September 14, 2005
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attention: Mr. Larry Spirgel
Assistant Director
Re: Emergency Medical Services L.P.
Registration Statement on Form S-1
Filed on August 2, 2005 (File No. 333-127115)
Dear Mr. Spirgel:
Our client, Emergency Medical Services L.P. ("EMS"), has filed today with
the Commission Pre-Effective Amendment No. 1 to EMS's Registration Statement on
Form S-1.
The following responds to the Staff's comments contained in your letter
dated September 2, 2005 concerning the above-referenced document. The text of
the Staff's comments is set forth in italics below, followed by the response of
EMS. Certain responses refer to specific pages without reference to a document;
these are references to pages of the registration statement contained in
Amendment No. 1. The information in these responses was provided to us by EMS.
Enclosed with the copy of this letter being hand-delivered to Daniel F.
Zimmerman are four copies of Amendment No. 1, marked to show changes from the
Registration Statement on Form S-1 filed on August 2, 2005.
General
1. We note a number of blank spaces throughout your registration statement
for information that you are not entitled to omit under Rule 430A, such as
the anticipated price range. Please note that we may have additional
comments once you have provided this disclosure. Also, we may have further
comments after you revise to clarify the effects of your reorganization.
Therefore, please allow us sufficient time to review your complete
disclosure prior to any distribution of preliminary prospectuses.
RESPONSE:
We understand that the Staff may have additional comments when the
disclosure is revised to include information that may not be omitted under
Rule 430A, and when the document is revised to clarify the effects of the
reorganization.
September 14, 2005
Page 2
2. We encourage you to file all exhibits with your next amendment or
otherwise furnish us drafts of your legality opinion and underwriting
agreement. We must review these documents before the registration
statement is declared effective, and we may have additional comments.
RESPONSE:
Drafts of the underwriting agreement and our legality opinion are being
provided to the Staff concurrently with the filing of Amendment No. 1. We
understand that the registration statement will not be declared effective
until the Staff has completed its review of the final documents.
3. Please provide us with copies of your prospectus artwork prior to
circulating your preliminary prospectus. Since we may have comments that
could result in material revisions to your artwork, please provide us with
sufficient time to comment on your artwork prior to circulating your
preliminary prospectus. See Item VIII of the March 31, 2001 quarterly
update to the Division of Corporation Finance's Current Issues and
Rulemaking Projects outline, which is available on our website at
http://www.sec.gov/divisions/corpfin/cfcrq032001.htm.
RESPONSE:
The prospectus artwork is included in Amendment No. 1.
4. We note the growth estimate data and other figures cited throughout the
document, such as those provided by the Centers for Medicare and Medicaid
Services, the CDC and the Journal of Emergency Medical Services. Please
provide us with marked copies of any materials that support these and
other third party statements, clearly cross-referencing each statement
with the underlying factual support. In addition, please remove your
statement that you cannot guarantee the accuracy and completeness of the
information, as you are responsible for the disclosure in your
registration statement.
RESPONSE:
Concurrently with the filing of Amendment No. 1, we are providing to the
Staff the materials that support the statements regarding the growth
estimate data and other such figures cited in the prospectus. As
requested, the materials being provided to the Staff cross-reference each
relevant statement with the appropriate factual support.
We note the Staff's comment and we are removing the statement "and cannot
guarantee its accuracy and completeness" under the section captioned
"Industry and Market Data" on page i. As revised, the sentence reads in
its entirety as follows:
Although we believe these sources are reliable, we have not
independently verified the information.
Front Cover of Prospectus
5. Please confirm to us in your response letter that all of the underwriters
listed on the cover are managing underwriters. Otherwise, please delete
them. See Item 501(b)(8)
September 14, 2005
Page 3
of Regulation S-K. In addition, please remove the term "Joint Book-Running
Managers" from the front cover of the prospectus, as this information is
more appropriate for disclosure in the plan of distribution or the back
cover page.
RESPONSE:
We confirm that all of the underwriters listed on the cover page are
managing underwriters.
The term "Joint Book-Running Managers" has been removed from the front
cover and is now included on the back cover page.
About this Prospectus, page ii
6. Please revise to incorporate the disclosure on this page into the
prospectus summary or body of the prospectus, as appropriate. For example,
move the explanation about your financial information to the summary
financial data to the extent it is already not disclosed there.
RESPONSE:
The disclosure on this page has been incorporated into the Summary and the
body of the prospectus, as appropriate.
7. Glossaries are generally not appropriate in the front portion of
prospectuses and should be avoided in the body of the prospectus. Instead,
revise as appropriate so that your disclosure is clear from its context,
and use everyday language. See Rule 421(b)(3) of Regulation C.
Furthermore, since potential investors will be purchasing securities in
your company after any pre-offering reorganization, draft your disclosure
from an investor's perspective by focusing on the company as it will exist
at the time of the offering.
RESPONSE:
The disclosure in the Summary and the body of the prospectus has been
revised to include descriptions of terms in the context of that
disclosure.
The disclosure has been revised, where appropriate, to refer to the issuer
after giving effect to the reorganization, and limiting references to the
company pre-reorganization to those sections which describe the history of
the issuer.
8. Please revise throughout the registration statement to use a more
descriptive term than "the acquisition" to refer to your February 2005
acquisition by Onex Partners LP, as the use of this term assumes that
potential investors are familiar with the history of your company.
RESPONSE:
Throughout the prospectus, where appropriate we have changed references to
"the acquisition" to "our acquisition of AMR and EmCare."
September 14, 2005
Page 4
Prospectus Summary, page 1
9. As currently drafted, the summary section is too long. The summary should
provide a brief, balanced, non-repetitive discussion of the most material
aspects of you and your offering. Please reduce the amount of detail by
carefully considering and identifying those aspects of the offering that
are the most significant and determine how best to highlight those points
in clear, plain language. For example, consider significantly reducing or
deleting the subsections entitled Competitive Strengths, Business Strategy
and Our Equity Investor. This disclosure is too detailed for the summary
and is more appropriate for your Business discussion. Furthermore, the
amount of detail you provide about your equity investor, Onex Partners, is
confusing, as potential investors are investing in your company and not
Onex Partners.
RESPONSE:
The Summary has been revised to reduce the disclosure and delete
repetitive information.
The section on the equity investor has been deleted in its entirety.
10. After you reduce the summary, please revise to begin your prospectus
summary with an overview very briefly disclosing the following
information:
- in February 2005, an investor group led by Onex Partners LP and Onex
Corporation and including members of your management purchased your
operating subsidiaries, AMR and EmCare from Laidlaw International,
Inc., and Laidlaw in turn purchased the subsidiaries in 1997;
- you will continue to pay an annual management fee of $1 million to
Onex for five years;
- the purchase price for your operating subsidiaries, the amount of
the purchase price that was financed by debt and the amount and type
of that debt that you plan to repay with proceeds from this
offering;
- the percentage of the equity interest and the voting power that you
are selling in this offering; and
- following this offering, management and Onex affiliates will
continue to own ___ % of the economic equity interest and ___ % of
the voting power of the company, including ___ shares of Class B
common stock and ___"LP exchangeable units" each of which has ten
votes, as opposed to one vote per share of Class A common stock
being sold in this offering.
RESPONSE:
The section of the Summary captioned "Company History" has been revised
and expanded. Consistent with the Staff's comment that the prospectus
should focus on the company after the pre-offering reorganization, we have
not shifted this section to the forepart of the Summary. See page 4.
September 14, 2005
Page 5
11. In portions of your prospectus, your use of business jargon, industry and
defined terms makes your disclosure difficult to understand. We encourage
you to make your disclosure understandable from its context to people who
are not experts in your industry. Examples of terms and phrases that you
should replace or explain with everyday language are:
- your statements that AMR's investments allow them "to deliver a
compelling value proposition to our customers;"
- "core component of the patient care continuum;"
- "increased demand for technology-enhanced and data-driven
providers;"
- "our ability to leverage our infrastructure and technology to drive
increased productivity and efficiency;"
- "Our initial implementation of these technologies has improved our
ability to capture revenue;"
- "CAGR;" and
- "IFT."
RESPONSE:
We have revised the disclosure with the goal of omitting industry jargon
and terms that would not be understood by investors who are not familiar
with the emergency medical services industry.
12. We note your statements about your leadership position. Please briefly
state upon what measures you are basing your leadership claims where the
statements first appear. In addition, clarify who expects the growth rate
of ambulance transports to increase at a steady rate of 1% to 2% per year
and who considers EmCare's risk management initiatives one of the leading
programs of its kind in the emergency department industry.
RESPONSE:
In response to the Staff's comment, we have revised the third and fourth
sentences of the first paragraph under the sections captioned "Summary --
Company Overview" and "Business -- Company Overview" on pages 1 and 66,
respectively, to read in their entirety as follows:
AMR is the leading provider of ambulance services in the United
States, based on net revenue and number of transports. EmCare is the
leading provider of outsourced emergency department staffing and
related management services in the United States, based on number of
contracts with hospitals and affiliated physician groups.
In response to the Staff's comment with respect to the growth rate of
ambulance transports, we have revised the last sentence of the first
paragraph under the section captioned "Summary -- Emergency Medical
Services Industry -- Ambulance Services" to
September 14, 2005
Page 6
note that this is a belief of the company, based on demographic trends.
See page 2. That sentence reads in its entirety as follows:
Given demographic trends, we expect the total number of ambulance
transports to continue to grow at a steady rate of 1% to 2% per
year.
The same change has been made in the last sentence of the second paragraph
in the section captioned "Industry -- Ambulance Services." See page 65.
In response to the Staff's comment regarding EmCare's risk management
initiative, we have revised the first sentence of the paragraph in the
section captioned "Summary -- Competitive Strengths -- Focus on Risk
Management" on page 3 to read in its entirety as follows:
Considered by certain insurance industry consultants to be one of
the leading programs of its kind in the emergency department
industry, EmCare's risk management initiatives are enhanced by the
use of our professional liability claims database and comprehensive
claims management.
The same change has been made in the first sentence of the section
captioned "Business -- Competitive Strengths -- Focus on Risk Management."
See page 68.
The insurance industry consultants referred to are Aspen Reinsurance
Company and MARSH USA, Inc.
13. Please identify who is "one of the largest managed care organizations"
with which you have an exclusive contract. Confirm in your response letter
that you receive a material amount of revenues from this contract.
RESPONSE:
This reference is now omitted in the Summary. We expect to identify Kaiser
Permanente as "one of the largest care organizations" in the section
captioned "Business -- Competitive Strengths -- Significant Scale and
Geographic Presence" pending receipt of Kaiser's permission to do so.
We confirm that the company receives significant revenue from this
contract, but it represents less than 10% of the company's total net
revenue. The referenced contract covers only inter-facility transports for
Kaiser patients, and therefore does not include AMR's 911 emergency
response transports for Kaiser members.
The Offering, page 6
14. Please disclose that the number of shares being offered represents ___% of
your shares outstanding and ___% of your voting power.
RESPONSE:
We have added the following as the first sentence of the second full
paragraph on page 6:
September 14, 2005
Page 7
The number of shares of class A common stock being offered in the
offering represents ___% of our common stock outstanding and ___% of
our combined voting power.
15. Very briefly clarify here and under Use of Proceeds on page 33 that your
underwriters are affiliates of the lenders under the credit facility that
you will repay with proceeds from this offering.
RESPONSE:
We have added the following under the sections captioned "The Offering --
Use of Proceeds" and "Use of Proceeds" on pages 6 and 28:
Certain of the underwriters of this offering or their affiliates are
lenders under our senior secured credit facility and, in that
capacity, will receive a portion of the net proceeds of this
offering.
Summary of Historical Combined, Consolidated and Pro
Forma Consolidated Financial Information and Other Data, page 7
16. Please confirm that your calculation of adjusted EBITDA in this section is
identical to its calculation in your senior secured credit facility.
Second, provide the discussion suggested by "Answer 10" of our June 13,
2003 "Frequently Asked Questions Regarding the Use of Non-GAAP Financial.
Measures" for your use of adjusted EBITDA. Third, revise your
characterization of the amounts that you refer to as EBITDA since it is
not calculated as "earnings before interest, taxes, depreciation, and
amortization." Fourth, provide separate statements of purpose for each of
EBITDA and adjusted EBITDA, as required by Item 10(e)(1)(i)(C) and (D) of
Regulation S-K. And fifth, make any other revisions to your presentation
necessary to comply with Item 10(e) of Regulation S-K and other staff
guidance.
RESPONSE:
To be consistent with our senior secured credit facility, we have revised
the calculation of EBITDA, as adjusted, to exclude Onex management fees as
well as the other exclusions identified in footnote (4) to the table on
page 8. The description of EBITDA, as adjusted, has been added to the
description of financial covenant ratios in the "Debt Facilities" section
of MD&A, together with a discussion of items addressed in "Answer 10" of
your June 13, 2003 "Frequently Asked Questions Regarding the Use of
Non-GAAP Financial Measures". We have also redefined EBITDA as "income
(loss) from operations before depreciation and amortization expenses,"
thereby excluding items not typically considered in calculating EBITDA.
Footnote (4) on page 8 has also been revised to provide separate
statements of purpose for EBITDA and EBITDA, as adjusted. We believe these
revisions comply with the presentation requirements set forth in Item
10(e) of Regulation S-K.
Risk Factors, page 10
17. Revise to move the risk factors under the caption Risk Factors Related to
our Capital Structure, at pages 26 through 28, to the beginning of your
Risk Factor discussion on page 10, since those seem to be the most
relevant risks you disclose.
September 14, 2005
Page 8
RESPONSE:
The risk factors relating to the company's capital structure have been
moved to the front of the "Risk Factors" section. See page 10.
18. Many of your risk factors are too long, too vague, too generic or bundle
multiple risks under one risk factor. Meaningful risk factor disclosure
should clearly present adequate but not excessive detail about distinct
risks to your company or your offering. For example, please revise the
following risk factors:
- "We could be subject to lawsuits for which we are not fully insured
or reserved, and our insurance reserves are subject to inherent
uncertainties," page 10. This risk factor bundles together multiple
distinct risks including the risk that you may be sued, the risk
that your actuarial assumptions may be inaccurate and the risk that
your commercial insurance company providers may cease to be
creditworthy. In order to give the proper prominence to each risk
you present, please assign each risk its own descriptive subheading
and tailor the risks to your circumstances.
- "We are subject to the financial risks associated with our
fee-for-service contracts," page 11. This risk factor is too long.
Please revise to eliminate excessive and unnecessary background and
detail from these and other risk factors. It is sufficient to
identify briefly the risk at the outset and provide only enough
detail to place the risk in context. Move more extensive discussions
to the Business or other appropriate sections.
- "The high level of competition in our segments ...," page 13. This
risk factor is also too long. Please revise to disclose the risk to
investors more briefly and move the detailed discussion to the
Business section in connection with your discussion of competition.
- "Our business depends on numerous complex information systems ...,"
page 14. This risk factor is too vague in that you do not present
sufficient, but not excessive, information for investors to assess
the magnitude of the risk. Please revise accordingly. As currently
drafted, this risk factor is also generic in that it could apply to
any company. Please revise to clearly explain how each risk applies
to your industry, company, or offering. Additionally, please revise
the bodies of this and your other risk factors so that the bodies of
the risk factors explain how the risk described in the caption may
occur and avoid the generic conclusion that the risks "may
materially harm our operations" or that your operations "may be
materially and adversely affected."
In your revisions, provide quantitative details where possible to put the
risk in context. For example, we note your estimates of decreased revenues
due to regulatory changes on pages 47 and 48.
Again, these are only examples. Please revise throughout. We may comment
further once you have revised your risk factors and risk factor captions
to ensure that they clearly and concisely describe the risk, the
consequences of the risk and how the risk specifically applies to you.
September 14, 2005
Page 9
RESPONSE:
We have revised the risk factors to make them more focused, to separate
out identifiable risks and to more clearly articulate how each risk
applies to the company. We have also added quantitative details where
possible.
19. Please remove your statement that, "The risks and uncertainties
described below are not the only ones we face" and the subsequent
sentence. You are required to present all risks and uncertainties
known to you. In addition, once you describe all material risks, and
tailor each one to your specific facts and circumstances, you will
not need this generic risk disclosure.
RESPONSE:
We have deleted the following sentence from page 10:
The risks and uncertainties described below are not the only ones we
face.
Since only risks and uncertainties known to the company can be described,
we do not think it is inappropriate to advise the potential investor that
"[a]dditional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also materially and adversely
affect our business operations." Accordingly, we have not omitted that
sentence.
Risk Factors Related to Our Business, page 10
We may become involved in litigation ..., page 15
20. This risk factor appears to duplicate disclosure in your first risk factor
on page 10. Revise to replace repetitive risk disclosure with a single
risk factor. Also revise to combine repetitive risk factor disclosure on
pages 18 and 21 regarding third party reimbursements. Similarly revise
elsewhere as appropriate.
RESPONSE:
We have revised the risk factors to combine them, as suggested.
Risk Factors Related to Healthcare Regulation, page 16
We conduct business in a heavily regulated industry ..., page 16
21. This risk factor is too long. Revise to disclose the risk to investors
briefly, consider separately discussing each discrete risk, and move the
rest of this discussion to your Regulatory Matters discussion at page 92.
Similarly revise each of the risk factors from pages 16 through 26 and
move most of this detail to your Business discussion.
September 14, 2005
Page 10
RESPONSE:
The healthcare regulatory risk factors have been revised substantially,
and a significant portion of the text has been moved to the section
captioned "Business -- Regulatory Matters" beginning on page 90.
Formation of Holding Company, page 32
22. Please revise this discussion to present the information for the
perspective of investors who are not already familiar with your
restructuring plan. Emphasize the consequences of the restructuring rather
than isolated legal steps. For example, clarify what will be the
post-restructuring ownership structure of the new entity, including the
number of Class A common stock, Class B common stock; Class B special
voting stock and LP exchangeable units. The disclosure as currently
drafted is not clear regarding what numbers of these securities will be
outstanding following the restructuring.
RESPONSE:
We have revised the discussion to emphasize the consequences of the
reorganization rather than the steps to be implemented to effectuate the
resulting holding company structure. See page 27.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page 45
Key Factors and Measures We Use to Evaluate Our Business, page 46
23. You reference several measures that you use to evaluate your business. To
the extent material, revise the discussion of your operating results to
clarify your analysis of these measures.
RESPONSE:
The company has reviewed the discussion of operating results and has made
selected changes to provide additional clarity to variances and key
measures driving those variances. The company has deleted the key factor
for EmCare labeled Contract and other support costs, as costs included in
this factor are included in two separate line items -- operating expenses
and selling, general and administrative costs -- and the company has
determined that keeping the expense categories separated provides better
information for the potential investor. See page 43.
Results of Operations, page 48
24. With respect to the increase in net revenue, expand your disclosure for
all periods presented to discuss the factors behind AMR's increase in
weighted transports and EmCare's increase in patient encounters. Refer to
Item 303(a)(3)(iii) of Regulation S-K for further guidance.
September 14, 2005
Page 11
RESPONSE:
We have added additional language, as appropriate, to further clarify
increases in AMR weighted transports (throughout MD&A) and EmCare patient
visits (in particular, see page 43).
25. With respect to insurance expense, discuss the factors behind the
favorable development of claim costs and reserve estimates and whether you
believe this trend will continue.
RESPONSE:
An explanation of the factors behind the favorable development of claims
costs and reserve estimates, as well as the company's view as to whether
the trend will continue, has been added to the section under the caption
"Key Factors and Measures We Use to Evaluate Our Business" for each
business segment. We have concluded that this presentation, rather than
repeating language in each relevant period, would provide the most clear
and concise explanation to a potential investor. See pages 42 and 43.
Five months ended June 30, 2005 (Successor) compared to the five months ended
June 30, 2004 (Predecessor), page 52
26. You make several statements that "Costs incurred to date to replace the
services previously performed by Laidlaw are included in the statement of
operations." Revise the statements to disclose the amounts of those costs.
See pages 52, 53, 54 and 55 under "Laidlaw fees and compensation charges."
Similarly revise elsewhere as appropriate to quantify the comparable
effects following your purchase from Laidlaw.
RESPONSE:
We have quantified the costs incurred to replace Laidlaw services for each
period. Similar disclosure has been added to the relevant Risk Factor, to
footnote (2) on page 9 and to footnote (1) in each of the pro forma
statements of operations. See pages 9, 15, 36, 37, 49 and 51.
27. Revise to clarify why you include Onex management fees in Selling, general
and administrative expenses of EmCare on page 53 but not for AMR on page
52. Similarly clarify what are the "professional fees of $1.2 million,
primarily related to post-acquisition consulting fees" under Operating
expenses for AMR on page 52 and your similar disclosure on page 54.
RESPONSE:
Onex management fees are included in "Selling, general and administrative
expenses" for both AMR and EmCare. Because the amount of the fee was not
material for AMR, it was not highlighted as a material component of the
period change. We have revised the AMR section to include a reference to
the amount of those fees so the potential investor understands that Onex
fees apply to both operations. See page 48.
We have revised the AMR "operating expenses" section to clarify that the
post-acquisition professional fees in the amount of $1.2 million
September 14, 2005
Page 12
consisted primarily of audit fees and consulting fees for valuations. See
pages 48 and 50.
Liquidity and Capital Resources, page 62
Debt Facilities, page 63
28. Please revise to clarify why the $24.3 million in outstanding letters of
credit reduces the amount available to you under the revolving credit
facility. Also clarify how you used the proceeds from those letters of
credit. Additionally clarify how and when you repaid the $20.2 million you
initially borrowed under the revolving credit facility.
RESPONSE:
In response to the Staff's comments, we have deleted the last sentence of
the second paragraph in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Debt Facilities" and have substituted the following
(see page 59):
At June 30, 2005, we had repaid the outstanding balance of the
revolving credit facility with cash flow from operations and we had
no amounts outstanding under that facility. Under the terms of our
senior secured credit facility, our letters of credit outstanding
reduce our available borrowings under the revolving credit facility.
At June 30, 2005, our outstanding letters of credit totaled $24.3
million, including $16.0 million to support our self-insurance
program and $8.3 million to secure our performance under certain 911
emergency response contracts.
29. Please disclose clearly whether or not you will incur a prepayment penalty
or any similar charges in connection with repaying portions of the credit
facility with proceeds from this offering.
RESPONSE:
We have added a sixth paragraph in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources -- Debt Facilities" on page 60 that reads
as follows:
We will not incur a prepayment penalty or any similar charges in
connection with our repayment of amounts outstanding under our
senior secured credit facility with proceeds from this offering.
Amounts repaid under the term loan will not be available for future
borrowing.
Tabular Disclosure of Contractual Obligations and Other Commitments, page 64
30. Revise to clarify where you disclose the $1 million annual management fee
payable to Onex.
RESPONSE:
The table has been revised to include a line item titled "Other
contractual obligations" and a footnote (4) has been added on page 61
which reads as follows:
September 14, 2005
Page 13
(4) Includes Onex management fees, dispatch fees and responder
fees.
31. Also clarify that you are disclosing all contractual obligations required
by Item 303(a)(5) of Regulation S-K, not just cash obligations.
RESPONSE:
The heading on the table has been revised to delete the word "cash." All
contractual obligations are included. See page 61.
Critical Accounting Policies, page 65
32. Please discuss your policy with respect to determining when a receivable
is recorded as a bad debt and ultimately written off. In addition,
disclose the steps you take in determining the adequacy of your reserves
and disclose the make up of bad debt expense by payer class (self-pay,
commercial insurance/managed care, Medicare and Medicaid or any other
categories with material collection uncertainties) at the most recent
balance sheet date.
RESPONSE:
A new section has been added on page 62, preceding "Revenue Recognition",
to discuss the company's policy with respect to accounts receivable. It
reads in its entirety as follows:
Trade and Other Accounts Receivable
We determine our allowances based on payor reimbursement schedules,
historical write-off experience and other economic data. The
allowances for contractual discounts and uncompensated care are
reviewed monthly. Account balances are charged off against the
uncompensated care allowance when it is probable the receivable will
not be recovered. Write-offs to the contractual allowance occur when
payment is received. The allowance for uncompensated care is related
principally to receivables recorded for self-pay patients.
Industry, page 67
33. Revise to balance your statements about estimated growth in the healthcare
industry by also very briefly disclosing the increased incidence of
healthcare-related litigation and regulatory uncertainty that you discuss
in your Risk Factors.
RESPONSE:
We note the Staff's comment with respect to balancing our statements about
estimated growth in the healthcare industry. We do not think it is
necessary or appropriate to repeat, in this section, a summary of the
regulatory and other challenges facing the industry which are discussed
extensively elsewhere in this prospectus. We have added, however, a
cross-reference under the caption "Industry -- Emergency Medical Services
Industry," to the healthcare regulatory sections of the prospectus. See
page 64.
September 14, 2005
Page 14
Business, page 69
American Medical Response, page 73
Contracts, page 78
34. We note your references to contracts with Kaiser, Aetna, Healthnet, Cigna
and SummaCare in context. To clarify the materiality of these customers,
please disclose whether any of these customers represent revenues
amounting to 10% or more of your revenues. Provide similar context in your
discussion of EmCare contracts at page 88 and elsewhere as appropriate.
RESPONSE:
In response to the Staff's comment, we have added the following sentence
at the end of the fourth paragraph in the section captioned "Business --
American Medical Response -- Contracts" on page 75 and after the first
sentence of the third paragraph in the section captioned "Business --
EmCare -- Contracts" on page 86:
None of these customers represent revenue that amounts to 10% of our
fiscal 2004 total net revenue.
Legal Matters, page 82
35. You discuss several government investigations and similar matters at pages
24, 82, 91, 100, F-24 and F-41. Please revise to disclose in a single
location the factual bases alleged, the amounts in dispute and other
relief sought. See Item 103 of Regulation S-K.
RESPONSE:
The government investigations described in "Risk Factors -- Risk Factors
Related to Healthcare Regulation", beginning on page 18 and "Business --
Regulatory Matters", beginning on page 90, include descriptions of prior
period settlements. These are included in those sections to inform a
potential investor of the types of issues specific to EMS's business that
might give rise to a government investigation of EMS, and the impact of
related settlement agreements on the company's operations. The sections
captioned "Business -- AMR -- Legal Matters" beginning on page 80 and
"Business -- EmCare -- Legal Matters" beginning on page 89 include the
current disclosure required by Item 103 of Regulation S-K. The financial
statement footnotes include the disclosure required by Item 103 of
Regulation S-K for the historical periods covered by those financial
statements, as well as current disclosure.
Corporate Compliance Program and Corporate Integrity Obligations, page 99
36. Revise to clarify what you mean by "the guidance provided by the OIG" on
page 99 and provide more detail to provide context for your statement on
page 100 that "as a condition to settlement of two government
investigations, certain of our operations are subject to Corporate
Integrity Agreements, or CIAs, with the HHS."
RESPONSE:
The disclosure has been revised in response to the Staff's comment. See
page 99.
September 14, 2005
Page 15
Management, page 101
37. Revise to clarify what you mean by your statement on page 105 that "we
granted to each of Messrs. Epstein, Kelly and Smith an option to purchase
2,500 partnership units." To what partnership are you referring? Similarly
clarify your discussion under Equity Plans beginning at page 108.
RESPONSE:
The sentence on page 105 relating to the option grants to directors has
been revised to read in its entirety as follows:
When they were elected to the board, we granted to each of Messrs.
Epstein, Kelly and Smith an option to purchase ___ shares of class A
common stock at an exercise price of ______ per share, with the same
vesting schedule as is applicable to our executive officers.
The discussion under Equity Plans has been revised to clarify that the
class A common stock is the class of security subject to Equity Plans. See
pages 108 and 109.
Executive Compensation, page 105
38. We note that you have disclosed fiscal year 2005 option grants information
for options granted in connection with your acquisition of AMR and EmCare.
Please consider also providing disclosure of, or a cross-reference to, the
bonuses paid to your named executive officers in connection with the
acquisition.
RESPONSE:
We have included the following sentence in the last paragraph of the
section captioned "Executive Compensation" on page 106:
See "Certain Relationships and Related Party Transactions --
Transactions with Laidlaw -- Management Bonuses in Connection with
Our Acquisition of AMR and EmCare" for information relating to
amounts paid by Laidlaw to the named executive officers in
connection with our acquisition of AMR and EmCare.
Employment Agreements, page 107
39. Revise to clarify on page 108 how the target bonus percentages operate.
RESPONSE:
To clarify the operation of the target bonuses, we have added the
following text as the sixth sentence of the first paragraph in the section
captioned "-- Employment Agreements" on page 108:
The target bonus percentage, expressed as a percentage of annual
salary, set forth in each agreement represents the bonus amount
payable to the executive if all of the performance criteria are
achieved.
September 14, 2005
Page 16
Description of Capital Stock, page 113
40. Please revise the Overview so that the number of securities that you
disclose will be outstanding on closing this offering is consistent with
your disclosure elsewhere, including under The Offering on page 6,
Formation of Holding Company on page 32 and Capitalization on page 34. For
example, at the bottom of page 6, you suggest that all of the LP
exchangeable units will be converted into shares of Class B common stock.
Elsewhere you indicate that the LP exchangeable units will remain
outstanding and unconverted and that there will be no outstanding Class B
common stock.
RESPONSE:
We have revised the Overview to disclose the number of securities that
will be outstanding on the closing of the offering. The revised text on
page 113 reads in its entirety as follows:
On the closing of this offering, if the underwriters' over-allotment
option is not exercised, we and EMS L.P. will have outstanding the
following securities:
- ____ shares of class A common stock, held by our
management and persons who purchase shares in this
offering,
- ____ shares of class B common stock, held by certain
former holders of interests in EMS L.P.,
- one share of class B special voting stock, held by Onex
Corporation as trustee for the holders of LP
exchangeable units,
- ____ LP exchangeable units of EMS L.P., exchangeable on
a one-for-one basis for shares of class B common stock,
held by the Onex entities; and
- ____ other partnership units of EMS L.P., including the
general partner interest, held by us.
This disclosure is consistent with the outstanding securities reflected in
the table in the section captioned "Capitalization". We have revised the
disclosure elsewhere, including in the sections captioned "Summary -- The
Offering" and "Formation of Holding Company," to reflect the same
outstanding securities. See pages 6, 27 and 29. The only disclosures that
assume the exchange of the LP exchangeable units for class B common stock
are:
- The table in the section captioned "Principal and Selling
Stockholders". As described in note (1) to that table, this
assumption is consistent with the definition of "beneficial
ownership" since the units are exchangeable at any time at the
option of the holder. See page 111.
- The information in the section captioned "Dilution" and the table
under the caption "Issuance of Shares" in the section captioned
"Certain Relationships and Related Party Transactions." We believe
that it is a more meaningful disclosure to a potential investor to
give effect to the exchange for common stock when describing the
Onex
September 14, 2005
Page 17
entities' equity purchase price and the dilution to new investors.
See pages 30 and 123.
Equityholder Agreements, page 119
41. Disclose how many shares are held by the "Other Investors" and how many
shares are subject to the investor equityholders agreement.
RESPONSE:
The following text has been added between the first and second sentences
of the first paragraph in the section captioned "-- Equityholders
Agreements" on page 119:
The securities subject to the agreement include the ___ LP
exchangeable units held by the Onex entities and the _____ shares of
our class A common stock and ___ shares of class B common stock held
by the Other Investors.
Certain Relationships and Related Party Transactions, page 121
Management Bonuses in connection with the Acquisition, page 121
42. Please revise to disclose what were the conditions for receiving these
bonuses.
RESPONSE:
The first and second sentences of the section captioned "-- Management
Bonuses in Connection with Our Acquisition of AMR and EmCare" on page 121
has been revised to read in its entirety as follows:
In connection with our acquisition of AMR and EmCare, Laidlaw paid
bonuses to Mr. Sanger and Mr. Harvey of $12,691,032 and $2,270,002,
respectively, pursuant to their employment agreements. Each
agreement set forth a formula to determine the amount of bonus
payable in connection with a sale by Laidlaw of 50% or more of
EmCare, in the case of Mr. Harvey, and of 50% or more of AMR and/or
EmCare, in the case of Mr. Sanger.
Shares Eligible for Future Sale, page 129
43. Please explain your statement in the second to last paragraph on page 129
that "[t]he issuance of the shares of our class A common stock to holders
of EMS L.P. partnership units in connection with our formation as a
holding company is registered by a prospectus included with the
registration statement filed for this offering." You also make the same
assertion in the first sentence of the next paragraph. Please tell us in
your response letter whether you intend to register this transaction in
the current registration statement. If so, why you do believe that you can
register the offer by the company of class A common stock to holders of
EMS L.P. partnership units? If not, upon what exemption from registration
are relying? Please provide a thorough analysis in your response letter.
September 14, 2005
Page 18
RESPONSE:
We are including, in Amendment No. 1 to the current registration
statement, the registration of the issuance of shares of Emergency Medical
Services' class A common stock to holders of EMS L.P. partnership units in
connection with the holding company formation. Amendment No. 1 includes a
form of prospectus for that issuance. We do not believe that this issuance
has the benefit of any exemption from registration under the Securities
Act:
- The issuance is not a private placement under Section 4(2) of
the Securities Act. In addition to the EMS L.P. partnership
units held by Emergency Medical Services' executive officers
and directors, approximately 233,050 partnership units are
held by approximately 170 employees, affiliated physicians and
nurse practitioners who purchased those units in EMS L.P.'s
offerings under Rule 701 and in reliance on the exemption
provided by Rule 506.
The registration of the class A common stock does not include
a registration of the resale of those shares, and we recognize
that the resale by affiliates will remain subject to the
requirements of Rule 144. See the text of the second bullet of
the fifth paragraph of the section captioned "Shares Eligible
for Future Sale -- Sale of Restricted Shares and Lock-Up
Agreements," at page 130, which states that the shares of
class A common stock issued in the exchange to executive
officers and directors will not be eligible for sale under
Rule 144 until the first anniversary of the offering.
- The issuance is not exempt under Section 3(a)(9) of the
Securities Act because it is not an issuance of securities by
Emergency Medical Services to its existing security holders.
Rather, Emergency Medical Services is issuing its class A
common stock to holders of partnership units of a separate
entity, EMS L.P., in connection with a reorganization in which
the limited partnership will become a subsidiary of the
issuer.
- We considered the provisions of Rule 145 promulgated under the
Securities Act relating to reclassifications of securities.
The reorganization that will result in the formation of the
holding company issuer is not of the type contemplated by
section (a)(1) of the Rule as not involving a sale of
securities. As described above, the issuance of securities in
the holding company formation involves the substitution of the
securities of one issuer (the corporation) for the securities
of another (the limited partnership).
Accordingly, we have concluded that the issuance of the shares of
Emergency Medical Services' class A common stock in exchange for the EMS
L.P. partnership units constitutes an offering that is subject to the
requirements of Section 5 of the Securities Act. Because the issuance of
the class A common stock in the exchange is being effected pursuant to the
provisions of the limited partnership agreement of EMS L.P. and does not
require the vote of the holders of the class B limited partnership units
(that is, the units held by the management and employees) who will be
receiving the class A common stock in the exchange, we have also concluded
that the information contained in the prospectus for the initial public
offering of the class A common stock is sufficient for this issuance to
partnership holders. This is reflected in the form of prospectus included
in Amendment No. 1.
September 14, 2005
Page 19
44. Please clarify what you mean by "class B exchangeable units" at the top of
page 130.
RESPONSE:
The reference to "class B exchangeable units" was incorrect, and it has
been replaced with a reference to "LP exchangeable units." See page 130.
Underwriting, page 131
IPO Pricing, page 132
45. Please revise to describe in greater detail the various factors considered
in determining offering price. For example, disclose the price per share
indicated by the February 2005 purchase of the business as well as the
price per share indicated by the recent sales of unregistered securities
that you disclose on pages II-2 to II-3. See Item 505 of Regulation S-K.
RESPONSE:
We have revised and expanded the section captioned "Underwriting -- IPO
Pricing" on page 133.
Lock-up Agreements, page 133
46. Disclose how many shares are subject to the lock-up. Also disclose the
number subject to the equityholders agreements you reference on page 119.
RESPONSE:
We have added the following sentence between the first and second
sentences of the section captioned "-- Lock-up Agreements" on page 133:
Our directors and executive officers own, in the aggregate, _____
shares of our class A common stock.
Please see our response to comment 41 with respect to disclosure of the
number of shares subject to the investor equityholders agreement.
We have added the following sentence between the second and third
sentences of the second paragraph of the section captioned "--
Equityholders Agreement" on page 120:
_____ shares of our class A common stock are subject to the
equityholders agreement.
Online Offering, page 133
47. Briefly describe any electronic distribution of the filing and identify
any members of the underwriting syndicate that will engage in any
electronic offer, sale or distribution of the shares and describe their
procedures to us in your response letter. If you become aware of any
additional members of the underwriting syndicate that may engage in
electronic offers, sales or distributions after you respond to this
comment, promptly supplement your response to identify those members and
provide us with a description of their procedures.
September 14, 2005
Page 20
Also, tell us in your response letter how your procedures ensure that the
distribution complies with Section 5 of the Securities Act. In particular,
please address:
- the communications used;
- the availability of the preliminary prospectus;
- the manner of conducting the distribution and sale, such as the use
of indications of interest or conditional offers; and
- the funding of an account and payment of the purchase price.
To the extent that the SEC Division of Corporation Finance has already
reviewed these procedures, please confirm this and tell us whether the
underwriters have changed or revised the procedures subsequent to our
clearance.
Further, tell us whether you or the underwriters have any arrangements
with a third party to host or access your preliminary prospectus on the
Internet. If so, identify the party and the website, describe the material
terms of your agreement, and provide us with a copy of any written
agreement. Provide us also with copies of all information concerning your
company or prospectus that have appeared on their website. Again, if you
subsequently enter into any such arrangements, promptly supplement your
response.
Finally, tell us whether any members of the selling group have made copies
of the preliminary prospectus available over the Internet. If so, tell us
when. If not, tell us whether they intend to do so. In this regard, please
note that we would consider this posting a circulation of the preliminary
prospectus.
We may have further comment.
RESPONSE:
The information included in this response has been supplied to us by the
underwriters.
* * *
Except as set forth below, none of the underwriters intends to engage in
any electronic offer, sale or distribution of the shares in the United
States or to U.S. persons on any electronic distribution website or
platform.
Each of Banc of America Securities LLC ("BAS"), J.P. Morgan Securities
Inc. ("JPM") and Scotia Capital (USA) Inc. ("Scotia") may deliver the
preliminary prospectus and any amendments thereto to certain of its
clients by posting these documents online or transmitting an electronic
version of the prospectus by email to clients upon their individual
requests. These customers will also be sent a hard copy of the preliminary
prospectus and any amendment thereto. Electronic versions of the
preliminary prospectus and any amendments thereto will be made available
to those customers only as a convenience. None of BAS, JPM or Scotia will
rely on electronic delivery to meet its delivery obligations under the
federal securities laws. No preliminary prospectus will be delivered
electronically until a preliminary prospectus has been prepared and filed
with the Staff in conformity with the Securities Act. Each of BAS, JPM and
Scotia will only deliver hard
September 14, 2005
Page 21
copies of the final prospectus to its customers. We understand that Ms.
Katherine Wyatt of the Staff reviewed and approved BAS' electronic
offering procedures and that BAS continues to employ the same procedures
as those reviewed by Ms. Wyatt.
We have been informed by Goldman, Sachs & Co. ("GS") that they or their
affiliates may engage in the electronic offer, sale or distribution of
securities and that such activities will be conducted in accordance with
procedures previously reviewed by the Com-mission. GS has advised the
company that its electronic distribution procedures do not contain any
material changes from the electronic distribution procedures of GS last
reviewed by the Staff.
Credit Suisse First Boston ("CSFB") has informed us that it plans to post
the preliminary prospectus and the final prospectus on the "Equity New
Issues US" portion of its external website. Please note, however, that
CSFB will not rely on such availability to satisfy its prospectus delivery
requirements. The procedures employed in connection with CSFB's electronic
website posting of the prospectus were reviewed by the Staff in connection
with the Google Inc. initial public offering dated August 18, 2004, as
well as the Spirit Finance initial public offering dated December 15,
2004. Moreover, screen shots of both the posting of the Google preliminary
prospectus and the Spirit Finance preliminary prospectus on the "Equity
New Issues US" portion of CSFB's external website were cleared by the
Staff. Neither CSFB's procedures with respect to "Equity New Issues US"
nor the appearance of the screen shots have changed since they were
cleared by the Staff in the aforementioned transactions.
In addition, CSFB has informed us that, as an accommodation to its
customers, it sends PDF versions of the preliminary and final prospectuses
only to potential investors who specifically request information from CSFB
about similar offerings. Please note, however, that CSFB will not rely on
the PDF versions to satisfy its prospectus delivery requirements. The PDF
files are accompanied by an email that contains only a descriptive subject
header (issuer name and type of document, e.g., preliminary prospectus,
final prospectus) and the PDF icon, but no text message. CSFB's Equity
Sales Force is under instructions that they may forward such email (along
with the PDF) to their customers in the appropriate jurisdictions,
provided no message is added to the email being forwarded. Subject lines
and emails containing PDFs of preliminary and final prospectuses from CSFB
do not depart substantively from the this format.
If we become aware of any additional underwriters that may engage in
electronic offers, sales or distributions after the date of this letter,
we will promptly supplement this response to identify those underwriters
and either provide a description of their procedures or confirm that their
procedures have previously been reviewed by the Commission and have not
been changed or revised subsequent to such review.
The underwriters have advised us that they have no arrangement with a
third party to host or access the preliminary prospectus on the Internet.
While certain of the underwriters have contracted with Yahoo! NetRoadshow
(www.netroadshow.com) (together with its affiliates, "Yahoo") to conduct
an Internet roadshow, the purpose of this contract is not specifically to
host or access the preliminary prospectus for this offering. The primary
purpose of the Internet roadshow is to provide access to the roadshow to
institutional investors who cannot, or elect not to, attend roadshow
meetings in person. We have been further advised by the underwriters as
follows: Yahoo! has informed such underwriters that it conducts Internet
roadshows in accordance with the Net Roadshow
September 14, 2005
Page 22
Inc. no-action letter dated July 30, 1997, received from the Commission in
connection with virtual road-shows. In accordance with such no-action
letter, an electronic version of the preliminary prospectus, identical to
the copy filed with the Commission and distributed to live attendees, is
required to, and will, be made available on the website.
We have been further advised by the underwriters as follows: Under the
Yahoo! NetRoadshow master services agreements (the "Agreements"), Yahoo
has agreed to design, host and maintain an access page containing
programming including the road show and other audio and/or audiovisual
broadcasts. Yahoo has agreed to utilize its software and hardware to
transmit, distribute, perform and display the programming and to provide
the server space to archive the programming. Yahoo will host broadcasts on
the Internet according to specifications and on dates and times set forth
in the Agreements. Yahoo has also agreed to comply with specific response
letters from the Office of Chief Counsel, Division of Corporate Finance,
Securities and Exchange Commission and any ruling or release relating to
the Internet broadcast of road shows or similar presentations known to
Yahoo, as applicable and to the extent compliance is required by the
broadcaster of the road show or other programming, subject to such
compliance by the underwriters.
Pursuant to the Agreements, Yahoo is granted a worldwide exclusive and
royalty-free right and license to, among other things, transmit, display,
copy and publicly distribute the programming set forth therein. Road shows
transmitted will be a live or recorded transmission of one that was
actually presented before a live, physically present audience of eligible
persons who have had the chance to ask and get answers to questions. The
underwriters will make the preliminary prospectus available to all who are
able to view the road show.
We have been informed that the Staff has previously been provided with
copies of the Agreements.
* * *
We will promptly supplement this response with information relating to
any third party arrangements that other underwriters are putting into place as
such information becomes available to us.
Where You Can Find More Information, page 137
48. You may revise your reference to the SEC's public reference room to
include the current address of our public reference room at 100 F Street,
N.E., Washington, DC 20549.
RESPONSE:
We have revised the text to include the current address. See page 137.
Financial Statements of American Medical Response, Inc. and EmCare Holdings
Inc., page F-1
Combined Statements of Cash Flow, page F-8
September 14, 2005
Page 23
49. Please tell us why your insurance deposits increased for the five months
ended January 31, 2005 and fiscal year 2004 when you discuss in MD&A
improved claims development trends.
RESPONSE:
The Laidlaw insurance deposits disclosed on the cash flow statements for
the five months ended January 31, 2005 and fiscal year 2004 relate to the
company's AMR business segment and result from a change in the makeup and
funding of AMR's workers compensation, auto and general liability
insurance programs. For fiscal 2002 and fiscal 2003, these programs were
administered by a third-party provider. The deposits related to these
programs are included as the primary component of cash flows from other
investing activities. Beginning in fiscal 2004, the company returned to
the Laidlaw insurance program. The deposits beginning in fiscal 2004 have
been disclosed separately due to the related party nature of the Laidlaw
program administration.
Notes to the Combined Financial Statements, page F-9
Note 1: General, page F-9
Restatement, page F-9
50. Please tell us in further detail the nature of the "error in your
reserving methodology" that resulted in the restatement of your financial
statements. As part of your response, explain your previous methodology
and why you believe your revised methodology is appropriate. In addition,
tell us how you discovered the error.
RESPONSE:
Beginning in fiscal 1999 and early fiscal 2000, the company used
historical collection patterns to predict future collections on existing
accounts receivable balances and used this data to review the adequacy and
reasonableness of accounts receivable allowances. This analysis used gross
revenue by month beginning with the most recently completed period, and
included revenue months going back 36 months. Actual cash collection
patterns on these revenue months were used to project future cash
collections with which to compare the balance sheet net accounts
receivable balances. The analysis utilized did not provide for any balance
sheet liquidation analysis or balance sheet reserve estimates by payor
aging type.
EMS investigated the initial analyses used in 1999 and 2000 and discovered
that included with some of the original data was a reconciliation back to
certain general ledger and billing system information. This reconciliation
showed a material shortfall of allowances that was previously overlooked
by not properly testing reserve requirements at those balance sheet dates.
Because the prior analysis was driven principally by income statement
data, this opening balance sheet error was never subsequently identified
or corrected.
In connection with the preparation of its opening balance sheet as of
January 31, 2005, management performed various analyses relative to its
accounts receivable allowances, including a liquidation analysis and a
closed claim analysis. Management had recently developed the closed claim
analysis that tracks all activity on accounts over a specified
September 14, 2005
Page 24
period of time that have a $0 balance when the analysis is performed. EMS
uses this analysis to evaluate the effectiveness of the company's various
billing offices, and EMS determined that the analysis was appropriate as
an additional review of the reasonableness of the company's receivable
allowances. The closed claim data was applied to EMS's accounts receivable
aging by payor and indicated a shortfall in the allowances.
EMS believes that its closed claim analysis, in combination with the other
analyses regularly performed by management, including a roll-forward of
accounts receivable activity and applying closed claim write-off
percentage data to accounts receivable agings by payor, will provide the
company with an additional approach that can use recent billing data to
compare to the company's accounts receivable aging and payor mix.
Note 2: Summary of Significant Accounting Policies, page F-13
Trade and Other Accounts Receivable, net, page F-14
51. Please separately disclose accounts receivable and the related allowance
for each of your segments. Second, separately disclose under "Revenue
Recognition" the amount of contractual discounts and estimated
uncompensated care as a percentage of gross revenue for each segment.
Third, explain in MD&A the reason for the increasing provisions as a
percentage of gross revenue. And fourth, update the financial statements
of EMS with the amount of the provision for contractual discounts and
estimated uncompensated care as a percentage of gross revenue.
RESPONSE:
The disclosure by segment has been added to the section captioned "Trade
and Other Accounts Receivable, net" on page F-14.
The disclosure by segment has been added to the section captioned "Revenue
Recognition" on page F-17.
MD&A (page 41) has been revised, to add the following statement in the
section captioned "Key Factors and Measures We Use to Evaluate Our
Business":
Provisions for contractual discounts and uncompensated care have
increased historically primarily as a result of increases in gross
billing rates.
The disclosure in the financial statements has been revised. See the
section captioned "Revenue Recognition" on page F-17. Footnote 2 has been
updated to include a breakout of the provision by percentage and by
segment.
Contractual Arrangements, page F-16
52. Please provide us your analysis of the consolidation requirements outlined
in EITF 97-2 for your management contracts. Also, disclose the teams of
your arrangements that meet these requirements. For the nominee
shareholder model, see the six required characteristics outlined in
footnote 1 of EITF 97-2 and for the controlling financial interest model,
see the six requirements under Issue 1 of EITF 97-2.
September 14, 2005
Page 25
RESPONSE:
Historically, all of the entities with which EmCare had PA management
agreements were consolidated using the "nominee shareholder" model
delineated in EITF 97-2, footnote 1. Based on its analysis, the company
believes it continues to meet the requirements for consolidation under
EITF 97-2. However, upon the adoption of FIN 46(R), the company has
concluded that these entities constitute VIEs under FIN 46(R) and that
EmCare is the primary beneficiary of those VIEs. See our response below
to Comment 53. Further, EITF 97-2 indicates that if the company meets the
scope of FIN 46(R), then EITF 97-2 is no longer applicable.
53. Please explain to us how you have determined that the consensus in FIN
46(R) does not apply to your management contracts.
RESPONSE:
As noted in response to comment 52, the company has concluded that FIN
46(R) applies to the company's PA management contracts. The company has
determined that the PAs with which it has these agreements are variable
interest entities (VIEs) and that EmCare is the primary -- in fact the
sole -- beneficiary of the VIEs, thereby incurring the obligation to
absorb expected losses and having the right to receive expected returns.
Therefore, those entities the company previously consolidated pursuant to
EITF 97-2 should continue to be consolidated under FIN 46(R). We have
revised the disclosure to reflect the company's basis of consolidation.
See page F-17.
Note 6: Accrued Liabilities, page F-21
54. Please quantify the significant components of "other" accrued liabilities
for all periods presented.
September 14, 2005
Page 27
RESPONSE:
There is no item which, individually or when aggregated with related line
items, exceeds 5% of total accrued liabilities at any balance sheet date.
For example, for the period ended January 31, 2005, the significant
components are: $1.7 million of contractual payments due to various
providers, $1.2 million of deferred revenue, $1.1 million of accrued
property taxes, $1.1 million for accrued physician education credits and
$1.1 million for various estimated penalties.
Note 10: Commitments and Contingencies, page F-24
55. Under SFAS 5, you should accrue for contingencies that are probable and
reasonably estimable. If a potential loss is not reasonably estimable, but
a material loss is reasonably possible, then you should disclose the
nature of the contingency and an estimate of the possible loss or range of
loss. In our view, vague or overly broad disclosures that simply reference
general risks or litigation are not sufficient for an investor to
understand the specific types of contingencies that you are evaluating.
Accordingly, you should make every effort to provide investors with an
estimate of the possible loss or range of loss for each significant
lawsuit and investigation.
RESPONSE:
We have revised the disclosure in note 10 of the combined financial
statements and have included the amount of the alleged overpayment
identified in the draft Audit Report referred to in that note. See the
fourth full paragraph on page F-26. Note 10 also includes a description of
other legal matters known to management which do not disclose a possible
range of loss; as to these matters, management does not have sufficient
information from which to estimate a range of possible loss. As required
by SFAS 5, the company has previously disclosed the estimated loss for
contingencies, where the amount of the loss is estimable, and, where
applicable, the company has disclosed final settlement amounts.
56. Please separately disclose on the face of the statement of operations the
amount of legal reserves that you have recorded for each period.
RESPONSE:
The amount of legal reserves and settlements does not exceed $5 million
for any period presented. We do not believe that including this as a
separate line item on the income statement will provide meaningful
information to a potential investor and, if it were required to be
included as a separate line item in future periods, it might adversely
affect the company in settlement negotiations for pending claims. The
company recognizes that it may be required to disclose the amount taken as
a reserve in future periods if the amount is material. Note 10 to the
combined financial statements includes references, where applicable, to
the income statement classification of any legal settlements.
Note 15: Valuation and Qualifying Accounts, page F-32
57. Please separately disclose allowances for uncompensated care and
allowances for contractual discounts.
RESPONSE:
Note 15 has been revised to separately disclose the allowances.
Historically, the company's EmCare segment has not allocated its balance
sheet allowances or income statement provisions between uncompensated care
and contractual discounts. In order to present this information, the
company has used historical billing system write-off data to allocate the
reserves, additions and reductions shown in note 15 on page F-33.
September 14, 2005
Page 28
Financial Statements of Emergency Medical Services L.P., page F-35
Notes to the Unaudited Financial Statements, page F-39
Note 3: Equity-based Compensation, page F-40
58. Please disclose the impact to the options upon the anticipated
reorganization.
RESPONSE:
We have revised Note 9, captioned "Subsequent Event," by adding the
following as a second paragraph on page F-46:
In connection with the offering and the related reorganization, the
outstanding options described in note 3 will become options to
purchase shares of Emergency Medical Services Corporation's common
stock; the number of shares subject to each option and the exercise
price will be determined based on Emergency Medical Service
Corporation's capitalization and the offering price per share of
common stock.
59. Pleased provide us the following information for your issuances of options
to purchase partnership units:
- The date of grant issuance;
- The number of options granted or issued;
- The fair value of the underlying partnership unit; and
- The total amount of compensation deferred and expense recognized,
reconciled to your financial statement disclosures.
RESPONSE:
There were two option grant dates in the five-month period ended June 30,
2005: February 10, 2005 and May 1, 2005. On February 10, 2005, 1,580,979
options were granted and on May 1, 2005, 709,000 options were granted. All
of these grants were effective as of February 10, 2005, having been
authorized by the board of directors before the completion of the
acquisition of AMR and EmCare on February 10.
The fair value of the underlying partnership units was determined to be
$10.00 per unit. The company expensed $0.3 million for the five-month
period ended June 30, 2005.
60. Tell us how you determined fair value of the underlying partnership unit
at each grant or issue date. Where you have used valuation methods to
determine fair value, tell us whether you used a third-party valuation
specialist and when the valuation was performed. Describe the material
assumptions used in your valuations. Highlight any transactions with
unrelated party parties believed by management to be particularly strong
evidence of an objective fair value per share determination. Discuss and
quantify the impact on your fair value of any events which occurred
between the date the equity-related issues were granted and the date the
registration statement was filed. Your
September 14, 2005
Page 29
response should clarify the reasons for any difference between the fair
value at the transaction date and the estimated IPO price range. Describe
significant intervening events within the company and the broader market
that explain the significant changes in fair value of your common stock.
In addition, tell us your proposed IPO price, when you first initiated
discussions with underwriters, and when the underwriters first
communicated their estimated price range for your stock.
RESPONSE:
The Onex entities purchased partnership units at a price of $10.00 per
unit on February 10, 2005 in connection with the formation of EMS L.P.,
and this equity comprised a portion of the purchase price for AMR and
EmCare. This was the fair value EMS ascribed to the options granted on
February 10, 2005 and May 1, 2005. In order to evaluate any change in the
fair value of the equity, EMS calculated the implied multiple of trailing
EBITDA using the arms-length purchase price paid for AMR and EmCare on
February 10, 2005 and the trailing 12-month adjusted EBITDA. EMS
calculated the enterprise value at March 31, 2005 and June 30, 2005 using
the implied transaction multiple times the trailing 12-month adjusted
EBITDA as of that date. Applying this valuation methodology, as well as a
subsequent sensitivity analysis using possible IPO valuations, there was
no material difference in the compensation expense recorded for the period
ended June 30, 2005.
The company's first meeting with the proposed underwriters to consider an
initial public offering was on February 23, 2005. The proposed
underwriters have not yet communicated to the company an estimated price
range for the initial public offering. Various ranges of valuations and,
therefore, offering prices were mentioned from time to time during the
course of this IPO process. The company has taken these into account in
considering the effect of stock issuances in the third quarter and the
likely compensation expense the company will be required to record in that
quarter. The company has concluded that the compensation expense it
currently estimates it will record in the third quarter will not be
material.
Note 6: Insurance, page F-42
61. Please disclose your accounting policy for the captive insurance company
and tell us the basis for your policy.
RESPONSE:
EMCA, the company's captive insurance company, is a wholly-owned
subsidiary of EmCare and follows EmCare accounting policies. This
disclosure has been added to the insurance note 12 of the combined
financial statements and note 6 for the unaudited consolidated financial
statements. See pages F-29 and F-43.
Segment information, page F-43
62. We note on page 47 that approximately 75% of EmCare's net revenues are
generated from emergency department staffing services and approximately
25% from management services to independent physician groups and
hospitals. Please tell us why the different services EmCare provides would
not constitute separate reportable segments under SFAS 131.
RESPONSE:
The breakout of revenue between third party payors and management services
to affiliated physician groups and hospitals does not reflect two separate
segments of business for EmCare. Substantially all of EmCare's revenue is
generated from billings under its emergency department and hospitalist
contracts. Under many contracts,
September 14, 2005
Page 30
EmCare bills both third party payors and hospitals to provide the total
funding necessary to meet the hospitals' service requirements. We
recognize that the language previously appearing on page 47 was confusing,
and improperly suggested that 25% of EmCare's net revenue is generated by
independent management service contracts. That is not correct, and the
language (on page 42) is revised to clarify the revenue components.
Other
63. The independent public accountants in each amendment should furnish
manually signed and currently dated consents to the Form S-1.
RESPONSE:
In each amendment the independent public accountants will furnish manually
signed and currently dated consents to the Form S-1.
Part II - Information not Required in the Prospectus, page II-1
Item 15. Recent Sales of Unregistered Securities, page II-2
64. Please revise to provide disclosure for the sales of your 10% senior
subordinated notes. See Item 701 of Regulation S-K.
RESPONSE:
We have added the following text as the first paragraph under Item 15 on
page II-3:
On February 10, 2005, our subsidiaries, AMR Holdco, Inc. and EmCare
Holdco, Inc., sold $250,000,000 principal amount of 10% senior
subordinated notes due 2005 to Banc of America Securities LLC and JP
Morgan Securities Inc., as the initial purchasers, at a purchase
price of $975.00 per $1,000 principal amount, in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule
144A promulgated under the Securities Act.
65. Please revise to disclose the consideration in each of these sales and
name the directors and members of senior management to whom you sold
securities. See Item 701(b) and (c) of Regulation S-K.
RESPONSE:
We have revised the text to include the consideration paid in each of
these sales and to identify the directors and members of senior management
to whom we sold the securities. See pages II-2 and II-3.
* * *
As described on page 27 of Amendment No. 1, the company intends to
effect a reorganization prior to the completion of this offering. As a result of
the reorganization, Emergency Medical Services L.P. ("EMS LP") will become a
subsidiary of Emergency Medical Services Corporation ("EMSC"), the successor
registrant. Furthermore, as part of the reorganization, certain existing limited
partnership units of EMS LP will become exchangeable
September 14, 2005
Page 31
into shares of class B common stock of EMSC at the option of the holder at any
time. The company intends to reflect such exchangeable partnership units of EMS
LP as permanent equity of EMSC in its consolidated post-IPO financial
statements. The company and its independent registered public accounting firm
believe the proposed accounting is in accordance with generally accepted
accounting principles, as discussed in Exhibit A to this response. In
contemplation of this letter, Mr. Doug Tanner of PricewaterhouseCoopers LLP has
had preliminary discussions on this issue with Mr. Tony Lopez of the Office of
the Chief Accountant.
* * *
Thank you for your continuing assistance regarding these filings.
Please contact the undersigned at (212) 836-8685 or Marybeth O'Keefe at (212)
836-8456 with any further comments or questions you may have.
Sincerely,
/s/ Lynn Toby Fisher
Lynn Toby Fisher
cc: Daniel F. Zimmerman
Patrick Kuhn
Todd G. Zimmerman
Joel I. Greenberg
James J. Clark
Noah B. Newitz
Exhibit A
As disclosed on page 27 of Amendment No.1 to the Registration Statement on
Form S-1 of Emergency Medical Services L.P., a reorganization of the registrant
will be effected immediately prior to the initial public offering. EMS LP will
become a subsidiary of a newly-formed holding company to be named Emergency
Medical Services Corporation ("EMSC"), which will become the successor
registrant.
In connection with the reorganization of EMS LP and the designation of
certain existing limited partnership units of EMS LP as "LP exchangeable units,"
EMS LP will have outstanding exchangeable units (the "LP exchangeable units")
that will be held by certain of the pre-reorganization limited partners of EMS
LP. Each LP exchangeable unit is exchangeable at any time, at the option of the
holder, into one share of EMSC class B common stock and, prior to the exchange,
has rights that mirror (and are limited to) the rights of EMSC class B common
stock. Based upon the company's current assumptions about the size of the
offering, it expects that the LP exchangeable units will represent approximately
80-85% of the economic interests in EMSC and approximately 80-85% of the stated
interests in EMS LP. EMSC has concluded that the LP exchangeable unit is the
economic equivalent of a share of class B common stock. Accordingly, EMSC
believes the interests of the LP exchangeable unitholders should be reflected as
permanent equity of EMSC in its consolidated post-IPO financial statements. This
presentation is consistent with that of many U.S. registrants that have acquired
Canadian companies and used Canadian subsidiaries to issue exchangeable shares
in order to defer certain Canadian tax consequences associated with the
acquisition. The company has concluded that the LP exchangeable unit structure
proposed by it is comparable to Canadian exchangeable share structures used by
many U.S. companies that acquire Canadian businesses, and therefore similar
accounting would be appropriate.
Background
EMS LP, a Delaware limited partnership, was formed to acquire the
outstanding common stock of American Medical Response, Inc. and EmCare Holding
Inc. from Laidlaw International Inc. The purchase was completed effective
January 31, 2005, at a purchase price of approximately $818 million (subject to
adjustment). Approximately 98% of the equity in EMS LP is held by Onex Partners
LP and other affiliates of Onex Corporation (referred to together as the "Onex
entities"). The balance of the EMS LP equity is held principally by management
and employees of EMS LP.
The underwriters have advised the company that the offering will not be
feasible if the issuer is a limited partnership, and therefore a corporate
structure should be used. Rather than merely effecting a conversion of EMS LP
into a Delaware corporation, EMSC has structured the proposed transaction so
that Canadian interest holders in EMS LP will enjoy the same tax treatment as a
result of the initial public offering as U.S. interest holders. That is, no
stakeholder will be treated as having made a taxable disposition of its interest
in EMS LP merely because the consolidated entity is completing a public offering
of its equity as a corporation.
As part of the holding company formation transaction, holders of
approximately 2% of the EMS LP interests (interest holders other than the Onex
entities) will exchange their interests in EMS LP for EMSC class A common stock,
and the holders of the general partner interest in EMS LP will exchange its
controlling general partnership interest in EMS LP for EMSC class B common
stock. (As a result, EMS LP will become a consolidated subsidiary of EMSC.)
These contributions to EMSC will not be a U.S. taxable event to the holders,
under Section 351 of the Internal Revenue Code.
Exhibit A
Page 2
However, such an exchange or contribution would be problematic for the
Onex entities. Although the Onex entities are U.S. entities, they are
pass-through entities for U.S. and Canadian tax purposes, and a portion of their
interests are held by Canadian residents. The formation transaction -- in which
the EMS LP interests are exchanged for EMSC common stock -- would be treated as
a taxable disposition by such Canadian interest holders and the interests of the
Canadian residents cannot be separated out without adverse tax consequences to
them. In other words, a contribution of the U.S. entities' interests in EMS LP
to EMSC would be treated as a taxable disposition by the Canadian holders.
Accordingly, EMSC has structured the formation transactions to avoid a taxable
disposition by any of its holders, while retaining the economic equivalency of
all of its outstanding securities.
Canadian Exchangeable Share Structure/ LP Exchangeable Units
In formulating a structure, EMSC needed to ensure that all of its holders
held securities having equivalent economic and corporate governance
characteristics, even though, for Canadian tax reasons, its majority
stakeholders could not be required to "exchange" their existing securities (EMS
LP partnership units) for EMSC common stock. EMSC and its advisors looked to the
"exchangeable share" structure commonly used in U.S./Canadian cross-border
transactions as a way to meet these requirements.
We understand that the exchangeable share practice developed in the
context of share for share acquisitions of Canadian companies by U.S. companies,
where the receipt of common stock of a U.S. company in exchange for Canadian
common stock would be taxable to the Canadian security holder. In order to
accommodate the tax needs of Canadian holders and the requirements of U.S.
pooling-of-interests accounting -- which generally required the use of acquiror
common stock -- the practice developed of issuing shares of a Canadian
subsidiary of the U.S. acquiror that were designed to mirror, and be
exchangeable into, acquiror common stock. In this situation designed to avoid a
taxable event, the SEC staff did not object to the use of pooling-of-interest
accounting where the combination was being consummated by the U.S. issuer
exchanging a security of a Canadian subsidiary for the common stock of the
Canadian combining company.
We understand that when the SEC evaluated these structures, they
considered whether or not the security issued by the Canadian subsidiary was
virtually identical to the U.S. issuer's common stock, including such matters as
voting, dividend and liquidation rights. The proposed documentation for the LP
exchangeable units has been modeled after the Canadian exchangeable share
documentation and we have concluded, as described below, that the rights
attributable to the LP exchangeable units are virtually identical to those of
the EMSC class B common stock.
We recognize that, generally, what is in legal form the equity of a
subsidiary cannot be shown as the equity of the parent. EITF 94-2 (Treatment of
Minority Interests in Certain Real Estate Investment) confirmed that view and,
other than the Canadian exchangeable share structures and EITF 94-2, we could
find no other relevant literature. We concluded, however, that the Canadian
exchangeable share structure was the appropriate accounting in recognition that
the SEC has not objected to that accounting in business combinations involving
Canadian companies. We believe this treatment is acceptable despite the absence
of pooling-of-interest accounting or a purchase business combination. We would
be happy to present the staff examples where Canadian exchangeable shares have
recently been used in purchase business combinations. In addition to the fact
that our transaction is not a business combination, we do recognize that there
are two other differences in our structure from those normally seen in many
Exhibit A
Page 3
Canadian exchangeable share structures. First, the interest holders of EMS LP
are not obtaining shares in a new entity (usually a shell Canadian company with
no assets or operations); they are retaining an equity interest in their
existing entity (although in the form of exchangeable units), which now becomes
a subsidiary of the registrant. Second, EMS LP (the entity in which they have an
interest) is an entity holding 100% of the ultimate equity interests in
substantive operating companies. We do not believe that these differences
warrant minority interest accounting for the EMS LP interests.
Rights of LP Exchangeable Units
The terms of the LP exchangeable units have been carefully delineated so
that the rights of the holder are identical in all respects to those of a holder
of EMSC class B common stock. Each of the LP exchangeable units will be a
security of EMS L.P. that, taking into account the ancillary rights described
below, are equivalent -- both economically and in respect of corporate
governance and legal rights as a stakeholder in EMSC -- to a share of class B
common stock. The holders of LP exchangeable units have the following rights:
- the right to exchange those units, at any time, at the holders'
option, for shares of class B common stock on a one-for-one basis,
- the right to receive distributions, on a per unit basis, in amounts
(or property in the case of non-cash dividends), which are the same
as, or economically equivalent to, and which are payable at the same
time as, dividends declared on the class B common stock (or
dividends that would be required to be declared if class B common
stock were outstanding), and the right to receive no other
distributions,
- the right to vote, on an "as exchanged" basis, through the trustee
holder of the class B special voting stock, at all stockholder
meetings at which holders of the class B common stock or class B
special voting stock are entitled to vote, and
- the right to participate on a pro rata basis with the class B common
stock in the distribution of assets of Emergency Medical Services,
upon specified events relating to the voluntary or involuntary
liquidation, dissolution, winding up or other distribution of the
assets through the mandatory exchange of LP exchangeable units for
shares of class B common stock, and the right to receive no other
distributions.
By the same token, the LP exchangeable unit represents no economic or
general voting rights at the level of EMS LP; all such rights are held by EMSC.
Analysis of EITF 00-19
Lastly, we considered EITF 00-19 (Accounting for Derivative Financial
Instruments Indexed to, and potentially Settled in, a Company's Own Stock). EITF
00-19 relates to stand-alone derivative instruments and, therefore, the EMS LP
interests are outside the scope of this EITF. However, we nevertheless evaluated
the LP exchangeable interests to determine whether, if they were deemed to be
derivative securities, they would be classified as permanent equity of EMSC.
Although the exchangeable share feature is not a free-standing derivative
instrument pursuant to paragraph 6 of FASB Statement 133, the accounting and
financial statement classification framework of EITF 00-19 provides guidance
regarding conditions that
Exhibit A
Page 4
must be met in order for an instrument to qualify as permanent equity. Using the
EITF 00-19 framework, the company believes that an instrument with terms such as
those in the LP exchangeable unit instrument would be classified as permanent
equity by EMSC because its terms conform to the applicable permanent equity
classification criteria set forth in EITF 00-19.
Conclusion
Although the LP exchangeable units represent equity interests issued by
EMS LP, the subsidiary company, the holders have no economic or corporate
governance rights at the EMS LP level. Rather, all such rights are held solely
at the EMSC (parent) level. Accordingly, the company has concluded that
following the established practice used in many business combinations that use
the Canadian exchangeable share structure is appropriate, and that such equity
interests are most appropriately reflected as equity of the parent company in
the consolidated post-offering financial statements of EMSC.