<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 (I.R.S. Employer
of incorporation or Identification Number)
organization)
1717 MAIN STREET, SUITE 5200
DALLAS, TEXAS 75201
(Address of principal executive offices, including zip code)
(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, 1997, there were 8,279,046 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
<PAGE> 2
EMCARE HOLDINGS INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Income-
Three and Six Months Ended
June 30, 1997 and 1996 3
Consolidated Balance Sheets-
June 30, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
---------
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue $61,867 $47,874 $121,377 $92,109
Professional expenses 49,548 38,032 97,208 73,347
------- -------- -------- -------
Gross profit 12,319 9,842 24,169 18,762
Expenses:
General and administrative 4,816 4,514 9,587 8,759
Depreciation 331 297 648 556
Amortization 1,103 667 2,264 1,217
------- -------- -------- -------
6,250 5,478 12,499 10,532
------- -------- -------- -------
Income from operations 6,069 4,364 11,670 8,230
Interest expense (1,093) (286) (1,905) (458)
Interest income 61 78 133 150
------- -------- -------- -------
Income before income tax expense 5,037 4,156 9,898 7,922
Income tax expense 1,914 1,579 3,761 3,010
------- -------- -------- -------
Net income $ 3,123 $ 2,577 $ 6,137 $ 4,912
======= ======== ======= =======
Net income per common share:
Primary $ 0.36 $ 0.30 $ 0.71 $ 0.58
======= ======== ======== ========
Assuming full dilution $ 0.35 $ 0.30 $ 0.70 $ 0.58
======= ======== ======== ========
Weighted average common and
common equivalent shares
outstanding:
Primary 8,728 8,615 8,633 8,524
======= ======== ======== ========
Assuming full dilution 8,890 8,615 8,720 8,538
======= ======== ======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
EMCARE HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,474 $ 7,329
Accounts receivable, net 53,747 46,413
Prepaid insurance 3,970 392
Other current assets 5,887 1,624
---------- -----------
Total current assets 69,078 55,758
Furniture and office equipment, net 4,689 4,418
Deferred tax asset -- 4,981
Other assets:
Goodwill 69,698 58,488
Contracts 18,407 15,463
Non-competition agreements 6,773 6,104
Deferred financing costs and other 743 694
---------- -----------
95,621 80,749
Less accumulated amortization 10,140 7,843
---------- -----------
85,481 72,906
---------- ----------
Total assets $ 159,248 $ 138,063
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 462 $ 326
Accrued expenses:
Physician fees 11,168 10,623
Accrued salaries and other compensation 5,393 5,579
Collection fees 421 344
Accrued federal and state income taxes 299 1,463
Department of Justice settlement 8,250 8,379
Other accrued liabilities 3,547 3,206
Deferred tax liability -- 331
Short-term debt and current portion of
long-term obligations 10,742 5,589
---------- -----------
Total current liabilities 40,282 35,840
Deferred tax liability 1,032 --
Long-term obligations, less current portion 43,520 34,879
Professional liability insurance 4,975 5,616
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 - 8,251,000 at
June 30, 1997 and 8,150,000 at December 31, 1996 83 82
Shares to be issued 1,000 1,500
Additional paid-in capital 45,169 43,096
Retained earnings 23,187 17,050
---------- ----------
Total stockholders' equity 69,439 61,728
---------- ----------
Total liabilities and stockholders' equity $ 159,248 $ 138,063
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
EMCARE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES $ 6,137 $ 4,912
Net income
Adjustments to reconcile net income
to net cash used in operating activities:
Deferred income taxes 497 222
Non-cash interest expense 447 180
Depreciation 648 556
Amortization 2,264 1,217
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (3,672) (1,894)
Accounts payable and accrued expenses (3,079) (4,732)
Professional liability insurance (862) (682)
Prepaid insurance and other assets (4,572) (4,330)
-------- --------
Net cash used in operating activities (2,192) (4.551)
-------- --------
INVESTING ACTIVITIES
Sales of marketable securities -- 1,507
Purchases of furniture and office equipment (651) (972)
Payments for acquisitions, net of cash acquired (23,542) (8,331)
Other (133) --
-------- --------
Net cash used in investing activities (24,326) (7,796)
-------- --------
FINANCING ACTIVITIES
Proceeds from borrowings 29,786 15,472
Payments on short-term borrowings and
long-term obligations (6,697) (5,891)
Proceeds from exercise of stock options 1,574 2,016
-------- --------
Net cash provided by financing activities 24,663 11,597
-------- --------
Net decrease in cash and cash equivalents (1,855) (750)
Cash and cash equivalents at beginning of period 7,329 7,781
-------- --------
Cash and cash equivalents at end of period $ 5,474 $ 7,031
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 1,298 $ 164
======== ========
Income taxes $ 4,170 $ 4,535
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
EMCARE HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
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, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the EmCare Holdings Inc. Form 10-K for the year ended
December 31, 1996.
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):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Independent billing $125,544 $103,016
Hospital contract 14,529 12,913
Billing receivables 2,390 2,161
Locum tenens 1,469 934
-------- --------
143,932 119,024
Less allowance for contractual adjustments and charity and other
adjustments 90,185 72,611
-------- --------
$ 53,747 $ 46,413
======== ========
</TABLE>
Net revenue consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Gross revenue $99,310 $75,611 $195,671 $147,554
Less provision for contractual adjustments
and charity and other adjustments 37,443 27,737 74,294 55,445
------- ------- -------- --------
Net revenue $61,867 $47,874 $121,377 $ 92,109
======= ======= ======== ========
</TABLE>
3. DEBT
On March 7, 1997, the Company entered into a new Revolver with a bank
acting as administrative agent for a syndicate of lenders under which the
Company can borrow up to $100 million for working capital and acquisition
purposes. This revolving line of credit replaces the one that existed at
December 31, 1996. The Revolver matures on March 7, 2000. Borrowings under
the Revolver bear interest at variable rates based, at the Company's option, on
the bank's base rate or the eurodollar rate. A per annum commitment fee
varying from .1875% to .375% depending upon the Company's ratio of funded debt
to operating cash flow is required on the unused portion of the commitment.
There was an outstanding balance of $37.0 million under the Revolver as of June
30, 1997.
6
<PAGE> 7
The Revolver contains covenants which, among other things, require the
Company to maintain certain financial ratios and impose certain limitations or
prohibitions on the Company with respect to the incurrence, guaranty, or
assumption of indebtedness, the payment of dividends, the redemption or
repurchase of, or other payment with respect to, the Company's capital stock,
certain cash transactions with subsidiaries and affiliates, acquisitions,
contract management maintenance, and ownership of the PAs. Throughout 1996 and
at year end the Company was in compliance with all covenants relative to the
Revolver.
4. LITIGATION
EmCare Holdings Inc., together with its subsidiaries and affiliates (the
"Company"), has settled the claims alleged against it in the civil lawsuit
styled United States ex rel. Theresa Semtner v. Emergency Physician Billing
Services, Inc. et al. in the United States District Court for the Western
District of Oklahoma (the "DOJ Lawsuit"). Emergency Physician Billing
Services, Inc. ("EPBS") is an outside vendor that provided billing services on
a contract basis for the Company and others. The suit alleged improper coding
of charges for emergency department services reimbursed under the Medicare,
Medicaid, CHAMPUS, and Federal Employees Health Benefits programs.
Under the settlement, the Company has agreed to pay $7,750,000 to the
United States and the various states for settlement of the lawsuit and has paid
$5.0 million in July 1997 of that amount with the balance due on or before
January 5, 1998. The settlement provides for the DOJ Lawsuit to be dismissed
with prejudice as to the Company. An additional $250,000 in relator's
attorneys' fees and $450,000 in other expenses is also expected to be incurred.
In the settlement, the Company does not admit any of the allegations of the DOJ
Lawsuit or any related liability, and the settlement specifically provides for
the Company to participate fully in the future in Medicare, Medicaid, CHAMPUS,
and Federal Employees Health Benefits programs. The related settlement
expenses were accrued for in the 1996 financial statements.
The Company is also a defendant in various other legal proceedings
arising in the ordinary course of business. Although the results of litigation
cannot be predicted with certainty, management believes that the outcome of the
pending other litigation will not have a material adverse effect on the
Company.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the second
quarter ended June 30, 1997 and 1996 to $0.38 per share and $0.32 per share,
respectively, and for the six months ended June 30, 1997 and 1996 to $0.74 per
share and $0.61 per share, respectively. The impact of Statement 128 on the
calculation of diluted earnings per share for these quarters is not expected to
be material.
6. SUBSEQUENT EVENT
On July 29, 1997 the Company entered into a definitive agreement under
which a newly formed wholly-owned subsidiary of Laidlaw Inc. (the obligations
of which are guaranteed by Laidlaw) has agreed to acquire all outstanding
shares of the Company in a cash tender offer. Under the terms of the agreement,
EmCare shareholders will be offered $38.00 per share in cash. The aggregate
value of the transaction is $400 million based on approximately 8.2 million
outstanding EmCare shares, approximately $25 million of costs associated with
stock options retired and the assumption of $65 million of debt. The agreement
provides that as soon as practicable after consummation of the tender offer and
subject to the terms and conditions of the agreement, the Company will be merged
with the purchaser and shares of the Company (other than shares held directly or
indirectly by Laidlaw) will be converted into the right to receive the tender
consideration. The tender offer was commenced August 5, 1997 and is subject to
the tender of a minimum of 51% of the Company's shares and other customary
conditions. In connection with the tender offer, the purchaser has filed a
Schedule 14d-1 and the Company has filed a Schedule 14d-9 with the Securities
and Exchange Commission.
7
<PAGE> 8
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 ("EDs") and other
practice settings. 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 managed emergency physician
practices for more than 20 years primarily in larger hospitals with high volume
EDs. At June 30, 1997, the Company had management contracts relating to 152
EDs in 21 states with approximately 2.8 million patient visits per year. In
addition to the Company's higher volume emergency physician practice
management, the Company provides physician practice management services for
inpatient care, lower volume emergency medicine practices, and a primary care
physician group practice. The Company also provides billing services for
emergency physician practice management contracts and provides physician
placement services, primarily on a locum tenens (temporary) basis, across a
broad range of medical specialties.
Beginning in January 1994 and continuing through June 1997, the
Company completed 14 acquisitions involving companies providing emergency
physician practice management, thereby acquiring contracts to provide services
at 87 EDs in 8 new markets. The ED contracts associated with these
acquisitions accounted for net revenue of $47.1 million for the six months
ended June 30, 1997. The aggregate consideration in connection with these
acquisitions was $76.0 million, which consisted of $48.2 million in cash, $19.0
million of obligations, and 489,688 shares of Common Stock valued at $8.8
million. The Company allocated $3.7 million of the consideration to
non-competition agreements.
RESULTS OF OPERATIONS
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:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, 1997
------------------ Compared
1997 1996 to 1996
------ ------ --------
<S> <C> <C> <C>
Net revenue 100.0% 100.0% 29.2%
Professional expenses 80.1 79.4 30.3
Gross profit 19.9 20.6 25.2
General and administrative expenses 7.8 9.4 6.7
Depreciation and amortization expense 2.3 2.0 48.8
Income from operations 9.8 9.1 39.1
Income before income tax expense 8.1 8.7 21.2
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
----------------------- COMPARED
1997 1996 TO 1996
------- ------ --------
<S> <C> <C> <C>
Net revenue 100.0% 100.0% 31.8%
Professional expenses 80.1 79.6 32.5
Gross profit 19.9 20.4 28.8
General and administrative expenses 7.9 9.5 9.5
Depreciation and amortization expense 2.4 1.9 64.2
Income from operations 9.6 8.9 41.8
Income before income tax expense 8.2 8.6 24.9
</TABLE>
SECOND QUARTER ENDED JUNE 30, 1997 AND 1996
Net Revenue. Net revenue increased $14.0 million, or 29.2%, to $61.9
million for the three months ended June 30, 1997 from $47.9 million for the
three months ended June 30, 1996. Of this increase, $13.8 million was
attributable to increased revenue from the Company's ED contracts. Net revenue
from non-ED services remained materially unchanged from period-to-period.
Same ED contract revenue increased $2.3 million, or 5.7%, to $42.4
million for the three months ended June 30, 1997 from $40.1 million for the
three months ended June 30, 1996, contributing 4.8% of the 29.2% total
period-to-period increase. "Same ED" contract 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 4.0% of the 29.2% total period-to-period increase. Acquisitions
contributed $12.1 million of the increase in net revenue, or 25.3% of the 29.2%
total period-to-period increase. Included in the period-to-period increase in
net revenue is a negative impact of $2.5 million, or 5.2% of the 29.2% 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 Company's billing subsidiaries, and professional liability insurance
premiums for physicians under contract. Professional expenses increased by
$11.5 million, or 30.3%, to $49.5 million for the three months ended June 30,
1997 from $38.0 million for the three months ended June 30, 1996. This increase
was primarily attributable to the addition of 67 new ED contracts from June 30,
1996 to June 30, 1997. As a percentage of net revenue, professional expenses
increased to 80.1% in the three months ended June 30, 1997 from 79.4% in the
same period in 1996. The increase in professional expenses as a percent of net
revenue is due to the low volume EDs acquired in the fourth quarter of 1996.
These contracts have lower profit margins than the Company's historical
business.
General and Administrative Expenses. General and administrative
expenses increased by $302,000, or 6.7%, to $4.8 million for the three months
ended June 30, 1997 from $4.5 million for the three months ended June 30, 1996.
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 7.8% in the three months ended
June 30, 1997 from 9.4% in the same period in 1996. The Company has been able
to add additional revenue growth with minimal increases in 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 $470,000, or 48.8%, to $1.4 million for the
three months ended June 30, 1997 from $964,000 for the three months ended June
30, 1996, principally due to business acquisitions.
9
<PAGE> 10
Interest Income/Expense. Interest expense increased by $807,000 to
$1.1 million for the three months ended June 30, 1997 from $286,000 for the
three months ended June 30, 1996, principally due to interest on the line of
credit as a result of borrowings for acquisitions made in late 1996. Interest
income decreased by $17,000, or 21.8%, to $61,000 for the three months ended
June 30, 1997 from $78,000 for the three months ended June 30, 1996, primarily
due to lower cash balances available for investment in the second quarter of
1997.
Income Taxes. The Company's effective tax rate remained unchanged at
38.0% from period-to-period.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net Revenue. Net revenue increased $29.3 million, or 31.8%, to $121.4
million for the six months ended June 30, 1997 from $92.1 million for the six
months ended June 30, 1996. Of this increase, $28.7 million was attributable to
increased revenue from the Company's ED contracts. Net revenue from non-ED
services remained materially unchanged from period-to-period.
Same ED contract revenue increased $3.7 million, or 5.2%, to $74.9
million for the six months ended June 30, 1997 from $71.2 million for the six
months ended June 30, 1996, contributing 4.0% of the 31.8% total
period-to-period increase. New ED contracts generated by the Company's
marketing activities contributed $2.7 million of the increase in net revenue,
or 2.9% of the 31.8% total period-to-period increase. Acquisitions contributed
$27.8 million of the increase in net revenue, or 30.2% of the 31.8% total
period-to-period increase. Included in the period-to-period increase in net
revenue is a negative impact of $5.5 million, or 6.0% of the 31.8% total
period-to-period increase caused by the loss of contracts.
Professional Expenses. Professional expenses increased by $23.9
million, or 32.6%, to $97.2 million for the six months ended June 30, 1997 from
$73.3 million for the six months ended June 30, 1996. This increase was
primarily attributable to the addition of 67 new ED contracts from June 30,
1996 to June 30, 1997. As a percentage of net revenue, professional expenses
increased to 80.1% in the six months ended June 30, 1997 from 79.6% in the same
period in 1996. The increase in professional expenses as a percent of net
revenue is due to the low volume EDs acquired in the fourth quarter of 1996.
These contracts have lower profit margins than the Company's historical
business.
General and Administrative Expenses. General and administrative
expenses increased by $828,000, or 9.5%, to $9.6 million for the six months
ended June 30, 1997 from $8.8 million for the six months ended June 30, 1996.
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 7.9% in the six months ended
June 30, 1997 from 9.5% in the same period in 1996. The Company has been able
to add additional revenue growth with minimal increases in corporate overhead.
Depreciation and Amortization. Depreciation and amortization
increased by $1.1 million, or 64.2%, to $2.9 million for the six months ended
June 30, 1997 from $1.8 million for the six months ended June 30, 1996,
principally due to business acquisitions.
Interest Income/Expense. Interest expense increased by $1.4
million to $1.9 million for the six months ended June 30, 1997 from $458,000
for the six months ended June 30, 1996, principally due to interest on the line
of credit as a result of borrowings for acquisitions made in late 1996.
Interest income decreased by $17,000, or 11.3%, to $133,000 for the six months
ended June 30, 1997 from $150,000 for the six months ended June 30, 1996,
primarily due to lower cash balances available for investment during the first
six months of 1997.
Income Taxes. The Company's effective tax rate remained unchanged at
38.0% from period-to-period.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY. At June 30, 1997, the Company had $28.8 million
in working capital, an increase of $8.9 million from December 31, 1996. At June
30, 1997, the Company's principal sources of liquidity consisted of (i) cash
and cash equivalents aggregating $5.5 million, (ii) accounts receivable
totaling $53.7 million, and (iii) $63.0 million in borrowing capacity under a
revolving line of credit (the "Revolver") with a syndicate of lenders.
1997. In the six months ended June 30, 1997, $2.2 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
$24.3 million was primarily used in investing activities for the six months
ended June 30, 1997 for payments of acquisitions. Cash of $24.7 million was
provided by financing activities for the six months ended June 30, 1997 as
proceeds from borrowings and the exercise of stock options exceeded payments on
obligations.
1996. 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 primarily used in investing activities for the six months
ended June 30, 1996 for payments of acquisitions. 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.
ACCOUNTS RECEIVABLE. Accounts receivable are a key component of the
Company's working capital. Accounts receivable totaled $53.7 million at June
30, 1997, an increase of $7.3 million over December 31, 1996. The timing of
payments on the Company's accounts receivable can vary significantly depending
on whether the related contract is a hospital-based or an 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 75 days for the six
months ended June 30, 1997, compared to 61 days for the six months ended June
30, 1996. This increase is due to the build-up of accounts receivable as a
result of the transition of independent billing contracts from third-party
billing companies to the Company's billing subsidiary as well as accounts
receivable acquired through acquisitions. 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 of a contract (typically six
months or more after the contract is initiated).
INCREASE IN REVOLVER. On March 7, 1997, the Company entered into an
agreement to increase the borrowing capacity under the Revolver from $50
million to $100 million. Under the Revolver, a bank acts as the administrative
agent for a syndicate of lenders. The Revolver permits the Company to borrow
up to $100 million for working capital and acquisition purposes. The Revolver
matures on March 7, 2000. Borrowings under the Revolver bear interest at
variable rates based, at the Company's option, on the bank's base rate or the
eurodollar rate. There was an outstanding balance of $37.0 million under the
Revolver as of June 30, 1997.
PROFESSIONAL LIABILITY INSURANCE. The Company currently procures and
partially finances, and expects to continue to procure and partially finance,
professional liability insurance on behalf of most physicians under contract
with the Company. The current policy expires December 31, 1998.
CAPITAL EXPENDITURES. The Company's annual capital expenditures have
typically been for data processing equipment and leasehold improvements at the
Company's corporate offices. In the foreseeable future, annual capital
expenditures are not expected to exceed $2 million per year.
WORKING CAPITAL REQUIREMENTS. 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
11
<PAGE> 12
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 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 and
reimbursement rates, and the completed acquisition by Laidlaw. The foregoing
statements and other statements in this Form 10-Q 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 payment rates, the transition of the Company's billing
activities from outside vendors to RTI, and the completed acquisition by
Laidlaw.
INFLATION. The Company's business is labor-intensive with extensive
reliance on independent contractor physicians. Fees paid to such physicians
tend to increase during periods of inflation and when shortages in the labor
market occur. Restrictions exist on payments by government and private medical
insurance programs and pressure continues to contain the growth in the costs of
such programs. The Company bears the risk that the payment rates set by such
programs will not keep pace with inflation. Although the moderate inflation
rates of the past several years have not posed significant problems for the
Company, a substantial increase in the rate of inflation without a
corresponding increase in payment rates would adversely affect the Company's
business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable - Pursuant to the transition rules in General
Instruction No. 1 to Item 305 of Regulation S- K, the Company is not required
to respond to this item at this time.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has settled the claims alleged against it in the civil
lawsuit styled United States ex rel. Theresa Semtner v. Emergency Physician
Billing Services, Inc. et al. in the United States District Court for the
Western District of Oklahoma (the "DOJ Lawsuit"). Emergency Physician Billing
Services, Inc. ("EPBS") is an outside vendor that provided billing services on
a contract basis for the Company and others. The suit alleged improper coding
of charges for ED services reimbursed under the Medicare, Medicaid, CHAMPUS,
and Federal Employees Health Benefits programs.
Under the settlement, the Company has agreed to pay $7,750,000 to the
United States and the various states for settlement of the lawsuit and has paid
$5.0 million in July 1997 of that amount with the balance due on or before
January 5, 1998. The settlement provides for the DOJ Lawsuit to be dismissed
with prejudice as to the Company. An additional $250,000 in relator's
attorneys' fees and $450,000 in other expenses is also expected to be incurred.
In the settlement, the Company does not admit any of the allegations of the DOJ
Lawsuit or any related liability, and the settlement specifically provides for
the Company to participate fully in the future in Medicare, Medicaid, CHAMPUS,
and Federal Employees Health Benefits programs. The related settlement expenses
were accrued for in the 1996 financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 15, 1997,
the following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Abstaining
--------- ----------------
<S> <C> <C>
Dr. Leonard M. Riggs, Jr., M.D. 7,694,106 3,038
Richard H. Stowe 7,693,706 3,038
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
2.1 Agreement and Plan of Merger, dated as of July 29, 1997, among
the Parent, the Purchaser and the Company (incorporated by
reference to Exhibit 99.1 to the Company's Schedule 14D-9).
3.1 Charter of the Company (incorporated by reference to Exhibit
Nos. 3.2 and 3.5 to the Company's Registration Statement No.
33-81830 on Form S-1).
13
<PAGE> 14
3.2 Bylaws of the Company (incorporated by reference to Exhibit
No. 3.4 to the Company's Registration Statement No. 33-81830
on Form S-1).
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule (for SEC only)
B. Form 8-K
1. There were no reports on Form 8-K filed for the three months
ended June 30, 1997.
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, 1997
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> 15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of July 29, 1997, among the
Parent, the Purchaser and the Company (incorporated by reference to
Exhibit 99.1 to the Company's Schedule 14D-9).
3.1 Charter of the Company (incorporated by reference to Exhibit Nos.
3.2 and 3.5 to the Company's Registration Statement No. 33-81830 on
Form S-1).
3.2 Bylaws of the Company (incorporated by reference to Exhibit No. 3.4
to the Company's Registration Statement No. 33-81830 on Form S-1).
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule (for SEC only)
15
<PAGE> 1
EXHIBIT 11.1
EMCARE HOLDINGS INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
1997 1996 1997 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common shares outstanding
during the period 8,262 8,170 8,240 8,108
Weighted average shares issuable upon exercise of
outstanding stock options using the "treasury stock"
method 466 445 393 416
------- ------- ------- ---------
Weighted average common and common equivalent shares
outstanding 8,728 8,615 8,633 8,524
======= ======= ======= =========
Net income $ 3,123 $ 2,577 $ 6,137 $ 4,912
======= ======= ======= =========
Net income per share $ 0.36 $ 0.30 $ 0.71 $ 0.58
======= ======= ======= =========
Fully Diluted:
Weighted average number of common shares outstanding
during the period 8,262 8,170 8,240 8,108
Weighted average shares issuable upon exercise of
outstanding stock options using the "treasury stock"
method 628 445 480 430
------- ------- ------- ---------
Weighted average common and common equivalent shares
outstanding 8,890 8, 615 8,720 8,538
======= ======= ======= =========
Net income $ 3,123 $ 2,577 $ 6,137 $ 4,912
======= ======= ======= =========
Net income per share $ 0.35 $ 0.30 $ 0.70 $ 0.58
======= ======= ======= =========
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,474
<SECURITIES> 0
<RECEIVABLES> 143,932
<ALLOWANCES> 90,185
<INVENTORY> 0
<CURRENT-ASSETS> 69,078
<PP&E> 8,491
<DEPRECIATION> 3,802
<TOTAL-ASSETS> 159,248
<CURRENT-LIABILITIES> 40,282
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 69,356
<TOTAL-LIABILITY-AND-EQUITY> 159,248
<SALES> 121,377
<TOTAL-REVENUES> 121,377
<CGS> 97,208
<TOTAL-COSTS> 97,208
<OTHER-EXPENSES> 12,499
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,905
<INCOME-PRETAX> 9,898
<INCOME-TAX> 3,761
<INCOME-CONTINUING> 6,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,137
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
</TABLE>
