expenses                              |       | 85,510                                                     |       | 12.9                                                       |       | 135,087                                                             |       | 19.9                                                                |       | 252,355 |   | 13.2 |   | 302,014 |   | 16.6 |   |
| Insurance  expense                               |       | 24,845                                                     |       | 3.7                                                        |       | 25,109                                                              |       | 3.7                                                                 |       | 75,706 |   | 4.0 |   | 63,640 |   | 3.5 |   |
| Selling,  general and administrative expenses    |       | 15,871                                                     |       | 2.4                                                        |       | 20,509                                                              |       | 3.0                                                                 |       | 47,186 |   | 2.5 |   | 50,621 |   | 2.8 |   |
| Interest  income from restricted assets          |       | (1,082                                                     | )          | (0.2                                                       | )          | (1,623                                                              | )          | (0.2                                                                | )          | (3,468 | ) | (0.2 | ) | (5,113 | ) | (0.3 | ) |
| Adjusted  EBITDA                                 |       | $                                                          | 72,287     |                                                       | 10.9       | %                                                                   | $          | 73,491                                                              |       | 10.8 | % | $ | 210,803 |   | 11.0 | % | $ | 183,424 |   | 10.1 | % |
| Depreciation  and amortization expenses          |       | (15,733                                                    | )          | (2.4                                                       | )          | (16,993                                                             | )          | (2.5                                                                | )          | (48,658 | ) | (2.5 | ) | (52,156 | ) | (2.9 | ) |
| Interest  expense                                |       | (10,280                                                    | )          | (1.5                                                       | )          | (11,117                                                             | )          | (1.6                                                                | )          | (30,749 | ) | (1.6 | ) | (31,387 | ) | (1.7 | ) |
| Realized  gain on investments                    |       | 544                                                        |       | 0.1                                                        |       | 768                                                                 |       | 0.1                                                                 |       | 2,030 |   | 0.1 |   | 3,011 |   | 0.2 |   |
| Interest  and other income                       |       | 502                                                        |       | 0.1                                                        |       | 508                                                                 |       | 0.1                                                                 |       | 1,442 |   | 0.1 |   | 1,097 |   | 0.1 |   |
| Income  tax expense                              |       | (18,533                                                    | )          | (2.8                                                       | )          | (18,138                                                             | )          | (2.7                                                                | )          | (53,144 | ) | (2.8 | ) | (40,170 | ) | (2.2 | ) |
| Equity  in earnings of unconsolidated subsidiary |       | 91                                                         |       | 0.0                                                        |       | 98                                                                  |       | 0.0                                                                 |       | 244 |   | 0.0 |   | 152 |   | 0.0 |   |
| Net  income                                      |       | $                                                          | 28,878     |                                                       | 4.3        | %                                                                   | $          | 28,617                                                              |       | 4.2 | % | $ | 81,968 |   | 4.3 | % | $ | 63,971 |   | 3.5 | % |

 

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

**(dollarsin thousands)**

** **
| ** **                                    | ** ** | **Quarter  ended September 30,** | ** ** | **Nine  months ended September 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                                    | ** ** | **2009**                              | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| Adjusted  EBITDA                              |       | $                                     | 72,287     |                                           | $          | 73,491 |   | $ | 210,803 |   | $ | 183,424 |   |
| Interest  paid                                |       | (9,773                                | )          | (10,644                                        | )          | (29,424 | ) | (29,808 | ) |
| Change  in accounts receivable                |       | 7,574                                 |       | (40,747                                        | )          | 8,448 |   | (54,499 | ) |
| Change  in other operating assets/liabilities |       | (2,956                                | )          | 51,307                                         |       | 16,000 |   | 29,226 |   |
| Equity  based compensation                    |       | 1,121                                 |       | 717                                            |       | 2,875 |   | 1,841 |   |
| Other                                         |       | 609                                   |       | 923                                            |       | 1,099 |   | 242 |   |
| Cash  flows provided by operating activities  |       | $                                     | 68,862     |                                           | $          | 75,047 |   | $ | 209,801 |   | $ | 130,426 |   |

 

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

**(dollarsin thousands)**

 

**AMR**

 
| ** **                                                   | ** ** | **Quarter ended********September 30, 2009** | ** ** | **Quarter ended********September 30, 2008** | ** ** | **Nine months ended********September 30, 2009** | ** ** | **Nine months ended********September 30, 2008** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                                 | ** ** | **% of net********revenue**                      | ** ** | ** **                                                          | ** ** | **% of net********revenue**                               | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net  revenue                                                 |       | $                                                          | 338,768    |                                                       | 100.0      | %                                                                   | $          | 425,335                                                             |       | 100.0 | % | $ | 1,010,718 |   | 100.0 | % | $ | 1,075,323 |   | 100.0 | % |
| Compensation  and benefits                                   |       | 211,921                                                    |       | 62.6                                                       |       | 226,942                                                             |       | 53.4                                                                |       | 628,015 |   | 62.1 |   | 635,031 |   | 59.1 |   |
| Operating  expenses                                          |       | 75,677                                                     |       | 22.3                                                       |       | 126,154                                                             |       | 29.7                                                                |       | 222,296 |   | 22.0 |   | 275,936 |   | 25.7 |   |
| Insurance  expense                                           |       | 10,417                                                     |       | 3.1                                                        |       | 10,694                                                              |       | 2.5                                                                 |       | 35,433 |   | 3.5 |   | 30,794 |   | 2.9 |   |
| Selling,  general and administrative expenses                |       | 9,410                                                      |       | 2.8                                                        |       | 15,066                                                              |       | 3.5                                                                 |       | 28,308 |   | 2.8 |   | 34,073 |   | 3.2 |   |
| Interest  income from restricted assets                      |       | (495                                                       | )          | (0.1                                                       | )          | (705                                                                | )          | (0.2                                                                | )          | (1,485 | ) | (0.1 | ) | (2,069 | ) | (0.2 | ) |
| Adjusted  EBITDA                                             |       | $                                                          | 31,838     |                                                       | 9.4        | %                                                                   | $          | 47,184                                                              |       | 11.1 | % | $ | 98,151 |   | 9.7 | % | $ | 101,558 |   | 9.4 | % |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                                       |       |                                                       |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Adjusted  EBITDA                                             |       | 31,838                                                     |       | 9.4                                                        |       | 47,184                                                              |       | 11.1                                                                |       | 98,151 |   | 9.7 |   | 101,558 |   | 9.4 |   |
| Depreciation  and amortization expense                       |       | (12,199                                                    | )          | (3.6                                                       | )          | (13,447                                                             | )          | (3.2                                                                | )          | (37,147 | ) | (3.7 | ) | (41,951 | ) | (3.9 | ) |
| Interest  income from restricted assets                      |       | (495                                                       | )          | (0.1                                                       | )          | (705                                                                | )          | (0.2                                                                | )          | (1,485 | ) | (0.1 | ) | (2,069 | ) | (0.2 | ) |
| Income  from operations                                      |       | $                                                          | 19,144     |                                                       | 5.7        | %                                                                   | $          | 33,032                                                              |       | 7.8 | % | $ | 59,519 |   | 5.9 | % | $ | 57,538 |   | 5.4 | % |
|                                                              |            |                                                            |            |                                                            |            |                                                                     |            |                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**EmCare**

 
|                                                         |       | **Quarter ended********September 30, 2009** |       | **Quarter ended********September 30, 2008** |       | **Nine months ended********September 30, 2009** |       | **Nine months ended********September 30, 2008** |       |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **                                                 | ** ** | **% of net********revenue**                      | ** ** | ** **                                                          | ** ** | **% of net********revenue**                               | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** | ** ** | ** ** | **% of net********revenue** | ** ** |
| Net  revenue                                                 |       | $                                                          | 326,288    |                                                       | 100.0      | %                                                                   | $          | 253,993                                                             |       | 100.0 | % | $ | 904,651 |   | 100.0 | % | $ | 740,870 |   | 100.0 | % |
| Compensation  and benefits                                   |       | 255,704                                                    |       | 78.4                                                       |       | 199,813                                                             |       | 78.7                                                                |       | 704,772 |   | 77.9 |   | 586,576 |   | 79.2 |   |
| Operating  expenses                                          |       | 9,833                                                      |       | 3.0                                                        |       | 8,933                                                               |       | 3.5                                                                 |       | 30,059 |   | 3.3 |   | 26,078 |   | 3.5 |   |
| Insurance  expense                                           |       | 14,428                                                     |       | 4.4                                                        |       | 14,415                                                              |       | 5.7                                                                 |       | 40,273 |   | 4.5 |   | 32,846 |   | 4.4 |   |
| Selling,  general and administrative expenses                |       | 6,461                                                      |       | 2.0                                                        |       | 5,443                                                               |       | 2.1                                                                 |       | 18,878 |   | 2.1 |   | 16,548 |   | 2.2 |   |
| Interest  income from restricted assets                      |       | (587                                                       | )          | (0.2                                                       | )          | (918                                                                | )          | (0.4                                                                | )          | (1,983 | ) | (0.2 | ) | (3,044 | ) | (0.4 | ) |
| Adjusted  EBITDA                                             |       | $                                                          | 40,449     |                                                       | 12.4       | %                                                                   | $          | 26,307                                                              |       | 10.4 | % | $ | 112,652 |   | 12.5 | % | $ | 81,866 |   | 11.0 | % |
| Reconciliation  of Adjusted EBITDA to income from operations |       |                                                       |       |                                                       |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Adjusted  EBITDA                                             |       | 40,449                                                     |       | 12.4                                                       |       | 26,307                                                              |       | 10.4                                                                |       | 112,652 |   | 12.5 |   | 81,866 |   | 11.0 |   |
| Depreciation  and amortization expenses                      |       | (3,534                                                     | )          | (1.1                                                       | )          | (3,546                                                              | )          | (1.4                                                                | )          | (11,511 | ) | (1.3 | ) | (10,205 | ) | (1.4 | ) |
| Interest  income from restricted assets                      |       | (587                                                       | )          | (0.2                                                       | )          | (918                                                                | )          | (0.4                                                                | )          | (1,983 | ) | (0.2 | ) | (3,044 | ) | (0.4 | ) |
| Income  from operations                                      |       | $                                                          | 36,328     |                                                       | 11.1       | %                                                                   | $          | 21,843                                                              |       | 8.6 | % | $ | 99,158 |   | 11.0 | % | $ | 68,617 |   | 9.3 | % |

 

***Quarter ended September 30, 2009 compared to thequarter ended September 30, 2008***

 

***Consolidated***

 

Our results for the threemonths ended September 30, 2009 reflect a decrease in net revenue of $14.3million and an increase in net income of $0.3 million compared to the threemonths ended September 30, 2008.  We recorded approximately $101million of revenue related to our FEMA deployment during the three months endedSeptember 30, 2008.  Excluding theimpact of FEMA deployment revenue and related income from operations, weexperienced growth in income from operations and a decrease in 

 

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interest expense,partially offset by increased income tax expense.  Basic and dilutedearnings per share were $0.67 and $0.66, respectively, for the three monthsended September 30, 2009.  Basic and diluted earnings per share were$0.69 and $0.66, respectively, for the same period in 2008.

 

*Netrevenue.* Forthe three months ended September 30, 2009, we generated net revenue of$665.1 million compared to $679.3 million for the three months ended September 30,2008, representing a decrease of 2.1%.  Although there were increases inrates and volumes on existing contracts and increased volume from net newcontracts and acquisitions, these increases were offset by $101.1 million ofFEMA deployment revenue recorded in the three months ended September 30, 2008.

 

*AdjustedEBITDA.*AdjustedEBITDA was $72.3 million, or 10.9% of net revenue, for the three months ended September 30,2009 compared to $73.5 million, or 10.8% of net revenue for the three monthsended September 30, 2008. The 2008 period includes the positive impact toAdjusted EBITDA related to our deployment under the FEMA contract.

 

*Interestexpense.* Interestexpense for the three months ended September 30, 2009 was $10.3 millioncompared to $11.1 million for the three months ended September 30, 2008.

 

*Incometax expense. *Incometax expense for the three months ended September 30, 2009 was $18.5million compared to $18.1 million for the same period in 2008.  Oureffective tax rate for the three months ended September 30, 2009was 39.2%, compared to 38.9% for the same period in 2008.

 

***AMR***

 

*Netrevenue. *Netrevenue for the three months ended September 30, 2009 was $338.8 million,a decrease of $86.6 million, or 20.4%, from $425.3 million for the same periodin 2008.  The 2008 period includes $101.1 million of FEMA deploymentrevenue.  Excluding the impact of theFEMA deployment, net revenue per weighted transport increased 6.7%, or $21.6million, and was offset by a decrease of 2.2%, or $7.1 million, in weightedtransport volume.  Of the increase in net revenue per weighted transport,5.1% is attributable primarily to various rate increases, including a Medicarefee increase effective January 1, 2009, and the remainder is due primarilyto growth in our managed transportation business.  Weighted transportsdecreased 16,200 from the same quarter last year due to a decrease in weightedtransports of 17,200 from the exit of markets, partially offset by a slightincrease in weighted transport volume in existing markets.

 

*Compensationand benefits. *Compensationand benefit costs for the three months ended September 30, 2009 were$211.9 million, or 62.6% of net revenue, compared to $226.9 million, or 53.4%of net revenue, for the same period in 2008. The $15.0 million decrease was dueprimarily to compensation costs incurred during the third quarter of 2008 as aresult of the FEMA deployment.  Excludingthe impact of the FEMA deployment, ambulance crew wages per ambulance unit hourincreased by approximately 3.5%, or $4.1 million primarily attributable to wagerate increases.  Ambulance unit hours decreased by 2.9%, or $3.4 million,due primarily to the reduction in volume in existing markets and improvementsin our deployment.  Benefit costsincreased by $2.2 million, excluding the FEMA deployment, for the three monthsended September 30, 2009 compared to the same period in 2008.  Thechange is primarily attributable to increased health insurance costs. Excludingthe impact of the FEMA deployment, compensation and benefits decreased as apercentage of net revenue due also to the growth in our managed transportationbusiness; our managed transportation costs are reflected primarily in operatingexpenses.

 

*Operatingexpenses. *Operatingexpenses for the three months ended September 30, 2009 were $75.7 million,or 22.3% of net revenue, compared to $126.2 million, or 29.7% of net revenue,for the three months ended September 30, 2008.  The change is dueprimarily to a decrease of $49.6 million related to our FEMA deployment in thethird quarter of 2008 and decreased fuel costs of $5.1 million, includingapproximately $4.4 million related to lower fuel rates, partially offset by anincrease of $4.1 million in operating expenses associated with growth in ourmanaged transportation business.

 

*Insuranceexpense. *Insuranceexpense for the three months ended September 30, 2009 was $10.4 million,or 3.1% of net revenue, compared to $10.7 million, or 2.5% of net revenue, forthe same period in 2008.  We recorded a reduction of prior year insuranceprovisions of $2.1 million during the three months ended September 30,2009 and $1.7 million during the three months ended September 30, 2008.

 

*Selling,general and administrative. *Selling, general and administrative expense for thethree months ended September 30, 2009 was $9.4 million, or 2.8% of netrevenue, compared to $15.1 million, or 3.5% of net revenue, for the threemonths ended September 30, 2008. The change is due primarily to travel and other administrative costsassociated with the FEMA deployment during the three months ended September 30,2008.

 

*Depreciationand amortization. *Depreciation and amortization expense for the three months ended September 30,2009 was $12.2 million, or 3.6% of net revenue, compared to $13.4 million, or3.2% of net revenue, for the same period in 2008.

 

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***EmCare***

 

*Netrevenue. *Netrevenue for the three months ended September 30, 2009 was $326.3 million,an increase of $72.3 million, or 28.5%, from $254.0 million for the threemonths ended September 30, 2008. The increase was due primarily to anincrease in patient encounters from net new hospital contracts and net revenueincreases in existing contracts. Following June 30, 2008, we added 87 netnew contracts which accounted for a net revenue increase of $44.4 million forthe three months ended September 30, 2009.  Of the 87 net newcontracts added since June 30, 2008, 59 were added in 2008 resulting in anincremental increase in 2009 net revenue of $13.2 million.  Of the 59 net new contracts added in 2008, 45were from our acquisition of Clinical Partners in August 2008 with relatedmanagement fee revenue totaling $2.3 million during the three months ended September 30,2009.  EmCare has added 71 new contractsand terminated 43 contracts to date in 2009, resulting in an increase in netrevenue of $31.3 million for the three months ended September 30,2009.   Net revenue under our “samestore” contracts (contracts in existence for the entirety of both periods)increased $27.4 million, or 12.2%, for the three months ended September 30,2009.  The change is due to a 5.0% increase in revenue per weightedpatient encounter and an increase in same store weighted patient encounters of7.2% over the prior period.

 

*Compensationand benefits. *Compensationand benefits costs for the three months ended September 30, 2009 were$255.7 million, or 78.4% of net revenue, compared to $199.8 million, or 78.7%of net revenue, for the same period in 2008. Provider compensation and benefitscosts increased $35.4 million from net new contract additions. Same storeprovider compensation and benefits costs were $11.1 million over the priorperiod due primarily to a 7.2% increase in same store weighted patientencounters.  Non-provider compensationand benefits costs increased by $8.7 million due primarily to our recentacquisitions, organic growth, and additional incentive related accruals.

 

*Operatingexpenses. *Operatingexpenses for the three months ended September 30, 2009 were $9.8 million,or 3.0% of net revenue, compared to $8.9 million, or 3.5% of net revenue, forthe same period in 2008.  Operating expenses increased $0.9 million dueprimarily to higher collection agency and billing fees incurred in connectionwith the expansion of our anesthesiology and radiology businesses.

 

*Insuranceexpense. *Professionalliability insurance expense for the three months ended September 30, 2009was $14.4 million, or 4.4% of net revenue, compared to $14.4 million, or 5.7%of net revenue, for the three months ended September 30, 2008.  We recorded an increase in prior yearinsurance provisions of $1.3 million for the three months ended September 30,2009 and $3.9 million for the same period in 2008.

 

*Selling,general and administrative. *Selling, general and administrative expense for thethree months ended September 30, 2009 was $6.5 million, or 2.0% of netrevenue, compared to $5.4 million, or 2.1% of net revenue, for the three monthsended September 30, 2008.

 

*Depreciationand amortization. *Depreciation and amortization expense for the three months ended September 30,2009 was $3.5 million, or 1.1% of net revenue, compared to $3.5 million, or1.4% of net revenue, for the three months ended September 30, 2008.

 

***Nine months ended September 30, 2009 compared to thenine months ended September 30, 2008***

 

***Consolidated***

 

Our results for the ninemonths ended September 30, 2009 reflect an increase in net revenue of$99.2 million and an increase in net income of $18.0 million compared to thenine months ended September 30, 2008. We recorded approximately $101 million of revenue related to our FEMAdeployment during the nine months ended September 30, 2008.  Excluding the impact of FEMA deploymentrevenue and related income from operations, we experienced growth in incomefrom operations, partially offset by increased income tax expense. Basic anddiluted earnings per share were $1.93 and $1.89, respectively, for the ninemonths ended September 30, 2009. Basic and diluted earnings per share were$1.54 and $1.49, respectively, for the same period in 2008.

 

*Netrevenue. *Forthe nine months ended September 30, 2009, net revenue was $1,915.4 millioncompared to $1,816.2 million for the nine months ended September 30, 2008,representing an increase of 5.5%. The increase is attributable primarily toincreases in rates and volumes on existing contracts and increased volume fromnet new contracts and acquisitions, partially offset by $101.1 million of FEMAhurricane deployment revenue recorded in 2008.

 

*AdjustedEBITDA. *AdjustedEBITDA was $210.8 million, or 11.0% of net revenue, for the nine months ended September 30,

 

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2009 compared to $183.4million, or 10.1% of net revenue for the nine months ended September 30,2008.  The 2008 period includes thepositive impact to Adjusted EBITDA related to our hurricane deployment underthe FEMA contract.

 

*Interestexpense. *Interestexpense for the nine months ended September 30, 2009 was $30.7 millioncompared to $31.4 million for the nine months ended September 30, 2008.

 

*Incometax expense. *Incometax expense increased $13.0 million for the nine months ended September 30,2009, compared to the same period in 2008, resulting primarily from increasedoperating income.  Our effective tax rate for the nine months ended September 30,2009 was 39.4% compared with 38.6% for the same period in 2008.

 

***AMR***

 

*Netrevenue. *Netrevenue for the nine months ended September 30, 2009 was $1,010.7 million,a decrease of $64.6 million, or 6.0%, from $1,075.3 million for the same periodin 2008.  The change in net revenue wasdue primarily to $101.1 million related to the FEMA hurricane deploymentrevenue recorded in 2008.  Excluding theimpact of the 2008 FEMA deployment, net revenue per weighted transportincreased 6.1%, or $60.1 million, and was offset by a decrease of 2.4%, or$23.6 million, in weighted transport volume. Of the increase in net revenue per weighted transport, 4.6% isattributable primarily to various rate increases, including a Medicare feeincrease effective January 1, 2009, and the remainder is due primarily togrowth in our managed transportation business.  Weighted transportsdecreased 54,600 from the same period last year.  The change was due to adecrease in weighted transports of 39,500 from the exit of markets, a decreasein weighted transport volume in existing markets of 31,900, or 1.4%, offset by16,800 weighted transports from entrance into new markets.

 

*Compensationand benefits. *Compensationand benefit costs for the nine months ended September 30, 2009 were $628.0million, or 62.1% of net revenue, compared to $635.0 million, or 59.1% of netrevenue, for the same period in 2008. The decrease of $7.0 million was dueprimarily to compensation costs incurred during 2008 as a result of the FEMAdeployment.  Excluding the impact of the2008 FEMA deployment, ambulance crew wages per ambulance unit hour increased byapproximately 3.8%, or $12.8 million primarily attributable to wage rateincreases.   Ambulance unit hours decreased period over period by1.8%, or $6.0 million, due primarily to the reduction in volume in existingmarkets and improvements in our deployment. Benefit costs increased by $5.4 million excluding the impact of the 2008FEMA deployment costs for the nine months ended September 30, 2009compared to the same period in 2008.  The change is primarily attributableto increased health insurance costs. Excluding the impact of the 2008 FEMAdeployment, compensation and benefits decreased as a percentage of net revenuedue to the growth in our managed transportation business; our managedtransportation costs are reflected primarily in operating expenses.

 

*Operatingexpenses. *Operatingexpenses for the nine months ended September 30, 2009 were $222.3 million,or 22.0% of net revenue, compared to $275.9 million, or 25.7% of net revenue,for the nine months ended September 30, 2008.  The change is due primarily to a decrease of$49.7 million related to our FEMA deployment in 2008 and decreased fuel costsof $14.5 million, including approximately $12.4 million related to lower fuelrates, partially offset by an increase of $12.1 million in operating expensesassociated with growth in our managed transportation business.

 

*Insuranceexpense. *Insuranceexpense for the nine months ended September 30, 2009 was $35.4 million, or3.5% of net revenue, compared to $30.8 million, or 2.9% of net revenue, for thesame period in 2008.  We recorded a reduction of prior year insuranceprovisions of $0.2 million during the nine months ended September 30, 2009and $5.3 million during the same period in 2008.

 

*Selling,general and administrative. *Selling, general and administrative expense for thenine months ended September 30, 2009 was $28.3 million, or 2.8% of netrevenue, compared to $34.1 million, or 3.2% of net revenue, for the nine monthsended September 30, 2008.  Thechange is due primarily to travel and other administrative costs recordedduring 2008 associated with the FEMA deployment.

 

*Depreciationand amortization. *Depreciation and amortization expense for the nine months ended September 30,2009 was $37.1 million, or 3.7% of net revenue, compared to $42.0 million, or3.9% of net revenue, for the same period in 2008.

 

***EmCare***

 

*Netrevenue. *Netrevenue for the nine months ended September 30, 2009 was $904.7 million,an increase of $163.8 million, or 22.1%, from $740.9 million for the nine monthsended September 30, 2008. The increase was due primarily to an increase inpatient encounters from net new hospital contracts and net revenue increases inexisting contracts. Following December 31, 2007, we added 107 net newcontracts which accounted for a net revenue increase of $110.1 million for thenine months ended September 30, 2009.  Of the 107 net new contractsadded since December 31, 2007, 79 were added in 2008 resulting in anincremental increase in 2009 net revenue of $62.1 million.  Of the 79 net new contracts added in 2008, 45were from our 

 

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acquisition of ClinicalPartners in August 2008 with related management fee revenue totaling $6.3million during the nine months ended September 30, 2009.  EmCare has added 71 new contracts andterminated 43 contracts to date in 2009, resulting in an increase in netrevenue of $48.1 million for the nine months ended September 30,2009.   Net revenue under our “samestore” contracts (contracts in existence for the entirety of both periods)increased $49.3 million, or 8.2%, for the nine months ended September 30,2009.  The change is due to a 4.0% increase in revenue per weightedpatient encounter and an increase in same store weighted patient encounters of4.2% over the prior period.

 

*Compensationand benefits. *Compensationand benefits costs for the nine months ended September 30, 2009 were$704.8 million, or 77.9% of net revenue, compared to $586.6 million, or 79.2%of net revenue, for the same period in 2008. Provider compensation and benefitscosts increased $77.4 million from net new contract additions. Same storeprovider compensation and benefits costs were $21.4 million over the priorperiod due to a 1.2% increase in provider compensation per weighted patientencounter and a 4.2% increase in same store weighted patient encounters.  Non-provider compensation and benefits costsincreased by $19.3 million due primarily to our recent acquisitions, organicgrowth, and additional incentive related accruals.

 

*Operatingexpenses.* Operatingexpenses for the nine months ended September 30, 2009 were $30.1 million,or 3.3% of net revenue, compared to $26.1 million, or 3.5% of net revenue, forthe same period in 2008.  Operating expenses increased $4.0 million dueprimarily to higher collection agency and billing fees incurred in connectionwith the expansion of our anesthesiology and radiology businesses.

 

*Insuranceexpense.* Professionalliability insurance expense for the nine months ended September 30, 2009was $40.3 million, or 4.5% of net revenue, compared to $32.8 million, or 4.4%of net revenue, for the nine months ended September 30, 2008. We recordedan increase of prior year insurance provisions of $4.5 million during the ninemonths ended September 30, 2009 and $1.3 million during the same period in2008.

 

*Selling,general and administrative.* Selling, general and administrative expense forthe nine months ended September 30, 2009 was $18.9 million, or 2.1% of netrevenue, compared to $16.5 million, or 2.2% of net revenue, for the nine monthsended September 30, 2008.  The increase is due primarily to anincrease in regional travel expense and other support costs associated with theincrease in contracts during the period.

 

*Depreciationand amortization.* Depreciationand amortization expense for the nine months ended September 30, 2009 was$11.5 million, or 1.3% of net revenue, compared to $10.2 million, or 1.4% ofnet revenue, for the nine months ended September 30, 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, 2008 and incorporated by reference herein.As of September 30, 2009, 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-relatedassets and insurance-related deposits.

 

We believe our cash andcash equivalents, cash provided by our operating activities, and amountsavailable under our senior secured credit facility will meet the liquidityrequirements of our business through at least the next 12 months. We haveavailable to us, upon compliance with customary conditions, $100.0 millionunder the revolving credit facility, less outstanding letters of credit of$43.6 million at September 30, 2009. Further, we have a conditional rightunder our senior secured credit facility to request new or existing lenders toprovide up to an additional $100.0 million of term debt (in $20.0 millionincrements).

 

**CashFlow**

 

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

 

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| ** **                       | ** ** | **Nine months ended********September 30, 2009** | ** ** | **Nine months ended********September 30, 2008** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| Net  cash provided by (used in): |       |                                                                |       |                                                                |       |
| Operating  activities            |       | $                                                                   | 209,801    |                                                                | $          | 130,426 |   |
| Investing  activities            |       | (31,674                                                             | )          | (30,357                                                             | )          |
| Financing  activities            |       | 6,805                                                               |       | 6,699                                                               |       |
|                                  |            |                                                                     |            |                                                                     |            |  |  |

 

*Operatingactivities*. Netcash provided by operating activities was $209.8 million for the nine monthsended September 30, 2009 compared to $130.4 million for the same periodlast year.  The increase in operating cash flows relates primarily to anincrease in net income, further reductions in days sales outstanding, or DSO,and changes in insurance accruals, partially offset by a reduced impact fromchange in accounts payable and accrued liabilities.  Decreases in accounts receivable increasedoperating cash flows by $8.4 million for the nine months ended September 30,2009.  During the same period in 2008,increases in accounts receivable decreased operating cash flows by $54.5million due to FEMA deployment receivables outstanding as of September 30,offset by increased collections for receivables delayed in 2007 for billingsystem conversions and for delays in obtaining provider numbers. Increases in accounts payable and accrued liabilities increased operating cashflows by $10.6 million in 2009 compared to $42.0 million in 2008 primarily as aresult of FEMA-related deployment accruals outstanding as of September 30,2008.

 

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 December 31, 2008 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 AMR’s 2008 deployments under its contract with the Federal EmergencyManagement Agency:

 
| ** ** | ** ** | **Q3 2009** | ** ** | **Q2 2009** | ** ** | **Q1 2009** | ** ** | **Q4 2008** | ** ** | **Q3 2008** | ** ** | **Q2 2008** | ** ** |
|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| AMR        |       | 70               |       | 73               |       | 74               |       | 79               |       | 83               |       | 86               |       |
| EmCare     |       | 58               |       | 61               |       | 65               |       | 68               |       | 72               |       | 76               |       |
| EMSC       |       | 64               |       | 67               |       | 70               |       | 74               |       | 78               |       | 82               |       |

 

*Investingactivities*. Net cash used in investing activities was $31.7 million for the nine monthsended September 30, 2009 compared to $30.4 million for the same period in2008.   The change in cash flows used in investing activities was affectedby changes to insurance collateral requirements and increased net capitalexpenditures, offset by reduced business acquisition activity.  Net insurance collateral requirementsprovided $4.1 million during 2009 compared to $16.0 million during the 2008period.  Net capital expenditure spending was $33.6 million during thenine months ended September 30, 2009 compared to $21.4 million for the sameperiod last year due primarily to the timing of capital purchases.  Cashused in the acquisition of businesses during the nine months ended September 30,2009 was $1.4 million compared to $28.3 million during the same period in 2008.

 

*Financingactivities.* Forthe nine months ended September 30, 2009, net cash provided by financingactivities was $6.8 million compared to $6.7 million for the nine months ended September 30,2008.  At September 30, 2009, therewere 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 borrowings.While we have entered into transactions to mitigate our exposure to bothchanges in interest rates and fuel prices, we do not use these instruments forspeculative or trading purposes.

 

We monitor the risk fromchanging interest rates and evaluate ways to mitigate possible exposures, asappropriate, using derivative and hedging instruments.  Our use of derivative instruments is limitedto highly effective fixed interest rate swap agreements used to manage well-definedinterest rate risk exposures.  In March 2009,we amended the interest rate swap agreement originally entered into in December 2007.  The amendment changed the hedged interestrate from the 3-month LIBOR to the 1-month LIBOR.  The amended swap agreement is with majorfinancial institutions and amounts to $200 million of our variable ratedebt.  This swap agreement effectivelyconverts $200 million of variable rate debt to fixed rate debt with aneffective rate of 6.1%.  We continue to make interest payments based onthe variable rate associated with the debt (based on LIBOR which had a rate ofless than 1% at September 30, 2009) and periodically settle with ourcounterparties for the difference between the rate paid and the fixedrate.  The swap agreement expires in December 2009.

 

As of September 30,2009, we had $451.7 million of debt excluding capital leases, of which $0.3million was variable rate debt under our senior secured credit facility ($200million of which was fixed through an interest rate swap which expires in December 2009)and the balance was fixed rate debt, including aggregate principal amount ofour senior subordinated notes. An increase or decrease in interest rates of0.125% will change our interest costs on our senior secured credit facility byless than $0.1 million per year based on outstanding indebtedness at September 30,2009.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

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

 

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

 

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

 

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

 

There were no changes inour internal control over financial reporting that occurred during our fiscalquarter ended September 30, 2009 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**EMERGENCYMEDICAL SERVICES CORPORATION**

**PART II. OTHER INFORMATION**

**FORTHE THREE AND NINE MONTHS ENDED**

**SEPTEMBER30, 2009**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

For additionalinformation regarding legal proceedings, please refer to note 8, under thecaption “Commitments and Contingencies” of the notes accompanying theconsolidated financial statements included herein, to our Annual Report on Form 10-Kfiled with the SEC on February 23, 2009 and to our Quarterly Reports on Form 10-Qfiled with the SEC on May 6, 2009 and August 4, 2009.

 

**ITEM1A. RISK FACTORS**

 

Other than with respectto the risk factors below, there have been no material changes from the riskfactors disclosed in the “Risk Factors” sections of the Company’s Annual Reporton Form 10-K for the year ended December 31, 2008 and in the Company’sQuarterly Report for the quarter ended June 30, 2009.

 

**RiskFactors Related to Our Capital Structure**

 

***We donot intend to pay cash dividends.***

 

We do not intend to paycash dividends on our class A common stock. We currently intend to retain allavailable funds and any future earnings for use in the operation and expansionof our business and do not anticipate paying any cash dividends in theforeseeable future. In addition, the terms of our current, as well as anyfuture, financing agreements may preclude us from paying any dividends. As aresult, capital appreciation, if any, of our class A common stock will be yoursole source of potential gain for the foreseeable future.

 

**RiskFactors Related to Healthcare Regulation**

 

***Underrecently enacted amendments to federal privacy law, we are subject to morestringent penalties in the event we improperly use or disclose protected healthinformation regarding our patients.***

 

The AdministrativeSimplification Provisions of the Health Insurance Portability andAccountability Act of 1996, or HIPAA, required the Department of Health andHuman Services, or HHS, to adopt standards to protect the privacy and securityof certain health-related information. The HIPAA privacy regulations containdetailed requirements concerning the use and disclosure of individuallyidentifiable health information by “covered entities,” which include AMR andEmCare.

 

In addition to theprivacy requirements, HIPAA covered entities must implement certainadministrative, physical, and technical security standards to protect theintegrity, confidentiality and availability of certain electronic healthinformation received, maintained, or transmitted. HIPAA also implemented theuse of standard transaction code sets and standard identifiers that coveredentities must use when submitting or receiving certain electronic healthcaretransactions, including activities associated with the billing and collectionof healthcare claims.

 

The Health InformationTechnology for Economic and Clinical Health Act (HITECH Act), which was enactedas part of the ARRA, significantly expands the scope of the privacy andsecurity requirements under HIPAA and increases penalties for violations. Priorto the HITECH Act, the focus of HIPAA enforcement was on resolution of allegednon-compliance through voluntary corrective action without fines or penaltiesin most cases. That focus changed under the HITECH Act, which now imposesmandatory penalties for violations of HIPAA that are due to “willful neglect.”For violations due to willful neglect, penalties start at $10,000 and are notto exceed $250,000. For violations due to willful neglect that are notcorrected, penalties start at $50,000 and are not to exceed $1.5 million. Forviolations based on reasonable cause, penalties start at $1,000 per violationand are not to exceed $100,000. For violations determined to be made withoutknowledge, penalties start at $100 per violation and are not to exceed $25,000.The HITECH Act specifically allows the Office for Civil Rights (OCR) tocontinue to use corrective action without a penalty, but only in situationswhere the violation was made without knowledge. The HITECH Act also authorizesstate attorneys general to file suit on behalf of their residents. Courts willbe able to award damages, costs, and attorneys’ fees related to violations ofHIPAA in such cases.

 

The HITECH Act andimplementing regulations enacted by HHS further requires that patients benotified of any unauthorized acquisition, access, use, or disclosure of theirunsecured protected health information (“Unsecured PHI”) that compromises theprivacy or security of such information, with some exceptions related tounintentional or inadvertent use or disclosure by employees or authorizedindividuals within the “same facility.” The HITECH Act and implementingregulations specify that such notifications must be made “without unreasonabledelay and in no case later than 60 calendar days after discovery of the breach.”If a breach affects 500 patients or more, it must be reported immediately toHHS, which will post the name of the breaching entity on its public web site. Ifa breach involves less than 500 people, the covered entity must record it in alog and notify HHS at least annually. Breaches affecting 500 patients or morein the same state or jurisdiction must be reported to the local media. Thesecurity breach notification requirements apply not only to unauthorizeddisclosures of Unsecured PHI to outside third parties, but also to unauthorizedinternal access to such PHI which compromises the security or privacy of theindividual’s PHI. This means that unauthorized employee “snooping” into medicalrecords could trigger the notification requirements. These security breachnotification requirements became effective on September 23, 2009, but HHS hasindicated it will not take enforcement action until February of 2010.

 

Many states inwhich we operate also have laws that protect the privacy and security ofconfidential, personal information. These laws may be similar to or even moreprotective than the federal provisions. Not only may some of these state lawsimpose fines and penalties upon violators, but some may afford private rightsof action to individuals who believe their personal information has beenmisused. California’s patient privacy laws, for example, provide for penaltiesof up to $250,000 and permit injured parties to sue for damages.

 

***Changesin the healthcare industry and in healthcare spending may adversely affect ourrevenue.***

 

        Almost all of our revenue is either from the healthcareindustry or could be affected by changes in healthcare spending or legislation.The healthcare industry is subject to changing political, regulatory and otherinfluences. National healthcare reform is currently a major focus at thefederal level, and congressional leaders are working on major healthcare reformlegislation that could be enacted into law by the end of 2009. Among otherthings, healthcare reform may increase governmental involvement in healthcare,lower reimbursement rates from both governmental and private third partypayors, migrate coverage amongst payers, or otherwise change the legal andeconomic environment in which we and our customers operate. Our customers mayrespond by reducing their expenditures or postponing expenditure decisions,including expenditures for our services.

 

***Changesin the rates or methods of third party reimbursements may adversely affect ourrevenue and operations.***

 

        We derive a majority of our revenue from direct billings topatients and third party payors such as Medicare, Medicaid and private healthinsurance companies. As a result, any changes in the rates or methods ofreimbursement for the services we provide could have a significant adverseimpact on our revenue and financial results. Healthcare reform legislationcurrently pending in Congress could result in substantial cuts in Medicare andMedicaid coverage and/or funding, as well as reductions in coverage and/oramounts paid by private payors, which could have an adverse impact on ourrevenues from those sources.

 

        Even if healthcare reform legislation currently pending inCongress is not enacted, government funding for healthcare programs is subjectto statutory and regulatory changes, administrative rulings, interpretations ofpolicy and determinations by intermediaries and governmental fundingrestrictions, all of which could materially impact program coverage andreimbursements for both ambulance and physician services. In recent years,Congress has consistently attempted to curb spending on Medicare, Medicaid andother programs funded in whole or part by the federal government. State andlocal governments have also attempted to curb spending on those programs forwhich they are wholly or partly responsible. This has resulted in costcontainment measures such as the imposition of new fee schedules that havelowered reimbursement for some of our services and restricted the rate ofincrease for others, and new utilization controls that limit coverage of ourservices. For example, we estimate that the impact of a national fee schedulepromulgated in 2002, as modified by subsequent legislation, resulted in adecrease in AMR’s net revenue of approximately $17 million in 2006, a decreasein AMR’s net revenue of approximately $7 million in 2007, and an increase inAMR’s net revenue of approximately $14 million in 2008. Based upon the currentMedicare transport mix, we expect that the impact of these factors will be anincrease in AMR’s net revenue totaling approximately $24 million for 2009 and adecrease in AMR’s net revenue of approximately $20 million in 2010.

 

        In addition, state and local government regulations oradministrative policies regulate ambulance rate structures in some jurisdictionsin which we conduct transport services. We may be unable to receive ambulanceservice rate increases on a timely basis where rates are regulated, or toestablish or maintain satisfactory rate structures where rates are notregulated.

 

        We believe that regulatory trends in cost containment willcontinue. We cannot assure you that we will be able to offset reduced operatingmargins through cost reductions, increased volume, the introduction ofadditional procedures or otherwise. In addition, we cannot assure you thatfederal, state and local governments will not impose reductions in the feeschedules or rate regulations applicable to our services in the future. Anysuch reductions could have a material adverse effect on our business, financialcondition or results of operations.

 

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**ITEM 6.EXHIBITS**

 
| 4.23   |   | Supplemental Indenture No. 16,  effective as of September 11, 2009, among EverRad, LLC, the Issuers  named therein, the other Guarantors named therein and U.S. Bank Trust  National Association, as trustee.*                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.2   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.3   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.4   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                          |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.2   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation, as general partner of Emergency Medical Services L.P.  pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

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*               Filed with this Report

 

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**SIGNATURES**

 

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

 
|       |                  | **EMERGENCY  MEDICAL SERVICES CORPORATION** |
|------------|-----------------------|---------------------------------------------|
|       |                  | ** **                                  |
|       |                  | (registrant)                                |
|       |                  |                                        |   |
|       | November 4, 2009 |                                        | 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, 2009 |                                        | By: | /s/ William A.  Sanger |
|       | Date                  |                                        | William A. Sanger |
|       |                  |                                        | Chairman and Chief  Executive Officer |
|       |                  |                                        |   |
|       |                  | By:                                         | /s/ Randel G. Owen |
|       |                  |                                        | Randel G. Owen |
|       |                  |                                        | Chief Financial Officer  and Executive Vice President |

 

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**EXHIBITINDEX**

 
| 4.23   |   | Supplemental Indenture No. 16,  effective as of September 11, 2009, among EverRad, LLC, the Issuers  named therein, the other Guarantors named therein and U.S. Bank Trust  National Association, as trustee.*                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.2   |   | Certification of the  Chief Executive Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.3   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 31.4   |   | Certification of the  Chief Financial Officer of Emergency Medical Services Corporation, as general  partner of Emergency Medical Services L.P., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.*                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                          |
|   |   |                                                                                                                                                                                                                                                                                                    |
| 32.2   |   | Certification of the  Chief Executive Officer and the Chief Financial Officer of Emergency Medical  Services Corporation, as general partner of Emergency Medical Services L.P.  pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

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*               Filed with this Report

 

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