<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NUMBER: 1-11196
AMERICAN MEDICAL RESPONSE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3147881
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2821 SOUTH PARKER ROAD, 10/TH/ FLOOR, AURORA, COLORADO 80014
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(Address of principal executive offices) (Zip Code)
(303) 614-8500
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(Registrant's telephone number, including area code)
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.
X YES NO
---- ----
The number of shares outstanding of each of the issuer's classes of
common stock as of
August 6, 1996 is: Common Stock, $0.01 par value, 20,691,915 shares.
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AMERICAN MEDICAL RESPONSE, INC.
INDEX
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Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 (unaudited) and
December 31, 1995................................................. 3
Consolidated Statements of Earnings for the Three Months and
Six Months Ended June 30, 1996 and 1995 (unaudited)............... 4
Consolidated Statement of Stockholders' Equity for the
Six Months Ended June 30, 1996 (unaudited)........................ 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 (unaudited)............... 6
Notes to Interim Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 14
Item 2. Changes in Securities............................................. 14
Item 3. Defaults Upon Senior Securities................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 5. Other Information................................................. 14
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signature.................................................................. 16
Exhibit Index.............................................................. 17
Page 2
<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
--------------- -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 11,668 $ 8,804
Accounts receivable, net of allowance for
uncompensated care of $55,630 and $47,654...... 130,085 98,215
Inventories..................................... 4,264 3,927
Prepaid expenses and other receivables.......... 8,607 7,678
Deferred income taxes........................... 29,578 30,646
--------------- -----------------
Total current assets.......................... 184,202 149,270
--------------- -----------------
Property and equipment, net...................... 70,602 64,669
--------------- -----------------
Non-current assets:
Goodwill, net................................... 291,140 258,877
Covenants not to compete, net................... 299 423
Other........................................... 8,883 3,142
--------------- -----------------
Total non-current assets...................... 300,322 262,442
--------------- -----------------
TOTAL......................................... $ 555,126 $ 476,381
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 22,858 $ 15,378
Accrued compensation, benefits and taxes........ 19,829 20,387
Accrued expenses................................ 37,315 31,405
Accrued restructuring charge.................... 9,784 20,349
Income taxes payable............................ 10,518 15,651
Current maturities of debt...................... 19,841 13,919
--------------- -----------------
Total current liabilities..................... 120,145 117,089
--------------- -----------------
Non-current liabilities:
Long-term debt.................................. 26,869 101,660
Convertible subordinated notes.................. 125,000 ----
Deferred income taxes........................... 8,119 7,905
Other liabilities............................... 130 163
--------------- -----------------
Total non-current liabilities................. 160,118 109,728
--------------- -----------------
Total liabilities............................. 280,263 226,817
--------------- -----------------
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares
authorized, none issued ---- ----
Common stock, $.01 par value, 75,000,000 shares
authorized, 20,647,070 and 19,868,337 shares
issued and outstanding........................ 206 199
Additional paid-in capital...................... 204,433 194,948
Retained earnings............................... 70,224 54,417
--------------- -----------------
Total stockholders' equity.................... 274,863 249,564
--------------- -----------------
Commitments and contingencies
TOTAL......................................... $ 555,126 $ 476,381
=============== =================
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 3
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AMERICAN MEDICAL RESPONSE, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
-------- -------- -------- --------
Total revenue.............................. $164,786 $111,388 $322,595 $ 20,567
Operating Expenses:
Salaries and benefits................... 81,578 56,773 161,349 112,491
Uncompensated care...................... 32,018 21,428 61,573 42,585
Other................................... 26,100 17,771 51,077 35,573
Depreciation............................ 5,525 3,507 10,707 7,023
Amortization of intangibles............. 2,345 988 4,585 1,939
-------- -------- -------- --------
Total operating expenses............... 147,566 100,467 289,291 199,611
-------- -------- -------- --------
Earnings from operations................... 17,220 10,921 33,304 20,956
Interest expense, net................... 2,523 402 4,669 1,432
-------- -------- -------- --------
Earnings before income taxes............... 14,697 10,519 28,635 19,524
Income taxes............................ 6,576 4,681 12,828 9,196
-------- -------- -------- --------
Net earnings........................... $ 8,121 $ 5,838 $ 15,807 $ 10,328
======== ======== ======== ========
PRO FORMA DATA
Historical net earnings.................... $ 8,121 $ 5,838 $ 15,807 $ 10,328
Salaries and benefits...................... ---- ---- ---- (96)
Income taxes............................... ---- ---- ---- (417)
-------- -------- -------- --------
Net earnings........................... $ 8,121 $ 5,838 $ 15,807 $ 10,841
======== ======== ======== ========
Net earnings per common share:
Primary................................. $ 0.40 $ 0.33 $ 0.78 $ 0.65
======== ======== ======== ========
Fully diluted........................... $ 0.39 $ 0.33 $ 0.77 $ 0.65
======== ======== ======== ========
Weighted average common shares outstanding:
Primary 20,424 17,780 20,186 16,674
======== ======== ======== ========
Fully diluted 23,735 17,780 22,933 16,674
======== ======== ======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 4
<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995...... 19,868 $ 199 $ 194,948 $ 54,417 $ 249,564
Issuance of stock in connection
with acquisitions............. 429 4 273 ---- 277
Stock options exercised,
including related tax benefit. 313 3 8,683 ---- 8,686
Stock issued for employee stock
purchase plan................. 37 ---- 529 ---- 529
Net earnings................... ---- ---- ---- 15,807 15,807
------ ------ ------ ------ ------
Balance at June 30, 1996......... 20,647 $206 $ 204,433 $ 70,224 $ 274,863
====== ====== ========== ========= ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 5
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AMERICAN MEDICAL RESPONSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................... $ 15,807 $ 10,328
Adjustments to reconcile net earnings to net cash provided (used) by
operating activities:
Depreciation.......................................................... 10,707 7,023
Amortization of intangibles........................................... 4,585 1,939
Deferred income taxes................................................. 1,057 1,282
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable................................................... (28,412) (10,360)
Other current assets.................................................. (271) 1,152
Other assets.......................................................... (2,481) (250)
Accounts payable and accrued expenses................................. 7,585 (1,579)
Accrued compensation, benefits and taxes.............................. (2,156) (349)
Accrued restructuring charge.......................................... (9,506) ----
Income taxes payable.................................................. (3,783) (483)
Other liabilities..................................................... (38) 494
-------- --------
Net cash (used) provided by operating activities................... (6,906) 9,197
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired.................................... (20,046) (11,968)
Capital expenditures, net............................................. (13,748) (9,782)
-------- --------
Net cash used by investing activities................................. (33,794) (21,750)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options............................... 7,233 606
Proceeds from employee stock purchase plan............................ 529 657
Proceeds from issuance of common stock................................ -- 90,225
Net borrowings (repayments) under credit facility..................... (78,930) (38,305)
Proceeds from convertible subordinated notes, net of offering costs... 121,375 --
Repayment of borrowings............................................... (6,643) (1,352)
-------- --------
Net cash provided by financing activities........................... 43,564 51,831
-------- --------
Increase in cash and cash equivalents.................................... 2,864 39,278
Cash and cash equivalents at beginning of period......................... 8,804 6,543
-------- --------
Cash and cash equivalents at end of period............................... $ 11,668 $ 45,821
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................... $ 2,615 $ 1,932
======== ========
Income taxes.......................................................... $ 15,217 $ 8,297
======== ========
Acquisitions:
Assets acquired....................................................... $ 45,418 $ 25,855
Liabilities assumed and issued........................................ (24,259) (9,799)
Common stock issued................................................... (277) (3,863)
-------- --------
Cash paid............................................................. 20,882 12,193
Less cash acquired.................................................... (836) (225)
-------- --------
Net cash paid for acquisitions..................................... $ 20,046 $ 11,968
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 6
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AMERICAN MEDICAL RESPONSE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of
American Medical Response, Inc. and its subsidiaries (the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
The interim consolidated financial statements are unaudited, but in the
opinion of management include all adjustments, which consist only of normal and
recurring adjustments, necessary for a fair presentation of its financial
position and results of operations. Results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
consolidated financial statements of the Company as of and for the year ended
December 31, 1995.
2. ACQUISITIONS
During the first six months of 1996, the Company acquired 11 ambulance
service providers in transactions accounted for as purchases and one ambulance
service provider in a transaction accounted for as a pooling-of-interests. The
acquisition accounted for as a pooling-of-interests is not material to the
consolidated operations of the Company, and therefore, the Company's
consolidated financial statements will not be restated. The aggregate purchase
price paid in connection with these acquisitions consisted of $20.9 million in
cash and $14.1 million in promissory notes of which $9.4 million were
subordinated, and 429,260 shares of Common Stock.
At June 30, 1996, possible outstanding future contingent payments aggregated
approximately $8.4 million in cash and 88,000 shares in Common Stock.
SUBSEQUENT ACQUISITIONS
In July 1996, the Company entered into a joint venture by purchasing a 49.9%
limited partnership interest in Regional Emergency Services, L.P. ("RES") which
manages hospital-based ambulance services in Florida and Texas. The purchase
price for the Company's interest in RES was $2.0 million in cash with future
payments over 18 months of $4.0 million in cash or 108,000 shares of the
Company's Common Stock, at the option of the seller. In addition, the Company
has the right to purchase, and the joint venture partners have the right to
require the Company to purchase, the remaining interests in RES for a price
based on a multiple of pre-tax earnings beginning in July 2001 or earlier based
on the occurrence of certain events. The Company will account for its initial
investment in RES under the equity method.
3. DEBT
On February 9, 1996, the Company amended its line of credit to increase
borrowing availability to $200 million, increase letter of credit availability
to $25 million, and extend the maturity date to September 30, 2000.
Additionally, the maximum LIBOR spread on borrowings has been reduced to 1.25%
from 1.5%. The maximum commitment fee on the unused portion remains at 0.375%
of the average daily amount of the line which is unused. Borrowings under the
line of credit are limited to $200 million less outstanding letters of credit.
In addition, the total amount of debt the Company may incur, including
borrowings under the line of credit is limited to a percentage of the Company's
earnings before interest, income taxes, depreciation, and amortization for the
most recent twelve months, which percentage equals 350% through December 30,
1996, 325% through December 30, 1997 and 300% thereafter. The line of credit is
secured by a pledge of the stock of the Company's subsidiaries.
On February 1, 1996, the Company completed an offering of $125 million of
convertible subordinated notes. The notes bear interest at 5.25% and mature on
February 1, 2001. Net proceeds to the Company after underwriters' discounts and
expenses totaled approximately $121.4 million. The notes are convertible into
Common Stock of the Company at the option of the holder, at a conversion price
of $37.75 per share. The notes are redeemable, at the option of the Company,
after February 15, 1999.
Page 7
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AMERICAN MEDICAL RESPONSE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4. PRO FORMA ADJUSTMENTS
The pro forma data in the Consolidated Statements of Earnings include
adjustments to salaries and benefits and income taxes related to a subsidiary
that was acquired in a transaction accounted for as a pooling-of-interests in
February 1995. Prior to its acquisition by the Company, this subsidiary was
taxed as an S Corporation on the cash basis method of accounting. Income tax
expense for the six months ended June 30, 1995 includes $610,000 attributable to
the termination of this subsidiary's S Corporation status. The pro forma
amounts reflect a contractual adjustment made to officers' salaries and adjust
income tax expense to what would have been recorded had this subsidiary been a C
Corporation prior to its acquisition.
5. RESTRUCTURING
In November 1995, the Company announced a strategic restructuring initiative
designed to create operating efficiencies, cost savings and revenue enhancement
opportunities. This initiative, which is expected to be substantially completed
during 1996, involves the consolidation of the Company's operations into six
regional units. In connection with this plan, the Company recorded a
restructuring charge of $23.0 million during the fourth quarter of 1995, which
consisted primarily of $14.4 million of severance and other employee costs, $4.6
million of fixed asset disposals and $4.0 million of lease abandonment costs
related to consolidating the corporate and regional offices. Under this
initiative, there are approximately 350 positions affected, including senior and
middle management positions at both the corporate and regional levels, and
certain clerical positions. A substantial number of these positions will be
replaced in corporate and regional locations. At June 30, 1996, the remaining
restructuring accrual was $9.8 million.
Page 8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
For all periods presented, the following financial information includes the
consolidated results of the four ambulance service providers the Company
acquired concurrent with its initial public offering in August 1992 and the
three ambulance service providers the Company acquired in June 1993, February
1994 and February 1995 in transactions accounted for as poolings-of-interests.
The results of the other ambulance service providers acquired by the Company
through June 30, 1996 are included from their respective dates of acquisition.
The Company's total revenue, which is comprised primarily of fees charged for
ambulance services, is presented net of contractual adjustments. Contractual
adjustments represent the difference between gross billable charges and the
amounts paid under contractual arrangements with third party payors. The
provision for uncompensated care represents the difference between net ambulance
service fees and expected collections from patients and third party payors.
This quarterly report on Form 10-Q contains certain forward-looking
statements. For example, the words "expects", "believes", "anticipates" and
similar expressions often identify such statements. Undue reliance should not
be placed on these forward-looking statements which were current at the time
they were made. Certain important factors could cause results to differ
materially from those anticipated by these statements. A description of many
such factors is filed as Exhibit 99 to the Company's annual report on Form 10-K
for the year ended December 31, 1995.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Overview
The Company's net earnings amounted to $8.1 million or $0.39 per share on a
fully diluted basis for the three months ended June 30, 1996, based on
23,735,000 weighted average shares outstanding, as compared with net earnings of
$5.8 million or $0.33 per share on a fully diluted basis for the three months
ended June 30, 1995, based on 17,780,000 weighted average shares outstanding.
The increase in net earnings was a result of incremental earnings provided from
acquisitions and internal growth. The increase in earnings per share on a fully
diluted basis, results from the increase in net earnings, offset by an increase
in the weighted average number of shares outstanding. This increase in the
weighted average number of shares outstanding is primarily due to the issuance
of the convertible subordinated notes in February 1996, the Company's public
offering of 3.75 million shares in May 1995, and shares issued in connection
with acquisitions.
Results of Operations
The Company's total revenue amounted to $164.8 million for the three months
ended June 30, 1996 as compared with $111.4 million for 1995, an increase of
$53.4 million or 47.9%. The largest single contributor to the increase in total
revenue was the incremental revenue provided from acquisitions. Also
contributing to the increase was internal growth resulting from an increase in
the number of transports and rate increases.
Salaries and benefits expense was 49.5% of total revenue for the three months
ended June 30, 1996, as compared with 51.0% for the three months ended June 30,
1995. This decrease in salary-related costs as a percentage of total revenue
resulted from acquisitions in the Company's existing markets (sometimes referred
to as "lock-on" acquisitions) where revenues are added while administrative and
support costs are reduced by folding such functions into existing operations.
In addition, at the end of 1995, the Company restructured operations into six
regions and is consolidating many administrative functions such as patient
billing services, accounting, dispatch and human resources. This decrease was
partly offset by salaries and benefits of certain new corporate management and
staff hired in connection with the Company's growth, as well as general wage
increases. In addition, the Company continued to incur overtime wages during
the quarter ended June 30, 1996 in connection with its contract to provide
paramedic transport services to the City of San Jose in Santa Clara County,
California.
Page 9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Uncompensated care expense as a percentage of total revenue was 19.4% and
19.2% for the three months ended June 30, 1996 and 1995, respectively. The
uncompensated care rate increase is primarily attributable to an increase in
uncompensated care expense in the Company's Northern California division.
During the first half of 1996, this division has experienced a growth in
accounts receivables as a result of billing delays caused by completing the
consolidation of four separate patient billing offices into one and the
implementation of a new accounts receivable system. The Company expects cash
receipts for this division will ultimately improve through efficiencies realized
by the consolidation of the patient billing offices and enhancements provided by
the new accounts receivable system. Until such cash receipts are realized in
the division, the Company has increased the uncompensated care rate in the event
some of the accounts receivable increase is uncollectible. The uncompensated
care rate increase has been partly offset by the favorable impact of certain
acquisitions, which have experienced lower uncompensated care expense as a
percentage of total revenue, as compared with the subsidiaries included in the
prior period. These acquisitions have a greater mix of basic life support or
scheduled ambulance transport revenue, which in general, has lower uncompensated
care expense than advanced life support or emergency transport revenue.
Other operating expenses were $26.1 million in the three months ended June
30, 1996 as compared with $17.8 million in the three months ended June 30, 1995.
As a percentage of total revenue, other operating expenses decreased to 15.8% in
the three months ended June 30, 1996 as compared to 16.0% in the three months
ended June 30, 1995. The decrease as a percentage of total revenue resulted
from "lock-on" acquisitions in existing markets which, in general, expanded the
Company's operations without the duplication of certain administrative and
support expenses. The increase of $8.3 million was a result of incremental
operating expenses of acquisitions, development costs for future managed care
products, costs associated with the new accounts receivable system, and
inflation.
Amortization of intangibles increased to $2.3 million for the three months
ended June 30, 1996 from $1.0 million for the three months ended June 30, 1995,
an increase of $1.3 million. This increase was a result of goodwill recorded in
connection with the Company's acquisitions accounted for as purchases.
Amortization of intangibles will increase in the future as a result of goodwill
recorded in connection with the Company's recent and likely future acquisitions.
Net interest expense increased by $2.1 million for the three months ended
June 30, 1996 as compared to the same period in 1995. This increase was the
result of interest expense related to the convertible subordinated notes issued
in February 1996 and debt incurred to finance acquisitions. In addition, the
quarter ended June 30, 1995 included interest income derived from the remaining
net proceeds of the Company's public offering of 3.75 million shares in May
1995.
The effective income tax rate remained relatively constant at 44.7% for the
three months ended June 30, 1996 compared to 44.5% for the three months ended
June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Overview
The Company's net earnings amounted to $15.8 million or $0.77 per share on a
fully diluted basis for the six months ended June 30, 1996, based on 22,933,000
weighted average shares outstanding, as compared with pro forma net earnings of
$10.8 million or $0.65 per share on a fully diluted basis for the six months
ended June 30, 1995, based on 16,674,000 weighted average shares outstanding.
The increase in net earnings, was a result of incremental earnings provided from
acquisitions and internal growth. The increase in earnings per share on a fully
diluted basis, results from the increase in net earnings, offset by an increase
in the weighted average number of shares outstanding. This increase in the
weighted average number of shares outstanding is primarily due to the issuance
of the convertible subordinated notes in February 1996, the Company's public
offering of 3.75 million shares in May 1995, and shares issued in connection
with acquisitions.
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Results of Operations
The Company's total revenue amounted to $322.6 million for the six months
ended June 30, 1996 as compared with $220.6 million for 1995, an increase of
$102.0 million or 46.2%. The largest single contributor to the increase in
total revenue was the incremental revenue provided from acquisitions. Also
contributing to the increase was internal growth resulting from an increase in
the number of transports and rate increases.
Salaries and benefits expense was 50.0% of total revenue for the six months
ended June 30, 1996, as compared with 51.0% on a pro forma basis for the six
months ended June 30, 1995. The pro forma adjustments were made for contractual
reductions in officers' salaries related to the acquisition of Paramed, Inc.
which was accounted for as a pooling-of-interests. This decrease in salary-
related costs as a percentage of total revenue resulted from "lock-on"
acquisitions in the Company's existing markets where revenues are added while
numerous administrative and support costs are reduced by folding such functions
into existing operations. In addition, at the end of 1995, the Company
restructured operations into six regions and is consolidating many
administrative functions such as patient billing services, accounting, dispatch
and human resources. This decrease was partly offset by salaries and benefits
of certain new corporate management and staff hired in connection with the
Company's growth, as well as general wage increases. In addition, the Company
continued to incur overtime wages during the quarter ended June 30, 1996 in
connection with its contract to provide paramedic transport services to the City
of San Jose in Santa Clara County, California.
Uncompensated care expense as a percentage of total revenue was 19.1% and
19.3% for the six months ended June 30, 1996 and 1995, respectively. The
uncompensated care rate decrease is due primarily to the favorable impact of
certain acquisitions, which have experienced lower uncompensated care expense as
a percentage of total revenue, as compared with the subsidiaries included in the
prior period. These acquisitions have a greater mix of basic life support or
scheduled ambulance transport revenue, which in general has lower uncompensated
care expense than advanced life support or emergency transport revenue. The
uncompensated care rate decrease has been partly offset by an increase in the
uncompensated care expense in the Company's Northern California division.
During the first half of 1996, this division has experienced a growth in
accounts receivables as a result of billing delays caused by completing the
consolidation of four separate patient billing offices into one and the
implementation of a new accounts receivable system. The Company expects cash
receipts for this division will ultimately improve through efficiencies realized
by the consolidation of the patient billing offices and enhancements provided by
the new accounts receivable system. Until such cash receipts are realized in
the division, the Company has increased the uncompensated care rate in the event
some of the accounts receivable increase is uncollectible.
Other operating expenses were $51.1 million in the six months ended June 30,
1996 as compared with $35.6 million in the six months ended June 30, 1995. As a
percentage of total revenue, other operating expenses decreased to 15.8% in the
six months ended June 30, 1996 as compared to 16.1% in the six months ended June
30, 1995. The decrease as a percentage of total revenue resulted from "lock-on"
acquisitions in existing markets which, in general, expanded the Company's
operations without the duplication of certain overhead expenses. The increase
of $15.5 million was a result of incremental operating expenses of acquisitions,
development costs for future managed care products, costs associated with the
new accounts receivable system, and inflation.
Amortization of intangibles increased to $4.6 million for the six months
ended June 30, 1996 from $1.9 million for the six months ended June 30, 1995, an
increase of $2.7 million. This increase was a result of goodwill recorded in
connection with the Company's acquisitions accounted for as purchases.
Amortization of intangibles will increase in the future as a result of goodwill
recorded in connection with the Company's recent and likely future acquisitions.
Net interest expense increased by $3.3 million for the six months ended June
30, 1996 as compared to the first six months of 1995. This increase was the
result of interest expense related to the convertible subordinated notes issued
in February 1996 and debt incurred to finance acquisitions. In addition, the
quarter ended June 30, 1995 included interest income derived from the remaining
net proceeds of the Company's public offering of 3.75 million shares in May
1995.
Page 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The effective income tax rate remained relatively constant at 44.8% for the
six months ended June 30, 1996 compared to 44.7% on a pro forma basis for the
six months ended June 30, 1995. A subsidiary acquired in a transaction
accounted for as pooling-of-interest was taxed as an S Corporation prior to its
acquisition. The pro forma income tax expense adjusts income tax expense to
what would have been recorded if this subsidiary had been a C Corporation during
the period. If this subsidiary had been subject to corporate income taxes on an
ongoing basis, the Company's income tax expense would have been $8.8 million for
the six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its cash needs, including cash used for
acquisitions, from the net proceeds of its public offerings of equity and
convertible subordinated debt, borrowings under its revolving line of credit,
and cash from operations.
In May 1995, the Company completed a public offering of 4,250,000 shares of
Common Stock at $25.50 per share. The offering included 3,750,000 shares of
Common Stock issued by the Company and 500,000 shares sold by a group of selling
stockholders. Net proceeds to the Company after underwriters' discounts and
expenses totaled approximately $90.2 million. Such proceeds were used to repay
approximately $50 million of debt under the Company's line of credit and for
general corporate purposes, including acquisitions.
On February 9, 1996, the Company amended its line of credit to increase the
amount available under the line to $200 million from $150 million. Borrowings
bear interest at either prime or LIBOR plus a spread of up to 1.25%. At June
30, 1996, under the $200 million line there were $11.5 million of borrowings
outstanding, $15.8 million of letters of credit outstanding and $104.7 million
available for future borrowings based on current total debt limitations. As of
August 6, 1996, under the $200 million line, the Company had $18.5 million of
borrowings outstanding, $15.8 million in letters of credit outstanding, and
$102.6 million available for future borrowings.
On February 1, 1996, the Company completed an offering of $125 million of
convertible subordinated notes. The notes bear interest at 5.25% and mature on
February 1, 2001. Net proceeds to the Company after underwriters' discounts and
expenses totaled approximately $121.4 million. The notes are convertible into
Common Stock of the Company at the option of the holder, at a conversion price
of $37.75 per share. The notes are redeemable, at the option of the Company,
after February 15, 1999. The Company used the proceeds to repay approximately
$100 million outstanding under its line of credit and used the remaining
proceeds for general corporate purposes, including acquisitions.
Cash used by operations during the six months ended June 30, 1996 was $6.9
million. Excluding cash payments resulting from the Company's restructuring
initiative, cash generated from operations during the six months ended June 30,
1996 was $2.6 million as compared with $9.2 million for 1995. The increase in
cash used by operations as compared to cash generated in the prior quarter was a
result of cash payments related to the restructuring and an increase in accounts
receivable. This increase in accounts receivables was primarily attributable to
the Company's Northern California operations, which experienced billing delays
caused by the consolidation of four separate patient billing offices into one
and the implementation of a new accounts receivable system. The Company expects
cash receipts for this division will ultimately improve through efficiencies
realized by the consolidation of the patient billing offices and enhancements
provided by the new accounts receivable system. Also contributing to the
increase in accounts receivables were recent acquisitions where working capital
was not acquired. Working capital at June 30, 1996 amounted to $64.1 million as
compared to $32.2 million at December 31, 1995. Capital expenditures made
primarily for new ambulances and other operating equipment amounted to $13.7
million and $9.8 million for the six months ended June 30, 1996 and 1995,
respectively. The restructuring charge the Company recorded during the fourth
quarter of 1995 is expected to reduce cash flow by approximately $10.0 million
during 1996. Current financial resources, including amounts available under the
line of credit and anticipated funds generated by operations, are expected to be
adequate to meet the Company's operating cash requirements in the foreseeable
future.
The Company has two Shelf Registration Statements on file with the Securities
and Exchange Commission covering a total of 5,000,000 shares of which, 2,114,915
were available at July 30, 1996 in connection with acquisitions of other
businesses.
Page 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
During the six months ended June 30, 1996, the Company made acquisitions for a
total of approximately $20.9 million in cash, $14.1 million in notes of which
$9.4 million were subordinated and 429,260 shares of Common Stock. At June 30,
1996, potential outstanding future contingent payments aggregated approximately
$8.4 million in cash and 88,000 shares of Common Stock. The Company's growth
strategy depends in large measure on its ability to acquire additional service
providers. Although the Company has acquired many ambulance service providers
since its initial acquisition of four providers in August 1992, there can be no
assurance that additional acquisition candidates can be identified, consummated
or successfully integrated into the Company's operations. The Company has used
a combination of cash, Common Stock and subordinated debt as consideration for
past acquisitions and plans to continue to use these sources in the future. In
the event that the Company's Common Stock does not maintain sufficient valuation
or if potential acquisition candidates are unwilling to accept the Company's
securities as consideration, the Company will be required to use more cash
resources to continue its acquisition program. In addition, if sufficient
financing is not available as needed on terms acceptable to the Company, the
Company's acquisition program could be adversely affected.
Medicare and Medicaid
In October 1995, both houses of Congress passed separate versions of Medicare
and Medicaid reform. During the budget reconciliation process, Congress adopted
the Senate provisions for Medicare and Medicaid reform which called for a seven-
year freeze on rates for ambulance services. However, in December 1995, the
bill was vetoed by the President. Although a budget compromise has not been
reached, there exists a potential for a freeze of Medicare reimbursement rates
for ambulance services in future periods. Any long term freeze in Medicare
reimbursement, which represents 37% of the Company's revenues, could have an
adverse impact on the Company's future operating results.
In addition, Congressional hearings in December 1994 focused attention on
efforts within the Health Care Financing Administration ("HCFA") to control
Medicare expenditures for ambulance services. In November 1995, HCFA published
a pre-rule stage notice announcing its intention to revise ambulance coverage
policies. The proposed rule would revise HCFA's policy on Medicare coverage of
ambulance services. It focuses on the medical necessity for ambulance service,
redefines an ambulance as an "emergency vehicle" and revises the policy on
coverage of non-emergency ambulance transportation for beneficiaries with end-
stage renal disease. These changes would prevent use of ambulance
transportation in non-emergency situations where the medical need has not
clearly been determined. These changes require the use of emergency vehicles as
ambulances and would focus on the medical treatment rather than the level of
medical transportation provided as the primary concern for furnishing ambulance
services.
With respect to reimbursement for non-emergency transportation to and from
dialysis treatment facilities for patients with end-stage renal disease, the
Company believes it is in substantial compliance with current regulations in
this area, which require documentation of medical necessity. The Company does
not believe that any rule changes in this area would have a material adverse
effect on its business.
Any rule changes which focus reimbursement based on the medical treatment
rather than the level of medical transportation provided would affect virtually
all providers of emergency ambulance services, including the Company. Under
current rules, Advanced Life Support ("ALS") service is reimbursed at ALS rates
if, based on an assessment of the patient's condition, it is determined that ALS
service is medically necessary or if ALS response is required under "911"
contracts or state or local law. Under the proposed rule change, an ambulance
provider would only be reimbursed at ALS rates, if ALS services were medically
necessary at the time the service is provided. The proposed rule HCFA is
currently considering would likely receive substantial opposition from many
interested groups, including public and private ambulance providers, state and
local governments that mandate ALS responses and patient advocacy groups. In
addition, the Company believes that any change in ALS reimbursement would not
become final until late-1996 and, if adopted, would be phased in or otherwise
structured so as to minimize any adverse effect on ambulance service providers.
The Company could make adjustments to mitigate the effect of any HCFA proposal
in this area. For example, most of the Company's "911" contracts provide for a
renegotiation of rates in the event of a change in reimbursement policy. In
addition, the Company could potentially offset reduced Medicare revenue by
negotiating for increases in local operating subsidies. The Company could also
attempt to change the staffing of its ambulance crews and negotiate for longer
response times. Because of the preliminary nature of this proposal, the Company
is unable to predict whether HCFA will
Page 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
adopt the current proposal or determine the impact of any proposal adopted by
HCFA. However, if a proposal like the one HCFA is currently considering were to
become law without any phase-in period and if the Company were unable to
mitigate the effect by implementing one or more of the changes described above,
it would at least in the short term have an adverse effect on the Company's
profitability.
In addition, the Company's Mid-Atlantic region, which covers Pennsylvania, New
Jersey, and Delaware, has been notified that its regional Medicare carrier will
be changing its criteria for reimbursement for ambulance services to an approach
based upon the location at which an ambulance is garaged as compared to the
previous practice of reimbursement based upon the location of a company's
administrative office. This change will reduce reimbursement for certain
transports and is expected to become effective during the fourth quarter of
1996. The Company plans to mitigate the effect of this change by taking one or
more of the following actions: request an increase in the allowable Medicare
reimbursement rate through the inherent reasonableness process, bill services
directly to patients as compared to accepting Medicare assignment, relocate
where ambulances are garaged, reduce operating costs, negotiate increases in
local government subsidies for "911" contracts, and negotiate longer response
time requirements for emergency and non-emergency transports. If the Company is
not successful in mitigating this change in reimbursement, it could have a
material adverse effect on the Company's financial results.
Page 14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the Company was held on
May 9, 1996.
(b) Ten of the ten directors of the Company were re-elected at the
meeting as described in paragraph (c) below.
<TABLE>
<CAPTION>
(c) (i) The voting for the directors was as follows:
NOMINEE FOR WITHHELD
--- --------
<S> <C> <C>
Paul M. Verrochi 17,759,564 117,511
Dominic J. Puopolo 17,757,588 119,487
Joseph R. Paolella 17,759,125 117,950
Paul T. Shirley 17,750,489 126,586
James E. McGrath 17,765,867 111,208
Michael A. Baker 17,789,458 87,617
David B. Hammond 17,789,782 87,293
John Larkin Thompson 17,789,795 87,280
Charles D. Baker 17,790,019 87,056
David C. Colby 17,761,577 115,498
(ii) The Company amended the 1992 Employee Stock Purchase Plan by increasing by 200,000
the number of shares of Common Stock available for issuance to employees under
that Plan. The voting for this proposal was: 17,509,652 for the proposal; 345,732
against the proposal; 21,691 abstained; and there was no vote cast by 2,160,146 shares.
</TABLE>
(d) Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 11 Statement Regarding Computation of Earnings Per Share
---------- ------------------------------------------------------
11 Statement regarding computation of earnings per share
Exhibit 27 Financial Data Schedule
---------- -----------------------
27 Financial Data Schedule
Page 15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN MEDICAL RESPONSE, INC.
--------------------------------
(Registrant)
August 9, 1996 /s/ David C. Colby
- -------------- ---------------------------------------
(Date) David C. Colby
Director, Executive Vice President,
Chief Financial Officer and Treasurer
August 9, 1996 /s/ Gino L. Porazzo
- -------------- ---------------------------------------
(Date) Gino L. Porazzo
Vice President and Corporate Controller
Page 16
<PAGE>
AMERICAN MEDICAL RESPONSE, INC.
EXHIBIT INDEX
-------------
PAGE
----
EXHIBIT 11
- ----------
11 Statement regarding computation of earnings per share. 18
EXHIBIT 27
- ----------
27 Financial Data Schedule 19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,668
<SECURITIES> 0
<RECEIVABLES> 185,715
<ALLOWANCES> 55,630
<INVENTORY> 4,264
<CURRENT-ASSETS> 184,202
<PP&E> 70,602<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 555,126
<CURRENT-LIABILITIES> 120,145
<BONDS> 0
0
0
<COMMON> 206
<OTHER-SE> 274,657
<TOTAL-LIABILITY-AND-EQUITY> 555,126
<SALES> 322,595
<TOTAL-REVENUES> 322,595
<CGS> 0
<TOTAL-COSTS> 227,718<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,573
<INTEREST-EXPENSE> 4,669
<INCOME-PRETAX> 28,635
<INCOME-TAX> 12,828
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,807
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.77
<FN>
<F1>Property, plant, and equipment are reported net of accumulated depreciation in
the interim consolaidated financial statements.
<F2>Does not include provision for doubtful accounts.
</FN>
</TABLE>
