DEFA14A 1 e-9016.txt ADDITIONAL SOLICITING MATERIALS SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14 (A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ____) Filed by the Registrant [X] Filed by a party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [X] Soliciting Material Under Rule 14a-12 [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) RURAL/METRO CORPORATION (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NOT APPLICABLE. (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. 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(1) Amount previously paid: (2) Form, Schedule or Registration Statement Number: (3) Filing party: (4) Date filed: CONTACT: Liz Merritt, Rural/Metro Corporation (480) 606-3337 FD Morgen-Walke Jim Byers (Investor Relations) (415) 439-4504 Christopher Katis (Media) (415) 439-4518 For immediate release RURAL/METRO REACHES FINAL AGREEMENT WITH BANKS Amended Credit Facility Brings Company Into Full Compliance SCOTTSDALE, ARIZ. (Sept. 30, 2002) - Rural/Metro Corporation (Nasdaq: RURLC), a leading national provider of ambulance and fire protection services, announced today that it has reached an agreement in principle with its banks to amend and extend its credit facility. Jack Brucker, President and Chief Executive Officer, said, "We are pleased to present a solution that allows us to further strengthen the business, while at the same time preserve significant value for our existing stockholders. This is an important step toward ensuring the long-term success of the company by helping to maintain financial flexibility while positioning us for future growth opportunities." The proposed agreement includes the following key points: maturity date extended to December 31, 2004; no required principal amortization until maturity; adjustable LIBOR-based rate, initially anticipated to be 8.8 percent; full covenant compliance; and, lenders receive 10-percent equity stake in the company through a grant of preferred shares automatically convertible, with stockholder approval, to common shares. The company has been engaged in discussions with its banks since February 2000, when it entered into non-compliance with three, ratio-driven covenants of its revolving credit agreement. During that time, the company focused on strengthening cash flow, restructuring its base of domestic ambulance operations, enhancing billing and collections systems to expedite payment for services, and creating same-service-area growth. Brucker continued, "We have achieved measurable progress in the last two years and believe opportunities exist for continued success. The amended facility contains several new provisions that we believe make it the best choice for the company and its stakeholders at this time." THE NEW INTEREST RATE WILL BE AN ADJUSTABLE RATE, BASED ON A 30-DAY LIBOR RATE PLUS 7 PERCENT, FOR AN INITIAL RATE OF APPROXIMATELY 8.8 PERCENT. THE COMPANY CURRENTLY PAYS A COMBINED RATE OF APPROXIMATELY 7.0 PERCENT. UNDER THE NEW AGREEMENT, DEFERRED INTEREST OF APPROXIMATELY $7.0 MILLION ACCRUED SINCE MARCH 31, 2000 AND CERTAIN OTHER AMOUNTS WILL BE ADDED TO THE PRINCIPAL BALANCE OF THE LOAN. TOTAL BALANCE OF THE FACILITY WILL BE APPROXIMATELY $152 MILLION, WITH A NEW MATURITY DATE OF DECEMBER 31, 2004. Brucker continued, "We believe the rate under the amended agreement is reasonable, especially when we consider today's lending environment. That the facility will remain unsecured and requires no mandated principal payments are added points in the company's favor." The agreement also provides for the company's banks to be given an equity stake in the enterprise through a grant of preferred stock. The preferred shares will be convertible into 10 percent of the post-conversion common stock on a diluted basis (as defined), subject to stockholder approval. If the company fails to convert lenders' preferred shares into common shares by the time the facility matures, lenders will be paid at least $15 million in recognition of the potential appreciation of the company's common stock during that time period. Similarly, absent conversion to common, the preferred stockholders will be eligible to receive a preference over common stockholders ranging from $10 million to $15 million in the event of certain other corporate transactions. Rural/Metro's preferred shares cannot be traded on the open market, although lenders will have registration rights. Brucker continued, "We are hopeful that stockholders will recognize the benefits provided under this agreement. As equity holders in Rural/Metro, we believe the banks take on a greater interest in the Company's success and long-term equity value because they, too, will benefit from future achievements." Stockholder approval to convert the lenders' preferred shares to fully diluted common stock will be sought at the company's next annual meeting. "We are confident our stockholders will recognize the long-term benefits of this agreement and the financial flexibility it provides to the company," Brucker explained. Brucker continued, "The Company will be in full covenant compliance under its amended credit facility, and can continue to build the financial strength necessary to refinance or renegotiate the line at its new maturity date. All in all, we believe the potential upsides to be significant." 2 Rural/Metro Corporation provides mobile health services, including emergency and non-emergency ambulance transportation, fire protection and other safety-related services to municipal, residential, commercial and industrial customers in approximately 400 communities in the United States. EXCEPT FOR HISTORICAL INFORMATION HEREIN, THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THESE RISKS AND UNCERTAINTIES INCLUDE THE COMPANY'S ABILITY TO CONCLUDE A DEFINITIVE AGREEMENT WITH ITS BANK GROUP; MAINTAIN COMPLIANCE WITH COVENANT AND OTHER REQUIREMENTS OF THE AMENDED AGREEMENT; EFFECTIVELY MANAGE COLLATERAL REQUIREMENTS AND COSTS RELATED TO THE COMPANY'S INSURANCE COVERAGE; RETAIN EXISTING CONTRACTS; SECURE NEW CONTRACTS; EFFECTIVELY CONTROL LABOR AND OTHER COSTS; INCREASE THE EFFICIENCY OF THE COLLECTIONS PROCESS; AND IMPROVE OPERATING MARGINS. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ITS FORWARD-LOOKING STATEMENTS. ### Additional Information and Where to Find It The Company intends to file a preliminary proxy statement regarding the conversion proposal with the Securities and Exchange Commission, and it intends to mail a definitive proxy statement to its stockholders regarding the proposal. Investors and stockholders of the Company are urged to read the definitive proxy statement when it becomes available because it will contain important information about the Company and the conversion proposal. Investors and stockholders may obtain a free copy of the definitive proxy statement (when it is available) and all of the Company's annual, quarterly and special reports at the SEC's web site at www.sec.gov. The Company and its executive officers and directors may be deemed to be participants in the solicitation of proxies from the Company's stockholders in favor of the conversion proposal. Information regarding the security ownership and other interests of the Company's executive officers and directors will be included in the definitive proxy statement. 3 CONTACT: Liz Merritt, Rural/Metro Corporation, (480) 606-3337 FD Morgen-Walke, Investor Relations Jim Byers (investors), (415) 439-4504 Christopher Katis (media), (415) 439-4515 FOR IMMEDIATE RELEASE RURAL/METRO ANNOUNCES FOURTH-QUARTER AND FISCAL 2002 RESULTS, AMENDED CREDIT FACILITY AND DIVESTITURE OF LATIN AMERICAN OPERATIONS * 7.0% same-service-area revenue growth for fiscal 2002 * 7.9% increase in domestic EMS cash collections over prior year * DSO holds steady at 74 days SCOTTSDALE, ARIZ. (Sept. 30, 2002) - Rural/Metro Corporation (Nasdaq: RURLC), a leading national provider of ambulance and fire protection services, announced today unaudited results for the fourth quarter ended June 30, 2002 and fiscal year 2002. Results for the fiscal year ended June 30, 2002 reflect revenue of $497.0 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of $43.0 million. Net income for fiscal 2002 was $3.9 million, or $0.25 cents per fully diluted share, before the effect of a cumulative change in accounting principle. The company recorded a non-cash charge to earnings of $49.5 million ($3.14 per share) related to the adoption of Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangibles." This amount was recorded as a cumulative effect of a change in accounting principle as of July 1, 2001. The company also recorded a charge of $2.0 million during the quarter to increase its reserve for workers' compensation claims. In total, the company reported a fiscal 2002 net loss of $45.6 million, or $2.89 per fully diluted share, including the effect of a cumulative change in accounting principle. This compares to a net loss of $226.7 million, or $15.38 per share, for fiscal 2001. The company reported fourth-quarter revenue of $123.0 million, a net loss of $454,000, and EBITDA of $9.0 million, excluding the charge for workers' compensation expenses. Including the charge, the company reported a fourth-quarter net loss of $2.5 million, or $0.16 per fully diluted share, compared to a net loss of $177.4 million, or $11.91 per share for the same period of the prior year. 4 Jack Brucker, President and Chief Executive Officer, said, "The company maintained positive operating trends throughout fiscal 2002, demonstrated by consistent improvements in billing and collections, cash flow, and same-service-area growth. Our objective is to sustain these achievements while continuing to provide the finest care and protection to our patients and customers." Same-service-area medical transportation and related revenue increased 7.0 percent overall for the year, compared to the prior year. Brucker continued, "We also entered into more than a dozen new and renewal agreements during the fiscal year to provide emergency and non-emergency ambulance and fire protection services, representing more than $46 million in revenue annually. In the first few weeks of fiscal 2003, we have been awarded significant renewal contracts totaling approximately $52 million in annual revenue." Billing and collections initiatives continued to result in historically low average days' sales outstanding (DSO). Average DSO was 74 days for the fourth quarter and fiscal year ended June 30, 2002, compared to 89 days for the same period of fiscal 2001. Brucker added, "We are very pleased that the system enhancements we have introduced are continuing to expedite and maximize reimbursement for ambulance services." Effective billing and collections efforts also contributed to improved cash-flow performance. Cash collected in excess of domestic EMS revenue for fiscal 2002 was $5.8 million. Cash collections from ongoing operations improved 7.9 percent during the fourth quarter, compared to the same quarter of the prior year. "Looking ahead to fiscal 2003, we are off to a solid start," Brucker said. "New initiatives are under way to further enhance and refine our billing and collections systems, to target additional market share in order to sustain profitable growth, and to create greater operational efficiencies. We are excited about the possibilities and look forward to achieving our objectives in the coming year." The company is releasing unaudited fiscal year 2002 results at this time pending the finalization of an amended credit facility with its lenders. The company released a separate announcement today that outlines the terms of the proposed agreement. The company will file its annual Form 10-K and audited financial statements on or before October 14, 2002, with results expected to remain consistent with today's announcement. Brucker continued, "We are very pleased to bring our bank discussions to a close and announce the proposed terms of our amended credit facility. We have worked diligently to create a solution that we believe will support the company's long-term operational and financial objectives." The agreement provides for the company's banks to receive an equity stake in the company through a grant of preferred stock. Rural/Metro stockholders will be asked at the company's next annual meeting to approve additional common shares in connection with the agreement. "From a practical standpoint, as equity holders, our lenders will share a greater interest in the company's long-term success. From a financial standpoint, the agreement allows for increased flexibility and future growth," 5 he said. "We believe this is the best solution for the company at this time and ask that stockholders give the proposal to authorize additional shares their full consideration." The company also announced today that it has divested its Latin American operations in Argentina and Bolivia to management of those operations for consideration of assumed liabilities. The transaction includes the company's ambulance and urgent home medical care business in Argentina, known as Emergencias Cardio Coronarias (ECCO), and its aircraft rescue and fire fighting operations in Bolivia. The company will record the effect of the transaction in the first quarter of fiscal 2003. Brucker continued, "The economic decline in Latin America, coupled with our strategic objective to focus on domestic growth, were primary factors in our decision to divest the operations at this time. We believe the interests of all stakeholders are best served through this transaction." Rural/Metro Corporation provides emergency and non-emergency ambulance transportation, fire protection, and other safety services to municipal, residential, commercial and industrial customers in approximately 400 communities throughout the United States. Q4 Q1 Q2 Q3 Q4 (6/30/01) (9/30/01) (12/31/01) (3/31/02) (6/30/02) --------- --------- ---------- --------- --------- REVENUE $124.2 $125.7 $123.8 $124.7 $123.0 million million million million million AVERAGE EMS PATIENT CHARGE (NET/NET) $252 $267 $271 $281 $284 DOMESTIC EMS TRANSPORTS 266,730 265,076 256,292 265,207 259,090 AVERAGE DSO (YTD) 89 76 75 74 74 EXCEPT FOR HISTORICAL INFORMATION HEREIN, THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, THE SUFFICIENCY OF THE COMPANY'S CASH RESOURCES; THE ABILITY TO SUSTAIN OPERATING CASH FLOW; SECURE NEW CONTRACTS; RETAIN EXISTING CONTRACTS; IMPROVE EARNINGS AND OPERATING MARGINS; FURTHER ENHANCE THE EFFICIENCY OF THE COLLECTION PROCESS; THE COMPANY'S ABILITY TO CONCLUDE A DEFINITIVE AGREEMENT 6 WITH ITS BANK GROUP; MAINTAIN COMPLIANCE WITH COVENANT AND OTHER REQUIREMENTS OF ITS CREDIT FACILITY; AND EFFECTIVELY MANAGE COLLATERAL REQUIREMENTS AND COSTS RELATED TO ITS INSURANCE COVERAGE. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ITS FORWARD-LOOKING STATEMENTS. ADDITIONAL INFORMATION AND WHERE TO FIND IT The Company intends to file a preliminary proxy statement regarding the conversion proposal with the Securities and Exchange Commission, and it intends to mail a definitive proxy statement to its stockholders regarding the proposal. Investors and stockholders of the Company are urged to read the definitive proxy statement when it becomes available because it will contain important information about the Company and the conversion proposal. Investors and stockholders may obtain a free copy of the definitive proxy statement (when it is available) and all of the Company's annual, quarterly and special reports at the SEC's web site at www.sec.gov. The Company and its executive officers and directors may be deemed to be participants in the solicitation of proxies from the Company's stockholders in favor of the conversion proposal. Information regarding the security ownership and other interests of the Company's executive officers and directors will be included in the definitive proxy statement. (Tables to Follow) ### 7 RURAL/METRO CORPORATION CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 AND JUNE 30, 2001 (IN THOUSANDS) JUNE 30, JUNE 30, 2002 2001 --------- --------- (UNAUDITED) ASSETS CURRENT ASSETS CASH $ 9,828 $ 8,699 ACCOUNTS RECEIVABLE, NET 99,115 103,260 INVENTORIES 12,220 13,173 PREPAID EXPENSES AND OTHER 9,597 6,753 --------- --------- TOTAL CURRENT ASSETS 130,760 131,885 --------- --------- PROPERTY AND EQUIPMENT, NET 48,532 57,999 GOODWILL 41,244 90,757 OTHER ASSETS 16,902 17,893 --------- --------- TOTAL ASSETS $ 237,438 $ 298,534 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES ACCOUNTS PAYABLE $ 11,961 $ 12,915 ACCRUED LIABILITIES 73,719 96,340 NON-REFUNDABLE SUBSCRIPTION FEE INCOME 15,409 14,707 CURRENT PORTION OF LONG-TERM DEBT 1,633 294,439 --------- --------- TOTAL CURRENT LIABILITIES 102,722 418,401 --------- --------- LONG-TERM DEBT, NET OF CURRENT PORTION 298,529 1,286 OTHER LIABILTIES 477 994 DEFERRED INCOME TAXES 650 -- --------- --------- TOTAL LIABILITIES 402,378 420,681 --------- --------- MINORITY INTEREST 379 8,379 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) COMMON STOCK 159 152 ADDITIONAL PAID-IN CAPITAL 138,470 137,948 ACCUMULATED DEFICIT (313,025) (267,401) ACCUMULATED OTHER COMPREHENSIVE INCOME 10,316 14 TREASURY STOCK (1,239) (1,239) --------- --------- TOTAL STOCKHOLDERS' DEFICIT (165,319) (130,526) --------- --------- $ 237,438 $ 298,534 ========= ========= 8 RURAL/METRO CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND YEAR ENDED JUNE 30, 2002 AND 2001 (In thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30, YEAR ENDED JUNE 30, --------------------------- ---------------------- 2002 2001 2002 2001 --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) (UNAUDITED) NET REVENUE $ 122,951 $ 124,147 $ 497,038 $ 504,316 OPERATING EXPENSES Payroll and employee benefits 71,234 80,999 287,307 301,055 Provision for doubtful accounts 18,238 34,944 69,900 102,470 Depreciation 2,974 5,346 15,155 21,809 Amortization of intangibles 986 1,799 1,055 7,352 Other operating expenses 27,066 50,037 97,639 142,009 Asset impairment charges -- 94,353 -- 94,353 Loss on disposition of clinic operations -- 9,374 -- 9,374 Contract termination costs and related asset impairment (107) 4,066 (107) 9,256 Restructuring charge and other (493) 9,091 (718) 9,091 --------- --------- --------- --------- Total expenses 119,898 290,009 470,231 696,769 --------- --------- --------- --------- OPERATING INCOME (LOSS) 3,053 (165,862) 26,807 (192,453) Interest expense, net (6,157) (6,706) (24,976) (30,001) Other income (expense), net -- (3,699) 9 (2,402) --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (3,104) (176,267) 1,840 (224,856) Income tax (provision) benefit 650 (1,159) 2,050 (1,875) --------- --------- --------- --------- NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (2,454) (177,426) 3,890 (226,731) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- (49,514) -- --------- --------- --------- --------- NET LOSS $ (2,454) $(177,426) $ (45,624) $(226,731) ========= ========= ========= ========= INCOME (LOSS) PER SHARE: BASIC Income (loss) before cumulative effect of a change in accounting principle $ (0.16) $ (11.91) $ 0.26 $ (15.38) Cumulative effect of change in accounting principle -- -- (3.26) -- --------- --------- --------- --------- Net loss $ (0.16) $ (11.91) $ (3.00) $ (15.38) ========= ========= ========= ========= DILUTED Income (loss) before cumulative effect of a change in accounting principle $ (0.16) $ (11.91) $ 0.25 $ (15.38) Cumulative effect of change in accounting principle -- -- (3.14) -- --------- --------- --------- --------- Net loss $ (0.16) $ (11.91) $ (2.89) $ (15.38) ========= ========= ========= ========= AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 15,508 14,900 15,190 14,744 ========= ========= ========= ========= AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 15,508 14,900 15,773 14,744 ========= ========= ========= =========
9 RURAL/METRO CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2002 (IN THOUSANDS)
2002 2001 --------- --------- (UNAUDITED) CASH FLOW FROM OPERATING ACTIVITIES Net loss $ (45,624) $(226,731) Adjustments to reconcile net income to cash provided by operations-- Non-cash portion of restructuring charge -- 4,092 Non-cash portion of contract termination -- 8,086 Asset impairment charges -- 94,353 Loss on disposal of clinic operations -- 9,374 Cumulative effect of change in accounting principle 49,514 -- Depreciation and amortization 16,210 29,161 Amortization of gain on sale of real estate -- (101) Gain on sale of property and equipment (285) (326) Provision for doubtful accounts 69,900 102,470 Deferred income taxes 650 -- (Undistributed earnings) losses of minority shareholder (9) 3,019 (Undistributed earnings) distributions in excess of earnings of public/private partnership (249) 118 Amortization of discount on Senior Notes 26 26 Change in assets and liabilities - Increase in accounts receivable (67,322) (62,099) Decrease in inventories 948 5,811 (Increase) decrease in prepaid expenses (3,018) 1,072 (Increase) decrease in other assets (1,896) 2,463 Increase (decrease) in accounts payable 1,337 (2,654) Increase (decrease) in accrued liabilities and other liabilities (11,629) 40,007 Increase (decrease) in non-refundable subscription income 702 (282) --------- --------- Net cash provided by operating activities 9,255 7,859 --------- --------- CASH FLOW FROM INVESTING ACTIVITIES Capital expenditures (6,854) (5,774) Proceeds from the sale of property and equipment 1,022 1,969 --------- --------- Net cash used in investing activities (5,832) (3,805) --------- --------- CASH FLOW FROM FINANCING ACTIVITIES Repayments on revolving credit facility (1,263) (3,765) Repayment of debt and capital lease obligations (1,862) (2,773) Borrowings under capital lease obligations -- 283 Issuance of common stock 529 348 --------- --------- Net cash used in financing activities (2,596) (5,907) --------- --------- EFFECT OF CURRENCY EXCHANGE RATE CHANGE 302 265 --------- --------- INCREASE (DECREASE) IN CASH 1,129 (1,588) CASH, beginning of period 8,699 10,287 --------- --------- CASH, end of period $ 9,828 $ 8,699 ========= =========
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