Attached files

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EX-31.3 - EX-31.3 - Emergency Medical Services L.P.a10-12124_4ex31d3.htm
EX-32.1 - EX-32.1 - Emergency Medical Services L.P.a10-12124_4ex32d1.htm
EX-32.2 - EX-32.2 - Emergency Medical Services L.P.a10-12124_4ex32d2.htm
EX-31.4 - EX-31.4 - Emergency Medical Services L.P.a10-12124_4ex31d4.htm
EX-31.2 - EX-31.2 - Emergency Medical Services L.P.a10-12124_4ex31d2.htm
EX-31.1 - EX-31.1 - Emergency Medical Services L.P.a10-12124_4ex31d1.htm
EX-10.3.3 - EX-10.3.3 - Emergency Medical Services L.P.a10-12124_4ex10d3d3.htm
EX-10.19.1 - EX-10.19.1 - Emergency Medical Services L.P.a10-12124_4ex10d19d1.htm

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark one)

 

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

 

For the quarterly period ended June 30, 2010

 

Or

 

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

 

For the transition period from                 to                

 

Commission file numbers:

001-32701

333-127115

 


 

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 since last report:

Not applicable

 

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

 

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

 

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

 

 

 

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

 

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

 

 

 



Table of Contents

 

EMERGENCY MEDICAL SERVICES CORPORATION

 

INDEX TO QUARTERLY REPORT

 

ON FORM 10-Q

 

FOR THE THREE AND SIX MONTHS ENDED

 

JUNE 30, 2010

 

Part 1. Financial Information

3

 

 

 

Item 1.

Financial Statements (Unaudited):

3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income

3

 

 

 

 

Consolidated Balance Sheets

4

 

 

 

 

Consolidated Statements of Cash Flows

5

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

Part II. Other Information

33

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 6.

Exhibits

34

 

 

 

Signatures

35

 

2



Table of Contents

 

EMERGENCY MEDICAL SERVICES CORPORATION

PART I. FINANCIAL INFORMATION

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2010

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

Emergency Medical Services Corporation

Consolidated Statements of Operations and Comprehensive Income

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

 

 

 

Quarter ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net revenue

 

$

708,804

 

$

637,291

 

$

1,388,158

 

$

1,250,313

 

Compensation and benefits

 

496,443

 

438,628

 

976,760

 

865,162

 

Operating expenses

 

90,586

 

82,173

 

177,115

 

166,845

 

Insurance expense

 

25,942

 

28,357

 

48,012

 

50,861

 

Selling, general and administrative expenses

 

18,298

 

16,279

 

35,156

 

31,315

 

Depreciation and amortization expense

 

15,692

 

16,157

 

31,872

 

32,925

 

Income from operations

 

61,843

 

55,697

 

119,243

 

103,205

 

Interest income from restricted assets

 

859

 

1,120

 

1,714

 

2,386

 

Interest expense

 

(5,060

)

(10,279

)

(13,326

)

(20,469

)

Realized gain on investments

 

57

 

847

 

149

 

1,486

 

Interest and other income

 

206

 

423

 

471

 

940

 

Loss on early debt extinguishment

 

(19,091

)

 

(19,091

)

 

Income before income taxes and equity in earnings of unconsolidated subsidiary

 

38,814

 

47,808

 

89,160

 

87,548

 

Income tax expense

 

(14,955

)

(18,885

)

(34,365

)

(34,611

)

Income before equity in earnings of unconsolidated subsidiary

 

23,859

 

28,923

 

54,795

 

52,937

 

Equity in earnings of unconsolidated subsidiary

 

105

 

96

 

199

 

153

 

Net income

 

23,964

 

29,019

 

54,994

 

53,090

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) during the period

 

1,101

 

(1,377

)

1,543

 

(2,534

)

Unrealized gains (losses) on derivative financial instruments

 

(563

)

916

 

(85

)

1,267

 

Comprehensive income

 

$

24,502

 

$

28,558

 

$

56,452

 

$

51,823

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.54

 

$

0.69

 

$

1.26

 

$

1.26

 

Diluted earnings per common share

 

$

0.54

 

$

0.67

 

$

1.23

 

$

1.23

 

Weighted average common shares outstanding, basic

 

44,011,821

 

42,354,667

 

43,792,979

 

42,140,632

 

Weighted average common shares outstanding, diluted

 

44,703,834

 

43,334,340

 

44,620,562

 

43,215,657

 

 

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

 

3



Table of Contents

 

Emergency Medical Services Corporation

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

313,033

 

$

332,888

 

Insurance collateral

 

30,936

 

24,986

 

Trade and other accounts receivable, net

 

483,597

 

459,088

 

Parts and supplies inventory

 

22,392

 

22,270

 

Prepaids and other current assets

 

32,578

 

19,662

 

Current deferred tax assets

 

 

6,323

 

Total current assets

 

882,536

 

865,217

 

Non-current assets:

 

 

 

 

 

Property, plant and equipment, net

 

121,324

 

125,855

 

Intangible assets, net

 

144,567

 

102,654

 

Non-current deferred tax assets

 

5,827

 

13,468

 

Insurance collateral

 

144,740

 

143,886

 

Goodwill

 

386,500

 

381,951

 

Other long-term assets

 

19,301

 

21,676

 

Total assets

 

$

1,704,795

 

$

1,654,707

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

66,832

 

$

70,759

 

Accrued liabilities

 

267,585

 

273,704

 

Current deferred tax liability

 

11,494

 

 

Current portion of long-term debt

 

11,848

 

4,676

 

Total current liabilities

 

357,759

 

349,139

 

Long-term debt

 

415,687

 

449,254

 

Insurance reserves and other long-term liabilities

 

166,574

 

170,227

 

Total liabilities

 

940,020

 

968,620

 

Equity:

 

 

 

 

 

Preferred stock ($0.01 par value; 20,000,000 shares authorized, 0 issued and outstanding)

 

 

 

Class A common stock ($0.01 par value; 100,000,000 shares authorized, 30,285,248 and 29,541,411 issued and outstanding in 2010 and 2009, respectively)

 

303

 

295

 

Class B common stock ($0.01 par value; 40,000,000 shares authorized, 65,052 issued and outstanding in 2010 and 2009)

 

1

 

1

 

Class B special voting stock ($0.01 par value; 1 share authorized, issued and outstanding in 2010 and 2009)

 

 

 

LP exchangeable units (13,724,676 units issued and outstanding in 2010 and 2009)

 

90,776

 

90,776

 

Additional paid-in capital

 

297,544

 

275,316

 

Retained earnings

 

374,036

 

319,042

 

Accumulated other comprehensive income

 

2,115

 

657

 

Total equity

 

764,775

 

686,087

 

Total liabilities and equity

 

$

1,704,795

 

$

1,654,707

 

 

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

 

4



Table of Contents

 

Emergency Medical Services Corporation

Consolidated Statements of Cash Flows

(unaudited; in thousands)

 

 

 

Quarter ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net income

 

$

23,964

 

$

29,019

 

$

54,994

 

$

53,090

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

16,321

 

16,661

 

33,008

 

33,741

 

Loss on disposal of property, plant and equipment

 

45

 

38

 

89

 

36

 

Equity-based compensation expense

 

1,441

 

1,104

 

2,545

 

1,754

 

Excess tax benefits from stock-based compensation

 

(2,917

)

 

(13,498

)

 

Loss on early debt extinguishment

 

19,091

 

 

19,091

 

 

Equity in earnings of unconsolidated subsidiary

 

(105

)

(96

)

(199

)

(153

)

Dividends received

 

 

 

403

 

713

 

Deferred income taxes

 

973

 

17,333

 

840

 

31,928

 

Changes in operating assets/liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

(21,750

)

3,499

 

(19,559

)

874

 

Parts and supplies inventory

 

75

 

(87

)

(87

)

(107

)

Prepaids and other current assets

 

(8,828

)

12,530

 

(12,216

)

4,690

 

Accounts payable and accrued liabilities

 

7,093

 

20,120

 

13,099

 

11,620

 

Insurance accruals

 

4,754

 

(1,124

)

6,232

 

2,753

 

Net cash provided by operating activities

 

40,157

 

98,997

 

84,742

 

140,939

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(8,652

)

(12,878

)

(15,168

)

(20,085

)

Proceeds from sale of property, plant and equipment

 

66

 

39

 

108

 

60

 

Acquisition of businesses, net of cash received

 

(47,675

)

(133

)

(50,975

)

(133

)

Net change in insurance collateral

 

(7,627

)

(15,243

)

(5,261

)

(1,933

)

Other investing activities

 

10,648

 

27

 

10,938

 

(643

)

Net cash used in investing activities

 

(53,240

)

(28,188

)

(60,358

)

(22,734

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

EMSC issuance of class A common stock

 

1,791

 

3,825

 

6,193

 

4,723

 

Repayments of capital lease obligations and other debt

 

(451,443

)

(1,453

)

(452,627

)

(2,612

)

Borrowings under credit facility

 

425,000

 

 

425,000

 

 

Debt issue costs

 

(11,749

)

 

(11,749

)

 

Payment for premiums for debt extinguishment

 

(14,513

)

 

(14,513

)

 

Excess tax benefits from stock-based compensation

 

2,917

 

 

13,498

 

 

Net change in bank overdrafts

 

(6,942

)

(190

)

(10,041

)

650

 

Net cash (used in) provided by financing activities

 

(54,939

)

2,182

 

(44,239

)

2,761

 

Change in cash and cash equivalents

 

(68,022

)

72,991

 

(19,855

)

120,966

 

Cash and cash equivalents, beginning of period

 

381,055

 

194,148

 

332,888

 

146,173

 

Cash and cash equivalents, end of period

 

$

313,033

 

$

267,139

 

$

313,033

 

$

267,139

 

 

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

 

5



Table of Contents

 

Emergency Medical Services Corporation

Notes to Unaudited Consolidated Financial Statements

(in thousands, except share and per share data)

 

1.              General

 

Basis of Presentation of Financial Statements

 

The accompanying interim consolidated financial statements for Emergency Medical Services Corporation (“EMSC” or the “Company”) have been prepared in accordance with U. S. generally accepted accounting principles (“GAAP”) for interim reporting, and accordingly, do not include all of the disclosures required for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. All such adjustments are of a normal, recurring nature. Operating results for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010. For further information, see the Company’s consolidated financial statements, including the accounting policies and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

The consolidated financial statements of EMSC include those of its direct subsidiary, Emergency Medical Services L.P. (“EMS LP”), a Delaware limited partnership. The Company’s business is conducted primarily through two operating subsidiaries, American Medical Response, Inc. (“AMR”), its healthcare transportation services segment, and EmCare Holdings Inc. (“EmCare”), its facility-based physician services segment.

 

The Company is party to a management agreement with a wholly-owned subsidiary of Onex Corporation, the Company’s principal equityholder. In exchange for an annual management fee of $1.0 million, the Onex subsidiary provides the Company with corporate finance and strategic planning consulting services. For each of the three and six months ended June 30, 2010 and 2009, the Company expensed $250 and $500, respectively, in respect of this fee.

 

2.              Summary of Significant Accounting Policies

 

Consolidation

 

The consolidated financial statements include all wholly-owned subsidiaries of EMSC, including AMR and EmCare and their respective subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements requires management to make estimates and assumptions relating to the reporting of results of operations, financial condition and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates under different assumptions or conditions.

 

Insurance

 

Insurance collateral is comprised principally of government and investment grade securities and cash deposits with third parties and supports the Company’s insurance program and reserves. Certain of these investments, if sold or otherwise liquidated, would have to be replaced by other suitable financial assurances and are, therefore, considered restricted.

 

Insurance reserves are established for automobile, workers compensation, general liability and professional liability claims utilizing policies with both fully-insured and self-insured components. This includes the use of an off-shore captive insurance program through a wholly-owned subsidiary for certain liability programs for both EmCare and AMR. In those instances where the Company has obtained third-party insurance coverage, the Company generally retains liability for the first $1 to $2 million of the loss. Insurance reserves cover known claims and incidents within the level of Company retention that may result in the assertion of additional claims, as well as

 

6



Table of Contents

 

claims from unknown incidents that may be asserted arising from activities through the balance sheet date.

 

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

 

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

 

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

 

Trade and Other Accounts Receivable, net

 

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

 

 

 

June 30,
2010

 

December 31,
2009

 

Gross trade accounts receivable

 

$

2,050,884

 

$

1,955,152

 

Allowance for contractual discounts

 

1,058,380

 

1,001,285

 

Allowance for uncompensated care

 

590,954

 

572,015

 

Net trade accounts receivable

 

401,550

 

381,852

 

Other receivables, net

 

82,047

 

77,236

 

Net accounts receivable

 

$

483,597

 

$

459,088

 

 

Other receivables represent EmCare hospital subsidies and fees and AMR fees for stand-by and special events and subsidies from community organizations.

 

AMR contractual allowances are determined primarily on payor reimbursement schedules that are included and regularly updated in the billing systems, and by historical collection experience.  The billing systems calculate the difference between payor specific gross billings and contractually agreed to, or governmentally driven, reimbursement rates.  The allowance for uncompensated care at AMR is related principally to receivables recorded for self-pay patients.  AMR’s allowances on self-pay accounts receivable are estimated on claim level, historical write-off experience.

 

Accounts receivable allowances at EmCare are estimated based on cash collection and write-off experience at a facility level contract and facility specific payor mix.  These allowances are reviewed and adjusted monthly through revenue provisions.  In addition, a look-back analysis is done, typically after 15 months, to compare actual cash collected on a date of service basis to the revenue recorded for that period.  Any adjustment necessary for an overage or deficit in these allowances based on actual collections is recorded through a revenue adjustment in the current period.

 

Revenue Recognition

 

Revenue is recognized at the time of service and is recorded net of provisions for contractual discounts and estimated uncompensated care. Provisions for estimated contractual discounts are related principally to differences between gross charges and specific payor, including governmental, reimbursement schedules. Provisions for estimated uncompensated care are related principally to the number of self-pay patients treated in the period. Provisions for contractual discounts and estimated uncompensated care as a

 

7



Table of Contents

 

percentage of gross revenue and as a percentage of gross revenue less provision for contractual discounts are as follows:

 

 

 

Quarter ended
June 30,

 

Six months ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Gross revenue

 

100.0

%

100.0

%

100.0

%

100.0

%

Provision for contractual discounts

 

53.1

%

49.4

%

52.6

%

48.7

%

Revenue net of contractual discounts

 

46.9

%

50.6

%

47.4

%

51.3

%

Provision for uncompensated care as a percentage of gross revenue

 

18.3

%

20.4

%

18.5

%

20.0

%

Provision for uncompensated care as a percentage of gross revenue less contractual discounts

 

39.0

%

40.2

%

39.1

%

39.0

%

 

Healthcare reimbursement is complex and may involve lengthy delays. Third-party payors are continuing their efforts to control expenditures for healthcare, including proposals to revise reimbursement policies. The Company has from time to time experienced delays in reimbursement from third-party payors. In addition, third-party payors may disallow, in whole or in part, claims for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, determinations of medical necessity, or the need for additional information. Laws and regulations governing the Medicare and Medicaid programs are very complex and subject to interpretation. Revenue is recognized on an estimated basis in the period which related services are rendered.  As a result, there is a reasonable possibility that recorded estimates will change materially in the short-term. Such amounts, including adjustments between provisions for contractual discounts and uncompensated care, are adjusted in future periods, as adjustments become known.  These adjustments were less than 1% of net revenue for the three and six month periods ending June 30, 2010 and 2009.

 

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

 

Equity Structure

 

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

 

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

 

In the EMS LP partnership agreement, the Company has agreed to maintain the economic equivalency of the LP exchangeable units and the class B common stock, and the holders of the LP exchangeable units have no general voting rights. The LP exchangeable units, when considered with the class B special voting stock, have the same rights, privileges and characteristics of the Company’s class B common stock. The LP exchangeable units are intended to be economically equivalent to the class B common stock of the Company in that the LP exchangeable units carry the right to vote (by virtue of the class B special voting stock) with the holders of class B common stock as if one class, and entitle holders to receive distributions only if the equivalent dividends are declared on the Company’s class B common stock. Accordingly, the Company accounts for the LP exchangeable units as if the LP

 

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Table of Contents

 

exchangeable units were shares of its common stock, including reporting the LP exchangeable units in the equity section of the Company’s balance sheet and including the number of outstanding LP exchangeable units in both its basic and diluted earnings per share calculations.

 

Fair Value Measurement

 

The Company classifies its financial instruments that are reported at fair value based on a hierarchal framework which ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is impacted by a number of factors, including the type of instrument and the characteristics specific to the instrument.  Instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.  The Company does not adjust the quoted price for these assets or liabilities.

 

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

 

Level 3 — Pricing inputs are unobservable as of the reporting date and reflect the Company’s own assumptions about the fair value of the asset or liability.

 

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

 

Description

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Securities

 

$

81,753

 

$

67,827

 

$

13,926

 

$

 

Derivatives

 

$

35

 

$

 

$

35

 

$

 

 

3.              Acquisitions

 

During the three months ended March 31, 2010, the Company made a purchase price allocation adjustment related to the acquisition of the management services entity of Pinnacle Anesthesia Consultants, P.A. and Pinnacle Consultants Mid-Atlantic, L.L.C. (together, the Pinnacle Acquisition”) which closed in December 2009.  Based on an independent valuation analysis performed, $31.1 million was reclassified from goodwill to intangible assets, and, as a result, an adjustment was also made to amortization expense.

 

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

 

4.              Accrued Liabilities

 

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

 

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June 30,
2010

 

December 31,
2009

 

Accrued wages and benefits

 

$

114,760

 

$

92,721

 

Accrued paid time-off

 

27,321

 

24,290

 

Current portion of self-insurance reserves

 

56,542

 

62,832

 

Accrued restructuring

 

171

 

181

 

Current portion of compliance and legal

 

5,758

 

2,814

 

Accrued billing and collection fees

 

4,168

 

4,093

 

Accrued profit sharing

 

18,093

 

34,000

 

Accrued interest

 

1,090

 

9,773

 

Accrued income taxes payable

 

 

5,454

 

Other

 

39,682

 

37,546

 

Total accrued liabilities

 

$

267,585

 

$

273,704

 

 

5.              Long-Term Debt

 

On April 8, 2010, the Company completed the financing of new senior secured credit facilities consisting of a $425 million term loan and a $150 million revolving credit facility.  The term loan bears interest at LIBOR, plus a margin of 3.00%, and requires quarterly principal repayments until maturity in 2015.  The revolving facility bears interest at LIBOR, plus a margin of 3.00%, and is repayable at maturity in 2015. The senior secured credit facilities can be expanded and the interest rate margins stepped down to 2.75% upon achieving certain leverage ratios.  Substantially all of EMS LP’s domestic assets are pledged as collateral under the new senior secured credit facilities.  The revolving facility is also subject to an annual commitment fee of 0.5% on unutilized commitments.

 

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

 

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

 

 

 

June 30,
2010

 

December 31,
2009

 

Senior subordinated notes

 

$

 

$

250,000

 

Senior secured term loan due 2015 (3.35% at June 30, 2010)

 

425,000

 

199,765

 

Notes due at various dates from 2010 to 2022 with interest rates from 6% to 10%

 

1,696

 

1,249

 

Capital lease obligations due at various dates from 2010 to 2018 (see note 7)

 

839

 

2,916

 

 

 

427,535

 

453,930

 

Less current portion

 

(11,848

)

(4,676

)

Total long-term debt

 

$

415,687

 

$

449,254

 

 

6.              Derivative Instruments and Hedging Activities

 

The Company manages its exposure to changes in market interest rates and fuel prices and from time to time uses highly effective derivative instruments to manage well-defined risk exposures.  The Company monitors its positions and the credit ratings of its counterparties and does not anticipate non-performance by the counterparties.  The Company does not use derivative instruments for speculative purposes.

 

At June 30, 2010, the Company was party to a series of fuel hedge transactions with a major financial institution under one master agreement. Each of the transactions effectively fixes the cost of diesel fuel at prices ranging from $2.96 to $3.29 per gallon. The Company purchases the diesel fuel at the market rate and periodically settles with its counterparty for the difference between the national average price for the period published by the Department of Energy and the agreed upon fixed price. The transactions fix the price for a total of 6.8 million gallons, which

 

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

 

7.              Commitments and Contingencies

 

Lease Commitments

 

The Company leases various facilities and equipment under operating lease agreements.

 

The Company also leases certain leasehold improvements under capital leases.  Assets under capital leases are capitalized using inherent interest rates at the inception of each lease. Capital leases are collateralized by the underlying assets.

 

Forward Purchase Commitment

 

Beginning in March 2009, AMR entered into a series of forward purchase contracts which fixed the price for a portion of its total monthly diesel fuel usage from April 1, 2009 through June 30, 2010. Based on the terms of the contracts, the Company has concluded they do not quality as derivatives. There was no material impact to operating expenses related to these contracts during the three or six month periods ended June 30, 2010.

 

Services

 

The Company is subject to the Medicare and Medicaid fraud and abuse laws which prohibit, among other things, any false claims, or any bribe, kickback or rebate in return for the referral of Medicare and Medicaid patients. Violation of these prohibitions may result in civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Management has implemented policies and procedures that management believes will assure that the Company is in substantial compliance with these laws and regulations but there can be no assurance the Company will not be found to have violated certain of these laws and regulations. From time to time, the Company receives requests for information from government agencies pursuant to their regulatory or investigational authority. Such requests can include subpoenas or demand letters for documents to assist the government in audits or investigations. The Company is cooperating with the government agencies conducting these investigations and is providing requested information to the government agencies. Other than the proceedings described below, management believes that the outcome of any of these investigations would not have a material adverse effect on the Company.

 

Other Legal Matters

 

On December 13, 2005, a lawsuit purporting to be a class action was commenced against AMR in Spokane, Washington in Washington State Court, Spokane County.  The complaint alleges that AMR billed patients and third party payors for transports it conducted between 1998 and 2005 at higher rates than contractually permitted.  The court has certified a class in this case which is comprised of approximately 15,000 Spokane County residents.  At this time, AMR does not believe that any incorrect billings are material in amount.

 

In December 2006, AMR received a subpoena from the Department of Justice (“DOJ”).  The subpoena requested copies of documents for the period from January 2000 through the present.  The subpoena required AMR to produce a broad range of documents relating to the operations of certain AMR affiliates in New York.  The Company produced documents responsive to the subpoena.  The government has identified claims for reimbursement that the government believes lack support for the level billed, and invited the Company to respond to the identified areas of concern.  The Company reviewed the information provided by the government, provided its response, and is currently in discussions with the DOJ and the Office of the Inspector General of Health and Human Services regarding resolution of this matter.  During the three months ended June 30, 2010, the Company recorded a $3.1 million reserve for its estimate of likely exposure in this matter.

 

Four different lawsuits purporting to be class actions have been filed against AMR and certain subsidiaries in California alleging violations of California wage and hour laws.  On April 16, 2008, Lori Bartoni commenced a suit in the Superior Court for the State of California, County of Alameda; on July 8, 2008, Vaughn Banta filed suit in the Superior Court of the State of California, County of Los Angeles; on January 22, 2009, Laura Karapetian filed suit in the Superior Court of the State of California, County of Los Angeles; and on March 11, 2010, Melanie Aguilar filed suit in the Superior Court of the State of California County of Los Angeles.  The Banta and Karapetian cases have been

 

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coordinated with the Bartoni case in the Superior Court for the State of California, County of Alameda.  At the present time, the courts have not certified classes in any of these cases.  Plaintiffs allege principally that the AMR entities failed to pay daily overtime charges pursuant to California law, and failed to provide required meal breaks or pay premium compensation for missed meal breaks.  Plaintiffs are seeking to certify the classes and are seeking lost wages, punitive damages, attorneys’ fees and other sanctions permitted under California law for violations of wage hour laws.  The Company is unable at this time to estimate the amount of potential damages, if any.

 

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

 

8.              Equity Based Compensation

 

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

 

Equity Option Plan

 

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

 

Long-Term Incentive Plan

 

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

 

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

 

The Company recorded a compensation charge of $1,297 and $979 during the three months ended June 30, 2010 and 2009, respectively, and $2,276 and $1,407 during the six months ended June 30, 2010 and 2009, respectively, in connection with the Plan.

 

Non-Employee Director Compensation Plan

 

The Non-Employee Director Compensation Plan, approved in May 2007, is available to non-employee directors of the Company, other than the Chair of the Compliance Committee.  Under this plan, eligible directors are granted Restricted Stock Units (“RSUs”) following each annual stockholder meeting with each RSU representing one share of the Company’s class A common stock.  As of May 2010, eligible directors now receive a grant of RSUs having a fair market value of $133 on the date of grant based on the closing price of the Company’s class A common stock on the business day immediately preceding the grant date.  The Non-Employee Director

 

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

 

Stock Purchase Plan/Employee Stock Purchase Plan

 

During the second quarter of 2010, the Company commenced an offering of its class A common stock to eligible employees and independent contractors associated with the Company and its subsidiaries pursuant to a Stock Purchase Plan and the Company’s Employee Stock Purchase Plan (together, the “SPPs”).  The purchases of stock under the SPPs will occur in October 2010 at a 5% discount to the closing price of the Company’s class A common stock on October 15, 2010, and as such no compensation charge has been recorded for the SPPs in the second quarter of 2010.

 

9.              Segment Information

 

The Company is organized around two separately managed business units: healthcare transportation services and facility-based physician services, which have been identified as operating segments. The healthcare transportation services reportable segment focuses on providing a full range of medical transportation services from basic patient transit to the most advanced emergency care and pre-hospital assistance. The facility-based physician services reportable segment provides physician services to hospitals primarily for emergency departments and urgent care centers, as well as for hospitalist/inpatient, radiology, teleradiology and anesthesiology services.  The Chief Executive Officer has been identified as the chief operating decision maker (“CODM”) as he assesses the performance of the business units and decides how to allocate resources to the business units.

 

Net income before equity in earnings of unconsolidated subsidiary, income tax expense, interest and other income, realized gain on investments, loss on early debt extinguishment, interest expense and depreciation and amortization (“Adjusted EBITDA”) is the measure of profit and loss that the CODM uses to assess performance, measure liquidity and make decisions. The accounting policies for reported segments are the same as for the Company as a whole.

 

 

 

Quarter ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Healthcare Transportation Services

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

344,159

 

$

335,504

 

$

681,121

 

$

671,950

 

Segment Adjusted EBITDA

 

31,760

 

32,425

 

64,162

 

66,313

 

Facility-Based Physician Services

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

364,645

 

301,787

 

$

707,037

 

578,363

 

Segment Adjusted EBITDA

 

46,634

 

40,549

 

88,667

 

72,203

 

Total

 

 

 

 

 

 

 

 

 

Total Net Revenue

 

$

708,804

 

637,291

 

$

1,388,158

 

1,250,313

 

Total Adjusted EBITDA

 

78,394

 

72,974

 

152,829

 

138,516

 

Reconciliation of Adjusted EBITDA to Net Income

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

78,394

 

$

72,974

 

$

152,829

 

$

138,516

 

Depreciation and amortization expense

 

(15,692

)

(16,157

)

(31,872

)

(32,925

)

Interest expense

 

(5,060

)

(10,279

)

(13,326

)

(20,469

)

Realized gain on investments

 

57

 

847

 

149

 

1,486

 

Interest and other income

 

206

 

423

 

471

 

940

 

Loss on early debt extinguishment

 

(19,091

)

 

(19,091

)

 

Income tax expense

 

(14,955

)

(18,885

)

(34,365

)

(34,611

)

Equity in earnings of unconsolidated subsidiary

 

105

 

96

 

199

 

153

 

Net income

 

$

23,964

 

$

29,019

 

$

54,994

 

$

53,090

 

 

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

 

 

 

For the quarter ended June 30,

 

For the six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Adjusted EBITDA

 

$

78,394

 

$

72,974

 

$

152,829

 

$

138,516

 

Interest paid

 

(4,431

)

(9,774

)

(12,190

)

(19,651

)

Change in accounts receivable

 

(21,750

)

3,499

 

(19,559

)

874

 

Change in other operating assets/liabilities

 

3,094

 

31,439

 

7,028

 

18,956

 

Equity based compensation

 

1,441

 

1,104

 

2,545

 

1,754

 

Excess tax benefits from stock-based compensation

 

(2,917

)

 

(13,498

)

 

Income tax expense, net of change in deferred taxes

 

(13,982

)

(1,552

)

(33,525

)

(2,683

)

Other

 

308

 

1,307

 

1,112

 

3,173

 

Cash flows provided by operating activities

 

$

40,157

 

$

98,997

 

$

84,742

 

$

140,939

 

 

10.       Guarantors of Debt

 

EMS LP’s wholly-owned subsidiaries, AMR HoldCo, Inc. and EmCare HoldCo, Inc., are the borrowers under the senior secured credit facility, which includes a full, unconditional and joint and several guarantee by EMSC, EMS LP and EMSC’s domestic subsidiaries. The senior secured credit facility does not include a guarantee by the Company’s captive insurance subsidiary and only limited guarantees from any future non-domestic subsidiaries. All of the operating income and cash flow of EMSC, EMS LP, AMR HoldCo, Inc. and EmCare HoldCo, Inc. is generated by AMR, EmCare and their subsidiaries. As a result, funds necessary to meet the debt service obligations under the senior secured credit facility are provided by the distributions or advances from the subsidiary companies, AMR and EmCare. Investments in subsidiary operating companies are accounted for on the equity method. Accordingly, entries necessary to consolidate EMSC, EMS LP, AMR HoldCo, Inc., EmCare HoldCo, Inc. and all of their subsidiaries are reflected in the Eliminations/Adjustments column. Separate complete financial statements of the borrowers, EMS LP and subsidiary guarantors would not provide additional material information that would be useful in assessing the financial composition of the borrowers, EMS LP or the subsidiary guarantors. The condensed consolidating financial statements for EMSC,EMS LP, the borrowers, the guarantors and the non-guarantor are as follows:

 

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Consolidating Statement of Operations

For the quarter ended June 30, 2010

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

Eliminations/

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo, Inc.

 

HoldCo, Inc.

 

Guarantors

 

Non-Guarantor

 

Adjustments

 

Total

 

Net revenue

 

$

 

$

 

$

 

$

 

$

708,804

 

$

18,863

 

$

(18,863

)

$

708,804

 

Compensation and benefits

 

 

 

 

 

496,443

 

 

 

496,443

 

Operating expenses

 

 

 

 

 

90,586

 

 

 

90,586

 

Insurance expense

 

 

 

 

 

25,370

 

19,435

 

(18,863

)

25,942

 

Selling, general and administrative expenses

 

 

 

 

 

18,298

 

 

 

18,298

 

Depreciation and amortization expense

 

 

 

 

 

15,692

 

 

 

15,692

 

Income (loss) from operations

 

 

 

 

 

62,415

 

(572

)

 

61,843

 

Interest income from restricted assets

 

 

 

 

 

344

 

515

 

 

859

 

Interest expense

 

 

 

 

 

(5,060

)

 

 

(5,060

)

Realized gain on investments

 

 

 

 

 

 

57

 

 

57

 

Interest and other income

 

 

 

 

 

206

 

 

 

206

 

Loss on early debt extinguishment

 

 

 

 

 

(19,091

)

 

 

(19,091

)

Income before income taxes

 

 

 

 

 

38,814

 

 

 

38,814

 

Income tax expense

 

 

 

 

 

(14,955

)

 

 

(14,955

)

Income before equity in earnings of unconsolidated subsidiaries

 

 

 

 

 

23,859

 

 

 

23,859

 

Equity in earnings of unconsolidated subsidiaries

 

23,964

 

23,964

 

3,235

 

20,729

 

105

 

 

(71,892

)

105

 

Net income

 

$

23,964

 

$

23,964

 

$

3,235

 

$

20,729

 

$

23,964

 

$

 

$

(71,892

)

$

23,964

 

 

Consolidating Statement of Operations

For the quarter ended June 30, 2009

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

Eliminations/

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo, Inc.

 

HoldCo, Inc.

 

Guarantors

 

Non-Guarantor

 

Adjustments

 

Total

 

Net revenue

 

$

 

$

 

$

 

$

 

$

637,291

 

$

7,147

 

$

(7,147

)

$

637,291

 

Compensation and benefits

 

 

 

 

 

438,628

 

 

 

438,628

 

Operating expenses

 

 

 

 

 

82,173

 

 

 

82,173

 

Insurance expense

 

 

 

 

 

26,825

 

8,679

 

(7,147

)

28,357

 

Selling, general and administrative expenses

 

 

 

 

 

16,279

 

 

 

16,279

 

Depreciation and amortization expense

 

 

 

 

 

16,157

 

 

 

16,157

 

Income (loss) from operations

 

 

 

 

 

57,229

 

(1,532

)

 

55,697

 

Interest income from restricted assets

 

 

 

 

 

435

 

685

 

 

1,120

 

Interest expense

 

 

 

 

 

(10,279

)

 

 

(10,279

)

Realized gain on investments

 

 

 

 

 

 

847

 

 

847

 

Interest and other income

 

 

 

 

 

423

 

 

 

423

 

Income before income taxes

 

 

 

 

 

47,808

 

 

 

47,808

 

Income tax expense

 

 

 

 

 

(18,885

)

 

 

(18,885

)

Income before equity in earnings of unconsolidated subsidiaries

 

 

 

 

 

28,923

 

 

 

28,923

 

Equity in earnings of unconsolidated subsidiaries

 

29,019

 

29,019

 

8,591

 

20,428

 

96

 

 

(87,057

)

96

 

Net income

 

$

29,019

 

$

29,019

 

$

8,591

 

$

20,428

 

$

29,019

 

$

 

$

(87,057

)

$

29,019

 

 

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Table of Contents

 

Consolidating Statement of Operations

For the six months ended June 30, 2010

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

Eliminations/

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo, Inc.

 

HoldCo, Inc.

 

Guarantors

 

Non-Guarantor

 

Adjustments

 

Total

 

Net revenue

 

$

 

$

 

$

 

$

 

$

1,388,158

 

$

26,101

 

$

(26,101

)

$

1,388,158

 

Compensation and benefits

 

 

 

 

 

976,760

 

 

 

976,760

 

Operating expenses

 

 

 

 

 

177,115

 

 

 

177,115

 

Insurance expense

 

 

 

 

 

46,837

 

27,276

 

(26,101

)

48,012

 

Selling, general and administrative expenses

 

 

 

 

 

35,156

 

 

 

35,156

 

Depreciation and amortization expense

 

 

 

 

 

31,872

 

 

 

31,872

 

Income (loss) from operations

 

 

 

 

 

120,418

 

(1,175

)

 

119,243

 

Interest income from restricted assets

 

 

 

 

 

688

 

1,026

 

 

1,714

 

Interest expense

 

 

 

 

 

(13,326

)

 

 

(13,326

)

Realized gain on investments

 

 

 

 

 

 

149

 

 

149

 

Interest and other income

 

 

 

 

 

471

 

 

 

471

 

Loss on early extinguishment of debt

 

 

 

 

 

(19,091

)

 

 

(19,091

)

Income before income taxes

 

 

 

 

 

89,160

 

 

 

89,160

 

Income tax expense

 

 

 

 

 

(34,365

)

 

 

(34,365

)

Income before equity in earnings of unconsolidated subsidiaries

 

 

 

 

 

54,795

 

 

 

54,795

 

Equity in earnings of unconsolidated subsidiaries

 

54,994

 

54,994

 

13,521

 

41,473

 

199

 

 

(164,982

)

199

 

Net income

 

$

54,994

 

$

54,994

 

$

13,521

 

$

41,473

 

$

54,994

 

$

 

$

(164,982

)

$

54,994

 

 

Consolidating Statement of Operations

For the six months ended June 30, 2009

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

Eliminations/

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo, Inc.

 

HoldCo, Inc.

 

Guarantors

 

Non-Guarantor

 

Adjustments

 

Total

 

Net revenue

 

$

 

$

 

$

 

$

 

$

1,250,313

 

$

14,030

 

$

(14,030

)

$

1,250,313

 

Compensation and benefits

 

 

 

 

 

865,162

 

 

 

865,162

 

Operating expenses

 

 

 

 

 

166,845

 

 

 

166,845

 

Insurance expense

 

 

 

 

 

47,979

 

16,912

 

(14,030

)

50,861

 

Selling, general and administrative expenses

 

 

 

 

 

31,315

 

 

 

31,315

 

Depreciation and amortization expense

 

 

 

 

 

32,925

 

 

 

32,925

 

Income (loss) from operations

 

 

 

 

 

106,087

 

(2,882

)

 

103,205

 

Interest income from restricted assets

 

 

 

 

 

990

 

1,396

 

 

2,386

 

Interest expense

 

 

 

 

 

(20,469

)

 

 

(20,469

)

Realized gain on investments

 

 

 

 

 

 

1,486

 

 

1,486

 

Interest and other income

 

 

 

 

 

940

 

 

 

940

 

Income before income taxes

 

 

 

 

 

87,548

 

 

 

87,548

 

Income tax expense

 

 

 

 

 

(34,611

)

 

 

(34,611

)

Income before equity in earnings of unconsolidated subsidiaries

 

 

 

 

 

52,937

 

 

 

52,937

 

Equity in earnings of unconsolidated subsidiaries

 

53,090

 

53,090

 

17,935

 

35,155

 

153

 

 

(159,270

)

153

 

Net income

 

$

53,090

 

$

53,090

 

$

17,935

 

$

35,155

 

$

53,090

 

$

 

$

(159,270

)

$

53,090

 

 

16



Table of Contents

 

Consolidating Balance Sheet

As of June 30, 2010

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

Eliminations/

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo, Inc.

 

HoldCo, Inc.

 

Guarantors

 

Non-Guarantor

 

Adjustments

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

 

$

 

$

 

$

297,207

 

$

15,826

 

$

 

$

313,033

 

Insurance collateral

 

 

 

 

 

9,600

 

89,010

 

(67,674

)

30,936

 

Trade and other accounts receivable, net

 

 

 

 

 

483,144

 

453

 

 

483,597

 

Parts and supplies inventory

 

 

 

 

 

22,392

 

 

 

22,392

 

Prepaids and other current assets

 

 

 

 

 

28,705

 

490

 

3,383

 

32,578

 

Current deferred tax assets

 

 

 

 

 

(3,834

)

3,834

 

 

 

Current assets

 

 

 

 

 

837,214

 

109,613

 

(64,291

)

882,536

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

 

 

 

121,324

 

 

 

121,324

 

Intercompany receivable

 

 

 

286,520

 

127,369

 

 

 

(413,889

)

 

Intangible assets, net

 

 

 

 

 

144,567

 

 

 

144,567

 

Non-current deferred tax assets

 

 

 

 

 

9,953

 

(6,120

)

1,994

 

5,827

 

Insurance collateral

 

 

 

 

 

34,785

 

79,798

 

30,157

 

144,740

 

Goodwill

 

 

 

 

 

386,042

 

458

 

 

386,500

 

Other long-term assets

 

 

 

8,578

 

3,637

 

7,086

 

 

 

19,301

 

Investment and advances in subsidiaries

 

764,775

 

764,775

 

419,309

 

345,452

 

35,223

 

 

(2,329,534

)

 

Assets

 

$

764,775

 

$

764,775

 

$

714,407

 

$

476,458

 

$

1,576,194

 

$

183,749

 

$

(2,775,563

)

$

1,704,795

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

 

$

 

$

 

$

66,778

 

$

54

 

$

 

$

66,832

 

Accrued liabilities

 

 

 

802

 

288

 

238,993

 

25,351

 

2,151

 

267,585

 

Current deferred tax liability

 

 

 

 

 

11,494

 

 

 

11,494

 

Current portion of long-term debt

 

 

 

7,331

 

3,294

 

1,223

 

 

 

11,848

 

Current liabilities

 

 

 

8,133

 

3,582

 

318,488

 

25,405

 

2,151

 

357,759

 

Long-term debt

 

 

 

285,919

 

128,456

 

1,312

 

 

 

415,687

 

Insurance reserves and other long-term liabilities

 

 

 

 

 

86,568

 

114,297

 

(34,291

)

166,574

 

Intercompany payable

 

 

 

 

 

405,065

 

8,824

 

(413,889

)

 

Liabilities

 

 

 

294,052

 

132,038

 

811,433

 

148,526

 

(446,029

)

940,020

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A common stock

 

303

 

 

 

 

 

30

 

(30

)

303

 

Class B common stock

 

1

 

 

 

 

 

 

 

1

 

Partnership equity

 

90,776

 

388,624

 

318,565

 

70,059

 

387,108

 

 

(1,164,356

)

90,776

 

Additional paid-in capital

 

297,544

 

 

 

 

 

4,316

 

(4,316

)

297,544

 

Retained earnings

 

374,036

 

374,036

 

101,780

 

272,256

 

375,538

 

26,522

 

(1,150,132

)

374,036

 

Comprehensive income

 

2,115

 

2,115

 

10

 

2,105

 

2,115

 

4,355

 

(10,700

)

2,115

 

Equity

 

764,775

 

764,775

 

420,355

 

344,420

 

764,761

 

35,223

 

(2,329,534

)

764,775

 

Liabilities and Equity

 

$

764,775

 

$

764,775

 

$

714,407

 

$

476,458

 

$

1,576,194

 

$

183,749

 

$

(2,775,563

)

$

1,704,795

 

 

17



Table of Contents

 

Consolidating Balance Sheet

As of December 31, 2009

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

Eliminations/

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo, Inc.

 

HoldCo, Inc.

 

Guarantors

 

Non-Guarantor

 

Adjustments

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

 

$

 

$

 

$

317,538

 

$

15,350

 

$

 

$

332,888

 

Insurance collateral

 

 

 

 

 

10,792

 

19,450

 

(5,256

)

24,986

 

Trade and other accounts receivable, net

 

 

 

 

 

458,558

 

530

 

 

459,088

 

Parts and supplies inventory

 

 

 

 

 

22,270

 

 

 

22,270

 

Prepaids and other current assets

 

 

 

 

 

19,650

 

12

 

 

19,662

 

Current deferred tax assets

 

 

 

 

 

2,489

 

3,834

 

 

6,323

 

Current assets

 

 

 

 

 

831,297

 

39,176

 

(5,256

)

865,217

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

 

 

 

125,855

 

 

 

125,855

 

Intercompany receivable

 

 

 

268,220

 

185,153

 

 

 

(453,373

)

 

Intangible assets, net

 

 

 

 

 

102,654

 

 

 

102,654

 

Non-current deferred tax assets

 

 

 

 

 

19,588

 

(6,120

)

 

13,468

 

Insurance collateral

 

 

 

 

 

56,166

 

85,165

 

2,555

 

143,886

 

Goodwill

 

 

 

 

 

381,493

 

458

 

 

381,951

 

Other long-term assets

 

 

 

4,281

 

1,898

 

15,497

 

 

 

21,676

 

Investment and advances in subsidiaries

 

686,087

 

686,087

 

394,715

 

291,358

 

34,343

 

 

(2,092,590

)

 

Assets

 

$

686,087

 

$

686,087

 

$

667,216

 

$

478,409

 

$

1,566,893

 

$

118,679

 

$

(2,548,664

)

$

1,654,707

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

 

$

 

$

 

$

70,696

 

$

63

 

$

 

$

70,759

 

Accrued liabilities

 

 

 

5,117

 

4,656

 

231,855

 

32,077

 

(1

)

273,704

 

Current portion of long-term debt

 

 

 

1,447

 

650

 

2,579

 

 

 

4,676

 

Current liabilities

 

 

 

6,564

 

5,306

 

305,130

 

32,140

 

(1

)

349,139

 

Long-term debt

 

 

 

264,891

 

182,777

 

1,586

 

 

 

449,254

 

Insurance reserves and other long-term liabilities

 

 

 

 

 

129,555

 

43,372

 

(2,700

)

170,227

 

Intercompany payable

 

 

 

 

 

444,549

 

8,824

 

(453,373

)

 

Liabilities

 

 

 

271,455

 

188,083

 

880,820

 

84,336

 

(456,074

)

968,620

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A common stock

 

295

 

 

 

 

 

30

 

(30

)

295

 

Class B common stock

 

1

 

 

 

 

 

 

 

1

 

Partnership equity

 

90,776

 

366,388

 

307,447

 

58,941

 

366,388

 

 

(1,099,164

)

90,776

 

Additional paid-in capital

 

275,316

 

 

 

 

 

4,316

 

(4,316

)

275,316

 

Retained earnings

 

319,042

 

319,042

 

88,261

 

230,781

 

319,028

 

28,080

 

(985,192

)

319,042

 

Comprehensive income

 

657

 

657

 

53

 

604

 

657

 

1,917

 

(3,888

)

657

 

Equity

 

686,087

 

686,087

 

395,761

 

290,326

 

686,073

 

34,343

 

(2,092,590

)

686,087

 

Liabilities and Equity

 

$

686,087

 

$

686,087

 

$

667,216

 

$

478,409

 

$

1,566,893

 

$

118,679

 

$

(2,548,664

)

$

1,654,707

 

 

18



Table of Contents

 

Condensed Consolidating Statement of Cash Flows

For the quarter ended June 30, 2010

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo Inc.

 

HoldCo Inc.

 

Guarantors

 

Non-guarantors

 

Total

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

 

$

 

$

 

$

 

$

8,856

 

$

31,301

 

$

40,157

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

 

(8,652

)

 

(8,652

)

Proceeds from sale of property, plant and equipment

 

 

 

 

 

66

 

 

66

 

Acquisition of businesses, net of cash received

 

 

 

 

 

(47,675

)

 

(47,675

)

Net change in insurance collateral

 

 

 

 

 

23,208

 

(30,835

)

(7,627

)

Net change in deposits and other assets

 

 

 

 

 

10,648

 

 

10,648

 

Net cash provided by (used in) investing activities

 

 

 

 

 

(22,405

)

(30,835

)

(53,240

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMSC issuance of class A common stock

 

1,791

 

 

 

 

 

 

1,791

 

Repayments of capital lease obligations and other debt

 

 

 

(310,679

)

(139,580

)

(1,184

)

 

(451,443

)

Borrowings under credit facility

 

 

 

293,250

 

131,750

 

 

 

425,000

 

Debt issue costs

 

 

 

(8,107

)

(3,642

)

 

 

(11,749

)

Payment of premiums for debt extinguishment

 

 

 

(10,014

)

(4,499

)

 

 

(14,513

)

Excess tax benefits from stock-based compensation

 

 

 

 

 

2,917

 

 

2,917

 

Net change in bank overdrafts

 

 

 

 

 

(6,942

)

 

(6,942

)

Net intercompany borrowings (payments)

 

(1,791

)

 

35,550

 

15,971

 

(49,730

)

 

 

Net cash used in financing activities

 

 

 

 

 

(54,939

)

 

(54,939

)

Change in cash and cash equivalents

 

 

 

 

 

(68,488

)

466

 

(68,022

)

Cash and cash equivalents, beginning of period

 

 

 

 

 

365,695

 

15,360

 

381,055

 

Cash and cash equivalents, end of period

 

$

 

$

 

$

 

$

 

$

297,207

 

$

15,826

 

$

313,033

 

 

Condensed Consolidating Statement of Cash Flows

For the quarter ended June 30, 2009

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo Inc.

 

HoldCo Inc.

 

Guarantors

 

Non-guarantors

 

Total

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

 

$

 

$

 

$

 

$

101,646

 

$

(2,649

)

$

98,997

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

 

(12,878

)

 

(12,878

)

Proceeds from sale of property, plant and equipment

 

 

 

 

 

39

 

 

39

 

Acquisition of businesses, net of cash received

 

 

 

 

 

(133

)

 

(133

)

Net change in insurance collateral

 

 

 

 

 

(1,627

)

(13,616

)

(15,243

)

Net change in deposits and other assets

 

 

 

 

 

27

 

 

27

 

Net cash used in investing activities

 

 

 

 

 

(14,572

)

(13,616

)

(28,188

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMSC issuance of class A common stock

 

3,825

 

 

 

 

 

 

3,825

 

Repayments of capital lease obligations and other debt

 

 

 

 

 

(1,453

)

 

(1,453

)

Net change in bank overdrafts

 

 

 

 

 

(190

)

 

(190

)

Net intercompany borrowings (payments)

 

(3,825

)

 

 

 

3,825

 

 

 

Net cash provided by financing activities

 

 

 

 

 

2,182

 

 

2,182

 

Change in cash and cash equivalents

 

 

 

 

 

89,256

 

(16,265

)

72,991

 

Cash and cash equivalents, beginning of period

 

 

 

 

 

177,516

 

16,632

 

194,148

 

Cash and cash equivalents, end of period

 

$

 

$

 

$

 

$

 

$

266,772

 

$

367

 

$

267,139

 

 

19



Table of Contents

 

Condensed Consolidating Statement of Cash Flows

For the six months ended June 30, 2010

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo Inc.

 

HoldCo Inc.

 

Guarantors

 

Non-guarantors

 

Total

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

 

$

 

$

 

$

 

$

56,432

 

$

28,310

 

$

84,742

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

 

(15,168

)

 

(15,168

)

Proceeds from sale of property, plant and equipment

 

 

 

 

 

108

 

 

108

 

Acquisition of businesses, net of cash received

 

 

 

 

 

(50,975

)

 

(50,975

)

Net change in insurance collateral

 

 

 

 

 

22,573

 

(27,834

)

(5,261

)

Net change in deposits and other assets

 

 

 

 

 

10,938

 

 

10,938

 

Net cash (used in) provided by investing activities

 

 

 

 

 

(32,524

)

(27,834

)

(60,358

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMSC issuance of class A common stock

 

6,193

 

 

 

 

 

 

6,193

 

Repayments of capital lease obligations and other debt

 

 

 

(310,338

)

(139,427

)

(2,862

)

 

(452,627

)

Borrowings under credit facility

 

 

 

293,250

 

131,750

 

 

 

425,000

 

Debt issue costs

 

 

 

(8,107

)

(3,642

)

 

 

(11,749

)

Payment of premiums for debt extinguishment

 

 

 

(10,014

)

(4,499

)

 

 

(14,513

)

Excess tax benefits from stock-based compensation

 

 

 

 

 

13,498

 

 

13,498

 

Net change in bank overdrafts

 

 

 

 

 

(10,041

)

 

(10,041

)

Net intercompany borrowings (payments)

 

(6,193

)

 

35,209

 

15,818

 

(44,834

)

 

 

Net cash used in financing activities

 

 

 

 

 

(44,239

)

 

(44,239

)

Change in cash and cash equivalents

 

 

 

 

 

(20,331

)

476

 

(19,855

)

Cash and cash equivalents, beginning of period

 

 

 

 

 

317,538

 

15,350

 

332,888

 

Cash and cash equivalents, end of period

 

$

 

$

 

$

 

$

 

$

297,207

 

$

15,826

 

$

313,033

 

 

Condensed Consolidating Statement of Cash Flows

For the six months ended June 30, 2009

 

 

 

 

 

 

 

Issuer

 

Issuer

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR

 

EmCare

 

Subsidiary

 

Subsidiary

 

 

 

 

 

EMSC

 

EMS LP

 

HoldCo Inc.

 

HoldCo Inc.

 

Guarantors

 

Non-guarantors

 

Total

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

 

$

 

$

 

$

 

$

144,622

 

$

(3,683

)

$

140,939

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

 

(20,085

)

 

(20,085

)

Proceeds from sale of property, plant and equipment

 

 

 

 

 

60

 

 

60

 

Net change in insurance collateral

 

 

 

 

 

(262

)

(1,671

)

(1,933

)

Net change in deposits and other assets

 

 

 

 

 

(776

)

 

(776

)

Net cash used in investing activities

 

 

 

 

 

(21,063

)

(1,671

)

(22,734

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMSC issuance of class A common stock

 

4,723

 

 

 

 

 

 

4,723

 

Repayments of capital lease obligations and other debt

 

 

 

 

 

(2,612

)

 

(2,612

)

Net change in bank overdrafts

 

 

 

 

 

650

 

 

650

 

Net intercompany borrowings (payments)

 

(4,723

)

 

 

 

4,723

 

 

 

Net cash provided by financing activities

 

 

 

 

 

2,761

 

 

2,761

 

Change in cash and cash equivalents

 

 

 

 

 

126,320

 

(5,354

)

120,966

 

Cash and cash equivalents, beginning of period

 

 

 

 

 

140,452

 

5,721

 

146,173

 

Cash and cash equivalents, end of period

 

$

 

$

 

$

 

$

 

$

266,772

 

$

367

 

$

267,139

 

 

11.         Subsequent Events

 

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

 

20



Table of Contents

 

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

 

Forward-Looking Statements and Factors That May Affect Results

 

Certain statements and information herein may be deemed to be “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Any forward-looking statements herein are made as of the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission, and EMSC undertakes no duty to update or revise any such statements. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in EMSC’s filings with the SEC from time to time, including in the section entitled “Risk Factors” in the Company’s most recent 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 from those provided in this Quarterly Report on Form 10-Q are: the impact on our revenue of changes in transport volume, mix of insured and uninsured patients, and third party reimbursement rates and methods; the adequacy of our insurance coverage and insurance reserves; potential penalties or changes to our operations if we fail to comply with extensive and complex government regulation of our industry, both as it exists now and as it may change in the future; our ability to recruit and retain qualified physicians and other healthcare professionals, and enforce our non-compete agreements with our physicians; the loss of one or more members of our senior management team; the outcome of government investigations of certain of our business practices; our ability to generate cash flow to service our debt obligations and fund the cost of capital expenditures to maintain and upgrade our vehicle fleet and medical equipment; and the loss of existing contracts and the accuracy of our assessment of costs under new contracts.

 

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

 

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

 

Company Overview

 

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

 

Key Factors and Measures We Use to Evaluate Our Business

 

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

 

We evaluate our revenue net of provisions for contractual payor discounts and provisions for uncompensated care. Medicaid, Medicare and certain other payors receive discounts from our standard charges, which we refer to as contractual discounts. In addition, individuals we treat and transport may be personally responsible 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 have no insurance or other third party payor coverage. Due to the uncertainty regarding collectibility of charges associated with services we provide to these patients, which we refer to as uncompensated care, our net revenue recognition is based on expected cash collections. Our net revenue represents gross billings after provisions for

 

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Table of Contents

 

contractual discounts and estimated uncompensated care. Provisions for contractual discounts and uncompensated care have increased historically primarily as a result of increases in gross billing rates without corresponding increases in payor reimbursement.

 

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

 

 

 

Percentage of Cash Collections (Net Revenue)

 

Percentage of Total Volume

 

 

 

Quarter ended
June 30,

 

Six months ended
June 30,

 

Quarter ended
June 30,

 

Six months ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

2010

 

2009

 

2010

 

2009

 

Medicare

 

21.7

%

23.4

%

21.9

%

23.6

%

24.7

%

24.3

%

24.9

%

25.1

%

Medicaid

 

5.3

%

4.6

%

5.1

%

4.5

%

12.7

%

11.2

%

12.5

%

11.0

%

Commercial insurance and managed care

 

49.9

%

51.5

%

49.8

%

50.7

%

43.3

%

42.9

%

43.0

%

42.5

%

Self-pay

 

4.2

%

3.9

%

4.2

%

4.0

%

19.3

%

21.6

%

19.6

%

21.4

%

Subsidies & fees

 

18.9

%

16.6

%

19.0

%

17.2

%

 

 

 

 

Total

 

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

 

Our 2010 volume mix has been positively impacted when compared to the 2009 volume mix primarily due to the recent expansion of our Anesthesia business, which has a much lower percentage of self-pay mix when compared to our emergency department, radiology or inpatient services businesses, and to a decreased percentage of self-pay patients treated in 2010. Our payor mix was negatively impacted during the 2009 periods presented due to an increased level of self-pay patients treated in response to the H1N1 virus, which did not recur in 2010.

 

In addition to continually monitoring our payor mix, we also analyze certain measures in each of our business segments.

 

AMR

 

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

 

The change from period to period in the number of transports is influenced by changes in transports in existing markets from both new and existing facilities we serve for non-emergency transports, the effects of general community conditions for emergency transports and the impact of newly acquired businesses and markets AMR has exited.

 

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

 

We have focused our risk mitigation 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 mitigation processes which we believe have resulted in a reduction in the frequency, severity and development of claims.

 

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

 

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Table of Contents

 

EmCare

 

Of EmCare’s net revenue for the six months ended June 30, 2010, approximately 77% was derived from our hospital contracts for emergency department staffing and approximately 23% was derived from hospitalist, anesthesiology, radiology, teleradiology and other hospital management services.  Approximately 77% of EmCare’s net revenue was generated from billings to third party payors and patients for patient encounters and approximately 23% was generated from billings to hospitals and affiliated physician groups for professional services. EmCare’s key net revenue measures are patient encounters (segregated into emergency department visits, radiology reads, and anesthesiology and hospitalist encounters and that we weight in certain analyses), net revenue per patient encounter, and number of contracts.

 

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

 

The costs incurred in our EmCare business segment consist primarily of compensation and benefits for physicians and other professional providers, professional liability costs, and contract and other support costs. EmCare’s key cost measures include provider compensation per patient encounter and professional liability costs.

 

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

 

Our EmCare business segment is less capital intensive than AMR, and EmCare’s depreciation expense relates primarily to charges for usage of computer hardware and software, and other technologies.  Amortization expense relates primarily to intangibles recorded for customer relationships.

 

Factors Affecting Operating Results

 

Changes in Net New Contracts

 

Our operating results are affected directly by the number of net new contracts and related volumes we have in a period, reflecting the effects of both new contracts and contract expirations. We regularly bid for new contracts, frequently in a formal competitive bidding process that often requires written responses to a Request for Proposal, or RFP, and, in any fiscal period, certain of our contracts will expire. We may elect not to seek extension or renewal of a contract, or may reduce certain services, if we determine that we cannot continue to provide such services on favorable terms. With respect to expiring contracts we would like to renew, we may be required to seek renewal through an RFP, and we may not be successful in retaining any such contracts, or retaining them on terms that are as favorable as present terms.

 

Inflation

 

Certain of our expenses, such as wages and benefits, insurance, fuel and equipment repair and maintenance costs, are subject to normal inflationary pressures. Fuel expense represented 10.0% and 9.0% of AMR’s operating expenses for the three months ended June 30, 2010 and 2009, respectively, and 9.8% and 8.5% for the six months ended June 30, 2010 and 2009, respectively.  Although we have generally been able to offset inflationary and other cost increases through increased operating efficiencies and successful negotiation of fees and subsidies, we can provide no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies and fee changes.

 

Critical Accounting Policies

 

Revenue Recognition

 

Management regularly analyzes the ultimate collectibility of accounts receivable after certain stages of the

 

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Table of Contents

 

collection cycle using a look-back analysis to determine the amount of receivables subsequently collected. Adjustments related to this analysis were less than 1% of net revenue for the three and six month periods ended June 30, 2010 and 2009.

 

Results of Operations

 

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

 

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

 

Non-GAAP Measures

 

Adjusted EBITDA. Adjusted EBITDA is defined as net income before equity in earnings of unconsolidated subsidiary, income tax expense, loss on early debt extinguishment, interest and other income, realized gain on investments, interest expense and depreciation and amortization.  Adjusted EBITDA is commonly used by management and investors as a performance measure and liquidity indicator. Adjusted EBITDA is not considered a measure of financial performance under U.S. generally accepted accounting principles, or GAAP, and the items excluded from Adjusted EBITDA are significant components in understanding and assessing our financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to such GAAP measures as net income, cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in our financial statements as an indicator of financial performance or liquidity. Since Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The tables set forth a reconciliation of Adjusted EBITDA to net income and cash flows provided by operating activities.

 

Unaudited Consolidated Results of Operations and as a Percentage of Net Revenue

(dollars in thousands)

EMSC

 

 

 

Quarter ended
June 30, 2010

 

Quarter ended
June 30, 2009

 

Six months ended
June 30, 2010

 

Six months ended
June 30, 2009

 

 

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

Net revenue

 

$

708,804

 

100.0

%

$

637,291

 

100.0

%

$

1,388,158

 

100.0

%

$

1,250,313

 

100.0

%

Compensation and benefits

 

496,443

 

70.0

 

438,628

 

68.8

 

976,760

 

70.4

 

865,162

 

69.2

 

Operating expenses

 

90,586

 

12.8

 

82,173

 

12.9

 

177,115

 

12.8

 

166,845

 

13.3

 

Insurance expense

 

25,942

 

3.7

 

28,357

 

4.4

 

48,012

 

3.5

 

50,861

 

4.1

 

Selling, general and administrative expenses

 

18,298

 

2.6

 

16,279

 

2.6

 

35,156

 

2.5

 

31,315

 

2.5

 

Interest income from restricted assets

 

(859

)

(0.1

)

(1,120

)

(0.2

)

(1,714

)

(0.1

)

(2,386

)

(0.2

)

Adjusted EBITDA

 

$

78,394

 

11.1

%

$

72,974

 

11.5

%

$

152,829

 

11.0

%

$

138,516

 

11.1

%

Depreciation and amortization expenses

 

(15,692

)

(2.2

)

(16,157

)

(2.5

)

(31,872

)

(2.3

)

(32,925

)

(2.6

)

Interest expense

 

(5,060

)

(0.7

)

(10,279

)

(1.6

)

(13,326

)

(1.0

)

(20,469

)

(1.6

)

Realized gain on investments

 

57

 

0.0

 

847

 

0.1

 

149

 

0.0

 

1,486

 

0.1

 

Interest and other income

 

206

 

0.0

 

423

 

0.1

 

471

 

0.0

 

940

 

0.1

 

Loss on early debt extinguishment

 

(19,091

)

(2.7

)

 

 

(19,091

)

(1.4

)

 

 

Income tax expense

 

(14,955

)

(2.1

)

(18,885

)

(3.0

)

(34,365

)

(2.5

)

(34,611

)

(2.8

)

Equity in earnings of unconsolidated subsidiary

 

105

 

0.0

 

96

 

0.0

 

199

 

0.0

 

153

 

0.0

 

Net income

 

$

23,964

 

3.4

%

$

29,019

 

4.6

%

$

54,994

 

4.0

%

$

53,090

 

4.2

%

 

24


 


Table of Contents

 

Unaudited Reconciliation of Adjusted EBITDA to Cash Flows Provided by Operating Activities

(dollars in thousands)

 

 

 

For the quarter ended June 30,

 

For the six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Adjusted EBITDA

 

$

78,394

 

$

72,974

 

$

152,829

 

$

138,516

 

Interest paid

 

(4,431

)

(9,774

)

(12,190

)

(19,651

)

Change in accounts receivable

 

(21,750

)

3,499

 

(19,559

)

874

 

Change in other operating assets/liabilities

 

3,094

 

31,439

 

7,028

 

18,956

 

Equity based compensation

 

1,441

 

1,104

 

2,545

 

1,754

 

Excess tax benefits from stock-based compensation

 

(2,917

)

 

(13,498

)

 

Income tax expense, net of change in deferred taxes

 

(13,982

)

(1,552

)

(33,525

)

(2,683

)

Other

 

308

 

1,307

 

1,112

 

3,173

 

Cash flows provided by operating activities

 

$

40,157

 

$

98,997

 

$

84,742

 

$

140,939

 

 

Unaudited Segment Results of Operations and as a Percentage of Net Revenue

(dollars in thousands)

AMR

 

 

 

Quarter ended
June 30, 2010

 

Quarter ended
June 30, 2009

 

Six months ended
June 30, 2010

 

Six months ended
June 30, 2009

 

 

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

Net revenue

 

$

344,159

 

100.0

%

$

335,504

 

100.0

%

$

681,121

 

100.0

%

$

671,950

 

100.0

%

Compensation and benefits

 

211,302

 

61.4

 

207,820

 

61.9

 

419,653

 

61.6

 

416,094

 

61.9

 

Operating expenses

 

78,439

 

22.8

 

72,084

 

21.5

 

154,078

 

22.6

 

146,619

 

21.8

 

Insurance expense

 

12,775

 

3.7

 

13,928

 

4.2

 

23,960

 

3.5

 

25,016

 

3.7

 

Selling, general and administrative expenses

 

10,227

 

3.0

 

9,682

 

2.9

 

19,956

 

2.9

 

18,898

 

2.8

 

Interest income from restricted assets

 

(344

)

(0.1

)

(435

)

(0.1

)

(688

)

(0.1

)

(990

)

(0.1

)

Adjusted EBITDA

 

$

31,760

 

9.2

%

$

32,425

 

9.7

%

$

64,162

 

9.4

%

$

66,313

 

9.9

%

Reconciliation of Adjusted EBITDA to income from operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

31,760

 

9.2

 

32,425

 

9.7

 

64,162

 

9.4

 

66,313

 

9.9

 

Depreciation and amortization expense

 

(11,070

)

(3.2

)

(12,242

)

(3.6

)

(22,304

)

(3.3

)

(24,948

)

(3.7

)

Interest income from restricted assets

 

(344

)

(0.1

)

(435

)

(0.1

)

(688

)

(0.1

)

(990

)

(0.1

)

Income from operations

 

$

20,346

 

5.9

%

$

19,748

 

5.9

%

$

41,170

 

6.0

%

$

40,375

 

6.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents

 

EmCare

 

 

 

Quarter ended
June 30, 2010

 

Quarter ended
June 30, 2009

 

Six months ended
June 30, 2010

 

Six months ended
June 30, 2009

 

 

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

 

 

% of net
revenue

 

Net revenue

 

$

364,645

 

100.0

%

$

301,787

 

100.0

%

$

707,037

 

100.0

%

$

578,363

 

100.0

%

Compensation and benefits

 

285,141

 

78.2

 

230,808

 

76.5

 

557,107

 

78.8

 

449,068

 

77.6

 

Operating expenses

 

12,147

 

3.3

 

10,089

 

3.3

 

23,037

 

3.3

 

20,226

 

3.5

 

Insurance expense

 

13,167

 

3.6

 

14,429

 

4.8

 

24,052

 

3.4

 

25,845

 

4.5

 

Selling, general and administrative expenses

 

8,071

 

2.2

 

6,597

 

2.2

 

15,200

 

2.1

 

12,417

 

2.1

 

Interest income from restricted assets

 

(515

)

(0.1

)

(685

)

(0.2

)

(1,026

)

(0.1

)

(1,396

)

(0.2

)

Adjusted EBITDA

 

$

46,634

 

12.8

%

$

40,549

 

13.4

%

$

88,667

 

12.5

%

$

72,203

 

12.5

%

Reconciliation of Adjusted EBITDA to income from operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

46,634

 

12.8

 

40,549

 

13.4

 

88,667

 

12.5

 

72,203

 

12.5

 

Depreciation and amortization expenses

 

(4,622

)

(1.3

)

(3,915

)

(1.3

)

(9,568

)

(1.4

)

(7,977

)

(1.4

)

Interest income from restricted assets

 

(515

)

(0.1

)

(685

)

(0.2

)

(1,026

)

(0.1

)

(1,396

)

(0.2

)

Income from operations

 

$

41,497

 

11.4

%

$

35,949

 

11.9

%

$

78,073

 

11.0

%

$

62,830

 

10.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Consolidated

 

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

 

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

 

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

 

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

 

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

 

AMR

 

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

 

26



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

 

Compensation and benefits. Compensation and benefit costs for the three months ended June 30, 2010 were $211.3 million, or 61.4% of net revenue, compared to $207.8 million, or 61.9% of net revenue, for the same period last year. Ambulance crew wages per ambulance unit hour increased by approximately 4.4%, or $5.0 million, attributable primarily to annual wage rate increases.   Ambulance unit hours decreased period over period by 2.7%, or $3.1 million, due primarily to the reduction in volume in existing markets and increased efficiency in our ambulance unit hour deployment.  Compensation and benefits decreased as a percentage of net revenue due in part to the growth in our managed transportation business.  Our managed transportation costs are reflected primarily in operating expenses.

 

Operating expenses. Operating expenses for the three months ended June 30, 2010 were $78.4 million, or 22.8% of net revenue, compared to $72.1 million, or 21.5% of net revenue, for the three months ended June 30, 2009.  The change is due primarily to increased fuel costs of $1.4 million, increased costs associated with growth in our managed transportation business of $1.9 million, and a reserve recorded in connection with the New York Accrual of $3.1 million.

 

Insurance expense. Insurance expense for the three months ended June 30, 2010 was $12.8 million, or 3.7% of net revenue, compared to $13.9 million, or 4.2% of net revenue, for the same period in 2009.  We recorded an increase of prior year insurance provisions of $1.0 million during the three months ended June 30, 2010 compared to an increase of $1.3 million during the three months ended June 30, 2009.

 

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

 

Depreciation and amortization. Depreciation and amortization expense for the three months ended June 30, 2010 was $11.1 million, or 3.2% of net revenue, compared to $12.2 million, or 3.6% of net revenue, for the same period in 2009.  The decrease was due primarily to AMR’s ability to utilize fewer ambulances to service its existing contracts and the timing of replacing fully depreciated assets.

 

EmCare

 

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

 

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

 

27



Table of Contents

 

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

 

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

 

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

 

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

 

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

 

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

 

Consolidated

 

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

 

Net revenue. For the six months ended June 30, 2010, net revenue was $1,388.2 million compared to $1,250.3 million for the six months ended June 30, 2009, representing an increase of 11.0%. The increase is attributable primarily to increases in revenues on existing contracts and increased volume from net new contracts and acquisitions.

 

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

 

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

 

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

 

AMR

 

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

 

28



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

 

Compensation and benefits. Compensation and benefit costs for the six months ended June 30, 2010 were $419.7 million, or 61.6% of net revenue, compared to $416.1 million, or 61.9% of net revenue, for the six months ended June 30, 2009. Ambulance crew wages per ambulance unit hour increased by approximately 4.5%, or $10.0 million, attributable primarily to annual wage rate increases.   Ambulance unit hours decreased period over period by 3.2%, or $7.4 million, due primarily to the reduction in volume in existing markets and increased efficiency in our ambulance unit hour deployment.  Compensation and benefits decreased as a percentage of net revenue due in part to the growth in our managed transportation business.  Our managed transportation costs are reflected primarily in operating expenses.

 

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

 

Insurance expense. Insurance expense for the six months ended June 30, 2010 was $24.0 million, or 3.5% of net revenue, compared to $25.0 million, or 3.7% of net revenue, for the same period in 2009. We recorded an increase of prior year insurance provisions of $0.1 million during the six months ended June 30, 2010 compared to an increase of $2.0 million during the six months ended June 30, 2009.

 

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

 

Depreciation and amortization. Depreciation and amortization expense for the six months ended June 30, 2010 was $22.3 million, or 3.3% of net revenue, compared to $24.9 million, or 3.7% of net revenue, for the same period in 2009.   The decrease was due primarily to AMR’s ability to utilize fewer ambulances to service its existing contracts and the timing of replacing fully depreciated assets.

 

EmCare

 

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

 

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

 

29



Table of Contents

 

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

 

Operating expenses. Operating expenses for the six months ended June 30, 2010 were $23.0 million, or 3.3% of net revenue, compared to $20.2 million, or 3.5% of net revenue, for the same period in 2009.  Operating expenses increased due primarily to higher collection agency and billing fees incurred in connection with our net new contracts added since December 31, 2008 and the expansion of our anesthesiology and radiology businesses.

 

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

 

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

 

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

 

Critical Accounting Policies

 

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

 

Liquidity and Capital Resources

 

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

 

On April 8, 2010, we completed the financing of new senior secured credit facilities, which is further described in note 5 of the notes accompanying the consolidated financial statements. In conjunction with completing the financing under the new credit facilities, we repaid the balance outstanding on the previous senior secured term loan and redeemed our 10% senior subordinated notes. These transactions will reduce our effective interest rate going forward compared to the rate under our previous debt structure.

 

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

 

Cash Flow

 

The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated, amounts in thousands.

 

30



Table of Contents

 

 

 

Six months ended
June 30,

 

 

 

2010

 

2009

 

Net cash provided by (used in):

 

 

 

 

 

Operating activities

 

$

84,742

 

$

140,939

 

Investing activities

 

(60,358

)

(22,734

)

Financing activities

 

(44,239

)

2,761

 

 

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

 

We regularly analyze DSO which is calculated by dividing our net revenue for the quarter by the number of days in the quarter.  The result is divided into net accounts receivable at the end of the period.  DSO provides us with a gauge to measure receivables, revenue and collection activities.  The reductions since March 31, 2009 shown below are due to additional collections on accounts receivable as a result of continued billing and collection process enhancements at both AMR and EmCare.  The following table outlines our DSO by segment and in total excluding the impact of acquisitions completed within the specific quarter:

 

 

 

Q2 2010

 

Q1 2010

 

Q4 2009

 

Q3 2009

 

Q2 2009

 

Q1 2009

 

AMR

 

68

 

66

 

68

 

70

 

73

 

74

 

EmCare

 

55

 

56

 

60

 

58

 

61

 

65

 

EMSC

 

62

 

61

 

64

 

64

 

67

 

70

 

 

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

 

Financing activities. For the six months ended June 30, 2010, net cash used in financing activities was $44.2 million compared to cash provided by financing activities of $2.8 million for the same period in 2009.  During the six months ended June 30, 2010 we incurred $11.7 million in debt issuance costs related to our new credit facility and used $25.0 million to reduce our total outstanding debt.  We also incurred $14.5 million in cash payments related to the redemption of our senior subordinated notes during the six months ended June 30, 2010.  This is offset by the cash flow benefit related to tax deductions for stock-based compensation during the six months ended June 30, 2010.  At June 30, 2010 there were no amounts outstanding under our revolving credit facility.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

We manage our exposure to changes in market interest rates and fuel prices and, as appropriate, use highly effective derivative instruments to manage well-defined risk exposures.  As of June 30, 2010, we were party to a

 

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Table of Contents

 

series of fuel hedge transactions with a major financial institution under one master agreement.  Each of the transactions effectively fixes the cost of diesel fuel at prices ranging from $2.96 to $3.29 per gallon.  We purchase the diesel fuel at the market rate and periodically settle with our counterparty for the difference between the national average price for the period published by the Department of Energy and the agreed upon fixed price.  The transactions fix the price for a total of 6.8 million gallons, which represents approximately 32% of our total estimated usage over the hedge period, and are spread over periods from July 2010 through June 2012.

 

As of June 30, 2010, we had $426.7 million of debt excluding capital leases, of which $425.0 million was variable rate debt under our credit facility.  An increase or decrease in interest rates of 0.2% will impact our interest costs by $0.9 million annually.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

 

EMERGENCY MEDICAL SERVICES CORPORATION

 

PART II. OTHER INFORMATION

 

FOR THE THREE AND SIX MONTHS ENDED

 

JUNE 30, 2010

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

For additional information regarding legal proceedings, please refer to note 7, under the caption “Commitments and Contingencies” of the notes accompanying the consolidated financial statements included herein, to our Annual Report on Form 10-K filed with the SEC on February 19, 2010 and to our Quarterly Report on Form 10-Q filed with the SEC on May 4, 2010.

 

ITEM 1A. RISK FACTORS

 

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

 

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Table of Contents

 

ITEM 6. EXHIBITS

 

10.3.3

 

Amendment to Employment Agreement, dated May 18, 2010, between Randel G. Owen and Emergency Medical Services Corporation.*

 

 

 

10.19.1

 

Amendment to Employment Agreement, dated March 16, 2010, between Mark Bruning and American Medical Response, Inc.*

 

 

 

10.20

 

EMSC Physician Stock Purchase Plan (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-3 filed June 24, 2010).

 

 

 

10.21

 

EMSC Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed June 24, 2010).

 

 

 

31.1

 

Certification of the Chief Executive Officer of Emergency Medical Services Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.2

 

Certification of the Chief Executive Officer of Emergency Medical Services Corporation, as general partner of Emergency Medical Services L.P., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.3

 

Certification of the Chief Financial Officer of Emergency Medical Services Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.4

 

Certification of the Chief Financial Officer of Emergency Medical Services Corporation, as general partner of Emergency Medical Services L.P., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.1

 

Certification of the Chief Executive Officer and the Chief Financial Officer of Emergency Medical Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.2

 

Certification of the Chief Executive Officer and the Chief Financial Officer of Emergency Medical Services Corporation, as general partner of Emergency Medical Services L.P. pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 


*  Filed with this report

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

 

 

EMERGENCY MEDICAL SERVICES CORPORATION

 

 

 

(registrant)

 

 

 

August 5, 2010

 

By:

/s/ William A. Sanger

Date

 

 

William A. Sanger

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

August 5, 2010

 

By:

/s/ Randel G. Owen

Date

 

 

Randel G. Owen

 

 

 

Chief Financial Officer and Executive Vice President

 

 

 

 

 

 

EMERGENCY MEDICAL SERVICES L.P.

 

 

(registrant)

 

 

 

 

 

 

By:

Emergency Medical Services Corporation, its General Partner

 

 

 

 

August 5, 2010

 

By:

/s/ William A. Sanger

Date

 

 

William A. Sanger

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

August 5, 2010

 

By:

/s/ Randel G. Owen

Date

 

Randel G. Owen

 

 

Chief Financial Officer and Executive Vice President

 

35



Table of Contents

 

EXHIBIT INDEX

 

10.3.3

 

Amendment to Employment Agreement, dated May 18, 2010, between Randel G. Owen and Emergency Medical Services Corporation.*

 

 

 

10.19.1

 

Amendment to Employment Agreement, dated March 16, 2010, between Mark Bruning and American Medical Response, Inc.*

 

 

 

10.20

 

EMSC Physician Stock Purchase Plan (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-3 filed June 24, 2010).

 

 

 

10.21

 

EMSC Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed June 24, 2010).

 

 

 

31.1

 

Certification of the Chief Executive Officer of Emergency Medical Services Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.2

 

Certification of the Chief Executive Officer of Emergency Medical Services Corporation, as general partner of Emergency Medical Services L.P., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.3

 

Certification of the Chief Financial Officer of Emergency Medical Services Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.4

 

Certification of the Chief Financial Officer of Emergency Medical Services Corporation, as general partner of Emergency Medical Services L.P., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.1

 

Certification of the Chief Executive Officer and the Chief Financial Officer of Emergency Medical Services Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.2

 

Certification of the Chief Executive Officer and the Chief Financial Officer of Emergency Medical Services Corporation, as general partner of Emergency Medical Services L.P. pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 


*  Filed with this report

 

36