-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Toywe2tNiRETbi7j81xR0CmCGaP+N4iDZV0PvwTiVjOWUpUSOjb4ANOVmT+GcXTa vPddQ7qVVWVcL/QWHdm1yA== 0000950153-97-001210.txt : 19971117 0000950153-97-001210.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950153-97-001210 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RURAL METRO CORP /DE/ CENTRAL INDEX KEY: 0000906326 STANDARD INDUSTRIAL CLASSIFICATION: LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRAINS [4100] IRS NUMBER: 860746929 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22056 FILM NUMBER: 97720215 BUSINESS ADDRESS: STREET 1: 8401 EAST INDIAN SCHOOL RD CITY: SCOTTSDALE STATE: AZ ZIP: 85251 BUSINESS PHONE: 6029443886 10-Q 1 FORM 10-Q FOR PERIOD ENDING SEPTEMBER 30, 1997 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission file number 0-22056 RURAL/METRO CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 86-0746929 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 8401 EAST INDIAN SCHOOL ROAD SCOTTSDALE, ARIZONA 85251 (Address of principal executive offices) (Zip Code) (602) 994-3886 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- At November 12, 1997 there were 13,513,448 shares of Common Stock outstanding, exclusive of treasury shares held by the Registrant. 2 RURAL/METRO CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q Page Part I. Financial Statements Item 1. Consolidated Financial Statements: Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 2 (c). Changes in Securities 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 -2- 3 RURAL/METRO CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND JUNE 30, 1997 (IN THOUSANDS)
September 30, 1997 June 30, 1997 --------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash $ 3,184 $ 3,398 Accounts receivable, net 121,038 106,978 Inventories 9,117 8,645 Prepaid expenses and other 7,047 7,162 --------- --------- Total current assets 140,386 126,183 PROPERTY AND EQUIPMENT, net 76,980 70,645 INTANGIBLE ASSETS, net 165,604 160,282 OTHER ASSETS 9,715 6,956 --------- --------- $ 392,685 $ 364,066 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,678 $ 4,359 Accrued liabilities 29,645 20,570 Current portion of long-term debt 6,968 9,814 --------- --------- Total current liabilities 43,291 34,743 LONG-TERM DEBT, net of current portion 159,301 144,643 NON-REFUNDABLE SUBSCRIPTION INCOME 13,605 13,367 DEFERRED INCOME TAXES 8,277 7,446 OTHER LIABILITIES 3,391 4,059 --------- --------- Total liabilities 227,865 204,258 --------- --------- STOCKHOLDERS' EQUITY Common stock 137 130 Additional paid-in capital 121,430 121,355 Retained earnings 45,090 40,334 Deferred compensation (598) (772) Treasury stock (1,239) (1,239) --------- --------- Total stockholders' equity 164,820 159,808 --------- --------- $ 392,685 $ 364,066 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. -3- 4 RURAL/METRO CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended September 30, 1997 1996 ------- ------- REVENUE Ambulance services $77,598 $59,028 Fire protection services 11,212 10,305 Other 8,963 4,661 ------- ------- Total revenue 97,773 73,994 ------- ------- OPERATING EXPENSES Payroll and employee benefits 52,235 40,634 Provision for doubtful accounts 13,214 9,755 Depreciation 4,101 2,733 Amortization of intangibles 1,464 1,090 Other operating expenses 16,413 13,190 ------- ------- Total expenses 87,427 67,402 ------- ------- OPERATING INCOME 10,346 6,592 INTEREST EXPENSE, net 2,451 1,010 ------- ------- INCOME BEFORE INCOME TAXES 7,895 5,582 PROVISION FOR INCOME TAXES 3,237 2,283 ------- ------- NET INCOME $ 4,658 $ 3,299 ======= ======= EARNINGS PER COMMON STOCK AND COMMON STOCK EQUIVALENT $ 0.35 $ 0.28 ======= ======= WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING 13,405 11,944
The accompanying notes are an integral part of these consolidated financial statements. -4- 5 RURAL/METRO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) (IN THOUSANDS)
Three months ended September 30, 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,658 $ 3,299 Adjustments to reconcile net income to cash provided by (used in) operations -- Depreciation and amortization 5,565 3,823 Amortization of deferred compensation 174 163 Amortization of gain on sale of real estate (26) (26) Provision for doubtful accounts 13,640 9,755 Change in assets and liabilities, net of effect of businesses acquired -- Increase in accounts receivable (25,536) (17,645) Increase in inventories (453) (386) Decrease (increase) in prepaid expenses and other 730 (325) Increase (decrease) in accounts payable 1,660 (608) Increase (decrease) in accrued liabilities and other 5,693 (1,163) Increase in nonrefundable subscription income 237 311 Decrease in deferred income taxes (656) (43) -------- -------- Net cash provided by (used in) operating activities 5,686 (2,845) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Borrowings on revolving credit facility, net 14,000 4,000 Repayment of debt and capital lease obligations (6,549) (1,462) Issuance of common stock and treasury stock 75 3,727 -------- -------- Net cash provided by financing activities 7,526 6,265 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Cash paid for businesses acquired (3,152) -- Capital expenditures (7,514) (3,537) Increase in other assets (2,760) (526) -------- -------- Net cash used in investing activities (13,426) (4,063) -------- -------- DECREASE IN CASH (214) (643) CASH, beginning of period 3,398 1,388 -------- -------- CASH, end of period $ 3,184 $ 745 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. -5- 6 RURAL/METRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. (1) INTERIM RESULTS In the opinion of management, the consolidated financial statements for the three month periods ended September 30, 1997 and 1996 include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated financial position and results of operations for that period. The results of operations for the three month periods ended September 30, 1997 and 1996 are not necessarily indicative of the results of operations for a full fiscal year. (2) ACQUISITIONS During the three months ended September 30, 1997, the Company purchased the stock of an ambulance service provider operating in Georgia and the assets of an ambulance service provider operating in Alabama. The acquisitions were accounted for as purchases in accordance with Accounting Principles Board (APB) Opinion No. 16 and, accordingly, the purchased assets and assumed liabilities were recorded at their estimated fair values at each respective acquisition date. The aggregate purchase price consisted of the following:
(in thousands) Cash $3,152 Notes payable to sellers 1,200 Assumption of liabilities 1,170 ------ $5,522
During the three months ended September 30, 1997, subsidiaries of the Company merged with and into ambulance service providers operating in Mississippi, New Jersey, New York and Tennessee. The Company issued an aggregate of 641,009 shares of its common stock in exchange for all of the issued and outstanding stock of the acquired companies. The transactions were accounted for as poolings-of-interest in accordance with APB 16. The acquisitions accounted for as poolings-of-interests were not considered significant; accordingly, prior year financial statements have not been restated. The unaudited pro forma combined condensed statements of income for the fiscal year ended June 30, 1997 and the three months ended September 30, 1997 give effect to the acquisitions as if each had been consummated as of the beginning of each respective period. The pro forma combined condensed financial statements do not purport to represent what the Company's actual results of operations or financial position would have been had such transactions in fact occurred on such dates. The pro forma combined condensed statements of income also do not purport to project the results of operations of the Company for the current year or for any future period. -6- 7 RURAL/METRO CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED THREE MONTHS ENDED JUNE 30, 1997 SEPTEMBER 30, 1997 ----------------------- ----------------------- PROFORMA PROFORMA HISTORICAL COMBINED HISTORICAL COMBINED -------- -------- -------- -------- Revenue $319,805 $342,381 $ 97,773 $102,471 Net income $ 12,720 $ 13,863 $ 4,658 $ 4,959 Earnings per share $ 1.04 $ 1.07 $ 0.35 $ 0.36
Pro forma adjustments include adjustments to: (i) reflect amortization of the cost in excess of the fair value of net assets acquired; (ii) adjust payroll and related expenses for the effect of certain former owners of the acquired businesses not being employed by the Company and to reflect the difference between the actual compensation paid to officers of the businesses acquired and the lower level of aggregate compensation such individuals would have received under the terms of employment agreements executed between the Company and such individuals; (iii) adjust other operating expenses to reflect the reduction of expenses related to certain real estate and buildings not acquired and sellers' costs incurred in connection with the sale of their respective businesses; (iv) adjust interest expense to reflect interest expense related to debt issued in connection with the acquisitions; and (v) adjust income taxes to reflect the tax effect of the adjustments and the tax effect of treating all of the acquisitions as if they had C corporation status. (3) RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" which supersedes APB 15, the existing authoritative guidance. SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 and requires restatement of all prior period earnings per share (EPS) data presented. The new statement modifies the calculation of primary and fully diluted EPS and replaces them with basic and diluted EPS. Pro forma EPS assuming implementation of SFAS No. 128 at the beginning of the period for the three month periods ending September 30, 1997 and 1996 is as follows:
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1997 1996 -------- -------- Basic $ 0.36 $ 0.30 Diluted $ 0.35 $ 0.28
-7- 8 ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company derives its revenue primarily from fees charged for ambulance and fire protection services. The Company provides ambulance services in response to emergency medical calls ("911" emergency ambulance services) and non-emergency transport services (general transport services) to patients on both a fee-for-service basis and non-refundable subscription fee basis. Per transport revenue depends on various factors, including the mix of rates between existing markets and new markets and the mix of activity between "911" emergency ambulance services and general transport services as well as other competitive factors. Fire protection services are provided either under contracts with municipalities or fire districts or on a non-refundable subscription fee basis to individual homeowners or commercial property owners. Ambulance service fees are recorded net of Medicare, Medicaid and other reimbursement limitations and are recognized when services are provided. Payments received from third-party payors represent a substantial portion of the Company's ambulance service fee receipts. Provision for doubtful accounts is made for the expected difference between ambulance services fees and amounts actually collected. The Company's provision for doubtful accounts generally is higher with respect to collections to be derived directly from patients than for collections to be derived from third-party payors and generally is higher for "911" emergency ambulance services than for general ambulance transport services. Because of the nature of the Company's ambulance services, it is necessary to respond to a number of calls, primarily "911" emergency ambulance service calls, which may not result in transports. Results of operations are discussed below on the basis of actual transports since transports are more directly related to revenue. Expenses associated with calls that do not result in transports are included in operating expenses. The percentage of calls not resulting in transports varies substantially depending upon the mix of general transport and "911" emergency ambulance service calls in the Company's markets and is generally higher in markets in which the calls are primarily "911" emergency ambulance service calls. Rates in the Company's markets take into account the anticipated number of calls that may not result in transports. The Company does not separately account for expenses associated with calls that do not result in transports. Revenue generated under fire protection service contracts is recognized over the term of the related contract. Subscription fees received in advance are deferred and recognized over the term of the subscription agreement, which is generally one year. Other revenue consists primarily of fees associated with alternative transportation services and is recognized when the services are provided. Other operating expenses consist primarily of rent and related occupancy expenses, maintenance and repairs, insurance, fuel and supplies, travel and professional fees. THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996 REVENUE Total revenue increased $23.8 million, or 32.2%, from $74.0 million for the three months ended September 30, 1996 to $97.8 million for the three months ended September 30, 1997. Approximately $15.9 million of this increase resulted from the acquisition of ambulance service providers during the last three quarters of fiscal 1997 and the first quarter of fiscal 1998. Ambulance service revenue in markets served by the Company in both of the three month periods ended September 30, 1996 and 1997 increased by 4.5%. Fire protection services revenue increased by $0.9 million, or 8.7%, for the three months ended September 30, 1997. Other revenue increased by $4.3 million, or 91.5%, in the three months ended September 30, 1997. -8- 9 Total ambulance transports increased by 56,000, or 27.1%, from 207,000 for the three months ended September 30, 1996 to 263,000 for the three months ended September 30, 1997. The acquisitions of twenty-two ambulance service companies during the last three quarters of fiscal 1997 and the first quarter of fiscal 1998 accounted for 52,000 of these additional transports. Fire protection services revenue increased due to revenue generated from new fire protection contracts awarded to the Company through competitive bidding and due to rate increases for fire protection services. OPERATING EXPENSE Payroll and employee benefit expenses increased $11.6 million, or 28.6%, from $40.6 million for the three months ended September 30, 1996 to $52.2 million for the three months ended September 30, 1997. This increase was primarily due to the acquisition of twenty-two ambulance service providers during the last three quarters of fiscal 1997 and the first quarter of fiscal 1998. Provision for doubtful accounts increased $3.4 million, or 34.7%, from $9.8 million for the three months ended September 30, 1996 to $13.2 million for the three months ended September 30, 1997. Provision for doubtful accounts increased from 13.2% of total revenue for the three months ended September 30, 1996 to 13.5% of total revenue for the three months ended September 30, 1997, reflecting the effect of the acquisition of ambulance service providers during the second half of fiscal 1997 operating in markets with a greater mix of "911" emergency activity. Depreciation increased $1.4 million, or 51.9%, from $2.7 million for the three months ended September 30, 1996 to $4.1 million for the three months ended September 30, 1997, primarily as a result of increased property and equipment caused primarily by recent acquisition activity. Depreciation increased from 3.7% of total revenue for the three months ended September 30, 1996 to 4.2% of total revenue for the three months ended September 30, 1997. Amortization of intangibles increased by $0.4 million, or 36.4%, from $1.1 million for the three months ended September 30, 1996 to $1.5 million for the three months ended September 30, 1997. This increase is primarily a result of increased intangible assets caused by recent acquisition activity. Amortization of intangibles was 1.5% of total revenue for the three months ended September 30, 1996 and 1997. Other operating expenses increased approximately $3.2 million, or 24.2%, from $13.2 million for the three months ended September 30, 1996 to $16.4 million for the three months ended September 30, 1997, primarily due to increased expenses associated with the operation of the twenty-two ambulance service providers acquired during the last three quarters of fiscal 1997 and the first quarter of fiscal 1998. Other operating expenses decreased from 17.8% of total revenue for the three months ended September 30, 1996 to 16.8% of total revenue for the three months ended September 30, 1997 as a result of operational efficiencies. Interest expense increased by $1.5 million from $1.0 million for the three months ended September 30, 1996 to $2.5 million for the three months ended September 30, 1997. This increase was caused by higher debt balances reflecting increased borrowings on the Company's revolving credit facility. The Company's effective tax rate increased from 40.9% for the three months ended September 30, 1996 to 41.0% for the three months ended September 30, 1997, primarily the result of a higher percentage of the Company's taxable income being generated in higher tax rate states and the effect of nondeductible goodwill generated in connection with the acquisition of certain ambulance service providers. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its cash requirements principally through cash flow from operating activities, term and revolving indebtedness, capital equipment lease financing, the sale of stock through an initial public offering in July 1993, subsequent public stock offerings in May 1994 and April 1996, and the on-going exercise of stock options. -9- 10 During the three months ended September 30, 1997 the Company generated cash flow from operations of $5.7 million. This compares to cash flow used in operations of $2.8 million for the three months ended September 30, 1996. This change resulted primarily from increases in accounts payable and other accrued liabilities. Approximately $150.0 million was outstanding on the Company's revolving credit facility at September 30, 1997. Availability on the facility was $21.0 million at September 30, 1997. During the three months ended September 30, 1997, the Company purchased the stock of an ambulance service provider operating in Georgia and the assets of an ambulance service provider operating in Alabama. The acquisitions were accounted for as purchases in accordance with Accounting Principles Board Opinion No. 16 (APB 16). The aggregate purchase price was $5.5 million, consisting of cash of $3.1 million, notes payable to sellers of $1.2 million and liabilities assumed of $1.2 million. The Company funded the cash portion of the acquisition primarily from the Company's revolving credit facility. During the three months ended September 30, 1997, subsidiaries of the Company merged with and into ambulance service providers operating in Mississippi, New Jersey, New York and Tennessee. The Company issued 641,009 shares of its common stock in exchange for all of the issued and outstanding stock of the acquired companies. The transactions were accounted for as poolings-of-interest in accordance with APB 16. The Company expects that cash flow from operations and additional borrowing capacity will be sufficient to meet its operating and capital needs for existing operations as well as to fund certain service area expansion and acquisitions for the twelve months subsequent to September 30, 1997. The Company is engaged in an active acquisition program. The Company intends to fund any acquisitions that it consummates through the use of cash from operations, credit facilities, seller notes payable and the issuance of common stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financing. The availability of these capital sources will depend upon prevailing market conditions, interest rates and the financial condition of the Company. -10- 11 RURAL/METRO CORPORATION AND SUBSIDIARIES PART II -- OTHER INFORMATION Item 2 (c). Changes in Securities Pursuant to a private placement under Section 4(2) of the Securities Act, in August 1997, the Company issued 26,423 shares at $30.13 per share to the four former shareholders of North Miss. Ambulance Service, Inc. ("NMAS") in connection with the Company's acquisition of NMAS. In September 1997, pursuant to Section 4(2), the Company issued 10,345 shares at $29.00 per share to the four former shareholders of Multi-Care Medical Car Service, Inc., and 74,138 shares at $29.00 per share to the former shareholder of Ambulance Transport Systems, Inc. in connection with the Company's acquisition of such companies. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27. Financial Data Schedules (b) Reports on Form 8-K Pursuant to an Agreement of Purchase and Sale dated February 25, 1997, Registrant acquired all of the issued and outstanding stock of SW General, Inc., an Arizona corporation. Pursuant to an Agreement of Purchase and Sale dated February 25, 1997, Registrant acquired all of the issued and outstanding stock of Southwest Ambulance of Casa Grande, Inc., an Arizona corporation. Pursuant to an Agreement of Purchase and Sale dated February 25, 1997, Registrant acquired all of the issued and outstanding stock of Southwest General Services, Inc., an Arizona corporation. Pursuant to an Agreement of Purchase and Sale dated February 25, 1997, Registrant acquired all of the issued and outstanding stock of Medical Emergency Devices and Services, Inc., an Arizona corporation. The four transactions were reported on Form 8-K dated July 15, 1997, as amended on Form 8-K/A dated August 12, 1997. -11- 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RURAL/METRO CORPORATION Date: November 14, 1997 By /s/ Dean P. Hoffman --------------------- Dean P. Hoffman, Vice President and Principal Accounting Officer -12- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 1 3,184 0 153,714 32,676 9,117 140,386 123,756 46,776 392,685 43,291 166,269 0 0 137 164,683 392,685 97,773 97,773 0 74,213 0 13,214 2,451 7,895 3,237 4,658 0 0 0 4,658 0.35 0.35
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