SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- - Exchange Act of 1934 for the quarterly period ended September 30, 1996
OR
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-24986
EMCARE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3645287
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1717 Main Street, Suite 5200
Dallas, Texas 75201
(Address of registrant's principal executive offices)
Telephone Number (214) 712-2000
(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:
Yes X No __
-
As of October 31, 1996, there were 8,148,890 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
<PAGE>
EMCARE HOLDINGS INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Statements of Income-
Three and Nine Months Ended
September 30, 1996 and 1995 3
Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
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 6. Exhibits and Reports on Form 8-K 14
Signature 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue $48,198 $40,480 $140,307 $113,082
Professional expenses 38,366 32,339 111,713 89,651
-------- -------- --------- ---------
Gross profit 9,832 8,141 28,594 23,431
Expenses:
General and administrative 4,129 3,950 12,888 11,925
Depreciation and amortization 1,028 725 2,801 1,696
-------- -------- --------- ---------
5,157 4,675 15,689 13,621
-------- -------- --------- ---------
Income from operations 4,675 3,466 12,905 9,810
Interest expense (359) (237) (817) (513)
Interest income 117 203 267 796
-------- -------- --------- ---------
Income before income taxes 4,433 3,432 12,355 10,093
Income tax expense 1,707 1,287 4,717 3,785
-------- -------- --------- ---------
Net income $ 2,726 $ 2,145 $ 7,638 $ 6,308
======== ======== ========= =========
Net income per share $ 0.32 $ 0.26 $ 0.90 $ 0.77
======== ======== ========= =========
Weighted average shares outstanding 8,553 8,330 8,534 8,183
======== ======== ========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
EMCARE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 11,115 $ 7,781
Marketable securities - 1,507
Accounts receivable, net 36,187 29,813
Prepaid insurance 1,719 166
Other current assets 1,653 600
--------- ---------
Total current assets 50,674 39,867
Furniture and office equipment, net 4,320 3,384
Deferred tax asset 1,110 949
Other assets:
Goodwill 46,887 29,602
Contracts 10,832 7,064
Non-competition agreements 5,570 4,141
Deferred financing costs and other 739 493
--------- ---------
64,028 41,300
Less accumulated amortization 6,794 4,757
--------- ---------
57,234 36,543
--------- ---------
Total assets $ 113,338 $ 80,743
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 307 $ 254
Accrued expenses:
Physician fees 9,273 8,520
Accrued salaries and other compensation 4,438 3,280
Collection fees 307 1,637
Accrued federal and state income taxes 98 1,781
Other accrued liabilities 3,178 2,242
Deferred tax liability - 249
Short-term debt and current portion of
long-term obligations 22,969 2,956
--------- ---------
Total current liabilities 40,570 20,919
Long-term obligations, less current portion 3,052 2,500
Professional liability insurance 4,892 4,594
Deferred tax liability 908 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares - 5,000,000
No shares issued or outstanding - -
Common stock, $0.01 par value:
Authorized shares - 25,000,000
Issued and outstanding shares -
8,148,000 at September 30, 1996 and
8,011,000 at December 31, 1995 81 80
Shares to be issued 1,500 -
Additional paid-in capital 43,071 41,025
Retained earnings 19,264 11,625
--------- ---------
Total stockholders' equity 63,916 52,730
--------- ---------
Total liabilities and stockholders' equity $ 113,338 $ 80,743
========= =========
See accompanying notes.
4
<PAGE>
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
1996 1995
----------- -----------
Operating Activities
Net income $ 7,638 $ 6,308
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (554) (1,970)
Loss on sale of furniture and office equipment 101 -
Non-cash interest expense 302 321
Depreciation and amortization 2,801 1,696
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (1,551) (2,596)
Accounts payable and accrued expenses (5,785) (893)
Professional liability insurance (619) 375
Prepaid insurance and other assets (2,258) (1,126)
---------- ----------
Net cash provided by operating activities 75 2,115
Investing Activities
Sales of marketable securities 1,507 6,260
Sales of furniture and office equipment 21 -
Purchases of furniture and office equipment (1,858) (601)
Payments for acquisitions, net of cash acquired (14,393) (16,865)
Other (92) (43)
---------- ----------
Net cash used in investing activities (14,815) (11,249)
Financing Activities
Proceeds from borrowings 22,067 6,321
Payments on short-term borrowings and
long-term obligations (6,039) (6,674)
Proceeds from exercise of stock options 2,046 2,062
---------- ----------
Net cash provided by financing activities 18,074 1.709
---------- ----------
Net increase (decrease) in cash and cash equivalents 3,334 (7,425)
Cash and cash equivalents at beginning of period 7,781 13,558
---------- ----------
Cash and cash equivalents at end of period $ 11,115 $ 6,133
========== ==========
Supplemental Disclosures
Cash paid for:
Interest $ 446 $ 219
========== ==========
Income taxes $ 6,535 $ 5,048
========== ==========
See accompanying notes.
5
<PAGE>
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
EmCare Holdings Inc. Annual Report incorporated by reference into the Form 10-K
for the year ended December 31, 1995.
2. Significant Accounting Policies
Net income (loss) per share is calculated be dividing net income (loss) by
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of the dilutive effect of
outstanding options calculated using the treasury stock method. The shares to be
issued in connection with the April 30, 1996 acquisition of Medical Emergency
Service Associates, Inc. (MESA) are included in the weighted average number of
common equivalent shares outstanding for the purpose of calculating net income
(loss) per share. Refer to Note 4 to the Notes to the Consolidated Financial
Statements for further discussion of the MESA acquisition and common shares to
be issued.
3. Accounts Receivable and Net Revenue
Accounts receivable are recorded at net realizable value. The allowance
for contractual adjustments and charity and other adjustments is based on
historical experience and future expectations.
Accounts receivable consist of the following (in thousands):
September 30, December 31,
1996 1995
---------------- ----------------
Independent billing $82,324 $61,252
Hospital contract 9,779 8,001
Billing receivables 2,170 2,042
Locum tenens 1,257 1,316
------- -------
95,530 72,611
Less allowance for contractual
adjustments and charity and
other adjustments 59,343 42,798
------- -------
$36,187 $29,813
======= =======
6
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Net revenue consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1996 1995 1996 1995
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Gross revenue $74,743 $65,139 $222,297 $189,133
Less provision for contractual adjustments
and charity and other adjustments 26,545 24,659 81,990 76,051
------- ------- -------- --------
Net revenue $48,198 $40,480 $140,307 $113,082
======= ======= ======== ========
</TABLE>
4. Acquisitions
On April 1, 1996, the Company acquired Suburban Houston Emergency
Physicians Association (SHEPA), a physician practice providing emergency
services in Houston, Texas. SHEPA was acquired for $1.5 million in cash and
$375,000 in debt. Additionally, certain sellers entered into non-competition
agreements. The contract generated net revenues of $2.0 million and 23,000
patients visits for the year ended December 31, 1995.
On April 30, 1996, the Company acquired all of the outstanding capital
stock of MESA, a physician practice management company providing emergency
department services to eight hospitals and two occupational medicine clinics in
the Chicago and western Illinois markets. The acquisition was effective as of
April 1, 1996. MESA was acquired for an aggregate of $10.6 million, which
consists of $7.3 million in cash, 56,355 shares of the Company's common stock
valued at an average market price of $26.617 per share, or an aggregate of $1.5
million, to be issued over the next three years , and obligations of $1.8
million payable over the next two to seven years based on certain performance
criteria applicable to contracts held by MESA as of the closing. One-third of
the shares will be issued and delivered to the former stockholders of MESA on
each of the next three anniversaries of the closing date. In addition, the
former stockholders of MESA could be entitled to receive two incentive earnout
payments of up to $1,000,000 each based upon the adjusted net income
attributable to such contracts. The former stockholders of MESA have agreed not
to compete against the Company for the three years immediately after the
acquisition. The Company allocated $650,000 of the acquisition consideration
paid upon consummation of the acquisition to these non-competition agreements.
MESA generated net revenue of $13.4 million and 210,000 patient visits for the
year ended September 30, 1995.
Effective September 1, 1996, in two separate transactions the Company
acquired all of the outstanding capital stock of Associated Emergency
Physicians, Inc. (AEP), a physician practice management company providing
emergency department services to three hospitals in San Jose, California, and
its billing company, Doctors Billing Service, Inc. (DBS). AEP and DBS were
acquired for an aggregate of $6.5 million, which consists of $5.1 million in
cash and $1.4 million in obligations payable over the next three years based
upon the adjusted net income attributed to AEP and DBS's contracts. AEP
generated approximately $10.1 million of net revenue from 105,000 patient visits
for its fiscal year ended August 31, 1996.
In another transaction, also effective September 1, 1996, the Company
acquired all of the outstanding capital stock of Southern Emergency Medical
Specialists, Inc. (SEMS). SEMS was acquired for an aggregate of $1.5 million,
which consists of $1.2 million in cash and $302,000 in obligations payable over
the next three years based upon the adjusted net income attributed to SEMS's
contracts. SEMS generated approximately $2.2 of million net revenue in 1995 from
35,000 patient visits.
The former stockholders of AEP and SEMS have agreed not to compete against
the Company for the three years immediately after the acquisition. The Company
allocated a total of $581,000 of the consideration paid upon consummation of the
respective acquisitions to these non-competition agreements.
7
<PAGE>
All the acquisitions have been accounted for as purchases, and the net
assets and operations are included in the Company's consolidated financial
statements as of the date of the acquisition.
5. Contingencies
The Civil Division of the U.S. Department of Justice ("DOJ") has named the
Company as a defendant in a civil lawsuit styled United States ex rel. Theresa
Semtner v. Emergency Physician Billing Services, Inc. ("EPBS"), et al. Cause No.
94-CB-617 which was filed on April 29, 1994, in the United States District Court
for the Western District of Oklahoma (the" DOJ Lawsuit"). EPBS is a third-party
billing company that provided billing services on a contract basis for the
Company and a number of other customers. On February 1, 1996, the DOJ served the
Company in the lawsuit.
From 1990 to the time of filing of the lawsuit, the billing company
submitted on behalf of the Company more than 750,000 claims for payment under
Medicare, Medicaid and CHAMPUS programs, which represents approximately 15% of
the number of all claims filed by the Company during this same period. As a
matter of procedure, the doctors and hospitals who provided patient care subject
to agreements with the Company submitted their medical charts directly to EPBS,
which on the basis of those charts prepared and submitted reimbursement claims.
The Company did receive periodic summary reports from EPBS of claims activity,
information with respect to audits conducted by payor agencies and other
matters, but not reimbursement claim copies of such medical charts. In the
course of reviewing such reports, the Company periodically asked questions about
such audits and related billing and coding practices of the billing company, and
the Company received responses from EPBS. Further, the DOJ has indicated that it
intends for proof of damages in its lawsuits to rely upon certain audits of EPBS
which have not been completed and provided to the Company, and two completed
audits of EPBS, one of which did not involve Company claims. Accordingly, the
Company does not currently possess sufficient information to determine the
likelihood or amount of liability, if any, relating to the DOJ allegations.
In the lawsuit, the DOJ alleges improper coding by the third-party billing
company and the Company of charges under the Medicare, Medicaid and CHAMPUS
programs in violation of the False Claims Act, 31 U.S.C.ss. 3729 et seq. The
lawsuit seeks treble damages, civil penalties of $10,000 for each claim in
question, reimbursement of costs, and such other relief as the court deems just
and equitable. DOJ alleges that during the period of time covered by the
lawsuit, the defendants presented or caused to be presented claims for payment
to the United States knowing such claims were false, fictitious, or fraudulent,
or acting with reckless disregard or deliberate ignorance of the truth or
falsity of such claims.
The billing company has advised the Company that it is confident that the
DOJ allegations are incorrect. Under the Company's contracts with the
third-party billing company, the billing company has agreed to be responsible
for all coding errors. However, there is no assurance that the Company will be
able to obtain indemnification from the third-party billing company for the
conduct alleged by the DOJ. Further, the billing company is privately owned, and
in the absence of specific information as to the billing company's assets, other
obligations and the amount of liability, if any, likely to result from the DOJ
allegations, the Company is unable to determine whether it is likely that the
billing company will be financially able to respond to such liability and
related indemnity obligations of the billing company.
In addition to its allegations of improper coding, the DOJ, in its first
amended complaint, alleges that because the billing company's fee from the
Company is based on a percentage of the amount collected each claim submitted
for payment under this arrangement constitutes a false claim under the False
Claims Act. The Company no longer uses the same type of billing arrangement that
was utilized with EPBS, and is implementing alternative billing arrangements
which will eliminate in the future percentage fee arrangements in the
circumstances challenged by the DOJ, governing the reassignment of Medicare
claims. The Company does not believe that the past arrangements render all
Medicare,
8
<PAGE>
Medicaid or CHAMPUS claims false claims within the meaning of the False Claims
Act. If the Company does not prevail on this issue, it is possible that the DOJ
could make similar allegations with respect to reassignments to the third-party
billing company or the Company after the period covered by the DOJ Lawsuit.
There can be no assurance that the outcome of the DOJ Lawsuit will not
have a material adverse effect on the Company's financial condition and results
of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
EmCare Holdings Inc. is a leading provider of physician practice
management services in hospital emergency departments and other practice
settings in the United States (collectively, "EDs"). The Company recruits and
evaluates the credentials of physicians and arranges contracts and schedules for
their services. The Company also assists the EDs in operational areas such as
staff coordination, quality assurance, and departmental accreditation. In
addition, the Company provides accounting, billing, record keeping, and other
administrative services. The Company and its predecessors have been engaged in
emergency physician practice management primarily in larger hospitals with high
volume EDs for more than 20 years. At September 30, 1996, the Company had
management contracts relating to 88 EDs in 18 states with approximately 2.2
million patient visits per year. In addition to emergency physician practice
management, the Company provides: (i) billing services for emergency physician
practice management contracts, (ii) temporary (locum tenens) physician placement
services across a broad range of medical specialties, and (iii) physician
practice management in areas other than emergency medicine.
There are an estimated 5,200 hospitals in the United States that have
EDs. Approximately 80% of the hospitals use outsourced physicians to staff their
EDs. The outsourcing groups used to provide ED services are either national
groups, regional groups, or small local groups. The national groups serve
approximately 20% of the market. The Company believes that the regional and
local groups are encountering increasing difficulty in: (i) satisfying the
record keeping requirements and other administrative burdens imposed by health
care industry developments and (ii) controlling costs imposed by capitated and
other risk shifting payment systems. As a result, the Company believes that
there are significant consolidation opportunities within the emergency physician
practice management industry.
The Company intends to pursue the growth of its emergency physician
practice management business through acquisitions of local and regional groups.
Beginning in January 1992 and continuing through September 1996, the Company has
added emergency physician practice management contracts covering 34 EDs through
acquisitions. In addition, in September 1995 the Company acquired RTI, an
emergency medicine billing company that provided billing services to emergency
physician groups in eight states. The acquisition of RTI is serving as a
platform for the Company to internalize its billing function. Effective January
1, 1996, the Company began to transition to RTI the billings for approximately
one million patient visits that it outsources per year. The Company intends to
complete this transition during 1996. As of September 30, 1996, the Company had
transitioned 34 EDs representing approximately 821,000 patient visits to RTI
Effective April 1, 1996, the Company acquired two emergency physician
practice management companies, MESA and SHEPA. MESA provides emergency
department services to eight high volume emergency departments and two
occupational medicine clinics in the Chicago and western Illinois markets. SHEPA
provides services to one hospital in Houston, Texas.
9
<PAGE>
Effective September 1, 1996, the Company acquired two emergency
physician practice management companies, AEP and SEMS. AEP provides management
services for three emergency departments in San Jose, California through a
network of 40 physicians. One of the AEP contract agreements provides emergency
department services on a capitated basis to about 110,000 lives and represents
the Company's initial capitation arrangement. SEMS manages one emergency
department in Ft. Oglethorpe, Georgia through a network of seven physicians.
Refer to Note 4 to the Notes to the Consolidated Financial Statements for
further discussion of these acquisitions.
Results of Operations
Revenue is recorded in the period the services are rendered as
determined by the respective contracts with the health care providers.
Professional expenses are based on the terms of the respective contracts with
the physicians. Services performed by physicians under contract with the Company
are generally charged on a fee for service basis, and the Company's revenue is
derived from such fees. These fees are either: (i) collected by the related
hospital, which remits a negotiated amount monthly to the Company, or (ii)
billed and collected separately by the Company ("independent billing
contracts"). In independent billing contract arrangements, the Company arranges
for third-party billing firms or a subsidiary to bill and collect directly for
services performed by the physicians. Cost of collections is included in
professional expense.
The following table sets forth, as a percentage of net revenue, certain
statement of income data for the periods indicated as well as percentage changes
from period to period in the data presented:
Three Months
Ended September 30, 1996
---------------------- Compared
1996 1995 to 1995
----------- ---------- ------------
Net revenue 100.0% 100.0% 19.1%
Professional expenses 79.6 79.9 18.6
Gross profit 20.4 20.1 20.8
General and administrative expenses 8.6 9.8 4.5
Depreciation and amortization 2.1 1.8 41.8
Income from operations 9.7 8.6 34.9
Income before income taxes 9.2 8.5 29.2
Nine Months
Ended September 30, 1996
---------------------- Compared
1996 1995 to 1995
----------- ---------- ------------
Net revenue 100.0% 100.0% 24.1%
Professional expenses 79.6 79.3 24.6
Gross profit 20.4 20.7 22.0
General and administrative expenses 9.2 10.5 8.1
Depreciation and amortization 2.0 1.5 65.2
Income from operations 9.2 8.7 31.5
Income before income taxes 8.8 8.9 22.4
Third Quarter Ended September 30, 1996 and 1995
Net Revenue. Net revenue increased $7.7 million, or 19.1%, to $48.2
million for the three months ended September 30, 1996 from $40.5 million for the
three months ended September 30, 1995. Of this increase, $6.0 million was
attributable to increased revenue from the Company's ED contracts.
10
<PAGE>
Net revenue from other services increased $1.7 million, contributing 4.2% of the
19.1% total period to period increase. This consists of $1.1 million
attributable to the Company's billing companies, an increase of $461,000
attributable to the Company's management of primary care physician group
practices, and a increase of $107,000 attributable to other non-ED services.
Same ED contract revenue increased $1.6 million, or 4.7%, to $35.9
million for the three months ended September 30, 1996 from $34.3 million for the
three months ended September 30, 1995, contributing 4.0% of the 19.1% total
period-to-period increase. "Same ED" revenue consists of revenue derived from
EDs under management from the beginning of the prior period through the end of
the current period. New ED contracts generated by the Company's marketing
activities contributed $1.9 million of the increase in net revenue, or 4.7% of
the 19.1% total period-to-period increase. Acquisitions contributed $5.0 million
of the increase in net revenue, or 12.3% of the 19.1% total period-to-period
increase. Included in the period-to-period increase in net revenue is a negative
impact of $2.5 million, or 6.1% of the 19.1% total period-to-period increase
caused by the loss of contracts.
Professional Expenses. Professional expenses primarily consist of fees
paid to physicians under contract with the Company, collection fees relating to
independent billing contracts billed by vendors, operating expenses incurred by
the Company's billing companies, and professional liability insurance premiums
for physicians under contract. Professional expenses increased by $6.1 million,
or 18.6%, to $38.4 million for the three months ended September 30, 1996 from
$32.3 million for the three months ended September 30, 1995. This increase was
primarily attributable to the addition of new ED contracts. The increase in
professional expenses includes $922,000 attributable to other services of which
$621,000 is due to the acquired billing companies.
General and Administrative Expenses. General and administrative expenses
increased by $179,000, or 4.5%, to $4.1 million for the three months ended
September 30, 1996 from $4.0 million for the three months ended September 30,
1995. This increase is primarily attributable to the incremental administrative
costs related to the new EDs under management. As a percentage of net revenue,
general and administrative expenses decreased to 8.6% in the three months ended
September 30, 1996 from 9.8% in the same period in 1995. The Company has been
able to add additional revenue growth with minimal increases to its corporate
overhead.
Depreciation and Amortization. Depreciation and amortization consist
principally of amortization of goodwill, contracts and non-competition
agreements entered into in connection with business acquisitions. Depreciation
and amortization increased by $303,000, or 41.8%, to $1.0 million for the three
months ended September 30, 1996 from $725,000 for the three months ended
September 30, 1995, principally due to business acquisitions.
Interest Income/Expense. Interest expense increased by $122,000, or
51.5%, to $359,000 for the three months ended September 30, 1996 from $237,000
for the three months ended September 30, 1995, primarily due to an increase in
debt due to acquisitions. Interest income decreased by $86,000, or 42.4%, to
$117,000 for the three months ended September 30, 1996 from $203,000 for the
three months ended September 30, 1995, primarily due to lower cash balances
available for investment in the third quarter of 1996. Cash balances were higher
in the third quarter of 1995 as a result of the Company's initial public
offering in December 1994.
Income Taxes. The Company's effective tax rate increased to 38.5% for
the three months ended September 30, 1996 from 37.5% for the three months ended
September 30, 1995.
Nine Months Ended September 30, 1996 and 1995
Net Revenue. Net revenue increased $27.2 million, or 24.1%, to $140.3
million for the nine months ended September 30, 1996 from $113.1 million for the
nine months ended September 30, 1995. Of this increase, $20.4 million was
attributable to increased revenue from the Company's ED contracts. Net revenue
from other services increased $6.8 million, contributing 6.0% of the 24.1% total
period to period increase. This consists of $3.8 million attributable to the
Company's billing companies, an
11
<PAGE>
increase of $2.0 million attributable to the Company's management of primary
care physician group practices, and an increase of $1.0 million attributable to
other non-ED services.
Same ED contract revenue increased $1.8 million, or 2.1%, to $86.2
million for the nine months ended September 30, 1996 from $84.4 million for the
nine months ended September 30, 1995, contributing 1.6% of the 24.1% total
period-to-period increase. New ED contracts generated by the Company's marketing
activities contributed $7.8 million of the increase in net revenue, or 6.9% of
the 24.1% total period-to-period increase. Acquisitions contributed $15.2
million of the increase in net revenue, or 13.4% of the 24.1% total
period-to-period increase. Included in the period-to-period increase in net
revenue is a negative impact of $4.4 million, or 3.8% of the 24.1% total
period-to-period increase caused by the loss of contracts.
Professional Expenses. Professional expenses increased by $22.0 million,
or 24.6%, to $111.7 million for the nine months ended September 30, 1996 from
$89.7 million for the nine months ended September 30, 1995. This increase was
primarily attributable to the addition of new ED contracts. The increase in
professional expenses includes $5.6 million attributable to other services of
which $3.3 million is due to the acquired billing companies.
General and Administrative Expenses. General and administrative expenses
increased by $1.0 million, or 8.1%, to $12.9 million for the nine months ended
September 30, 1996 from $11.9 million for the nine months ended September 30,
1995. This increase is primarily attributable to the incremental administrative
costs related to the new EDs under management. As a percentage of net revenue,
general and administrative expenses decreased to 9.2% in the nine months ended
September 30, 1996 from 10.5% in the same period in 1995. The Company has been
able to add additional revenue growth with minimal increases to its corporate
overhead.
Depreciation and Amortization. Depreciation and amortization increased
by $1.1 million, or 65.2%, to $2.8 million for the nine months ended September
30, 1996 from $1.7 million for the nine months ended September 30, 1995,
principally due to business acquisitions.
Interest Income/Expense. Interest expense increased by $304,000, or
59.3%, to $817,000 for the nine months ended September 30, 1996 from $513,000
for the nine months ended September 30, 1995, primarily due to an increase in
debt due to acquisitions. Interest income decreased by $529,000, or 66.5%, to
$267,000 for the nine months ended September 30, 1996 from $796,000 for the nine
months ended September 30, 1995, primarily due to lower cash balances available
for investment in 1996. Cash balances were higher in 1995 as a result of the
Company's initial public offering in December 1994.
Income Taxes. The Company's effective tax rate increased to 38.2% for
the nine months ended September 30, 1996 from 37.5% for the nine months ended
September 30, 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company had $10.1 million in working capital,
a decrease of $8.8 million from December 31, 1995. At September 30, 1996, the
Company's principal sources of liquidity consisted of (i) cash and cash
equivalents aggregating $11.1 million, (ii) accounts receivable totaling $36.2
million, and (iii) $31.4 million in borrowing capacity under a revolving line of
credit (the "Revolver") with a syndicate of lenders.
In the nine months ended September 30, 1996, $75,000 in cash was
provided by operating activities as revenue growth from new and existing EDs
slightly offset the related growth in accounts receivable and prepaid insurance
and the decrease in accounts payable and accrued expenses. Cash of $14.8 million
was used in investing activities for the nine months ended September 30, 1996 as
the payments for acquisitions and the purchase of furniture and equipment
exceeded the proceeds from the sale of marketable securities. Cash of $18.0
million was provided by financing activities for the nine months ended September
30, 1996 as proceeds from borrowings and the exercise of stock options exceeded
payments on obligations.
12
<PAGE>
Accounts receivable are a key component of the Company's working
capital. Accounts receivable totaled $36.2 million at September 30, 1996, an
increase of $6.4 million over December 31, 1995. The timing of payments on the
Company's accounts receivable can vary significantly depending on whether the
related contract is a hospital-based or independent billing contract.
Independent billing receivables have a significantly longer collection cycle
than hospital-based billing receivables because of the process of billing and
collecting from third-party payor programs and private payors. The number of
days revenue in average receivables was 64 days for the nine months ended
September 30, 1996, compared to 60 days for the nine months ended September 30,
1995. In connection with independent billing contracts, the Company incurs, and
can expect to incur in the future, negative cash flow during the start-up phase
(typically six months or more after the contract is initiated).
Acquisitions occurring during the nine months ended September 30, 1995
have resulted in significant increases in cash, goodwill and the short-term debt
since the year ended December 31, 1995. Refer to Note 4 to the Notes to the
Consolidated Financial Statements for additional discussion of such acquisitions
and the related acquisition costs.
The Company anticipates that funds generated from operations, together
with funds available under the Revolver, will be sufficient to meet its working
capital requirements and debt obligations and to finance any necessary capital
expenditures for the foreseeable future. Expansion of the Company's business
through acquisitions may require additional funds, which, to the extent not
provided by internally generated sources, cash and cash equivalents, and the
Revolver, would require the Company to seek additional debt or equity financing.
Factors That May Affect Future Results of Operations and Financial Condition
The Company operates in a constantly changing health care environment.
While overall prospects are positive, results may vary in response to a number
of factors, including factors described below. The foregoing statements and
other statements in this Item 2 not based upon historical fact are
forward-looking statements that involve risks and uncertainties, and actual
results could differ materially from these expectations. Important factors that
could cause actual results to differ materially from the forward-looking
statements include the pace of new business and acquisition activity, changes in
reimbursement rates, developments in the DOJ civil lawsuit (see Note 5 to the
Notes to the Consolidated Financial Statements for a detailed discussion), the
implementation of the Health Care Financing Administration's new guidelines for
documentation of Medicare and Medicaid claims and the transition of the
Company's billing activities from outside vendors to RTI.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information called for by Item 1 of Part II is incorporated by
reference to Note 4 of the Notes to the Consolidated Financial Statements
included in Item 1 of Part I of this document.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company
3.3 Bylaws of the Company
4.1 Specimen Common Stock certificate
4.2 Registration Rights Agreement, dated as of February 5, 1992, among
Leonard M. Riggs,Jr., M.D., William F. Miller, III, WCAS Capital
Partners II, L.P., and certain other persons
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule (for SEC only)
B. Form 8-K
1. The Company filed a Form 8-K, dated May 14, 1996, reporting the
acquisition of Medical Emergency Services Associates, Inc. which was
amended to add financial statements and pro forma financial
information by Form 8-K/A -- Amendment No. 1, dated July 12, 1996.
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.
Dated: November 14, 1996
EMCARE HOLDINGS INC.
(Registrant)
By: /s/ Robert F. Anderson, II
---------------------------
Robert F. Anderson, II
Chief Financial Officer, Senior Vice
President, Treasurer, and Secretary
14
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement No. 33-
81830 on Form S-1, declared effective of December
7, 1994 (the "Registration Statement")). 16
3.2 Certificate of Amendment to Certificate of
Incorporation of the Company (incorporated
by reference to Exhibit No. 3.5 to the Registration
Statement). 16
3.3 Bylaws of the Company (incorporated by reference to
Exhibit No. 3.4 to the Registration Statement). 16
4.1 Specimen Common Stock certificate (incorporated by
reference to Exhibit No. 4.1 to the Registration
Statement.) 16
4.2 Registration Rights Agreement, dated as of February
5, 1992, among Leonard M. Riggs, Jr., M.D., William
F. Miller, III, WCAS Capital Partners II, L.P., and
certain other persons (incorporated by reference to
Exhibit No. 4.2 to the Registration Statement). 16
11.1 Computation of Net Income Per Share 16
27.1 Financial Data Schedule (for SEC only) 17
15
EXHIBIT 11.1
EMCARE HOLDINGS INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1996 1995 1996 1995
---------- --------- ---------- -----------
Primary:
Weighted average number of common shares outstanding
<S> <C> <C> <C> <C>
during the period 8,147 7,939 8,121 7,770
Weighted average shares issuable upon exercise of
outstanding stock options using the "treasury
stock" method 406 391 413 413
------ ------ ------ ------
Weighted average shares outstanding 8,553 8,330 8,534 8,183
====== ====== ====== ======
Net income $2,726 $2,145 $7,638 $6,308
====== ====== ====== ======
Net income per share $ 0.32 $ 0.26 $ 0.90 $ 0.77
====== ====== ====== ======
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,115
<SECURITIES> 0
<RECEIVABLES> 95,530
<ALLOWANCES> 59,343
<INVENTORY> 0
<CURRENT-ASSETS> 50,674
<PP&E> 7,461
<DEPRECIATION> 3,141
<TOTAL-ASSETS> 113,338
<CURRENT-LIABILITIES> 40,570
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 63,835
<TOTAL-LIABILITY-AND-EQUITY> 113,338
<SALES> 140,307
<TOTAL-REVENUES> 140,307
<CGS> 111,713
<TOTAL-COSTS> 111,713
<OTHER-EXPENSES> 15,689
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 817
<INCOME-PRETAX> 12,355
<INCOME-TAX> 4,717
<INCOME-CONTINUING> 7,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,638
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
</TABLE>
