SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 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 July 31, 1996, there were 8,147,090 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
See Exhibit Index on Page 16
Page 1 of 18
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EMCARE HOLDINGS INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Statements of Income-
Three and Six Months Ended
June 30, 1996 and 1995 3
Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows-
Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- -------------- -------------
Net revenue $47,874 $38,062 $92,109 $72,603
Professional expenses 38,032 30,158 73,347 57,313
------ ------ ------ ------
Gross profit 9,842 7,904 18,762 15,290
Expenses:
General and administrative 4,514 4,048 8,759 7,976
Depreciation and amortization 964 566 1,773 971
--- --- ----- ---
5,478 4,614 10,532 8,947
----- ----- ------ -----
Income from operations 4,364 3,290 8,230 6,343
Interest expense (286) (130) (458) (276)
Interest income 78 249 150 593
-- --- --- ---
Income before income taxes 4,156 3,409 7,922 6,660
Income tax expense 1,579 1,262 3,010 2,497
----- ----- ----- -----
Net income $ 2,577 $ 2,147 $ 4,912 $ 4,163
======= ======= ======= =======
Net income per share $ 0.30 $ 0.26 $ 0.58 $ 0.51
======= ======= ======= =======
Weighted average shares
outstanding 8,615 8,308 8,524 8,110
===== ===== ===== =====
See accompanying notes.
3
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EMCARE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1996 1995
--------------- ----------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,031 $ 7,781
Marketable securities - 1,507
Accounts receivable, net 32,394 29,813
Prepaid insurance 3,339 166
Other current assets 1,810 600
----- ---
Total current assets 44,574 39,867
Furniture and office equipment, net 4,227 3,384
Deferred tax asset 1,110 949
Other assets:
Goodwill 41,010 29,602
Contracts 9,064 7,064
Non-competition agreements 4,989 4,141
Deferred financing costs and other 773 493
--- ---
55,836 41,300
Less accumulated amortization 6,021 4,757
----- -----
49,815 36,543
------ ------
Total assets $99,726 $80,743
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 284 $ 254
Accrued expenses:
Physician fees 8,220 8,520
Accrued salaries and other compensation 3,915 3,280
Collection fees 655 1,637
Accrued federal and state income taxes 149 1,781
Other accrued liabilities 3,157 2,242
Deferred tax liability - 249
Short-term debt and current portion of
long-term obligations 15,602 2,956
------ -----
Total current liabilities 31,982 20,919
Long-term obligations, less current portion 1,840 2,500
Professional liability insurance 4,738 4,594
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 -
8,147,000 at June 30, 1996 and
8,011,000 at December 31, 1995 81 80
Shares to be issued 1,500 -
Additional paid-in capital 43,048 41,025
Retained earnings 16,537 11,625
------ ------
Total stockholders' equity 61,166 52,730
------ ------
Total liabilities and stockholders' equity $99,726 $80,743
======= =======
See accompanying notes.
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EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------------
1996 1995
------------- --------------
Operating Activities $ 4,912 $ 4,163
Net income
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Deferred income taxes 222 (1,859)
Non-cash interest expense 180 151
Depreciation and amortization 1,773 971
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (1,894) (2,227)
Accounts payable and accrued expenses (4,732) 946
Professional liability insurance (682) 250
Prepaid insurance and other assets (4,330) (2,618)
--------- ----------
Net cash provided by (used in) operating activities (4,551) (223)
Investing Activities
Sales of marketable securities 1,507 6,310
Purchases of furniture and office equipment (972) (446)
Payments for acquisitions, net of cash acquired (8,331) (6,558)
Other - (145)
-------------- ----------
Net cash used in investing activities (7,796) (839)
Financing Activities
Proceeds from borrowings 15,472 4,321
Payments on short-term borrowings and
long-term obligations (5,891) (5,118)
Proceeds from exercise of stock options 2,016 290
--------- ----------
Net cash provided by (used in) financing activities 11,597 (507)
--------- ----------
Net decrease in cash and cash equivalents (750) (1,569)
Cash and cash equivalents at beginning of period 7,781 13,558
----- ------
Cash and cash equivalents at end of period $ 7,031 $11,989
======== ========
Supplemental Disclosures
Cash paid for:
Interest $ 164 $ 156
======== ========
Income taxes $ 4,535 $ 3,538
======== ========
See accompanying notes.
5
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EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 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 six month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ended 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. 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):
June 30, December 31,
1996 1995
------------ ----------------
Independent billing $66,606 $61,252
Hospital contract 9,462 8,001
Billing receivables 1,852 2,042
Locum tenens 1,702 1,316
----- -----
79,622 72,611
Less allowance for contractual
adjustments and charity and other adjustments 47,228 42,798
------ ------
$32,394 $29,813
======= =======
Net revenue consists of the following (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------- ---------------------------
1996 1995 1996 1995
--------------- ------------ ------------- -------------
Gross revenue $75,611 $66,324 $147,554 $123,994
Less provision for
contractual adjustments
and charity and
other adjustments 27,737 28,262 55,445 51,391
------ ------ ------ ------
Net revenue $47,874 $38,062 $ 92,109 $ 72,603
======= ======= ======== ========
6
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3. Acquisitions
On April 1, 1996, the Company acquired a physician practice providing
emergency department services for a hospital in Houston, Texas for $1.5 million
in cash and $375,000 in debt. Additionally, certain sellers entered into
non-competition agreements.
On April 30, 1996, the Company acquired all of the outstanding capital
stock of Medical Emergency Service Associates, Inc. ("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, and obligations of
$1.8 million payable over the next two to seven year 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.
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.
The following unaudited pro forma information combines the results of
operations of the Company with the acquisitions of MESA, Reimbursement
Technologies, Inc. (RTI), and Capital Emergency Associates, P.A., after giving
effect to amortization of non-competition agreements, contracts and goodwill and
interest expense on the related long-term obligations as if the acquisition had
occurred on January 1, 1995.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ------------------------------
1996 1995 1996 1995
---------------- -------------- --------------- -------------
(Dollars in thousands, (Dollars in thousands,
except per share amounts) except per share amounts)
-------------- -------------
Net revenue $47,874 $42,848 $95,455 $85,487
Net income 2,619 1,974 4,795 3,765
Net income per share $ 0.30 $ 0.24 $ 0.56 $ 0.45
4. 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.
7
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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. In the course of that review, 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. However, the Company did
not receive copies of such medical charts or reimbursement claims. 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 one completed audit of EPBS 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 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 the Company's contracts with the third party billing
company fail to comply with applicable law governing the reassignment of
Medicare claims because the billing company's fee is based on a percentage of
the amount collected. The DOJ has further notified the Company that the DOJ
believes that, as a result of such alleged illegality, each claim submitted for
payment under this arrangement constitutes a false claim under the False Claims
Act. Although the Company is aware that its contractual arrangement with the
third party billing company is not in compliance with applicable law relating to
reassignment of Medicare claims, the Company does not believe that the failure
to comply with applicable law imposing restrictions on reassignment of Medicare
claims renders such claims or 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. The Company no longer uses the same type of billing
arrangement that was utilized with EPBS, and is implementing alternative billing
arrangements which comply with applicable law governing the reassignment of
Medicare claims.
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.
8
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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 has been engaged in emergency physician
practice management primarily in larger hospitals with high volume EDs for more
than 20 years. At June 30, 1996, the Company had management contracts relating
to 84 EDs in 17 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 June 1996, the Company has
added emergency physician practice management contracts covering 31 EDs through
acquisitions. In addition, in September 1995 the Company acquired RTI, an
emergency medicine billing company that provides billing services to emergency
physician groups in eight states. The acquisition of RTI is serving as the
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 June 30, 1996, the Company had
transitioned 27 EDs as planned representing approximately 582,000 patient visits
to RTI.
On April 1, 1996, the Company acquired an emergency physician practice
management contract providing emergency department services to one hospital in
Houston, Texas. The contract generated net revenues of $2.0 million and 23,000
patient visits for the year ended December 31, 1995.
On April 30, 1996, the Company acquired an emergency physician practice
management company providing emergency department services to eight high volume
emergency departments and two occupational medicine clinics in the Chicago and
western Illinois markets. This company generated net revenue of $13.4 million
and 210,000 patient visits for the year ended September 30, 1995.
9
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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 June 30, 1996
-------------------------- Compared
1996 1995 to 1995
------------- ----------- ------------
Net revenue 100.0% 100.0% 25.8%
Professional expenses 79.4 79.2 26.1
Gross profit 20.6 20.8 24.5
General and administrative expenses 9.4 10.6 11.5
Depreciation and amortization 2.0 1.5 70.3
Income from operations 9.1 8.6 32.6
Income before income taxes 8.7 9.0 21.9
Six Months Ended
June 30, 1996
-------------------------- Compared
1996 1995 to 1995
------------- ----------- ------------
Net revenue 100.0% 100.0% 26.9%
Professional expenses 79.6 78.9 28.0
Gross Profit 20.4 21.1 22.7
General and administrative expenses 9.5 11.0 9.8
Depreciation and amortization 1.9 1.3 82.6
Income from operations 8.9 8.7 29.7
Income before income taxes 8.6 9.2 18.9
Second Quarter Ended June 30, 1996 and 1995
Net Revenue. Net revenue increased $9.8 million, or 25.8%, to $47.9
million for the three months ended June 30, 1996 from $38.1 million for the
three months ended June 30, 1995. Of this increase, $7.7 million was
attributable to increased revenue from the Company's ED contracts. Net revenue
from other services increased $2.1 million, contributing 5.5% of the 25.8% total
period to period increase. This consists of $1.3 million attributable to the
Company's billing company which was acquired in September 1995, an increase of
$931,000 attributable to the Company's management of primary care physician
group practices, and a decrease of $82,000 attributable to other non-ED
services.
Same ED contract revenue increased $2.9 million, or 9.0%, to $35.2
million for the three months ended June 30, 1996 from $32.3 million for the
three months ended June 30, 1995, contributing
10
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7.6% of the 25.8% 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 $2.6 million of the increase in net
revenue, or 6.8% of the 25.8% total period-to-period increase. Acquisitions
contributed $4.2 million of the increase in net revenue, or 11.1% of the 25.8%
total period-to-period increase. Included in the period-to-period increase in
net revenue is a negative impact of $2.0 million, or 5.2% of the 25.8% 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 for the
billing company, and professional liability insurance premiums for physicians
under contract. Professional expenses increased by $7.8 million, or 26.1%, to
$38.0 million for the three months ended June 30, 1996 from $30.2 million for
the three months ended June 30, 1995. This increase was primarily attributable
to the addition of new ED contracts. Expenses related to other services
increased $1.9 million from period to period, including $1.5 million related to
the acquired billing company. As a percentage of net revenue, professional
expenses increased to 79.4% in the three months ended June 30, 1996 from 79.2%
in the same period in 1995. The increase in professional expenses as a
percentage of net revenue is primarily due to the operating costs associated
with the billing company acquired in September 1995.
General and Administrative Expenses. General and administrative
expenses increased by $466,000, or 11.5%, to $4.5 million for the three months
ended June 30, 1996 from $4.0 million for the three months ended June 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 9.4% in the three months ended June 30,
1996 from 10.6% 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 $398,000, or 70.3%, to $964,000 for the three
months ended June 30, 1996 from $566,000 for the three months ended June 30,
1995, principally due to business acquisitions.
Interest Income/Expense. Interest expense increased by $156,000, or
120.0%, to $286,000 for the three months ended June 30, 1996 from $130,000 for
the three months ended June 30, 1995, primarily due to an increase in debt due
to acquisitions. Interest income decreased by $171,000, or 68.7%, to $78,000 for
the three months ended June 30, 1996 from $249,000 for the three months ended
June 30, 1995, primarily due to lower cash balances available for investment in
the second quarter of 1996. Cash balances were higher in the second 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 38.0% for
the three months ended June 30, 1996 from 37.0% for the three months ended June
30, 1995.
Six Months Ended June 30, 1996 and 1995
Net Revenue. Net revenue increased $19.5 million, or 26.9%, to $92.1
million for the six months ended June 30, 1996 from $72.6 million for the six
months ended June 30, 1995. Of this increase, $15.4 million was attributable to
increased revenue from the Company's ED contracts. Net revenue from other
services increased $4.1 million, contributing 5.7% of the 26.9% total period to
period increase. This consists of $2.7 million attributable to the Company's
billing company which was acquired in September 1995, an increase of $1.6
million attributable to the Company's management of primary care physician group
practices, and a decrease of $150,000 attributable to other non-ED services.
Same ED contract revenue increased $1.4 million, or 2.5%, to $57.1
million for the six months ended June 30, 1996 from $55.7 million for the six
months ended June 30, 1995, contributing 1.9% of
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the 26.9% total period-to-period increase. New ED contracts generated by the
Company's marketing activities contributed $5.8 million of the increase in net
revenue, or 8.0% of the 26.9% total period-to-period increase. Acquisitions
contributed $10.3 million of the increase in net revenue, or 14.2% of the 26.9%
total period-to-period increase. Included in the period-to-period increase in
net revenue is a negative impact of $2.1 million, or 2.9% of the 26.9% total
period-to-period increase caused by the loss of contracts.
Professional Expenses. Professional expenses increased by $16.0
million, or 28.0%, to $73.3 million for the six months ended June 30, 1996 from
$57.3 million for the six months ended June 30, 1995. This increase was
primarily attributable to the addition of new ED contracts. Expenses related to
other services increased $3.8 million from period to period, including $2.8
million related to the acquired billing company. As a percentage of net revenue,
professional expenses increased to 79.6% in the six months ended June 30, 1996
from 78.9% in the same period in 1995. The increase in professional expenses as
a percentage of net revenue is primarily due to the operating costs associated
with the billing company acquired in September 1995.
General and Administrative Expenses. General and administrative
expenses increased by $783,000, or 9.8%, to $8.8 million for the six months
ended June 30, 1996 from $8.0 million for the six months ended June 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 9.5% in the six months ended June 30,
1996 from 11.0% 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 $802,000, or 82.6%, to $1.8 million for the six months ended June 30, 1996
from $971,000 for the six months ended June 30, 1995, principally due to
business acquisitions.
Interest Income/Expense. Interest expense increased by $182,000, or
65.9%, to $458,000 for the six months ended June 30, 1996 from $276,000 for the
six months ended June 30, 1995, primarily due to an increase in debt due to
acquisitions.. Interest income decreased by $443,000, or 74.7%, to $150,000 for
the six months ended June 30, 1996 from $593,000 for the six months ended June
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 38.0% for
the six months ended June 30, 1996 from 37.5% for the six months ended June 30,
1995.
Liquidity and Capital Resources
At June 30, 1996, the Company had $12.6 million in working capital, a
decrease of $6.4 million from December 31, 1995. At June 30, 1996, the Company's
principal sources of liquidity consisted of (i) cash and cash equivalents
aggregating $7.0 million, (ii) accounts receivable totaling $32.4 million, and
(iii) $38 million in borrowing capacity under a revolving line of credit (the
"Revolver") with a syndicate of lenders.
In the six months ended June 30, 1996, $4.6 million in cash was used to
support operating activities. This amount reflects the increase in accounts
receivable due to growth in the number of EDs, an increase in prepaid insurance,
and a decrease in accounts payable and accrued expenses. Cash of $7.8 million
was used in investing activities for the six months ended June 30, 1996 as the
payments for acquisitions exceeded the proceeds from the sale of marketable
securities. Cash of $11.6 million was provided by financing activities for the
six months ended June 30, 1996 as proceeds from borrowings and the exercise of
stock options exceeded payments on obligations. In the six months ended June 30,
1995, $223,000 in cash was used to support operating activities. This amount
reflects the increase in accounts receivable due to growth in the number of EDs
and an increase in prepaid insurance. Cash of $839,000 was used in investing
activities for the six months ended June 30, 1995 as payments related to
business acquisitions
12
<PAGE>
exceeded proceeds from the sale of marketable securities. Cash of $507,000 was
used in financing activities for the six months ended June 30, 1995 as payments
on obligations exceeded borrowings.
Accounts receivable are a key component of the Company's working
capital. Accounts receivable totaled $32.4 million at June 30, 1996, an increase
of $2.6 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 61 days for the six months ended June
30, 1996, compared to 59 days for the six months ended June 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).
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 the pace of new business and acquisition activity,
reimbursement rates and developments in the Department of Justice (DOJ) civil
lawsuit. 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 Part I, Item 1, Note 4, "Contingencies" 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 16, 1996,
the following individuals were elected to the Board of Directors:
Votes For Votes Abstaining
--------- ----------------
William F. Miller, III 6,506,414 6,744
Andrew M. Paul 6,506,414 6,744
The following proposal was approved at the Company's Annual Meeting:
Affirmative Negative Votes Broker
Votes Votes Abstaining Non-Votes
----- ----- ---------- ---------
Amendment of the
EmCare Holdings
Inc. Amended and
Restated Stock
Option and Restricted
Stock Purchase Plan
to (a) increase the
number of shares of
Common Stock that
may be issued under
it from 1,250,000
to 3,250,000 shares
and (b) change certain
provisions of the Plan
to comply with the
qualified performance-based
stock option compensation
exception to the
compensation deduction
limitations of Section
162(m) of the Internal
Revenue Code of
1986, as amended 4,131,043 1,087,453 4,450 1,290,212
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
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: August 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
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
----------- ----------- ----
11.1 Computation of Net Income Per Share 17
27.1 Financial Data Schedule (for SEC only) 18
16
EXHIBIT 11.1
EMCARE HOLDINGS INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ --------------
Primary:
Weighted average
number of common
shares outstanding
during the period 8,170 7,831 8,108 7,685
Weighted average
shares issuable
upon exercise of
outstanding stock
options using the
"treasury stock" method 445 477 416 425
--- --- --- ---
Weighted average shares
outstanding 8,615 8,308 8,524 8,110
===== ===== ===== =====
Net income $2,577 $2,147 $4,912 $4,163
====== ====== ====== ======
Net income per share $ 0.30 $ 0.26 $ 0.58 $ 0.51
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q FOR THE QUARTERLY 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> 7,031
<SECURITIES> 0
<RECEIVABLES> 79,622
<ALLOWANCES> 47,228
<INVENTORY> 0
<CURRENT-ASSETS> 44,574
<PP&E> 7,107
<DEPRECIATION> 2,880
<TOTAL-ASSETS> 99,726
<CURRENT-LIABILITIES> 31,982
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 61,085
<TOTAL-LIABILITY-AND-EQUITY> 99,726
<SALES> 92,109
<TOTAL-REVENUES> 92,109
<CGS> 73,347
<TOTAL-COSTS> 73,347
<OTHER-EXPENSES> 10,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> 7,922
<INCOME-TAX> 3,010
<INCOME-CONTINUING> 8,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,912
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
