Edgar Filing: Envision Healthcare Holdings, Inc.

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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 March 31, 2014

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)

Delaware	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 x No o

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 May 1, 2014, the registrant had 181,131,273 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 May 1, 2014, 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.

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INDEX

Part I. Financial Information		4

Item 1.	Financial Statements (unaudited):	4

	Envision Healthcare Holdings, Inc.

	Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2014 and 2013	4

	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	5

	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	6

	Envision Healthcare Corporation

	Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2014 and 2013	7

	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	8

	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	49

Part II. Other Information		50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 6.	Exhibits	50

Signatures		51

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EXPLANATORY NOTE

This Form 10-Q is a combined quarterly report being filed separately by two registrants: Envision Healthcare Holdings, Inc. and Envision Healthcare 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENVISION HEALTHCARE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

	Quarter ended March 31,
	2014			2013
Revenue, net of contractual discounts	$	1,858,494		$	1,605,248
Provision for uncompensated care	(844,283		)	(716,924		)
Net revenue	1,014,211			888,324
Compensation and benefits	743,661			641,789
Operating expenses	114,635			100,450
Insurance expense	30,981			25,833
Selling, general and administrative expenses	19,375			21,998
Depreciation and amortization expense	36,432			34,755
Restructuring charges	809			637
Income from operations	68,318			62,862
Interest income from restricted assets	86			366
Interest expense	(30,049		)	(51,752		)
Realized gains on investments	606			13
Other expense, net	(808		)	(12,721		)
Loss on early debt extinguishment	—			(122		)
Income (loss) before income taxes and equity in earnings of unconsolidated subsidiary	38,153			(1,354		)
Income tax expense	(16,675		)	(2,568		)
Income (loss) before equity in earnings of unconsolidated subsidiary	21,478			(3,922		)
Equity in earnings of unconsolidated subsidiary	47			75
Net income (loss)	21,525			(3,847		)
Less: Net loss attributable to noncontrolling interest	3,300			—
Net income (loss) attributable to Envision Healthcare Holdings, Inc.	$	24,825		$	(3,847	)

Basic net income (loss) per share attributable to Envision Healthcare Holdings, Inc.	$	0.14		$	(0.03	)
Diluted net income (loss) per share attributable to Envision Healthcare Holdings, Inc.	$	0.13		$	(0.03	)
Average common shares outstanding, basic	180,782,025			130,696,421
Average common shares outstanding, diluted	189,391,612			130,696,421

Comprehensive income:
Net income (loss)	$	21,525		$	(3,847	)
Other comprehensive loss, net of tax:
Unrealized holding losses during the period	(337		)	(436		)
Unrealized gains (losses) on derivative financial instruments	51			(298		)
Total other comprehensive loss, net of tax	(286		)	(734		)
Comprehensive income (loss)	21,239			(4,581		)
Less: Comprehensive loss attributable to noncontrolling interest	3,300			—
Comprehensive income (loss) attributable to Envision Healthcare Holdings, Inc.	$	24,539		$	(4,581	)

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

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ENVISION HEALTHCARE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2014			December 31, 2013
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	190,996		$	204,712
Insurance collateral	19,442			29,619
Trade and other accounts receivable, net	840,940			801,146
Parts and supplies inventory	23,736			23,376
Prepaids and other current assets	26,661			23,430
Total current assets	1,101,775			1,082,283
Non-current assets:
Property, plant and equipment, net	190,935			194,715
Intangible assets, net	516,530			513,698
Insurance collateral	1,127			12,716
Goodwill	2,444,156			2,435,670
Other long-term assets	60,007			60,935
Total assets	$	4,314,530		$	4,300,017
Liabilities and Equity
Current liabilities:
Accounts payable	$	51,301		$	52,588
Accrued liabilities	371,570			350,936
Current deferred tax liabilities	35,639			35,487
Current portion of long-term debt	12,011			12,318
Total current liabilities	470,521			451,329
Long-term debt	1,892,272			1,895,381
Long-term deferred tax liabilities	151,225			151,130
Insurance reserves	151,792			175,427
Other long-term liabilities	16,721			16,997
Total liabilities	2,682,531			2,690,264
Commitments and contingencies
Equity:
Common stock ($0.01 par value; 2,000,000,000 shares authorized, 181,131,273 and 180,382,885 issued and outstanding as of March 31, 2014 and December 31, 2013, respectively)	1,804			1,804
Preferred stock ($0.01 par value; 200,000,000 shares authorized, none issued and outstanding as of March 31, 2014 and December 31, 2013)	—			—
Treasury stock at cost	(1,347		)	(1,347		)
Additional paid-in capital	1,577,521			1,576,764
Retained earnings	43,166			18,341
Accumulated other comprehensive loss	(1,125		)	(839		)
Total Envision Healthcare Holdings, Inc. equity	1,620,019			1,594,723
Noncontrolling interest	11,980			15,030
Total equity	1,631,999			1,609,753
Total liabilities and equity	$	4,314,530		$	4,300,017

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

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ENVISION HEALTHCARE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Quarter ended March 31,
	2014			2013
Cash Flows from Operating Activities
Net income (loss)	$	21,525		$	(3,847	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	39,667			39,428
(Gain) loss on disposal of property, plant and equipment	(1,981		)	39
Equity-based compensation expense	1,062			1,062
Excess tax benefits from equity-based compensation	(14,790		)	(8		)
Loss on early debt extinguishment	—			122
Equity in earnings of unconsolidated subsidiary	(47		)	(75		)
Dividends received	430			556
Deferred income taxes	928			(740		)
Changes in operating assets/liabilities, net of acquisitions:
Trade and other accounts receivable	(35,429		)	(41,212		)
Parts and supplies inventory	(327		)	(50		)
Prepaids and other current assets	(3,468		)	(3,627		)
Accounts payable and accrued liabilities	34,183			19,212
Insurance accruals	(11,533		)	(4,218		)
Net cash provided by operating activities	30,220			6,642
Cash Flows from Investing Activities
Purchases of available-for-sale securities	(2,458		)	(159		)
Sales and maturities of available-for-sale securities	8,160			448
Purchases of property, plant and equipment	(10,714		)	(10,493		)
Proceeds from sale of property, plant and equipment	2,156			197
Acquisition of businesses, net of cash received	(35,791		)	(1,423		)
Net change in insurance collateral	1,200			7,362
Other investing activities	(2,526		)	(702		)
Net cash used in investing activities	(39,973		)	(4,770		)
Cash Flows from Financing Activities
Issuance of common stock	—			691
Borrowings under the Term Loan	—			150,000
Borrowings under the ABL Facility	—			56,940
Repayments of the Term Loan	(3,343		)	(3,343		)
Repayments of the ABL Facility	—			(181,940		)
Dividend paid	—			(67		)
Debt issue costs	—			(4,415		)
Excess tax benefits from equity-based compensation	14,790			8
Shares repurchased for tax withholdings	(14,430		)	—
Proceeds from noncontrolling interest	250			—
Net change in bank overdrafts	—			2,883
Other financing activities	(1,230		)	(329		)
Net cash (used in) provided by financing activities	(3,963		)	20,428
Change in cash and cash equivalents	(13,716		)	22,300
Cash and cash equivalents, beginning of period	204,712			57,832

Cash and cash equivalents, end of period	$	190,996		$	80,132

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

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ENVISION HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, unaudited)

	Quarter ended March 31,
	2014			2013
Revenue, net of contractual discounts	$	1,858,494		$	1,605,248
Provision for uncompensated care	(844,283		)	(716,924		)
Net revenue	1,014,211			888,324
Compensation and benefits	743,661			641,789
Operating expenses	114,635			100,383
Insurance expense	30,981			25,833
Selling, general and administrative expenses	19,375			21,998
Depreciation and amortization expense	36,432			34,755
Restructuring charges	809			637
Income from operations	68,318			62,929
Interest income from restricted assets	86			366
Interest expense	(30,049		)	(40,290		)
Realized gains on investments	606			13
Other income (expense), net	334			(12,721		)
Loss on early debt extinguishment	—			(122		)
Income before income taxes and equity in earnings of unconsolidated subsidiary	39,295			10,175
Income tax expense	(17,055		)	(7,134		)
Income before equity in earnings of unconsolidated subsidiary	22,240			3,041
Equity in earnings of unconsolidated subsidiary	47			75
Net income	22,287			3,116
Less: Net loss attributable to noncontrolling interest	3,300			—
Net income attributable to Envision Healthcare Corporation	$	25,587		$	3,116

Comprehensive income:
Net income	$	22,287		$	3,116
Other comprehensive loss, net of tax:
Unrealized holding losses during the period	(337		)	(436		)
Unrealized gains (losses) on derivative financial instruments	51			(298		)
Total other comprehensive loss, net of tax	(286		)	(734		)
Comprehensive income	22,001			2,382
Less: Comprehensive loss attributable to noncontrolling interest	3,300			—
Comprehensive income attributable to Envision Healthcare Corporation	$	25,301		$	2,382

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

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ENVISION HEALTHCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2014			December 31, 2013
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	109,274		$	122,990
Insurance collateral	19,442			29,619
Trade and other accounts receivable, net	840,940			801,146
Parts and supplies inventory	23,736			23,376
Prepaids and other current assets	28,956			23,925
Total current assets	1,022,348			1,001,056
Non-current assets:
Property, plant and equipment, net	190,935			194,715
Intangible assets, net	516,530			513,698
Insurance collateral	1,127			12,716
Goodwill	2,444,156			2,435,670
Other long-term assets	60,007			60,935
Total assets	$	4,235,103		$	4,218,790
Liabilities and Equity
Current liabilities:
Accounts payable	$	51,185		$	52,472
Accrued liabilities	379,879			357,979
Current deferred tax liabilities	55,951			55,799
Current portion of long-term debt	12,011			12,318
Total current liabilities	499,026			478,568
Long-term debt	1,892,272			1,895,381
Long-term deferred tax liabilities	151,353			151,258
Insurance reserves	151,792			175,427
Other long-term liabilities	16,721			16,997
Total liabilities	2,711,164			2,717,631
Commitment and contingencies
Equity:
Common stock ($0.01 par value; 1,000 shares authorized, issued, and outstanding at March 31, 2014 and December 31, 2013)	—			—
Treasury stock at cost	(1,347		)	(1,347		)
Additional paid-in capital	1,404,737			1,404,208
Retained earnings	109,694			84,107
Accumulated other comprehensive loss	(1,125		)	(839		)
Total Envision Healthcare Corporation equity	1,511,959			1,486,129
Noncontrolling interest	11,980			15,030
Total equity	1,523,939			1,501,159
Total liabilities and equity	$	4,235,103		$	4,218,790

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

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ENVISION HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Quarter ended March 31,
	2014			2013
Cash Flows from Operating Activities
Net income	$	22,287		$	3,116
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	39,667			38,372
(Gain) loss on disposal of property, plant and equipment	(1,981		)	39
Equity-based compensation expense	1,062			1,062
Excess tax benefits from equity-based compensation	(14,790		)	(8		)
Loss on early debt extinguishment	—			122
Equity in earnings of unconsolidated subsidiary	(47		)	(75		)
Dividends received	430			556
Deferred income taxes	928			(740		)
Changes in operating assets/liabilities, net of acquisitions:
Trade and other accounts receivable	(35,429		)	(41,351		)
Parts and supplies inventory	(327		)	(50		)
Prepaids and other current assets	(5,268		)	(2,548		)
Accounts payable and accrued liabilities	35,221			12,294
Insurance accruals	(11,533		)	(4,218		)
Net cash provided by operating activities	30,220			6,571
Cash Flows from Investing Activities
Purchases of marketable investment securities	(2,458		)	(159		)
Sales and maturities of marketable investment securities	8,160			448
Purchases of property, plant and equipment	(10,714		)	(10,493		)
Proceeds from sale of property, plant and equipment	2,156			197
Acquisition of businesses, net of cash received	(35,791		)	(1,423		)
Net change in insurance collateral	1,200			7,362
Other investing activities	(2,526		)	(702		)
Net cash used in investing activities	(39,973		)	(4,770		)
Cash Flows from Financing Activities
Issuance of common stock	—			691
Borrowings under the Term Loan	—			150,000
Borrowings under the ABL Facility	—			56,940
Repayments of the Term Loan	(3,343		)	(3,343		)
Repayments of the ABL Facility	—			(181,940		)
Debt issue costs	—			(4,411		)
Excess tax benefits from equity-based compensation	14,790			8
Shares repurchased for tax withholdings	(14,430		)	—
Proceeds from noncontrolling interest	250			—
Net change in bank overdrafts	—			2,883
Other financing activities	(1,230		)	(329		)
Net cash (used in) provided by financing activities	(3,963		)	20,499
Change in cash and cash equivalents	(13,716		)	22,300
Cash and cash equivalents, beginning of period	122,990			57,551
Cash and cash equivalents, end of period	$	109,274		$	79,851

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

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ENVISION HEALTHCARE HOLDINGS, INC.

ENVISION HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, 2014. For further information on Holding’s and Corporation’s significant accounting policies and other information, see Holding’s and Corporation’s consolidated financial statements, including the accounting policies and notes thereto for the year ended December 31, 2013, which includes all disclosures required by GAAP, included in Holding’s and Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

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.

On August 13, 2013, Holding’s registration statement (the “Registration Statement”) for an initial public offering of its common stock, par value $0.01 per share (“Common Stock”) was declared effective. On February 5, 2014, Holding registered the offering and sale of 31,625,000 shares of Common Stock (including shares sold pursuant to the underwriters’ option to purchase additional shares) by certain stockholders of Holding at a public offering price of $30.50 per share. See Note 2 for further information on Holding’s public offerings and its equity.

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.

Insurance Collateral

Insurance collateral is comprised of investments in U.S. Treasuries and marketable equity and debt securities held by the Company’s captive insurance subsidiary that support 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. These investments are designated as available-for-sale and reported at fair value with the related temporary

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unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of deferred income tax. Declines in the fair value of a marketable investment security which are determined to be other-than-temporary are recognized in the statements of operations, thus establishing a new cost basis for such investment. Investment income earned on these investments is reported as interest income from restricted assets in the statements of operations.

Realized gains and losses are determined based on an average cost basis.

Additionally, insurance collateral is comprised of cash deposits with third parties. Insurance collateral also includes a receivable from insurers of $1.8 million and $1.3 million as of March 31, 2014 and December 31, 2013, respectively, for liabilities in excess of the Company’s self-insured retention.

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, 2013 was equal to approximately 87% and 89% 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 as of March 31, 2014 and December 31, 2013 were as follows (in thousands):

	March 31, 2014			December 31, 2013
Gross trade accounts receivable	$	4,153,929		$	3,841,672
Allowance for contractual discounts	(2,193,183		)	(2,002,704		)
Allowance for uncompensated care	(1,121,079		)	(1,038,833		)
Net trade accounts receivable	839,667			800,135
Other receivables, net	1,273			1,011
Net accounts receivable	$	840,940		$	801,146

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

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.

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Insurance Reserves

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 March 2014. As a result of this and previous actuarial valuations, the Company recorded increases in its provisions for insurance liabilities of $5.2 million during the three month period ended March 31, 2014 compared to decreases of $1.2 million for three month period ended March 31, 2013, related to reserves for losses in prior years.

The long-term portion of insurance reserves was $151.8 million and $175.4 million as of March 31, 2014 and December 31, 2013, respectively.

Equity Structure and Public Offerings — Holding

On August 13, 2013, Holding’s Registration Statement was declared effective by the Securities and Exchange Commission (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 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, and the offering terminated. At the closing, Holding 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 in the third quarter of 2013 to selling, general and administrative expenses in the statements of operations, see Note 13.

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, (iii) pay $16.5 million to repay all outstanding revolving credit facility borrowings, and (iv) redeem $332.5 million of aggregate principal amount of Corporation’s senior unsecured notes due 2019 and all accrued but unpaid interest. The remaining proceeds were used for general corporate purposes which included, among other things, repayment of indebtedness and acquisitions.

On February 5, 2014, Holding registered the offering and sale of 27,500,000 shares of Common Stock by certain stockholders of Holding and an additional 4,125,000 shares of Common Stock, which were sold by investment funds sponsored by, or affiliated with, CD&R (the “CD&R Affiliates”) to the underwriters pursuant to their option to purchase additional shares at $30.50 per share less the underwriting discount. The CD&R Affiliates, certain executive officers and directors of Holding and certain non-executives were the selling stockholders in the offering. Holding did not receive any of the proceeds from the sale of the shares being sold by the selling stockholders, including any shares sold pursuant to any exercise of the underwriters’ option to purchase additional shares.

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 cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates fair value as of March 31, 2014 and December 31, 2013. Concentration of credit risks in accounts receivable is limited, due to the large number of customers comprising the Company’s

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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 three months ended March 31, 2014 and 2013, the Company derived approximately 27% and 28%, respectively, of its revenue from Medicare and Medicaid, 70% and 68%, respectively, from insurance providers and contracted payors, and 3% and 4%, respectively, directly from patients.

The Company estimates the fair value of its fixed rate senior notes based on quoted market prices (Level 1). The estimated fair value of the senior notes as of March 31, 2014 was approximately $650.7 million with a carrying value of $607.8 million. The Company’s captive insurance subsidiary holds $9.8 million of the senior notes as of March 31, 2014 which has been excluded from the carrying value stated above.

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 March 31, 2014 and December 31, 2013 (in thousands):

	March 31, 2014
Description	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities (insurance collateral)	$	7,016	$	515	$	—	$	7,531
Fuel hedge	—		401		—		401
Liabilities:
Contingent consideration	—		—		1,734		1,734
Interest rate swap	—		2,735		—		2,735

	December 31, 2013
Description	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities (insurance collateral)	$	12,710	$	517	$	—	$	13,227
Fuel hedge	—		672		—		672
Liabilities:
Contingent consideration	—		—		7,734		7,734
Interest rate swap	—		3,135		—		3,135

The contingent consideration balance classified as a Level 3 liability has decreased by $6.0 million since December 31, 2013 primarily due to payments made.

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During the three months ended March 31, 2014 and 2013, we had no transfers in and out of Level 1 and Level 2 fair value measurements.

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 month periods ended March 31, 2014 and 2013 consisted of the following (in thousands):

	Quarter ended March 31,
	2014			2013
Fee-for-service revenue, net of contractuals:
Medicare	$	250,312		$	233,874
Medicaid	55,817			51,214
Commercial insurance and managed care	645,183			560,191
Self-pay	724,507			629,256
Sub-total	1,675,819			1,474,535
Subsidies and fees	182,675			130,713
Revenue, net of contractuals	1,858,494			1,605,248
Provision for uncompensated care	(844,283		)	(716,924		)
Net revenue	$	1,014,211		$	888,324

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 increased the contractual discount and uncompensated care provisions (decreased net revenue) by approximately $1.1 million for the three months ended March 31, 2014 and decreased the contractual discount and uncompensated provisions (increased net revenue) by approximately $2.1 million for the three months ended March 31, 2013.

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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.

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

Holding presents both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing “Net income (loss) attributable to Envision Healthcare Holdings, Inc.” 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 (in thousands, except share and per share amounts).

	Quarter ended March 31,
	2014		2013
Net income (loss) attributable to Envision Healthcare Holdings, Inc.	$	24,825	$	(3,847	)

Weighted-average common shares outstanding — common stock:
Basic	180,782,025		130,696,421
Dilutive impact of stock awards outstanding	8,609,587		—
Diluted	189,391,612		130,696,421

Earnings per share — common stock:
Basic net income (loss) per share attributable to Envision Healthcare Holdings, Inc.	$	0.14	$	(0.03	)
Diluted net income (loss) per share attributable to Envision Healthcare Holdings, Inc.	$	0.13	$	(0.03	)

Holding had a net loss for the three months ended March 31, 2013, therefore, the effect of stock awards to purchase common stock of 3,930,872 is excluded from the computations of diluted loss per share since the effect is anti-dilutive. As of March 31, 2014 and 2013, there were no stock awards of common stock outstanding excluded from the weighted-average common shares outstanding above.

4. Acquisitions

2014 Acquisitions

The Company completed the acquisitions of Life Line Ambulance Service, Inc., an emergency medical transportation service provider with operations in Arizona, on February 6, 2014 and MedStat EMS, Inc., an emergency and non-emergency medical ground transportation service provider with operations in Mississippi, on March 7, 2014 for total aggregate purchase consideration of approximately $36.2 million paid in cash.

The Company has accounted for these acquisitions using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. The total purchase price for these acquisitions was allocated to goodwill of $15.9 million, $9.9 million of which is tax deductible goodwill, other acquired intangible assets of $15.0 million, and net current assets of $5.3 million, which are subject to adjustment based upon the completion of purchase price allocations.

2013 Acquisitions

During the year ended December 31, 2013, indirect, wholly-owned subsidiaries of the Company completed the acquisitions of CMORx, LLC and Loya Medical Services, PLLC, which provide clinical management software, each of T.M.S. Management Group, Inc. and Transportation Management Services of Brevard, Inc., two related corporations that leverage the provision of non-emergency medical transportation services by third-party transportation service providers, Jackson Emergency Consultants, which provides facility based physician staffing in northern Florida, and other smaller acquisitions for a combined purchase price of $34.2 million paid in cash.

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The Company has accounted for these acquisitions using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. During the first quarter of 2014, the Company made purchase price allocation adjustments including a reclassification from goodwill to intangible assets of $7.4 million. The total purchase price for these acquisitions was allocated to goodwill of $18.8 million, all of which is tax deductible goodwill, other acquired intangible assets of $16.9 million, and net current liabilities of $1.5 million, which are subject to adjustment based upon the completion of purchase price allocations.

5. Insurance Collateral

Insurance collateral consisted of the following as of March 31, 2014 and December 31, 2013 (in thousands):

	March 31,		December 31,
	2014		2013
Available-for-sale securities:
U.S. Treasuries	$	2,113	$	2,100
Corporate bonds / Fixed income	3,346		6,372
Corporate equity	2,072		4,755
Total available-for-sale securities	7,531		13,227
Insurance receivable	1,796		1,300
Cash deposits and other	11,242		27,808
Total insurance collateral	$	20,569	$	42,335

Amortized cost basis and aggregate fair value of the Company’s available-for-sale securities as of March 31, 2014 and December 31, 2013 were as follows (in thousands):

	March 31, 2014
Description	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	2,077	$	37	$	(1	)	$	2,113
Corporate bonds / Fixed income	3,316		31		(1		)	3,346
Corporate equity	2,095		15		(38		)	2,072
Total available-for-sale securities	$	7,488	$	83	$	(40	)	$	7,531

	December 31, 2013
Description	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	2,063	$	37	$	—		$	2,100
Corporate bonds / Fixed income	6,385		26		(39		)	6,372
Corporate equity	4,399		500		(144		)	4,755
Total available-for-sale securities	$	12,847	$	563	$	(183	)	$	13,227

As of March 31, 2014, available-for-sale securities included U.S. Treasuries and corporate bonds / fixed income securities of $0.9 million with contractual maturities within one year, $3.3 million with contractual maturities extending longer than one year through five years and $1.3 million with contractual maturities extending longer than five years through and including ten years. Actual maturities may differ from contractual maturities as a result of the Company’s ability to sell these securities prior to maturity.

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The Company’s temporarily impaired investment securities available-for-sale as of March 31, 2014 and December 31, 2013 were as follows (in thousands):

	March 31, 2014					December 31, 2013
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasuries:
Less than 12 months	$	133	$	(1	)	$	132	$	(1	)
12 months or more	—		—			—		—
Corporate bonds / Fixed income:
Less than 12 months	853		(1		)	2,768		(18		)
12 months or more	—		—			2,178		(20		)
Corporate equity:
Less than 12 months	1,104		(38		)	—		—
12 months or more	—		—			2,553		(144		)
Total	$	2,090	$	(40	)	$	7,631	$	(183	)

The Company realized net gains of $0.6 million and $13 thousand on the sale and maturities of available-for-sale securities for the three months ended March 31, 2014 and 2013, respectively.

6. Accrued Liabilities

Accrued liabilities were as follows as of March 31, 2014 and December 31, 2013 (in thousands):

	March 31,			December 31,
	2014			2013
Accrued wages and benefits	$	173,823		$	161,398
Accrued paid time-off	29,367			25,713
Current portion of self-insurance reserves	71,499			73,738
Accrued restructuring	4,972			5,682
Current portion of compliance and legal	3,558			2,000
Accrued billing and collection fees	2,929			2,954
Accrued incentive compensation	23,083			19,570
Accrued interest	17,921			6,898
Accrued income taxes	7,982			7,043
Other	44,745			52,983
Total accrued liabilities — Corporation	$	379,879		$	357,979
Accrued income taxes — adjustment for Holding	(8,309		)	(7,043		)
Total accrued liabilities — Holding	$	371,570		$	350,936

7. Long-Term Debt

Senior Unsecured Notes due 2019

On May 25, 2011, Corporation issued $950 million of senior unsecured notes due 2019 (“2019 Notes”). During the second quarter of 2012, Corporation’s captive insurance subsidiary purchased $15.0 million of the 2019 Notes through an open market transaction and currently holds $9.8 million of the 2019 Notes subsequent to the partial redemption of the 2019 Notes on December 30, 2013.

On December 30, 2013, Corporation redeemed $332.5 million in aggregate principal amount of the 2019 Notes of which $5.2 million was held by the Company’s captive insurance subsidiary at a redemption price of 108.125%, plus accrued and unpaid interest of $2.2 million. During the fourth quarter of 2013, Corporation recorded a loss on early debt extinguishment of $38.7 million related to premiums and unamortized debt issuance costs from the redemption of the 2019 Notes.

The 2019 Notes have a fixed interest rate of 8.125%, payable semi-annually with the principal due at maturity in 2019. The 2019 Notes are general unsecured obligations of Corporation and are guaranteed by each of Corporation’s domestic subsidiaries,

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except for any of Corporation’s subsidiaries subject to regulation as an insurance company, including Corporation’s captive insurance subsidiary.

The Company may redeem the 2019 Notes, in whole or in part, at any time prior to June 1, 2014, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium. The Company may redeem the 2019 Notes, in whole or in part, at any time (i) on and after June 1, 2014 and prior to June 1, 2015, at a price equal to 106.094% of the principal amount of the 2019 Notes, (ii) on or after June 1, 2015 and prior to June 1, 2016, at a price equal to 104.063% of the principal amount of the 2019 Notes, (iii) on or after June 1, 2016 and prior to June 1, 2017, at a price equal to 102.031% of the principal amount of the 2019 Notes, and (iv) on or after June 1, 2017, at a price equal to 100.000% of the principal amount of the 2019 Notes, in each case, plus accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to June 1, 2014, the Company may redeem up to 35% of the aggregate principal amount of the 2019 Notes with the proceeds of certain equity offerings at a redemption price of 108.125%, plus accrued and unpaid interest, which it exercised on December 30, 2013 by redeeming $332.5 million in principal amount.

The indenture governing the 2019 Notes contains covenants that, among other things, limit Corporation’s ability and the ability of its restricted subsidiaries to: incur more indebtedness or issue certain preferred shares; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of its restricted subsidiaries to pay dividends to Corporation or make other intercompany transfers; create liens; transfer or sell assets; merge or consolidate; enter into certain transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries. Upon the occurrence of certain events constituting a change of control, Corporation is required to make an offer to repurchase all of the 2019 Notes (unless otherwise redeemed) at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any to the repurchase date. If Corporation sells assets under certain circumstances, it must use the proceeds to make an offer to purchase the 2019 Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

Senior Secured Credit Facilities

On May 25, 2011, Corporation entered into $1.8 billion of senior secured credit facilities (“Senior Secured Credit Facilities”) that consisted of a $1.44 billion senior secured term loan facility due 2018 (the “Term Loan Facility”) and a $350 million asset-backed revolving credit facility due 2016 (the “ABL Facility”). The Senior Secured Credit Facilities are secured by substantially all of the assets of corporation.

Term Loan Facility

Prior to February 7, 2013, loans under the Term Loan Facility bore interest at Corporation’s election at a rate equal to (i) the highest of (x) the rate for deposits in U.S. dollars in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Term Loan LIBOR”) and (y) 1.50%, plus, in each case, 3.75%, or (ii) the 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 Term Loan LIBOR (adjusted for maximum reserves) plus 1.00% per annum and (x) 2.50%, plus, in each case, 2.75%.

On February 7, 2013, Corporation, the borrower under the Term Loan Facility, entered into a First Amendment (the “Term Loan Amendment”) to the credit agreement governing the Term Loan Facility (as amended, the “Term Loan Credit Agreement”). Under the Term Loan Amendment, Corporation incurred an additional $150 million in incremental borrowings under the Term Loan Facility, the proceeds of which were used to pay down the ABL Facility. 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) 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 recorded a loss on early debt extinguishment of $0.1 million related to unamortized debt issuance costs as a result of this modification.

The credit agreement governing the Term Loan Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants are limited to the following: limitations on the incurrence of debt, liens, fundamental changes, restrictions on subsidiary distributions, transactions with affiliates, further negative pledge, asset sales, restricted payments, investments and acquisitions, repayment of certain junior debt (including the senior notes) or amendments of junior debt documents related thereto and line of business. The negative covenants are subject to the customary exceptions.

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ABL Facility

Prior to February 27, 2013, loans under the ABL Facility bore interest at Corporation’s election at a rate equal to (i) the rate for deposits in U.S. dollars in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“ABL LIBOR”), plus an applicable margin that ranges from 2.25% to 2.75% based on the average available loan commitments, or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) the overnight federal funds rate plus 0.5% and (z) the one-month ABL LIBOR plus 1.0% per annum, plus, in each case, an applicable margin that ranges from 1.25% to 1.75% based on the average available loan commitments.

On February 27, 2013, Corporation entered into a First Amendment to the credit agreement governing the ABL Facility (as amended, the “ABL Credit Agreement”), under which Corporation increased its commitments under the ABL Facility to $450 million and extended the term to 2018. 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.

The ABL Facility bears a commitment fee that ranges from 0.500% to 0.375%, payable quarterly in arrears, based on the utilization of the ABL Facility. The ABL Facility also bears customary letter of credit fees.

As of March 31, 2014, letters of credit outstanding which impact the available credit under the ABL Facility were $132.5 million and the maximum available under the ABL Facility was $317.5 million.

The credit agreement governing the ABL Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants are limited to the following: limitations on indebtedness, dividends and distributions, investments, acquisitions, prepayments or redemptions of junior indebtedness, amendments of junior indebtedness, transactions with affiliates, asset sales, mergers, consolidations and sales of all or substantially all assets, liens, negative pledge clauses, changes in fiscal periods, changes in line of business and hedging transactions. The negative covenants are subject to the customary exceptions and also permit the payment of dividends and distributions, investments, permitted acquisitions and payments or redemptions of junior indebtedness upon satisfaction of a “payment condition.” The payment condition is deemed satisfied upon 30-day average excess availability exceeding agreed upon thresholds and, in certain cases, the absence of specified events of default and compliance with a fixed charge coverage ratio of 1.0 to 1.0.

In the first quarter of 2013, Corporation recorded $5.0 million of debt issuance expense related to the Term Loan Amendment and ABL Amendment.

Senior PIK Toggle Notes

On October 1, 2012, Holding issued $450 million of Senior PIK Toggle Notes due 2017 (the “PIK Notes”) and used the proceeds from the offering to pay an extraordinary dividend to its stockholders, pay debt issuance costs and make certain payments to members of management with rollover options in Holding. Cash interest accrues on these notes at a rate of 9.25% payable semi-annually on April 1 and October 1 commencing on April 1, 2013. PIK interest accrues on these notes at a rate of 10.0%. The Holding PIK Notes are Holding’s senior unsecured indebtedness and are not guaranteed by any of its subsidiaries.

On August 30, 2013, Holding redeemed all of the PIK Notes at a redemption price equal to 102.75% of the aggregate principal amount of the PIK Notes, plus accrued and unpaid interest of $17.2 million. During the third quarter of 2013, Holding recorded a loss on early debt extinguishment of $29.5 million related to premiums and unamortized debt issuance costs from the redemption of the PIK Notes.

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Long-term debt and capital leases consisted of the following as of March 31, 2014 and December 31, 2013 (in thousands):

	March 31, 2014			December 31, 2013
Senior unsecured notes due 2019	$	607,750		$	607,750
Senior secured term loan due 2018 (4.00% at March 31, 2014 and December 31, 2013)	1,299,603			1,302,945
Discount on senior secured term loan	(3,951		)	(4,217		)
ABL Facility	—			—
Notes due at various dates from 2014 to 2022 with interest rates from 6% to 10%	511			852
Capital lease obligations due at various dates from 2014 to 2018	370			369
Total	1,904,283			1,907,699
Less current portion	(12,011		)	(12,318		)
Total long-term debt	$	1,892,272		$	1,895,381

8. 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 March 31, 2014, 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 $3.63 to $3.82 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 1.9 million gallons, which represents approximately 25.2% of the Company’s total estimated usage during the periods hedged, through December 2014. 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 $0.4 million and $0.7 million as of March 31, 2014 and December 31, 2013, respectively. Over the next 12 months, the Company expects to reclassify $0.4 million of deferred gain from accumulated other comprehensive income as the related fuel hedge transactions mature. Settlement of hedge agreements are included in operating expenses and resulted in net receipts from the counterparty of $0.2 million and $0.2 million for the three months ended March 31, 2014 and 2013, respectively.

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 $2.7 million and $3.1 million as of March 31, 2014 and December 31, 2013, respectively. Over the next 12 months, the Company expects to reclassify $2.1 million of deferred loss from accumulated other comprehensive income to interest expense as the related interest rate swap transactions mature. Settlement of interest rate swap agreements are included in interest expense and resulted in net payments to the counterparties of $0.5 million and $0.5 million for the three months ended March 31, 2014 and 2013, respectively.

9. Changes in Accumulated Other Comprehensive Income by Component

The following table summarizes the changes in the Company’s accumulated other comprehensive income by component as of March 31, 2014 and December 31, 2013. All amounts are after tax.

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	Fuel hedge			Interest rate swap			Unrealized holding gains on available-for-sale securities			Total
Balance as of January 1, 2013	$	1,057		$	(2,861	)	$	1,591		(213		)
Other comprehensive income before reclassifications	(396		)	(336		)	(598		)	(1,330		)
Amounts reclassified from accumulated other comprehensive income	(241		)	1,239			(294		)	704
Net current-period other comprehensive income	(637		)	903			(892		)	(626		)
Balance as of December 31, 2013	$	420		$	(1,958	)	$	699		$	(839	)
Other comprehensive income before reclassifications	(86		)	(59		)	41			(104		)
Amounts reclassified from accumulated other comprehensive income	(113		)	309			(378		)	(182		)
Net current-period other comprehensive income	(199		)	250			(337		)	(286		)
Balance as of March 31, 2014	$	221		$	(1,708	)	$	362		$	(1,125	)

The following table shows the line item on the Consolidated Statements of Operations affected by reclassifications out of accumulated other comprehensive income.

	Amount reclassified from AOCI
	Quarter ended March 31,
Details about AOCI components	2014			2013			Statements of Operations
Gains and losses on cash flow hedges
Fuel hedge	$	181		180			Operating expenses
Interest rate swap	(496		)	(491		)	Interest expense
	(315		)	(311		)	Total before tax
	119			117			Tax benefit (expense)
	$	(196	)	$	(194	)	Net of tax

Unrealized holding gains on available-for-sale securities	$	606		13			Realized gains (losses) on investments
	606			13			Total before tax
	(228		)	(5		)	Tax expense
	$	378		$	8		Net of tax

10. Restructuring Charges

The Company recorded a restructuring charge of $0.8 million and $0.6 million for the three months ended March 31, 2014 and 2013, 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.

	AMR						EmCare			Corporation
	Lease & Other Contract Termination Costs			Severance			Severance			Severance			Total
	(in thousands)
Balance as of January 1, 2013	$	8,122		$	3,015		$	773		$	408		$	12,318
Incurred	1,876			2,890			913			20			5,699
Paid	(6,989		)	(3,765		)	(1,204		)	(377		)	(12,335		)
Balance as of December 31, 2013	$	3,009		$	2,140		$	482		$	51		$	5,682
Incurred	738			(26		)	97			—			809
Paid	(582		)	(657		)	(234		)	(46		)	(1,519		)
Balance as of March 31, 2014	$	3,165		$	1,457		$	345		$	5		$	4,972

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11. Equity Based Compensation

Upon completion of Holding’s initial public offering, the previous stock compensation plan (“Stock Compensation Plan”) terminated and the Envision Healthcare Holdings, Inc. 2013 Omnibus Incentive Plan (“Omnibus Incentive Plan”) was adopted pursuant to which options and awards with respect to a total of 16,708,289 shares of Common Stock are available for grant. As of March 31, 2014, a total of 16,607,028 shares remained available for grant under the Omnibus Incentive Plan. Awards under the Omnibus Incentive Plan include both performance and non-performance based awards. As of March 31, 2014, no grants of performance based awards under the Omnibus Incentive Plan had been made. Options are granted with exercise prices equal to the fair value of Holding’s common stock at the date of grant. No participant may be granted in any calendar year awards covering more than 2.5 million shares of Common Stock or 1.5 million performance awards up to a maximum dollar value of $5.0 million. Non-performance based awards vest ratably over five years. Performance based awards vest upon achievement of certain company-wide objectives. All options have 10 year terms.

Awards previously granted under the Stock Compensation Plan were unaffected by the termination of the Stock Compensation Plan; however no future grants will be made under the Stock Compensation Plan.

A compensation charge of $1.1 million was recorded for shares vested for each of the three months ended March 31, 2014 and 2013.

12. Commitments and Contingencies

Lease Commitments

The Company leases various facilities and equipment under operating lease agreements. Rental expense incurred under these leases was $11.3 million and $11.1 million for the three months ended March 31, 2014 and 2013, respectively.

The Company also records 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.

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 (i) whether ambulance transports involving Medicare eligible patients complied with the “medical necessity” requirement imposed by Medicare regulations, (ii) whether patient signatures, when required, were properly obtained from Medicare eligible patients, and (iii) 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.

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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 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.

Letters of Credit

As of March 31, 2014 and December 31, 2013, the Company had $132.5 million in outstanding letters of credit.

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, Laura 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, and the Aguilar and Karapetian cases have subsequently been consolidated into a single action. Plaintiffs allege principally that the AMR entities failed to pay overtime wages 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, penalties, attorneys’ fees and other sanctions permitted under California law for violations of wage hour laws. At the present time, the courts have not certified classes in any of these cases. In a hearing on February 25, 2014 in the Banta and Aguilar/Karapetian cases, the court indicated that it intends to certify classes on some issues, and deny certification on some issues, but is has not signed an order to such effect. The Company is unable at this time to estimate the amount of potential damages, if any in any of these actions.

Merion Capital, L.P. (“Merion”), a former stockholder of Corporation, filed an action in the Delaware Court of Chancery on June 20, 2011 seeking to exercise its right to appraisal of its holdings in Corporation prior to the merger of Corporation with a wholly-owned subsidiary of Holding (the “Merger”) on May 25, 2011. During the first quarter of 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.

On August 7, 2012, EmCare received a subpoena from the OIG requesting copies of documents for the period from January 1, 2007 through the present that appears to primarily be focused on EmCare’s contracts for services at hospitals that are affiliated with Health Management Associates, Inc. (“HMA”). The Company has been cooperating with the government during its investigation and, as such, continues to gather responsive documents. During the months of December 2013 and January 2014, several lawsuits filed by whistleblowers on behalf of the federal and certain state governments against HMA have been unsealed;

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the Company is a named defendant in two of these lawsuits. Although the federal government intervened in these lawsuits in connection with certain of the allegations against HMA, the federal government has not, at this time, disclosed whether it will intervene in these matters as they relate to the Company. The Company continues to engage in meaningful dialogue with the relevant government representatives and, at this time, the Company is unable to determine the potential impact, if any, that will result from this investigation.

On February 5, 2013, Air Ambulance Specialists, Inc. received a subpoena from the Federal Aviation Administration seeking certain information from the Company relating to its operations as an indirect air carrier and its relationships with Part 135 direct air carriers. The Company responded to the subpoena in February 2013. The Federal Aviation Administration has made no further inquiries of the Company and the Company believes this matter is closed.

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 is cooperating with the government during its investigation, has provided responsive documents, and is engaged in a meaningful dialogue with the relevant government representatives regarding additional requests. At this time, the Company is unable to determine the potential impact, if any, that will result from these investigations.

In November 2013, AMR received a subpoena from the New Hampshire Department of Insurance directed to American Medical Response of Massachusetts, Inc. The subpoena requested documents relating to ambulance services provided to approximately 150 patients residing in the state of New Hampshire who had been involved in motor vehicle accidents and who were ultimately transported by AMR. In addition, the subpoena requested information relating to any agreements for reimbursement between AMR and Progressive Insurance. The Company is cooperating with the Department during its investigation and, as such, is in the process of gathering responsive documents, formulating a response to the subpoena, and is seeking to engage in a meaningful dialogue with the relevant New Hampshire Department of Insurance and Attorney General’s Office representatives. 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.

13. Related Party Transactions

CD&R Affiliates

Stockholders Agreement

In connection with Holding’s initial public offering, Holding entered into a stockholders agreement (“Stockholders Agreement”) with CD&R Affiliates. Under the Stockholders Agreement, CD&R Affiliates were granted the right to designate for nomination for election a number of CD&R-designated directors equal to: (i) at least a majority of the total number of directors comprising the board of directors at such time as long as the CD&R Affiliates own at least 50% of the outstanding shares of Common Stock, (ii) at least 40% of the total number of directors comprising the board of directors at such time as long as the CD&R Affiliates own at least 40% but less than 50% of the outstanding shares of Common Stock, (iii) at least 30% of the total number of directors comprising the board of directors at such time as long as the CD&R Affiliates own at least 30% but less than 40% of the outstanding shares of Common Stock, (iv) at least 20% of the total number of directors comprising the board of directors at such time as long as the CD&R Affiliates own at least 40% but less than 50% of the outstanding shares of Common Stock, and (v) at least 5% of the total number of directors comprising the board of directors at such time as long as the CD&R Affiliates own at least 5% but less than 20% of the outstanding shares of Common Stock. Additionally, a CD&R-designated director will serve as the Chairman of the board of directors as long as the CD&R Affiliates own at least 30% of the outstanding shares of Common Stock.

Consulting Agreement

Holding and Corporation were party to the Consulting Agreement with CD&R dated May 25, 2011, 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 $1.3 million for the three months ended March 31, 2013 in respect of this fee.

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During the third quarter of 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.

Registration Rights Agreement

In connection with the closing of the Merger, Holding entered into a registration rights agreement (“Registration Rights Agreement”) with the CD&R Affiliates which grants the CD&R Affiliates specified demand and piggyback registration rights with respect to Holding’s Common Stock. Under the Registration Rights Agreement, if Holding registers Common Stock under the Securities Act, holders of the Common Stock, including CD&R Affiliates, have the right to require Holding’s to use reasonable best efforts to include in Holding’s registration statement shares of Common Stock held by them, subject to certain limitations and at the expense of Holding.

Indemnification Agreements

In connection with the closing of the Merger, Holding and Corporation entered into separate indemnification agreements with CD&R and CD&R Affiliates (the “CD&R Entities”). Under the indemnification agreement with the CD&R Entities, Holding and Corporation, subject to certain limitations, jointly and severally agreed to indemnify the CD&R Entities and certain of their affiliates against certain liabilities arising out of performance of the Consulting Agreement and certain other claims and liabilities.

Other

On November 25, 2008, the Company entered into a corporate account agreement with The Hertz Corporation pursuant to which it agreed to spend a minimum total amount of $460,000 per year for the rental of cars from Hertz and its subsidiaries and licensees. For each of the three months ended March 31, 2014 and 2013, we spent less than $1.0 million under this contract. The agreement had an initial one-year term, and renews automatically until terminated by either party. Investment funds associated with CD&R had been affiliated with Hertz Global Holdings.

Transactions between Holding and Corporation

On April 1, 2013, Corporation declared and 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 PIK Notes.

During the third and fourth quarters of 2013, Holding made a $489.3 million contribution 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.

Other Transactions

In connection with the closing of the Merger, Holding and Corporation entered into separate indemnification agreements with each of Richard J. Schnall, Ronald A. Williams, William A. Sanger, and Kenneth A. Giuriceo as the directors of Holding and Corporation. Under the indemnification agreements with the directors of Holding and Corporation, Holding and Corporation, subject to certain limitations, jointly and severally agreed to indemnify the directors against certain liabilities arising out of service as a director.

The executive employment agreements include indemnification provisions whereby the Company agrees to indemnify each of these individuals against claims arising out of events or occurrences related to that individual’s service as the Company’s agent or the agent of any of its subsidiaries to the fullest extent legally permitted.

In connection with Holding’s initial public offering, the Company entered into new indemnification agreements with each of its directors. On November 11, 2013, the Company entered into an indemnification agreement with Mark V. Mactas. Under these agreements, the Company agrees to indemnify each of these individuals against claims arising out of events or occurrences related to that individual’s service as the Company’s agent or the agent of any of its subsidiaries to the fullest extent legally permitted.

14. 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

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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 March 31, 2014 and December 31, 2013, which are included in the Company’s consolidated financial statements (in thousands).

	March 31,		December 31,
	2014		2013
Current assets	$	116,200	$	88,479
Current liabilities	28,148		22,005

15. Segment Information

The Company is organized around two separately managed business units: 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 department, anesthesiology, hospitalist/inpatient, radiology, teleradiology and surgery services. It also offers physician-led care management solutions outside the hospital. 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.

Net income (loss) before equity in earnings of unconsolidated subsidiary, income taxes, loss on early debt extinguishment, other income (expense), net, realized gains (losses) on investments, interest expense, equity-based compensation expense, 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. Adjusted EBITDA is not considered a measure of financial performance under GAAP and the items excluded from Adjusted EBITDA are significant components in understanding and assessing the Company’s 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 the Company’s financial statements as an indicator of financial performance or liquidity. Since Adjusted EBITDA is not a measure determined to be 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. Pre-tax income from continuing operations represents net revenue less direct operating expenses incurred within the operating segments. The accounting policies for reported segments are the same as for the Company as a whole (see Note 2).

The Company’s operating segment results were as follows (in thousands):

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	Quarter ended March 31,
	2014		2013

Facility-Based Physician Services
Net revenue	$	644,566	$	554,936
Income from operations	51,235		47,892
Segment Adjusted EBITDA	71,374		66,160
Medical Transportation Services
Net revenue	$	369,645	$	333,388
Income from operations	17,083		15,037
Segment Adjusted EBITDA	38,633		34,839
Segment Totals
Net revenue	$	1,014,211	$	888,324
Income from operations	68,318		62,929
Segment Adjusted EBITDA	110,007		100,999

A reconciliation of Segment Adjusted EBITDA to net income (loss) is as follows (in thousands):

	Quarter ended March 31,
	2014			2013
Adjusted EBITDA—Holding	$	110,007		$	100,932
Other operating income	—			67
Segment Adjusted EBITDA / Adjusted EBITDA—Corporation	110,007			100,999
Depreciation and amortization expense	(36,432		)	(34,755		)
Restructuring charges	(809		)	(637		)
Interest income from restricted assets	(86		)	(366		)
Equity-based compensation expense	(1,062		)	(1,062		)
Related party management fees	—			(1,250		)
Net loss attributable to noncontrolling interest	(3,300		)	—
Income from operations	68,318			62,929
Interest income from restricted assets	86			366
Interest expense	(30,049		)	(40,290		)
Realized gains on investments	606			13
Other income (expense), net	334			(12,721		)
Loss on early debt extinguishment	—			(122		)
Income tax expense	(17,055		)	(7,134		)
Equity in earnings of unconsolidated subsidiary	47			75
Net income—Corporation	$	22,287		$	3,116
Adjustments for Holding:
Other operating income	—			(67		)
Interest expense	—			(11,462		)
Other expense, net	(1,142		)	—
Income tax benefit	380			4,566
Net income (loss)—Holding	$	21,525		$	(3,847	)

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

	Quarter ended March 31,
	2014			2013
Adjusted EBITDA—Holding	$	110,007		$	100,932
Other operating income	—			67
Segment Adjusted EBITDA / Adjusted EBITDA—Corporation	110,007			100,999
Related party management fees	—			(1,250		)
Restructuring charges	(809		)	(637		)
Interest expense (less deferred loan fee amortization)	(26,812		)	(36,636		)
Change in accounts receivable	(35,429		)	(41,351		)
Change in other operating assets/liabilities	18,093			5,478
Excess tax benefits from equity-based compensation	(14,790		)	(8		)
Other income (expense), net	334			(12,721		)
Income tax expense, net of change in deferred taxes	(16,127		)	(7,874		)
Net loss attributable to noncontrolling interest	(3,300		)	—
Other	(947		)	571
Cash flows provided by operating activities—Corporation	$	30,220		$	6,571
Adjustments for Holding:
Other operating income	—			(67		)
Interest expense (less deferred loan fee amortization)	—			(10,406		)
Change in accounts receivable	—			139
Change in other operating assets/liabilities	762			5,839
Other (expense) income, net	(1,142		)	—
Income tax benefit, net of change in deferred taxes	380			4,566
Cash flows provided by operating activities—Holding	$	30,220		$	6,642

16. Guarantors of Debt

Corporation is the issuer of the 2019 Notes and the borrower under the Senior Secured Credit Facilities. The 2019 Notes and the Senior Secured Credit Facilities are guaranteed by each of Corporation’s domestic subsidiaries, except for any subsidiaries subject to regulation as an insurance company, including Corporation’s captive insurance subsidiary. All of the operating income and cash flow of Corporation is generated by EmCare, AMR and their subsidiaries. As a result, funds necessary to meet the debt service obligations under the 2019 Notes and the Senior Secured Credit Facilities are provided by the distributions or advances from the subsidiary companies, EmCare and AMR. Investments in subsidiary operating companies are accounted for on the equity method. Accordingly, entries necessary to consolidate Corporation and all of its subsidiaries are reflected in the Eliminations/Adjustments column. Separate complete financial statements of Corporation and subsidiary guarantors would not provide additional material information that would be useful in assessing the financial composition of Corporation or the subsidiary guarantors.

Corporation’s payment obligations under the 2019 Notes are jointly and severally guaranteed on a senior unsecured basis by the guarantors. Each of the guarantors is wholly owned, directly or indirectly, by Corporation, and all guarantees are full and unconditional. A guarantor will be released from its obligations under its guarantee under certain customary circumstances, including (i) the sale or disposition of the guarantor, (ii) the release of the guarantor from all of its obligations under all guarantees related to any indebtedness of Corporation, (iii) the merger or consolidation of the guarantor as specified in the indenture governing the 2019 Notes, (iv) the guarantor becomes an unrestricted subsidiary, (v) the defeasance of Corporation’s obligations under the indenture governing the 2019 Notes or (vi) the payment in full of the principal amount of the 2019 Notes.

The condensed consolidating financial statements for Corporation, the guarantors and the non-guarantors were as follows (in thousands):

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Consolidating Statements of Operations

	Quarter ended March 31, 2014
	Corporation		Subsidiary Guarantors		Subsidiary Non-Guarantor		Eliminations / Adjustments			Total
Net revenue	$	—	$	1,013,733	$	18,994	$	(18,516	)	$	1,014,211
Compensation and benefits	—		743,493		168		—			743,661
Operating expenses	—		114,628		7		—			114,635
Insurance expense	—		30,962		18,535		(18,516		)	30,981
Selling, general and administrative expenses	—		19,318		57		—			19,375
Depreciation and amortization expense	—		36,427		5		—			36,432
Restructuring charges	—		809		—		—			809
Income from operations	—