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 September 30, 2013

 

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:

 

Envision Healthcare Holdings, Inc.: 001-36048

Envision Healthcare Corporation: 001-32701

 


 

 

ENVISION HEALTHCARE HOLDINGS, INC.

ENVISION HEALTHCARE CORPORATION

 (Exact name of registrants as specified in their charters)

 

 

 

Envision Healthcare Holdings, Inc.

45-0832318

Delaware

 

Envision Healthcare Corporation

20-3738384

(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.

 

Envision Healthcare Holdings, Inc.                  Yes x No o

Envision Healthcare Corporation                     Yes o No x

 

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).

 

Envision Healthcare Holdings, Inc.                  Yes o No x

Envision Healthcare Corporation                     Yes xNo o

 

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.

 

Envision Healthcare Holdings, Inc.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Envision Healthcare Corporation

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

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).

 

Envision Healthcare Holdings, Inc.                  Yes o No x

Envision Healthcare Corporation                     Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

Envision Healthcare Holdings, Inc.

 

At November 11, 2013, the registrant had 180,382,885 shares of common stock, par value $0.01 per share, outstanding.

Envision Healthcare Corporation

 

The registrant is a privately held corporation, and its common stock is not publicly traded. At November 11, 2013, the registrant had 1,000 shares of common stock, par value $0.01 per share, outstanding. All of Envision Healthcare Corporation’s outstanding stock was held at such date by Envision Healthcare Intermediate Corporation, its sole stockholder.

 

 

 



Table of Contents

 

INDEX

 

Part I. Financial Information

4

 

 

 

Item 1.

Financial Statements (unaudited):

4

 

 

 

 

Envision Healthcare Holdings, Inc.

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2013 and September 30, 2012

4

 

 

 

 

Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

5

 

 

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2013 and September 30, 2012

6

 

 

 

 

Envision Healthcare Corporation

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2013 and September 30, 2012

7

 

 

 

 

Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

8

 

 

 

 

Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2013 and September  30, 2012

9

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

10

 

 

 

Item 2.

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

30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

 

 

 

Item 4.

Controls and Procedures

48

 

 

 

Part II. Other Information

48

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

Item 1A.

Risk Factors

48

 

 

 

Item 6.

Exhibits

49

 

 

 

Signatures

 

51

 

2



Table of Contents

 

EXPLANATORY NOTE

 

This Form 10-Q is a combined quarterly report being filed separately by two registrants: Envision Healthcare Holdings, Inc. (formerly known as CDRT Holding Corporation) and Envision Healthcare Corporation (formerly known as Emergency Medical Services Corporation). Unless the context indicates otherwise, any reference in this report to “Holding” refers to Envision Healthcare Holdings, Inc., any reference to “Corporation” refers to Envision Healthcare Corporation, the indirect, wholly-owned subsidiary of Holding, and any references to “EVHC,” the “Company,” “we,” “our,” or “us” refer to Envision Healthcare Holdings, Inc. and its direct and indirect subsidiaries, including Corporation. Our business is conducted primarily through two operating subsidiaries, EmCare Holdings, Inc. (“EmCare”) and American Medical Response, Inc. (“AMR”). Each registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

 

3



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ENVISION HEALTHCARE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except share and per share amounts, unaudited)

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenue, net of contractual discounts

 

$

1,691,208

 

$

1,529,140

 

$

4,986,261

 

$

4,381,061

 

Provision for uncompensated care

 

(735,320

)

(708,329

)

(2,242,794

)

(1,952,858

)

Net revenue

 

955,888

 

820,811

 

2,743,467

 

2,428,203

 

Compensation and benefits

 

677,797

 

577,502

 

1,963,546

 

1,706,205

 

Operating expenses

 

110,387

 

100,617

 

313,145

 

305,005

 

Insurance expense

 

26,974

 

22,907

 

78,647

 

75,352

 

Selling, general and administrative expenses

 

40,733

 

18,541

 

86,521

 

57,670

 

Depreciation and amortization expense

 

35,175

 

30,592

 

104,552

 

91,844

 

Restructuring charges

 

1,319

 

2,028

 

4,988

 

10,751

 

Income from operations

 

63,503

 

68,624

 

192,068

 

181,376

 

Interest income from restricted assets

 

2

 

(116

)

634

 

429

 

Interest expense

 

(46,772

)

(41,322

)

(148,526

)

(126,288

)

Realized gain on investments

 

158

 

5

 

276

 

366

 

Interest and other (expense) income

 

(52

)

937

 

(13,022

)

1,340

 

Loss on early debt extinguishment

 

(29,519

)

(1,561

)

(29,641

)

(6,733

)

(Loss) income before income taxes, and equity in earnings of unconsolidated subsidiary

 

(12,680

)

26,567

 

1,789

 

50,490

 

Income tax benefit (expense)

 

4,949

 

(11,448

)

(3,932

)

(21,952

)

(Loss) income before equity in earnings of unconsolidated subsidiary

 

(7,731

)

15,119

 

(2,143

)

28,538

 

Equity in earnings of unconsolidated subsidiary

 

68

 

90

 

230

 

304

 

Net (loss) income

 

(7,663

)

15,209

 

(1,913

)

28,842

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains during the period

 

(133

)

471

 

(582

)

674

 

Unrealized gains (losses) on derivative financial instruments

 

236

 

1,031

 

(42

)

(234

)

Comprehensive (loss) income

 

$

(7,560

)

$

16,711

 

$

(2,537

)

$

29,282

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share

 

$

(0.05

)

$

0.12

 

$

(0.01

)

$

0.22

 

Diluted net (loss) income per common share

 

$

(0.05

)

$

0.11

 

$

(0.01

)

$

0.22

 

Average common shares outstanding, basic

 

157,282,885

 

130,230,634

 

139,969,940

 

130,219,651

 

Average common shares outstanding, diluted

 

157,282,885

 

133,463,882

 

139,969,940

 

132,479,821

 

 

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

 

4



Table of Contents

 

ENVISION HEALTHCARE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

September 30,
2013

 

December 31,
2012

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

575,761

 

$

57,832

 

Insurance collateral

 

29,039

 

24,481

 

Trade and other accounts receivable, net

 

750,484

 

625,144

 

Parts and supplies inventory

 

22,539

 

22,050

 

Prepaids and other current assets

 

31,277

 

23,752

 

Total current assets

 

1,409,100

 

753,259

 

Non-current assets:

 

 

 

 

 

Property, plant and equipment, net

 

190,837

 

191,864

 

Intangible assets, net

 

524,317

 

564,218

 

Insurance collateral

 

12,107

 

20,760

 

Goodwill

 

2,437,620

 

2,413,632

 

Other long-term assets

 

75,969

 

93,100

 

Total assets

 

$

4,649,950

 

$

4,036,833

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

65,358

 

$

53,909

 

Accrued liabilities

 

352,604

 

388,935

 

Current deferred tax liabilities

 

28,226

 

23,568

 

Current portion of long-term debt

 

12,316

 

12,282

 

Total current liabilities

 

458,504

 

478,694

 

Long-term debt

 

2,225,407

 

2,647,098

 

Long-term deferred tax liabilities

 

156,761

 

156,761

 

Insurance reserves and other long-term liabilities

 

212,176

 

209,593

 

Total liabilities

 

3,052,848

 

3,492,146

 

Equity:

 

 

 

 

 

Common stock ($0.01 par value; 2,000,000,000 shares authorized, 180,382,885 and 130,661,627 issued and outstanding as of September 30, 2013 and December 31, 2012, respectively)

 

1,804

 

1,307

 

Additional paid-in capital

 

1,580,519

 

525,098

 

Treasury stock at cost

 

(1,347

)

(381

)

Retained earnings

 

10,433

 

12,346

 

Accumulated other comprehensive loss

 

(837

)

(213

)

Total Envision Healthcare Holdings, Inc. equity

 

1,590,572

 

538,157

 

Noncontrolling interest

 

6,530

 

6,530

 

Total equity

 

1,597,102

 

544,687

 

Total liabilities and equity

 

$

4,649,950

 

$

4,036,833

 

 

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

 

5



Table of Contents

 

ENVISION HEALTHCARE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(7,663

)

$

15,209

 

$

(1,913

)

$

28,842

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

39,684

 

34,584

 

118,683

 

104,207

 

Gain on disposal of property, plant and equipment

 

(45

)

(208

)

(55

)

(272

)

Equity-based compensation expense

 

1,062

 

1,062

 

3,186

 

3,186

 

Excess tax benefits from equity-based compensation

 

 

 

(3,168

)

 

Loss on early debt extinguishment

 

29,519

 

1,561

 

29,641

 

6,733

 

Equity in earnings of unconsolidated subsidiary

 

(68

)

(90

)

(230

)

(304

)

Dividends received

 

 

 

556

 

611

 

Deferred income taxes

 

88

 

42,939

 

4,319

 

43,146

 

Payment of dissenting shareholder settlement

 

 

 

(13,717

)

 

Changes in operating assets/liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

(71,543

)

(25,547

)

(126,506

)

(68,376

)

Parts and supplies inventory

 

(335

)

(37

)

(489

)

351

 

Prepaids and other current assets

 

3,308

 

(164

)

(8,997

)

(6,701

)

Accounts payable and accrued liabilities

 

32,468

 

33,933

 

22,520

 

60,139

 

Insurance accruals

 

5,247

 

2,874

 

1,795

 

(2,315

)

Net cash provided by operating activities

 

31,722

 

106,116

 

25,625

 

169,247

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(19,295

)

(19,126

)

(45,493

)

(44,311

)

Proceeds from sale of property, plant and equipment

 

68

 

5,641

 

396

 

7,092

 

Acquisition of businesses, net of cash received

 

(25,935

)

(19,259

)

(27,358

)

(20,559

)

Net change in insurance collateral

 

3,282

 

(17,773

)

2,880

 

90,601

 

Other investing activities

 

(404

)

2,885

 

(456

)

589

 

Net cash (used in) provided by investing activities

 

(42,284

)

(47,632

)

(70,031

)

33,412

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

Envision Healthcare Corporation issuance of common stock

 

1,110,900

 

 

1,112,017

 

 

Borrowings under senior secured term loan facility

 

 

 

150,000

 

 

Repayments under ABL credit facility

 

(27,500

)

 

(125,000

)

 

Repayments of ABL Facility and other debt

 

(3,339

)

(53,142

)

(10,383

)

(225,616

)

Repayment of bonds

 

(450,000

)

 

(450,000

)

 

Equity issuance costs

 

(62,020

)

 

(63,420

)

 

Debt issue costs

 

 

 

(5,011

)

(95

)

Payment of premiums for debt extinguishment

 

(12,386

)

 

(12,386

)

(528

)

Excess tax benefits from stock-based compensation

 

 

 

3,168

 

 

Repayment of equity

 

 

(398

)

 

 

Receipts from non-controlling interest

 

 

 

 

6,530

 

Payment of dissenting shareholder settlement

 

 

 

(38,336

)

 

Net change in bank overdrafts

 

(6,364

)

(714

)

1,686

 

11,455

 

Net cash provided by (used in) financing activities

 

549,291

 

(54,254

)

562,335

 

(208,254

)

Change in cash and cash equivalents

 

538,729

 

4,230

 

517,929

 

(5,595

)

Cash and cash equivalents, beginning of period

 

37,032

 

124,198

 

57,832

 

134,023

 

Cash and cash equivalents, end of period

 

$

575,761

 

$

128,428

 

$

575,761

 

$

128,428

 

 

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

 

6



Table of Contents

 

ENVISION HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, unaudited)

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenue, net of contractual discounts

 

1,691,208

 

1,529,140

 

4,986,261

 

4,381,061

 

Provision for uncompensated care

 

(735,320

)

(708,329

)

(2,242,794

)

(1,952,858

)

Net revenue

 

955,888

 

820,811

 

2,743,467

 

2,428,203

 

Compensation and benefits

 

677,797

 

577,502

 

1,963,546

 

1,706,205

 

Operating expenses

 

110,404

 

100,617

 

313,075

 

305,005

 

Insurance expense

 

26,974

 

22,907

 

78,647

 

75,352

 

Selling, general and administrative expenses

 

40,731

 

18,541

 

86,518

 

57,670

 

Depreciation and amortization expense

 

35,175

 

30,592

 

104,552

 

91,844

 

Restructuring charges

 

1,319

 

2,028

 

4,988

 

10,751

 

Income from operations

 

63,488

 

68,624

 

192,141

 

181,376

 

Interest income from restricted assets

 

2

 

(116

)

634

 

429

 

Interest expense

 

(39,131

)

(41,322

)

(117,959

)

(126,288

)

Realized gain on investments

 

158

 

5

 

276

 

366

 

Interest and other (expense) income

 

(52

)

937

 

(13,022

)

1,340

 

Loss on early debt extinguishment

 

 

(1,561

)

(122

)

(6,733

)

Income before income taxes, and equity in earnings of unconsolidated subsidiary

 

24,465

 

26,567

 

61,948

 

50,490

 

Income tax expense

 

(9,816

)

(11,448

)

(27,782

)

(21,952

)

Income before equity in earnings of unconsolidated subsidiary

 

14,649

 

15,119

 

34,166

 

28,538

 

Equity in earnings of unconsolidated subsidiary

 

68

 

90

 

230

 

304

 

Net income

 

14,717

 

15,209

 

34,396

 

28,842

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains during the period

 

(133

)

471

 

(582

)

674

 

Unrealized gains (losses) on derivative financial instruments

 

236

 

1,031

 

(42

)

(234

)

Comprehensive income

 

$

14,820

 

$

16,711

 

$

33,772

 

$

29,282

 

 

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

 

7



Table of Contents

 

ENVISION HEALTHCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

September 30,
2013

 

December 31,
2012

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

94,039

 

$

57,551

 

Insurance collateral

 

29,039

 

24,481

 

Trade and other accounts receivable, net

 

750,484

 

625,413

 

Parts and supplies inventory

 

22,539

 

22,050

 

Prepaids and other current assets

 

28,403

 

23,514

 

Total current assets

 

924,504

 

753,009

 

Non-current assets:

 

 

 

 

 

Property, plant and equipment, net

 

190,837

 

191,864

 

Intangible assets, net

 

524,317

 

564,218

 

Insurance collateral

 

12,107

 

20,760

 

Goodwill

 

2,437,620

 

2,413,632

 

Other long-term assets

 

75,969

 

85,857

 

Total assets

 

$

4,165,354

 

$

4,029,340

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

65,241

 

$

53,792

 

Accrued liabilities

 

382,718

 

387,430

 

Current deferred tax liabilities

 

28,226

 

23,568

 

Current portion of long-term debt

 

12,316

 

12,282

 

Total current liabilities

 

488,501

 

477,072

 

Long-term debt

 

2,225,407

 

2,209,923

 

Long-term deferred tax liabilities

 

156,850

 

156,850

 

Insurance reserves and other long-term liabilities

 

212,176

 

209,593

 

Total liabilities

 

3,082,934

 

3,053,438

 

Equity:

 

 

 

 

 

Common stock ($0.01 par value; 1,000 shares authorized, issued and outstanding as of September 30, 2013 and December 31, 2012)

 

 

 

Additional paid-in capital

 

1,003,013

 

908,488

 

Treasury stock at cost

 

(1,347

)

(381

)

Retained earnings

 

75,061

 

61,478

 

Accumulated other comprehensive loss

 

(837

)

(213

)

Total Envision Healthcare Corporation equity

 

1,075,890

 

969,372

 

Noncontrolling interest

 

6,530

 

6,530

 

Total equity

 

1,082,420

 

975,902

 

Total liabilities and equity

 

$

4,165,354

 

$

4,029,340

 

 

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

 

8



Table of Contents

 

ENVISION HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net income

 

$

14,717

 

$

15,209

 

$

34,396

 

$

28,842

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

38,979

 

34,584

 

115,865

 

104,207

 

Gain on disposal of property, plant and equipment

 

(45

)

(208

)

(55

)

(272

)

Equity-based compensation expense

 

1,062

 

1,062

 

3,186

 

3,186

 

Excess tax benefits from equity-based compensation

 

 

 

(3,168

)

 

Loss on early debt extinguishment

 

 

1,561

 

122

 

6,733

 

Equity in earnings of unconsolidated subsidiary

 

(68

)

(90

)

(230

)

(304

)

Dividends received

 

 

 

556

 

611

 

Deferred income taxes

 

87

 

42,939

 

2,244

 

43,146

 

Payment of dissenting shareholder settlement

 

 

 

(13,717

)

 

Changes in operating assets/liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

(69,716

)

(25,547

)

(126,237

)

(68,376

)

Parts and supplies inventory

 

(335

)

(37

)

(489

)

351

 

Prepaids and other current assets

 

5,081

 

(164

)

(4,407

)

(6,701

)

Accounts payable and accrued liabilities

 

55,745

 

33,933

 

54,139

 

60,139

 

Insurance accruals

 

5,247

 

2,874

 

1,795

 

(2,315

)

Net cash provided by operating activities

 

50,754

 

106,116

 

64,000

 

169,247

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(19,295

)

(19,126

)

(45,493

)

(44,311

)

Proceeds from sale of property, plant and equipment

 

68

 

5,641

 

396

 

7,092

 

Acquisition of businesses, net of cash received

 

(25,935

)

(19,259

)

(27,358

)

(20,559

)

Net change in insurance collateral

 

3,282

 

(17,773

)

2,880

 

90,601

 

Other investing activities

 

(404

)

2,885

 

(456

)

589

 

Net cash (used in) provided by investing activities

 

(42,284

)

(47,632

)

(70,031

)

33,412

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

Envision Healthcare Corporation issuance of class A common stock

 

 

 

1,117

 

 

Borrowings under senior secured term loan facility

 

 

 

150,000

 

 

Capital contributed by Parent

 

86,087

 

 

86,087

 

 

Net repayments under ABL credit facility

 

(27,500

)

 

(125,000

)

 

Repayments of senior secured term loan facility and other debt

 

(3,339

)

(53,142

)

(10,383

)

(225,616

)

Dividend paid

 

 

 

(20,813

)

 

Debt issue costs

 

 

 

(5,007

)

(95

)

Excess tax benefits from stock-based compensation

 

 

 

3,168

 

 

Repayment of equity

 

 

(398

)

 

(528

)

Receipts from non-controlling interest

 

 

 

 

6,530

 

Payment of dissenting shareholder settlement

 

 

 

(38,336

)

 

Net change in bank overdrafts

 

(6,431

)

(714

)

1,686

 

11,455

 

Net cash provided by (used in) financing activities

 

48,817

 

(54,254

)

42,519

 

(208,254

)

Change in cash and cash equivalents

 

57,287

 

4,230

 

36,488

 

(5,595

)

Cash and cash equivalents, beginning of period

 

36,752

 

124,198

 

57,551

 

134,023

 

Cash and cash equivalents, end of period

 

$

94,039

 

$

128,428

 

$

94,039

 

$

128,428

 

 

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

 

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Table of Contents

 

ENVISION HEALTHCARE HOLDINGS, INC.

ENVISION HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

 

1.     General

 

Basis of Presentation of Financial Statements

 

Envision Healthcare Holdings, Inc. (“Holding”) indirectly owns all of the outstanding common stock of Envision Healthcare Corporation (“Corporation”).  In June 2013, CDRT Holding Corporation’s name was changed to Envision Healthcare Holdings, Inc. and Emergency Medical Services Corporation’s name was changed to Envision Healthcare Corporation.

 

The accompanying interim consolidated financial statements for Holding and Corporation 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, the consolidated financial statements of Holding and Corporation (together the “Company” or “EVHC”) include all normal recurring adjustments necessary for a fair presentation of the periods presented.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013. For further information on Holding’s significant accounting policies and other information, see Holding’s consolidated financial statements, including the accounting policies and notes thereto for the year ended December 31, 2012, which includes all disclosures required by GAAP, included in the Registration Statement (File No. 333-189292) (“Holding’s Registration Statement”) which was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on August 13, 2013 for an initial public offering of its common stock, par value $0.01 per share (“Common Stock”).  See Note 2 for further information on Holding’s initial public offering and its equity.  For further information on Corporation’s significant accounting policies and other information, see Corporation’s consolidated financial statements, including the accounting policies and notes thereto for the year ended December 31, 2012, which includes all disclosures required by GAAP, included in Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

On July 29, 2013, Holding effected a 9.3 for 1.0 stock split of Holding’s common stock, resulting in 132,082,885 shares of common stock issued, not including 504,197 treasury shares.  The accompanying consolidated financial statements give retroactive effect to the stock split for all periods presented.

 

The Company’s business is conducted primarily through two operating subsidiaries, EmCare Holdings, Inc. (“EmCare”), its facility-based physician services segment, and American Medical Response, Inc. (“AMR”), its medical transportation services segment.

 

2.              Summary of Significant Accounting Policies

 

Consolidation

 

The consolidated financial statements of Holding include all of its wholly-owned subsidiaries, including Corporation and its respective subsidiaries and affiliated physician groups.  The consolidated financial statements of Corporation, include all of its wholly-owned subsidiaries, including EmCare and AMR and their respective subsidiaries, and affiliated physician groups.  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 including, but not limited to, estimates and assumptions for accounts receivable and insurance related reserves. Actual results may differ from those estimates under different assumptions or conditions.

 

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Table of Contents

 

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 collateral also includes a receivable from insurers of $1.3 million and $1.6 million as of September 30, 2013 and December 31, 2012, respectively, for liabilities in excess of our self-insured retention.

 

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 normally retains liability for the first $1 to $3 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 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 and legal costs, and changes in case reserves and the assumed rate of inflation in healthcare costs and property damage repairs. Claims, other than general liability claims, are discounted at a rate of 1.5%. General liability claims are not discounted.

 

The Company’s most recent actuarial valuation was completed in September 2013. As a result of this and previous actuarial valuations, the Company recorded increases in its provisions for insurance liabilities of $1.6 million and $1.2 million during the three and nine month periods ended September 30, 2013, respectively, compared to increases of $0.9 million and $0.3 million for three and nine month periods ended September 30, 2012, respectively, related to reserves for losses in prior years.

 

The long-term portion of insurance reserves was $192.8 million and $189.4 million as of September 30, 2013 and December 31, 2012, 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 Company’s billing systems do not provide contractual allowances or uncompensated care reserves on outstanding patient accounts. The allowance for uncompensated care is related principally to receivables recorded for self-pay patients and is not recorded on specific accounts due to the volume and variability of individual patient receivable collections. While the billing systems do not specifically record the allowance for doubtful accounts to individual accounts owed or specific payor classifications, the portion of the allowance for uncompensated care associated with fee for service charges as of December 31, 2012 was equal to approximately 97% and 93% of outstanding self-pay receivables for EmCare and AMR, respectively, consistent with the Company’s collection history. Account balances are charged off against the uncompensated care allowance when it is probable the receivable will not be recovered and to the contractual allowance when payment is received. The Company’s accounts receivable and allowances are as follows:

 

 

 

September 30,
2013

 

December 31,
2012

 

Gross trade accounts receivable

 

$

3,570,888

 

$

3,085,758

 

Allowance for contractual discounts

 

1,826,881

 

1,619,488

 

Allowance for uncompensated care

 

993,881

 

841,754

 

Net trade accounts receivable

 

750,126

 

624,516

 

Other receivables, net

 

358

 

897

 

Net accounts receivable — Corporation

 

750,484

 

625,413

 

Other receivables, net — adjustment for Holding

 

 

(269

)

Net accounts receivable — Holding

 

$

750,484

 

$

625,144

 

 

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

 

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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.

 

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.

 

Business Combinations

 

Assets and liabilities of an acquired business are recorded at their fair values at the date of acquisition. The excess of the acquisition consideration over the estimated fair values is recorded as goodwill. All acquisition costs are expensed as incurred. While the Company uses its best estimates and assumptions as a part of the acquisition consideration allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period any subsequent adjustments are recorded as expense.

 

Revenue Recognition

 

Revenue is recognized at the time of service and is recorded net of provisions for contractual discounts and estimated uncompensated care. Fee-for-service revenue represents billings for services provided to patients, for which the Company receives payment from the patient or their third-party payor. Provisions for contractual discounts are related to differences between gross charges and specific payor, including governmental, reimbursement schedules. Provisions for estimated uncompensated care, or bad debt expense, are related principally to the number of self-pay patients treated in the period and are based primarily on historical collection experience to reduce revenues net of contractual discounts to the estimated amounts the Company expects to collect. Subsidy and fee revenue primarily represent hospital subsidies and fees at EmCare and fees for stand-by, special event and community subsidies at AMR.

 

The majority of the patients the Company treats are for the provision of emergency care in the pre-hospital and hospital settings. Due to federal government regulations governing the provision of such care, the Company is obligated to provide emergency care regardless of the patient’s ability to pay or whether or not the patient has insurance or other third-party coverage for the costs of the services rendered. While the Company attempts to obtain all relevant billing information at the time the patient is within our care, there are numerous patient encounters where such information is not available. In such cases, the Company’s billing operations will initially classify these patients as self-pay, with the applicable estimated allowance for uncompensated care, while they pursue collection of the account. Over the course of the first 30 to 60 days after these self-pay patients have been treated, the billing staff may identify the appropriate insurance or other third-party payor and re-assign the account from a self-pay payor classification to the appropriate payor. Depending on the final payor determination, the allowances for uncompensated care and contractual discounts will be adjusted accordingly. For accounts that remain classified as self-pay, the billing protocols and systems will generate bills and notifications generally for 90 to 120 days. If no collection or additional information is received from the patient, the account is written-off and sent to a collection agency. The Company’s revenue recognition models, which are reviewed and updated on a monthly basis, consider these events in determining the collectability of accounts receivable.

 

Net revenue for the three and nine month periods ended September 30, 2013 and 2012 consisted of the following:

 

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Table of Contents

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Fee-for-service revenue, net of contractuals:

 

 

 

 

 

 

 

 

 

Medicare

 

$

231,042

 

$

195,111

 

$

700,823

 

$

577,311

 

Medicaid

 

51,991

 

47,723

 

155,055

 

141,050

 

Commercial insurance and managed care

 

590,924

 

541,542

 

1,719,642

 

1,559,170

 

Self-pay

 

645,774

 

611,508

 

1,964,068

 

1,703,304

 

Sub-total

 

1,519,731

 

1,395,884

 

4,539,588

 

3,980,835

 

Subsidies and fees

 

171,477

 

133,256

 

446,673

 

400,226

 

Revenue, net of contractuals

 

1,691,208

 

1,529,140

 

4,986,261

 

4,381,061

 

Provision for uncompensated care

 

(735,320

)

(708,329

)

(2,242,794

)

(1,952,858

)

Net revenue

 

$

955,888

 

$

820,811

 

$

2,743,467

 

$

2,428,203

 

 

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 payment 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 in 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 in the aggregate resulted in an increase of $1.1 million and a reduction of $1.6 million to the contractual discount or uncompensated care provisions for the three months ended September 30, 2013 and 2012, respectively, and an increase of $0.2 million and a reduction of $6.3 million to the contractual discount or uncompensated care provisions for the nine months ended September 30, 2013 and 2012, respectively.

 

The Company 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 care regardless of their ability to pay.  Services to these patients are not considered to be charity care and provisions for uncompensated care for these services are estimated accordingly.

 

Equity Structure and Initial Public Offering — Holding

 

On August 13, 2013, Holding’s Registration Statement was declared effective by the SEC for an initial public offering of its Common Stock.  Holding registered the offering and sale of 42,000,000 shares of Common Stock and an additional 6,300,000 shares of Common Stock, which were sold to the underwriters pursuant to their option to purchase additional shares at a price of $23 per share. On August 19, 2013, Holding completed the offering of 48,300,000 shares of Common Stock, at a price of $23 per share, for an aggregate offering price of $1,110.9 million.  At the closing, we received net proceeds of approximately $1,025.9 million, after deducting the underwriters’ discounts and commissions paid and offering expenses of approximately $85.0 million, including a $20.0 million payment to Clayton, Dubilier & Rice, LLC (“CD&R”) in connection with the termination of a consulting agreement with Holding and Corporation (“Consulting Agreement”) which was recorded to “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Operation, see Note 12.  As of September 30, 2013, approximately $1.6 million of these expenses have not been paid.

 

Net proceeds from the initial public offering were used to (i) redeem in full Holding’s Senior PIK Toggle Notes due 2017 for a total of $479.6 million, which included a call premium pursuant to the indenture governing the Senior PIK Toggle Notes due 2017 and all accrued but unpaid interest, (ii) pay CD&R the fee of $20.0 million to terminate the Consulting Agreement, and (iii) pay $16.5 million to repay all outstanding revolving credit facility borrowings.  The remaining proceeds will be used for general corporate purposes which may include, among other things, repayment of indebtedness and acquisitions.

 

Equity Structure — Corporation

 

On February 13, 2011, Corporation entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Envision Healthcare Intermediate Corporation (“Parent”), formerly known as CDRT Acquisition Corporation, and CDRT Merger Sub, Inc. (“Merger Sub”), formerly a wholly owned subsidiary of Parent. Pursuant to the Merger Agreement, Merger Sub merged with and into Corporation, with Corporation as the surviving corporation and a wholly owned subsidiary of Parent on May 25, 2011. Immediately following the Merger, all of the outstanding common stock of Parent was owned by Holding, which is owned by affiliates of CD&R and members of management and directors of Corporation.

 

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Table of Contents

 

Prior to the Merger, Corporation acted as the general partner and majority equity holder of EMS LP, with the balance of the EMS LP equity held by persons affiliated with Corporation’s previous principal equity holder. The EMS LP equity was exchangeable at any time for shares of Corporation’s common stock, and holders of the LP exchangeable units had the right to vote at stockholder meetings with limited exceptions. Accordingly, prior to the Merger, Corporation accounted for the LP exchangeable units as if the LP exchangeable units were shares of its common stock, including reporting the LP exchangeable units in the equity section of Corporation’s balance sheet and including the number of outstanding LP exchangeable units in both its basic and diluted earnings per share calculations.

 

On May 25, 2011, in connection with the Merger, the equity structure of Holding was altered as follows:

 

·                  LP units of the entity formerly known as EMS LP were exchanged for Corporation common stock;

 

·                  outstanding shares of Corporation common stock were converted into the right to receive $6.88 per share in cash, without interest and less any applicable withholding taxes;

 

·                  options to purchase shares of Corporation common stock (other than options that were rolled over by certain members of management as described below), vested or unvested, were cancelled and each option was converted into the right to receive a cash payment equal to the excess (if any) of $6.88 per share over the exercise price per share of the option times the number of shares subject to the option, without interest and less any applicable withholding taxes;

 

·                  restricted shares, vested or unvested, were fully vested at the effective time and canceled and extinguished and each restricted share was converted into the right to receive $6.88 per share in cash, without interest and less any applicable withholding taxes;

 

·                  restricted stock units, vested or unvested, were cancelled and extinguished, and each restricted stock unit was converted into the right to receive a cash payment equal to $6.88 per share times the number of shares of Corporation common stock subject to such restricted stock units, without interest and less any applicable withholding taxes;

 

·                  investment funds (the “CD&R Affiliates”) sponsored by, or affiliated with, CD&R invested $887.1 million in the common stock of Holding, the proceeds of which were contributed to Parent, and the remainder of the acquisition consideration for the Merger was funded through a variety of debt instruments;

 

·                  certain members of our management rolled over existing options to purchase Corporation common stock with an aggregate value of $28.3 million, based on the Merger consideration price, into options to purchase common stock of Holding; and

 

·                  Merger Sub merged with and into Corporation, with Corporation as the surviving corporation.

 

Financial Instruments and Concentration of Credit Risk

 

The Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, insurance collateral, other than current portion of self-insurance estimates, long-term debt and long-term liabilities, other than self-insurance estimates, constitute financial instruments.  Based on management’s estimates, the carrying value of these financial instruments approximates their fair value as of September 30, 2013 and December 31, 2012.  Concentration of credit risks in accounts receivable is limited, due to the large number of customers comprising the Company’s customer base throughout the United States.  A significant component of the Company’s revenue is derived from Medicare and Medicaid.  Given that these are government programs, the credit risk for these customers is considered low.  The Company performs ongoing credit evaluations of its other customers, but does not require collateral to support customer accounts receivable.  The Company establishes an allowance for uncompensated care based on the credit risk applicable to particular customers, historical trends and other relevant information.  For the nine months ended September 30, 2013, the Company derived approximately 28% of its revenue from Medicare and Medicaid, 68% from insurance providers and contracted payors, and 4% directly from patients.

 

The Company estimates the fair value of its fixed rate senior subordinated notes based on quoted market prices (Level 1).  The estimated fair value of the senior subordinated notes at September 30, 2013 was approximately $1,029.1 million with a carrying value of $950.0 million.  EMCA Insurance Company, Ltd. held $15 million of the senior subordinated notes at September 30, 2013.

 

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Table of Contents

 

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, which include investments held in connection with the Company’s captive insurance program.

 

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. Balances in this category include fixed income mortgage backed securities, corporate bonds, and derivatives.

 

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. Balances in this category include the Company’s estimate, using a combination of internal and external fair value analyses, of contingent consideration for acquisitions described in Note 4.

 

The following table summarizes the valuation of the Company’s financial instruments by the above fair value hierarchy levels as of September 30, 2013 and December 31, 2012:

 

 

 

September 30, 2013

 

December 31, 2012

 

Description

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

$

18,053

 

$

517

 

$

 

$

18,570

 

$

22,870

 

$

788

 

$

 

$

23,658

 

Fuel hedge

 

$

 

$

538

 

$

 

$

538

 

$

 

$

631

 

$

 

$

631

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

9,401

 

$

9,401

 

$

 

$

 

$

4,401

 

$

4,401

 

Interest rate swap

 

$

 

$

3,453

 

$

 

$

3,453

 

$

 

$

4,586

 

$

 

$

4,586

 

 

The contingent consideration balance classified as a Level 3 liability has increased by $5.0 million since December 31, 2012 due to recent acquisitions.

 

During the nine months ended September 30, 2013, we had no transfers in and out of Level 1 and Level 2 fair value measurements.

 

Recent Accounting Pronouncements

 

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”) to provide explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  ASU 2013-11 requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except if such a deferred tax asset is unavailable at the reporting date.  If a deferred tax asset is unavailable at the reporting date, then the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets.  ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2013.  We do not expect the adoption of ASU 2013-11 to have a material impact on our financial position or results of operations.

 

In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”) to improve the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”).

 

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Table of Contents

 

ASU 2013-02 requires the following:

 

·                  present separately for each component of other comprehensive income, current period reclassifications out of AOCI and other amounts of current-period other comprehensive income; and

 

·                  separately provide information about the effects on net income of significant amounts reclassified out of each component of AOCI if those amounts all are required to be reclassified to net income in their entirety in the same reporting period.

 

The Company adopted this new guidance effective January 1, 2013 by adding disclosure in Note 8, Changes in Accumulated Other Comprehensive Income by Component.

 

3.              Basic and Diluted Net (Loss) Income Per Share

 

Holding presents both basic (loss) earnings per share (“EPS”) and diluted EPS.  Basic EPS excludes potential dilution and is computed by dividing “Net (loss) income” by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if stock awards were exercised.  The potential dilution from stock awards was computed using the treasury stock method based on the average market value of Holding’s common stock.  The following table presents EPS amounts for all periods and the basic and diluted weighted-average shares outstanding used in the calculation.

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Net (loss) income

 

$

(7,663

)

$

15,209

 

$

(1,913

)

$

28,842

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — common stock:

 

 

 

 

 

 

 

 

 

Basic

 

157,282,885

 

130,230,634

 

139,969,940

 

130,219,651

 

Dilutive impact of stock awards outstanding

 

 

3,233,248

 

 

2,260,170

 

Diluted

 

157,282,885

 

133,463,882

 

139,969,940

 

132,479,821

 

 

 

 

 

 

 

 

 

 

 

Earnings per share — common stock:

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share

 

$

(0.05

)

$

0.12

 

$

(0.01

)

$

0.22

 

Diluted net (loss) income per common share

 

$

(0.05

)

$

0.11

 

$

(0.01

)

$

0.22

 

 

Holding had a net loss for the three and nine month periods ended September 30, 2013, therefore, the effect of stock awards to purchase common stock of 6,088,252 and 8,663,107, respectively, is excluded from the computations of diluted loss per share since the effect is anti-dilutive.  As of September 30, 2012, there was no stock awards of common stock outstanding excluded from the weighted-average common shares outstanding above.

 

4.              Acquisitions

 

During the quarter ended September 30, 2013, indirect, wholly-owned subsidiaries of the Company completed the acquisitions of CMORx, LLC, which provides clinical management software, each of T.M.S. Management Group, Inc. and Transportation Management Services of Brevard, Inc., two related corporations that manage the provision of non-emergency medical transportation services by third-party transportation service providers, and a clinical affiliate acquired certain assets of Jacksonville Emergency Consultants P.A., which provides facility based physician staffing in northern Florida, for a combined purchase price of $26.4 million.  At September 30, 2013, the Company recorded $24.4 million to goodwill, $3.9 million to intangible assets, $1.6 million to property, plant, and equipment, and $3.5 million to net current liabilities, which are subject to adjustment based upon the completion of purchase price allocations.

 

During the nine months ended September 30, 2013, the Company made purchase price allocation adjustments related to the acquisitions of Guardian Healthcare Group, Inc. (“Guardian”), the management services companies of NightRays, P.A (“NightRays”), and Saint Vincent Anesthesia Medical Group, Inc. / Golden State Anesthesia Consultants, Inc. These adjustments included reclassifications from goodwill to intangible assets of $8.7 million and $4.3 million for Guardian and NightRays, respectively, a deferred tax liability increase of $3.3 million and other adjustments to opening balances for assets and liabilities.

 

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5.              Accrued Liabilities

 

Accrued liabilities were as follows at September 30, 2013 and December 31, 2012:

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

Accrued wages and benefits

 

$

156,950

 

$

136,334

 

Accrued paid time-off

 

27,267

 

25,626

 

Current portion of self-insurance reserves

 

47,902

 

49,224

 

Accrued restructuring

 

6,504

 

12,318

 

Current portion of compliance and legal

 

6,166

 

3,711

 

Accrued billing and collection fees

 

3,263

 

4,945

 

Accrued incentive compensation

 

20,249

 

22,274

 

Accrued interest

 

27,660

 

7,889

 

Accrued income taxes

 

30,114

 

19,487

 

Accrued dissenting shareholder settlement

 

 

41,826

 

Other

 

56,643

 

63,796

 

Total accrued liabilities — Corporation

 

$

382,718

 

$

387,430

 

Adjustments for Holding:

 

 

 

 

 

Accrued interest

 

 

10,406

 

Accrued income taxes

 

(30,114

)

(8,901

)

Total accrued liabilities — Holding

 

$

352,604

 

$

388,935

 

 

6.              Long-Term Debt

 

Long-term debt and capital leases consisted of the following at September 30, 2013 and December 31, 2012:

 

 

 

September 30,
2013

 

December 31,
2012

 

Senior subordinated unsecured notes due 2019

 

$

950,000

 

$

950,000

 

Senior subordinated unsecured notes purchased by the Company’s subsidiary

 

(15,000

)

(15,000

)

Senior secured term loan due 2018 (4.00% at September 30, 2013)

 

1,301,475

 

1,160,609

 

ABL Facility

 

 

125,000

 

Notes due at various dates from 2013 to 2022 with interest rates from 6% to 10%

 

861

 

1,149

 

Capital lease obligations due at various dates from 2013 to 2018

 

387

 

447

 

 

 

2,237,723

 

2,222,205

 

Less current portion

 

(12,316

)

(12,282

)

Total long-term debt — Corporation

 

$

2,225,407

 

$

2,209,923

 

Senior PIK Toggle Notes due 2017

 

 

437,175

 

Total long-term debt — Holding

 

$

2,225,407

 

$

2,647,098

 

 

On February 7, 2013, Corporation entered into a First Amendment (the “Term Loan Amendment”) to the credit agreement dated as of May 25, 2011. Under the Term Loan Amendment, Corporation incurred an additional $150.0 million in incremental borrowings under the seven-year senior secured term loan facility (the, “Term Loan Facility”), the proceeds of which were used to pay down Corporation’s five-year senior secured asset-based loan facility (the “ABL Facility”), and, together with the Term Loan Facility, the “Credit Facilities”). In addition, the rate at which the loans under the Term Loan Credit Agreement bear interest was amended to equal (i) the higher of (x) the rate for deposits in U.S. dollars in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“LIBOR”) and (y) 1.00%, plus, in each case, 3.00% (with a step-down to 2.75% in the event that Corporation meets a consolidated first lien net leverage ratio of 2.50:1.00), or (ii) the alternate base rate, which will be the highest of (w) the corporate base rate established by the administrative agent from time to time, (x) 0.50% in excess of the overnight federal funds rate, (y) the one-month LIBOR (adjusted for maximum reserves) plus 1.00% and (z) 2.00%, plus, in each case, 2.00% (with a step-down to 1.75% in the event that Corporation meets a consolidated first lien net leverage ratio of 2.50:1.00).  Corporation wrote off $0.1 million of unamortized debt issuance costs as a result of this modification.

 

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On February 27, 2013, Corporation entered into a First Amendment (the “ABL Amendment”) to the credit agreement governing the ABL Facility, under which Corporation increased its commitments under the ABL Facility to $450.0 million. In addition, the rate at which the loans under the ABL Credit Agreement bear interest was amended to equal (i) LIBOR plus, (x) 2.00% in the event that average daily excess availability is less than or equal to 33% of availability, (y) 1.75% in the event that average daily excess availability is greater than 33% but less than or equal to 66% of availability and (z) 1.50% in the event that average daily excess availability is greater than 66% of availability, or (ii) the alternate base rate, which will be the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) the one-month LIBOR (adjusted for maximum reserves) plus 1.00% plus, in each case, (A) 1.00% in the event that average daily excess availability is less than or equal to 33% of availability, (B) 0.75% in the event that average daily excess availability is greater than 33% but less than or equal to 66% of availability and (C) 0.50% in the event that average daily excess availability is greater than 66% of availability.

 

Corporation recorded $5.0 million of debt issuance expense related to these amendments.

 

On August 30, 2013, Holding redeemed all of the Senior PIK Toggle Notes due 2017 at a redemption price equal to 102.75% of the aggregate principal amount of the Senior PIK Toggle Notes due 2017, plus accrued and unpaid interest of $17.2 million.  During the three and nine months ended September 30, 2013, Holding recorded $29.5 million in premiums and deferred financing costs related to the redemption of the Senior PIK Toggle Notes due 2017 as “Loss on early debt extinguishment” on Holding’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

 

During the second quarter of 2012, the Company’s captive insurance subsidiary purchased and currently holds $15.0 million of our 8.125% senior subordinated unsecured notes due 2019 through an open market transaction.

 

7.             Derivative Instruments and Hedging Activities

 

The Company manages its exposure to changes in fuel prices and interest rates 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 September 30, 2013, 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 $3.65 to $4.02 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 3.4 million gallons, which represents approximately 27.2% of the Company’s total estimated usage during the periods hedged, and are spread over periods from October 2013 through December 2014. As of September 30, 2013, 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 in the amount of $0.5 million, compared to an asset of $0.6 million as of December 31, 2012. Settlement of hedge agreements are included in operating expenses and resulted in net receipts from the counterparty of $0.1 million and $0.4 million for each of the three and nine month periods ended September 30, 2013, zero and $0.8 million for the three and nine months ended September 30, 2012.  Over the next 12 months, the Company expects to reclassify $0.4 million of deferred gain from AOCI as the related fuel hedge transactions mature.

 

In October 2011, the Company entered into interest rate swap agreements which mature on August 31, 2015.  The swap agreements are with major financial institutions and effectively convert a total of $400 million in variable rate debt to fixed rate debt with an effective rate of 4.49%.  The Company will continue to make interest payments based on the variable rate associated with the debt (based on LIBOR, but not less than 1.0%) and will periodically settle with its counterparties for the difference between the rate paid and the fixed rate. The Company recorded, as a component of other comprehensive income before applicable tax impacts, a liability associated with the fair value of the interest rate swap in the amount of $3.5 million as of September 30, 2013, compared to $4.6 million as of December 31, 2012.  Settlement of interest rate swap agreements are included in interest expense and resulted in net payments to the counterparties of $0.5 million and $1.5 million for each of the three and nine month periods ended September 30, 2013. There were no payments made or received under these hedge agreements as of September 30, 2012. Over the next 12 months, the Company expects to reclassify $2.0 million of deferred loss from AOCI to interest expense as the related interest rate swap transactions mature.

 

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8.              Changes in Accumulated Other Comprehensive Income by Component

 

The following table summarizes the changes in the Company’s AOCI by component for the nine months ended September 30, 2013.  All amounts are after tax.

 

 

 

Fuel hedge

 

Interest rate swap

 

Unrealized
holding gains on
available-for-sale
securities

 

Total

 

Balance as of December 31, 2012

 

$

1,057

 

$

(2,861

)

$

1,591

 

$

(213

)

Other comprehensive income before reclassifications

 

(546

)

(222

)

(410

)

(1,178

)

Amounts reclassified from accumulated other comprehensive income

 

(203

)

929

 

(172

)

554

 

Net current-period other comprehensive income

 

(749

)

707

 

(582

)

(624

)

Balance as of September 30, 2013

 

$

308

 

$

(2,154

)

$

1,009

 

$

(837

)

 

The following table shows the line item on the Consolidated Statements of Operations affected by reclassifications out of AOCI.

 

 

 

Amount reclassified from AOCI

 

 

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

Affected line item on the

 

Details about AOCI components

 

2013

 

2013

 

Statement of Operations

 

Gains and losses on cash flow hedges

 

 

 

 

 

 

 

Fuel hedge

 

$

106

 

$

326

 

Operating expenses

 

Interest rate swap

 

(502

)

(1,489

)

Interest expense

 

 

 

(396

)

(1,163

)

Total before tax

 

 

 

149

 

437

 

Tax benefit

 

 

 

$

(247

)

$

(726

)

Net of tax

 

 

 

 

 

 

 

 

 

Unrealized holding gains on available-for-sale securities

 

$

158

 

$

276

 

Realized gain on investments

 

 

 

158

 

276

 

Total before tax

 

 

 

(59

)

(104

)

Tax expense

 

 

 

$

99

 

$

172

 

Net of tax

 

 

9.              Restructuring Charges

 

The Company recorded a restructuring charge of $1.3 million and $5.0 million during the three and nine months ended September 30, 2013, respectively, and $2.0 million and $10.8 million during the three and nine months ended September 30, 2012, respectively related to continuing efforts to re-align AMR’s operations and the reorganization of EmCare’s geographic regions. Payments currently under this plan are expected to be complete by March 2015. The accrued restructuring liability at September 30, 2013 of $6.5 million includes lease abandonment accruals on restructuring plans from prior years in addition to the 2012 plan outlined below.

 

 

 

2012 Plan

 

 

 

Lease & Other
Contract
Termination Costs

 

Severance

 

Total

 

Balance as of December 31, 2012

 

$

6,295

 

$

4,058

 

$

10,353

 

Incurred

 

1,885

 

3,107

 

4,992

 

Paid

 

(5,902

)

(4,064

)

(9,966

)

Balance as of September 30, 2013

 

$

2,278

 

$

3,101

 

$

5,379

 

 

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10.       Commitments and Contingencies

 

Lease Commitments

 

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

 

The Company also leases certain assets 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.

 

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 agencies 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.

 

Like other ambulance companies, AMR has provided discounts to its healthcare facility customers (nursing homes and hospitals) in certain circumstances. The Company has attempted to comply with applicable law where such discounts are provided. During the first quarter of fiscal 2004, the Company was advised by the U.S. Department of Justice (“DOJ”) that it was investigating certain business practices at AMR. The specific practices at issue were (1) whether ambulance transports involving Medicare eligible patients complied with the “medical necessity” requirement imposed by Medicare regulations, (2) whether patient signatures, when required, were properly obtained from Medicare eligible patients, and (3) whether discounts in violation of the federal Anti-Kickback Statute were provided by AMR in exchange for referrals involving Medicare eligible patients. In connection with the third issue, the government alleged that certain of AMR’s hospital and nursing home contracts in effect in Texas in periods prior to 2002 contained discounts in violation of the federal Anti-Kickback Statute. The Company negotiated a settlement with the government pursuant to which the Company paid $9 million and obtained a release of all claims related to such conduct alleged to have occurred in Texas in periods prior to 2002. In connection with the settlement, AMR entered into a Corporate Integrity Agreement (“CIA”) which was effective for a period of five years beginning September 12, 2006, and which was released in February 2012.

 

In December 2006, AMR received a subpoena from the 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 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 and provided its response. On May 20, 2011, AMR entered into a settlement agreement with the DOJ and a CIA with the Office of Inspector General of the Department of Health and Human Services (“OIG”) in connection with this matter. Under the terms of the settlement, AMR paid $2.7 million to the federal government. In connection with the settlement, the Company entered into a CIA with a five- year period beginning May 20, 2011. Pursuant to this CIA, the Company is required to maintain a compliance program, which includes, among other elements, the appointment of a compliance officer and committee, training of employees nationwide, safeguards for its billing operations as they relate to services provided in New York, including specific training for operations and billing personnel providing services in New York, review by an independent review organization and reporting of certain reportable events. The Company entered into the settlement in order to avoid the uncertainties of litigation, and has not admitted any wrongdoing. In May 2013, a subsidiary of the Company entered into an agreement to divest substantially all the assets underlying AMR’s services in New York, although the obligations of the Company’s compliance program will remain in effect following the expected divestiture. The divesture was completed on July 1, 2013.

 

In July 2011, AMR received a subpoena from the Civil Division of the U.S. Attorney’s Office for the Central District of California (“USAO”) seeking certain documents concerning AMR’s provision of ambulance services within the City of Riverside, California. The USAO indicated that it, together with the OIG, was investigating whether AMR violated the federal False Claims Act and/or the federal Anti-Kickback Statute in connection with AMR’s provision of ambulance transport services

 

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within the City of Riverside. The California Attorney General’s Office conducted a parallel state investigation for possible violations of the California False Claims Act. In December 2012, AMR was notified that both investigations were concluded and that the agencies had closed the matter. There were no findings made against AMR, and the closure of the matter did not require any payments from AMR.

 

Other Legal Matters

 

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 Superior Court of the State of California, County of Los Angeles. The Banta, Aguilar and Karapetian cases have been coordinated in the Superior Court for the State of California, County of Los Angeles. At the present time, courts have not certified classes in any of these cases. Plaintiffs allege principally that the AMR entities failed to pay overtime charges pursuant to California law, and failed to provide required meal breaks, rest breaks or pay premium compensation for missed 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. We are unable at this time to estimate the amount of potential damages, if any.

 

Merion Capital, L.P. (“Merion”), a former stockholder of Corporation, filed an action in the Delaware Court of Chancery seeking to exercise its right to appraisal of its holdings in Corporation prior to the Merger. During the nine months ended September 30, 2013, the Company expensed $8.4 million of legal settlement costs and $1.9 million of interest. On April 15, 2013, the Company paid $52.1 million in a settlement of Merion’s appraisal action, in which Merion agreed to release its claims against the Company. $13.7 million of this payment is included in cash flows from operations and $38.3 million is included in cash flows from financing activities on the statements of cash flows for the nine months ended September 30, 2013.

 

On August 7, 2012, EmCare received a subpoena from the OIG. The subpoena requests copies of documents for the period from January 1, 2007 through the present and appears to primarily be focused on EmCare’s contracts for services at hospitals that are affiliated with Health Management Associates, Inc. The Company intends to cooperate with the government during its investigation and, as such, is in the process of gathering responsive documents, formulating a written response to the subpoena and is seeking to engage in a meaningful dialogue with the relevant government representatives. At this time, the Company is unable to determine the potential impact, if any, that will result from this investigation.

 

On February 5, 2013, AMR’s Air Ambulance Specialists, Inc. subsidiary received a subpoena from the Federal Aviation Administration relating to its operations as an indirect air carrier and its relationships with Part 135 direct air carriers. The Company intends to cooperate with the government during its investigation and, as such, is in the process of gathering responsive documents, formulating a written response to the subpoena and is seeking to engage in a meaningful dialogue with the relevant government representatives. At this time, the Company is unable to determine the potential impact, if any, that will result from this investigation.

 

On February 14, 2013, EmCare received a subpoena from the OIG requesting documents and other information relating to EmCare’s relationship with Community Health Services, Inc. (“CHS”). The Company intends to cooperate with the government during its investigation. At this time, the Company is unable to determine the potential impact, if any, that will result from this investigation.

 

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.

 

11.       Equity Based Compensation

 

Holding established a stock compensation plan (“Stock Compensation Plan”) after the Merger whereby certain members of management, officers and directors were awarded stock options in Holding. These options have a $3.69 strike price, which was reduced from the original strike price of $6.88 in connection with a dividend paid by Holding in October 2012.  They vest ratably through December 2015 and have a maximum term of 10 years. A compensation charge of $1.1 million and $3.2 million was recorded for the three and nine months ended September 30, 2013, respectively, compared to compensation charges of $1.1 million and $3.2 million for the three and nine months ended September 30, 2012, respectively.

 

Our external directors elected to receive part of their director fees in the form of restricted stock units (“RSUs”). As of September 30, 2013, the Company had granted 36,679 RSUs based on a market price of $6.88 per share, 7,328 RSUs based on a market price of $8.60 per share, 25,052 RSUs based on a market price of $5.41 per share, 9,214 RSUs based on a market price of $7.85 per share, and 641 RSUs based on a market price of $23.00 per share as annual director fees. The RSUs are fully vested when granted. 

 

Upon completion of Holding’s initial public offering, the Stock Compensation Plan terminated and a new stock compensation plan was adopted (“Omnibus Incentive Plan”), pursuant to which the Company will make grants of incentive compensation to its directors, officers and other employees.  Under the terms of the Omnibus Incentive Plan, each non-employee director will receive a

 

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cash award in addition to an annual award of RSUs with a fair market value equal to $100,000 on the date of grant.  There were no grants awarded to non-employee directors under the Omnibus Incentive Plan as of September 30, 2013.

 

12.       Related Party Transactions

 

Holding and Corporation were party to the Consulting Agreement with CD&R, pursuant to which CD&R provided the Company and its subsidiaries with financial, investment banking, management, advisory and other services in exchange for an annual fee of $5.0 million. The Company expensed $20.6 million and $23.1 million for the three and nine months ended September 30, 2013, respectively, and $1.3 million and $3.8 million for the three and nine months ended September 30, 2012, respectively, in respect of this fee.  During the quarter ended September 30, 2013, the Company made a $20.0 million payment to CD&R with proceeds received from the initial public offering of Common Stock of Holding to terminate the Consulting Agreement.

 

On April 1, 2013, Corporation declared and paid a dividend to Parent which in turn paid a dividend to Holding in the amount of $20.8 million.  These funds were used by Holding to pay interest due on Holding’s Senior PIK Toggle Notes due 2017.

 

During the quarter ended September 30, 2013, Holding made an $86.1 million distribution to Corporation with proceeds received from the initial public offering of Common Stock of Holding to pay off debt and for other general corporate purposes.

 

13.       Variable Interest Entities

 

GAAP requires the assets, liabilities, noncontrolling interests and activities of Variable Interest Entities (“VIEs”) to be consolidated if an entity’s interest in the VIE has specific characteristics including: voting rights not proportional to ownership and the right to receive a majority of expected income or absorb a majority of expected losses. In addition, the entity exposed to the majority of the risks and rewards associated with the VIE is deemed its primary beneficiary and must consolidate the entity.

 

EmCare entered into an agreement in 2011 with an indirect wholly-owned subsidiary of HCA Holdings Inc. to form an entity which would provide physician services to various healthcare facilities (“HCA-EmCare JV”). HCA-EmCare JV began providing services to healthcare facilities during the first quarter of 2012 and meets the definition of a VIE. The Company determined that, although EmCare only holds 50% voting control, EmCare is the primary beneficiary and must consolidate this VIE because:

 

·                  EmCare provides management services to HCA-EmCare JV including recruiting, credentialing, scheduling, billing, payroll, accounting and other various administrative services and therefore substantially all of HCA-EmCare JV’s activities involve EmCare; and

 

·                  as payment for management services, EmCare is entitled to receive a base management fee from HCA-EmCare JV as well as a bonus management fee.

 

The following is a summary of the HCA-EmCare JV assets and liabilities as of September 30, 2013 and December 31, 2012, which are included in the Company’s consolidated financial statements.

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

Current assets

 

$

67,238,293

 

$

33,141,502

 

Current liabilities

 

46,290,990

 

20,081,084

 

 

14.       Segment Information

 

The Company is organized around two separately managed business units: outsourced facility-based physician services and medical transportation services, which have been identified as operating segments. The facility-based physician services reportable segment provides physician services to hospitals primarily for emergency departments (“ED”) and urgent care centers, as well as for hospitalist/inpatient, radiology, tele-radiology, anesthesiology and surgery services. The medical 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 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.

 

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

 

The following tables present the Company’s operating segment results for the three and nine months ended September 30, 2013 and 2012:

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Facility-Based Physician Services

 

 

 

 

 

 

 

 

 

Net revenue

 

$

605,105

 

$

485,936

 

$

1,729,158

 

$

1,403,792

 

Segment Adjusted EBITDA

 

82,032

 

68,750

 

218,767

 

189,231

 

Medical Transportation Services

 

 

 

 

 

 

 

 

 

Net revenue

 

350,783

 

334,875

 

1,014,309

 

1,024,411

 

Segment Adjusted EBITDA

 

39,623

 

34,690

 

109,843

 

102,105

 

Total

 

 

 

 

 

 

 

 

 

Total net revenue

 

955,888

 

820,811

 

2,743,467

 

2,428,203

 

Total Segment Adjusted EBITDA — Corporation

 

121,655

 

103,440

 

328,610

 

291,336

 

Other operating income (expenses) — Holding

 

15

 

 

(73

)

 

Total Segment Adjusted EBITDA — Holding

 

121,670

 

103,440

 

328,537

 

291,336

 

Reconciliation of Adjusted EBITDA to Net Income

 

 

 

 

 

 

 

 

 

Segment Adjusted EBITDA — Corporation

 

$

121,655

 

$

103,440

 

$

328,610

 

$

291,336

 

Depreciation and amortization expense

 

(35,175

)

(30,592

)

(104,552

)

(91,844

)

Restructuring charges

 

(1,319

)

(2,028

)

(4,988

)

(10,751

)

Equity-based compensation expense

 

(1,062

)

(1,062

)

(3,186

)

(3,186

)

Related party management fees

 

(20,609

)

(1,250

)

(23,109

)

(3,750

)

Interest expense

 

(39,131

)

(41,322

)

(117,959

)

(126,288

)

Realized gain on investments

 

158

 

5

 

276

 

366

 

Interest and other (expense) income

 

(52

)

937

 

(13,022

)

1,340

 

Loss on early debt extinguishment

 

 

(1,561

)

(122

)

(6,733

)

Income tax expense

 

(9,816

)

(11,448

)

(27,782

)

(21,952

)

Equity in earnings of unconsolidated subsidiary

 

68

 

90

 

230

 

304

 

Net income — Corporation

 

$

14,717

 

$

15,209

 

$

34,396

 

$

28,842

 

Adjustments for Holding:

 

 

 

 

 

 

 

 

 

Other operating income (expenses)

 

15

 

 

(73

)

 

Loss on early debt extinguishment

 

(29,519

)

 

(29,519

)

 

Interest expense

 

(7,641

)

 

(30,567

)

 

Income tax benefit

 

14,765

 

 

23,850

 

 

Net (loss) income — Holding

 

$

(7,663

)

$

15,209

 

$

(1,913

)

$

28,842

 

 

23



Table of Contents

 

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

 

 

 

Quarter ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Segment Adjusted EBITDA — Corporation

 

$

121,655

 

$

103,440

 

$

328,610

 

$

291,336

 

Related party management fees

 

(20,609

)

(1,250

)

(23,109

)

(3,750

)

Restructuring charges

 

(1,319

)

(2,028

)

(4,988

)

(10,751

)

Interest expense (less deferred loan fee amortization)

 

(35,303

)

(37,328

)

(106,644

)

(113,923

)

Payment of dissenting shareholder settlement

 

 

 

(13,717

)

 

Change in accounts receivable

 

(69,716

)

(25,547

)

(126,237

)

(68,376

)

Change in other operating assets/liabilities

 

65,738

 

36,606

 

51,038

 

51,474

 

Excess tax benefits from equity-based compensation

 

 

 

(3,168

)

 

Interest and other income (expense)

 

(52

)

937

 

(13,022

)

1,340

 

Income tax benefit (expense), net of change in deferred taxes

 

(9,729

)

31,491

 

(25,538

)

21,194

 

Other

 

89

 

(205

)

775

 

703

 

Cash flows provided by operating activities - Corporation

 

$

50,754

 

$

106,116

 

$

64,000

 

$

169,247

 

Adjustments for Holding: