-----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, UP0avXuI2unflnJyYMJpvnh27EUXsGd7dIUnGkPgIm7abuiV4tSYn+7KaHqtnzbb T9JRtcOb5lbzXkMvFsCMfA== 0000950153-98-000575.txt : 19980518 0000950153-98-000575.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950153-98-000575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98625682 BUSINESS ADDRESS: STREET 1: 8401 EAST INDIAN SCHOOL RD CITY: SCOTTSDALE STATE: AZ ZIP: 85251 BUSINESS PHONE: 6029443886 10-Q 1 10-Q 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 March 31, 1998 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 May 11, 1998 there were 14,163,110 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 12 Part II. Other Information Item 2(c). Changes in Securities 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 -2- 3 RURAL/METRO CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND JUNE 30, 1997 (IN THOUSANDS)
March 31, June 30, 1998 1997 ----------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash $ 9,058 $ 3,398 Accounts receivable, net 169,686 106,978 Inventories 11,196 8,645 Prepaid expenses and other 16,436 7,162 --------- --------- Total current assets 206,376 126,183 PROPERTY AND EQUIPMENT, net 88,967 70,645 INTANGIBLE ASSETS, net 231,705 160,282 OTHER ASSETS 9,842 6,956 --------- --------- $ 536,890 $ 364,066 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 12,302 $ 4,359 Accrued liabilities 30,365 17,244 Current portion of long-term debt 15,452 9,814 --------- --------- Total current liabilities 58,119 31,417 LONG-TERM DEBT, net of current portion 239,500 144,643 NON-REFUNDABLE SUBSCRIPTION INCOME 13,423 13,367 DEFERRED INCOME TAXES 20,639 10,772 OTHER LIABILITIES 9,156 4,059 --------- --------- Total liabilities 340,837 204,258 --------- --------- MINORITY INTEREST 8,364 -- STOCKHOLDERS' EQUITY Common stock 143 130 Additional paid-in capital 132,727 121,355 Retained earnings 56,561 40,334 Deferred compensation (503) (772) Treasury stock (1,239) (1,239) --------- --------- Total stockholders' equity 187,689 159,808 --------- --------- $ 536,890 $ 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 AND NINE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended March 31, Nine Months Ended March 31, ---------------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- REVENUE Ambulance services $ 107,279 $69,161 $274,646 $190,654 Fire protection services 11,547 10,551 34,110 31,205 Other 10,957 5,209 30,142 14,586 --------- ------- -------- -------- Total revenue 129,783 84,921 338,898 236,445 --------- ------- -------- -------- OPERATING EXPENSES Payroll and employee benefits 68,599 44,706 179,103 127,207 Provision for doubtful accounts 17,397 11,878 46,223 32,037 Depreciation 4,871 2,995 13,684 8,646 Amortization of intangibles 2,010 1,149 5,155 3,349 Other operating expenses 22,623 14,693 57,905 41,640 --------- ------- -------- -------- Total expenses 115,500 75,421 302,070 212,879 --------- ------- -------- -------- OPERATING INCOME 14,283 9,500 36,828 23,566 Interest expense, net 3,705 1,576 9,114 3,658 Other (126) -- 4 -- --------- ------- -------- -------- INCOME BEFORE INCOME TAXES 10,704 7,924 27,710 19,908 PROVISION FOR INCOME TAXES 4,332 3,249 11,256 8,163 --------- ------- -------- -------- NET INCOME $ 6,372 $ 4,675 $ 16,454 $ 11,745 ========= ======= ======== ======== BASIC EARNINGS PER SHARE $ 0.47 $ 0.40 $ 1.23 $ 1.03 ========= ======= ======== ======== DILUTED EARNINGS PER SHARE $ 0.45 $ 0.38 $ 1.18 $ 0.97 ========= ======= ======== ======== AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 13,631 11,727 13,332 11,413 AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 14,310 12,369 13,968 12,154
The accompanying notes are an integral part of these consolidated financial statements. -4- 5 RURAL/METRO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) (IN THOUSANDS)
Nine Months Ended March 31, 1998 1997 --------- -------- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 16,454 $ 11,745 Adjustments to reconcile net income to cash used in operations -- Depreciation and amortization 18,802 11,995 Amortization of deferred compensation 270 502 Amortization of gain on sale of real estate (78) (78) Provision for doubtful accounts 45,604 32,037 Undistributed earnings of minority shareholder 4 -- Change in assets and liabilities, net of effect of businesses acquired -- Increase in accounts receivable (97,827) (56,523) Increase in inventories (2,223) (1,328) Increase in prepaid expenses and other (2,126) (1,036) Increase (decrease) in accounts payable 1,152 (479) Increase (decrease) in accrued liabilities and other 4,192 (4,785) Increase in non-refundable subscription income 46 373 Increase in deferred income taxes 6,772 195 --------- -------- Net cash used in operating activities (8,958) (7,382) --------- -------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes 145,805 -- (Repayments) borrowings on revolving credit facility, net (53,500) 45,200 Repayment of debt and capital lease obligations (23,499) (17,221) Borrowings of debt 2,293 -- Issuance of common stock 2,783 8,076 --------- -------- Net cash provided by financing activities 73,882 36,055 --------- -------- CASH FLOW FROM INVESTING ACTIVITIES Cash paid for businesses acquired (34,221) (12,616) Capital expenditures (22,157) (14,049) Increase in other assets (2,886) (2,666) --------- -------- Net cash used in investing activities (59,264) (29,331) --------- -------- INCREASE (DECREASE) IN CASH 5,660 (658) CASH, beginning of period 3,398 1,388 --------- -------- CASH, end of period $ 9,058 $ 730 ========= ========
The accompanying notes are an integral part of these consolidated financial statements. -5- 6 RURAL/METRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 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 and nine month periods ended March 31, 1998 and 1997 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 and nine month periods ended March 31, 1998 and 1997 are not necessarily indicative of the results of operations for a full fiscal year. (2) ACQUISITIONS During the nine months ended March 31, 1998 the Company purchased all of the issued and outstanding stock of ambulance service providers operating in Arizona and Georgia and the assets of ambulance service providers operating in Alabama, Maryland, New Jersey and South Carolina. Also, during the nine months ended March 31, 1998 the Company purchased all of the issued and outstanding stock of four operating companies that provide urgent home medical attention and ambulance transport services in three cities in Argentina. These 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 $34,221 Rural/Metro common stock 8,520 Notes payable to sellers 6,470 Assumption of liabilities 28,109 ------- $77,320 =======
During the nine months ended March 31, 1998, subsidiaries of the Company merged with and into ambulance service providers operating in Idaho, Mississippi, New Jersey, New York, Tennessee and Washington. The Company issued an aggregate of 821,747 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 were not considered significant; accordingly, prior year financial statements have not been restated. During the nine months ended March 31, 1998, the Company entered into a joint venture to provide non-emergency ambulance service and medical transportation in Maryland, Washington D.C. and northern Virginia. For financial statement purposes, the results of operations and the assets and liabilities of the joint venture are consolidated and included in the accompanying consolidated -6- 7 financial statements. Minority interest is recorded for the results of operations and the equity interest attributable to the joint venture partner. The unaudited pro forma combined condensed statements of income for the fiscal year ended June 30, 1997 and the nine months ended March 31, 1998 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.
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1997 MARCH 31, 1998 ----------------------- ------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PROFORMA PROFORMA HISTORICAL COMBINED HISTORICAL COMBINED ---------- -------- ---------- -------- Revenue $ 319,805 $ 481,387 $ 338,898 $ 393,575 Net income $ 12,720 $ 18,889 $ 16,454 $ 18,644 Earnings per share - basic $ 1.10 $ 1.40 $ 1.23 $ 1.34 Earnings per share - diluted $ 1.04 $ 1.31 $ 1.18 $ 1.28
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. (2) CREDIT AGREEMENTS AND BORROWINGS On March 16, 1998, the Company issued $150.0 million of 7 7/8% Senior Notes due 2008 (the Notes) effected under Rule 144A under the Securities Act of 1933 as amended (Securities Act). A portion of the net proceeds of the offering, sold through private placement transactions, was used to repay certain indebtedness. Interest under the Notes is payable semi-annually commencing September 15, 1998, and the Notes are not callable until March 2003 subject to the terms of the Note Agreement. The Company incurred expenses related to the offering of approximately $4.9 million and will amortize such costs over the life of the Notes. In April 1998, the Company filed a registration statement under the Securities Act relating to an exchange offer for the Notes. Such registration became effective on May 14, 1998. The Notes are general unsecured obligations of the Company and are unconditionally guaranteed on a joint and several basis by substantially all of the Company's domestic wholly-owned current and future subsidiaries. The Notes contain certain covenants which, among other things, limit the Company's ability to incur any indebtedness, sell assets, or enter into certain mergers or consolidations. The financial statements presented below include the separate or -7- 8 combined financial position, results of operations and cash flows for the nine months ended March 31, 1998 of Rural/Metro Corporation and the guarantor subsidiaries (Parent/Guarantors) and the subsidiaries which are not guarantors (Non-guarantors). -8- 9 RURAL/METRO CORPORATION CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 1998 (UNAUDITED) (IN THOUSANDS)
Parent/Guarantors Non-Guarantors Eliminating Consolidated ----------------- -------------- ----------- ------------ ASSETS CURRENT ASSETS Cash $ 6,633 $ 2,425 $ -- $ 9,058 Accounts receivable, net 157,553 12,133 -- 169,686 Inventories 10,725 471 -- 11,196 Prepaid expenses and other 13,342 3,094 -- 16,436 --------- -------- --------- --------- Total current assets 188,253 18,123 -- 206,376 PROPERTY AND EQUIPMENT, net 83,940 5,027 -- 88,967 INTANGIBLE ASSETS, net 168,037 63,668 -- 231,705 OTHER ASSETS 35,885 (35,885) -- -- DUE TO/FROM AFFILIATES 9,835 7 -- 9,842 INVESTMENT IN SUBSIDIARIES 192,531 873 (193,404) -- --------- -------- --------- --------- $ 678,481 $ 51,813 $(193,404) $ 536,890 ========= ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 7,588 $ 4,714 $ -- $ 12,302 Accrued liabilities 18,955 11,410 -- 30,365 Current portion of long-term debt 14,806 646 -- 15,452 --------- -------- --------- --------- Total current liabilities 41,349 16,770 -- 58,119 LONG-TERM DEBT, net of current portion 238,437 1,063 -- 239,500 NON-REFUNDABLE SUBSCRIPTION INCOME 13,306 117 -- 13,423 DEFERRED INCOME TAXES 20,639 -- -- 20,639 OTHER LIABILITIES 7,262 1,894 -- 9,156 --------- -------- --------- --------- Total liabilities 320,993 19,844 -- 340,837 --------- -------- --------- --------- MINORITY INTEREST -- -- 8,364 8,364 STOCKHOLDERS' EQUITY Common stock 6,614 18 (6,489) 143 Additional paid-in capital 296,488 31,154 (194,915) 132,727 Retained earnings 56,128 797 (364) 56,561 Deferred compensation (503) -- -- (503) Treasury stock (1,239) -- -- (1,239) --------- -------- --------- --------- Total stockholders' equity 357,488 31,969 (201,768) 187,689 --------- -------- --------- --------- $ 678,481 $ 51,813 $(193,404) $ 536,890 ========= ======== ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. -9- 10 RURAL/METRO CORPORATION CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED) (IN THOUSANDS)
Parent/Guarantors Non-Guarantors Eliminating Consolidated ----------------- -------------- ----------- ------------ REVENUE Ambulance services $250,810 $ 23,836 $ -- $274,646 Fire protection services 33,380 730 -- 34,110 Other 29,738 404 -- 30,142 -------- -------- ---- -------- Total revenue 313,928 24,970 -- 338,898 -------- -------- ---- -------- OPERATING EXPENSES Payroll and employee benefits 162,914 16,189 -- 179,103 Provision for doubtful accounts 43,546 2,677 -- 46,223 Depreciation 13,196 488 -- 13,684 Amortization of intangibles 4,738 417 -- 5,155 Other operating expenses 52,420 5,485 -- 57,905 -------- -------- ---- -------- Total expenses 276,814 25,256 -- 302,070 -------- -------- ---- -------- OPERATING INCOME 37,114 (286) -- 36,828 Interest expense, net 8,868 246 -- 9,114 Other -- -- 4 4 -------- -------- ---- -------- INCOME BEFORE INCOME TAXES 28,246 (532) (4) 27,710 PROVISION FOR INCOME TAXES 11,267 (11) -- 11,256 -------- -------- ---- -------- NET INCOME $ 16,979 $ (521) $(4) $ 16,454 ======== ======== ==== ========
The accompanying notes are an integral part of these consolidated financial statements. -10- 11 RURAL/METRO CORPORATION CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED) (IN THOUSANDS)
Parent/Guarantors Non-Guarantors Eliminating ----------------- -------------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 16,979 $ (521) $(4) Adjustments to reconcile net income to cash used in operations -- Depreciation and amortization 17,895 907 -- Amortization of deferred compensation 270 -- -- Amortization of gain on sale of real estate (78) -- -- Provision for doubtful accounts 42,927 2,677 -- Undistributed earnings of minority shareholder -- -- 4 Change in assets and liabilities, net of effect of businesses acquired -- Increase in accounts receivable (89,786) (8,041) -- Increase in inventories (2,192) (31) -- Increase (decrease) in prepaid expenses and other (2,351) 225 -- (Increase) decrease in due to/from affiliates (41,428) 41,428 -- Increase (decrease) in accounts payable 1,264 (112) -- Increase (decrease) in accrued liabilities and other 4,388 (196) -- Increase (decrease) in non-refundable subscription income (10) 56 -- Increase in deferred income taxes 6,772 -- -- --------- -------- ---- Net cash (used in) provided by operating activities (45,350) 36,392 -- --------- -------- ---- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes 145,805 -- -- Repayments on revolving credit facility, net (53,500) -- -- Repayment of debt and capital lease obligations (17,479) (6,020) -- Borrowings of debt 2,293 -- -- Issuance of common stock 2,783 -- -- --------- -------- ---- Net cash provided by (used in) financing activities 79,902 (6,020) -- --------- -------- ---- CASH FLOW FROM INVESTING ACTIVITIES Cash paid for businesses acquired (6,666) (27,555) -- Capital expenditures (21,393) (764) -- Increase in other assets (2,879) (7) -- --------- -------- ---- Net cash used in investing activities (30,938) (28,326) -- --------- -------- ---- INCREASE IN CASH 3,614 2,046 -- CASH, beginning of period 3,020 378 -- --------- -------- ---- CASH, end of period $ 6,634 $ 2,424 $ -- ========= ======== ====
Consolidated ------------ CASH FLOW FROM OPERATING ACTIVITIES Net income $ 16,454 Adjustments to reconcile net income to cash used in operations -- Depreciation and amortization 18,802 Amortization of deferred compensation 270 Amortization of gain on sale of real estate (78) Provision for doubtful accounts 45,604 Undistributed earnings of minority shareholder 4 Change in assets and liabilities, net of effect of businesses acquired -- Increase in accounts receivable (97,827) Increase in inventories (2,223) Increase (decrease) in prepaid expenses and other (2,126) (Increase) decrease in due to/from affiliates -- Increase (decrease) in accounts payable 1,152 Increase (decrease) in accrued liabilities and other 4,192 Increase (decrease) in non-refundable subscription income 46 Increase in deferred income taxes 6,772 --------- Net cash (used in) provided by operating activities (8,958) --------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes 145,805 Repayments on revolving credit facility, net (53,500) Repayment of debt and capital lease obligations (23,499) Borrowings of debt 2,293 Issuance of common stock 2,783 --------- Net cash provided by (used in) financing activities 73,882 --------- CASH FLOW FROM INVESTING ACTIVITIES Cash paid for businesses acquired (34,221) Capital expenditures (22,157) Increase in other assets (2,886) --------- Net cash used in investing activities (59,264) --------- INCREASE IN CASH 5,660 CASH, beginning of period 3,398 --------- CASH, end of period $ 9,058 =========
The accompanying notes are an integral part of these consolidated financial statements. -11- 12 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. The Company's Argentine operations have customers who pre-pay monthly for urgent home medical attention and ambulance transport services under a capitated service arrangement. Revenue generated from the Company's Canadian operations is recorded based upon contractual agreements with the Ontario Ministry of Health. 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 for domestic operations 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 charged 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 the Company's capitated service arrangements in Argentina and contractual agreements in Canada is included in ambulance services revenue on the accompanying financial statements. Revenue generated under fire protection services contracts is recognized over the life of the contract. Subscription fees received in advance are deferred and recognized over the term of the subscription agreement, which generally is one year. Other revenue consists primarily of fees associated with alternative transportation, dispatch, fleet, billing and home health care 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 MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 REVENUE Total revenue increased $44.9 million, or 52.9%, from $84.9 million for the three months ended March 31, 1997 to $129.8 million for the three months ended March 31, 1998. Approximately $35.5 million of this -12- 13 increase resulted from acquisitions during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998. Ambulance service revenue in markets served by the Company in both of the three month periods ended March 31, 1998 and 1997 increased by 5.5%. Fire protection services revenue increased by $0.9 million, or 8.5%, from $10.6 million for the three months ended March 31, 1997 to $11.5 million for the three months ended March 31, 1998. Other revenue increased by $5.8 million, or 111.5%, in the three months ended March 31, 1998 compared to the three months ended March 31, 1997. Total ambulance transports increased by 82,000 , or 33.6%, from 244,000 for the three months ended March 31, 1997 to 326,000 for the three months ended March 31, 1998. The acquisition of ambulance service companies during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998 accounted for 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. Other revenue increased primarily because of fees received for providing billing, dispatch and other services pursuant to the Company's agreement with San Diego Fire and Life Safety Services. OPERATING EXPENSES Payroll and employee benefits increased $23.9 million, or 53.5%, from $44.7 million for the three months ended March 31, 1997 to $68.6 million for the three months ended March 31, 1998. This increase was primarily due to acquisitions during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998. Provision for doubtful accounts increased $5.5 million, or 46.2%, from $11.9 million for the three months ended March 31, 1997 to $17.4 million for the three months ended March 31, 1998, primarily the result of increased revenue from both acquisitions and internal growth. Depreciation increased $1.9 million, or 63.3%, from $3.0 million for the three months ended March 31, 1997 to $4.9 million for the three months ended March 31, 1998, primarily as a result of depreciation expense on property and equipment obtained through recent acquisition activity. Depreciation increased from 3.5% of total revenue for the three months ended March 31, 1997 to 3.8% of total revenue for the three months ended March 31, 1998. Amortization of intangibles increased by $0.9 million, or 81.8%, from $1.1 million for the three months ended March 31, 1997 to $2.0 million for the three months ended March 31, 1998. This increase is primarily due to increased intangible assets which are the result of recent acquisition activity. Amortization of intangibles increased from 1.3% of total revenue for the three months ended March 31, 1997 to 1.5% of total revenue for the three months ended March 31, 1998. Other operating expenses increased approximately $7.9 million, or 53.7%, from $14.7 million for the three months ended March 31, 1997 to $22.6 million for the three months ended March 31, 1998, primarily due to increased expenses associated with the operation of companies acquired during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998. Other operating expenses increased from 17.3% of total revenue for the three months ended March 31, 1997 to 17.4% of total revenue for the three months ended March 31, 1998. Interest expense increased $2.1 million from $1.6 million for the three months ended March 31, 1997 to $3.7 million for the three months ended March 31, 1998. This increase was caused by higher debt balances outstanding reflecting the issuance of $150.0 million of Senior Notes during the period. The Company's effective tax rate was 41.0% for both the three month periods ended March 31, 1997 and 1998. -13- 14 NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997 REVENUE Total revenue increased $102.5 million, or 43.4%, from $236.4 million for the nine months ended March 31, 1997 to $338.9 million for the nine months ended March 31, 1998. Approximately $78.1 million of this increase resulted from acquisitions during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998. Ambulance service revenue in markets served by the Company in both of the nine month periods ended March 31, 1997 and 1998 increased by 5.1%. Fire protection services revenue increased by $2.9 million, or 9.3%, from $31.2 million for the nine months ended March 31, 1997 to $34.1 million for the nine months ended March 31, 1998. Other revenue increased by $15.5 million, or 106.2%, in the nine months ended March 31, 1997 compared to the nine months ended March 31, 1998. Total ambulance transports increased by 222,000, or 33.2%, from 668,000 for the nine months ended March 31, 1997 to 890,000 for the nine months ended March 31, 1998. The acquisition of ambulance service companies during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998 accounted for 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. Other revenue increased primarily because of fees received for providing billing, dispatch and other services pursuant to the Company's agreement with San Diego Fire and Life Safety Services. OPERATING EXPENSES Payroll and employee benefits increased $51.9 million, or 40.8%, from $127.2 million for the nine months ended March 31, 1997 to $179.1 million for the nine months ended March 31, 1998. This increase was primarily due to acquisitions during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998. Provision for doubtful accounts increased $14.2 million, or 44.4%, from $32.0 million for the nine months ended March 31, 1997 to $46.2 million for the nine months ended March 31, 1998, primarily as a result of increased revenue from both acquisitions and internal growth. Depreciation increased $5.1 million, or 59.3%, from $8.6 million for the nine months ended March 31, 1997 to $13.7 million for the nine months ended March 31, 1998, primarily as a result of depreciation expense on property and equipment obtained through recent acquisition activity. Depreciation increased from 3.6% of total revenue for the nine months ended March 31, 1997 to 4.0% of total revenue for the nine months ended March 31, 1998. Amortization of intangibles increased by $1.9 million, or 57.6%, from $3.3 million for the nine months ended March 31, 1997 to $5.2 million for the nine months ended March 31, 1998. This increase is primarily a result of intangible assets recorded in recent acquisitions. Amortization of intangibles increased from 1.4% of total revenue for the nine months ended March 31, 1997 to 1.5% of total revenue for the nine months ended March 31, 1998. Other operating expenses increased $16.3 million, or 39.2%, from $41.6 million for the nine months ended March 31, 1997 to $57.9 million for the nine months ended March 31, 1998, primarily due to increased expenses associated with the operation of companies acquired during the last quarter of fiscal 1997 and the first three quarters of fiscal 1998. Other operating expenses decreased from 17.6% of total revenue for the nine months ended March 31, 1997 to 17.1% of total revenue for the nine months ended March 31, 1998, as a result of operational efficiencies realized through the integration of these acquired companies. -14- 15 Interest expense increased by $5.4 million from $3.7 million for the nine months ended March 31, 1997 to $9.1 million for the nine months ended March 31, 1998. This increase was caused by higher debt balances outstanding reflecting the issuance of $150.0 million of Senior Notes during the period. The Company's effective tax rate decreased from 41.0% for the nine months ended March 31, 1997 to 40.7% for the nine months ended March 31, 1998, primarily the result of tax planning strategies implemented by the Company during fiscal 1996. 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, issuance of senior notes, the sale of stock through an initial public offering in July 1993 and subsequent public stock offerings in May 1994 and April 1996, and the on-going exercise of stock options. At March 31, 1998, the Company had working capital of $148.3 million, including cash of $9.1 million, compared to working capital of $94.8 million, including cash of $3.4 million at June 30, 1997. During the nine months ended March 31, 1998, the Company used cash flow from operations of $9.0 million. This compares to cash flow used in operations of $7.4 million for the nine months ended March 31, 1997. This change resulted primarily from increases in accounts receivable and inventories partially offset by an increase in accrued liabilities. The Company's gross accounts receivable as of March 31, 1998 and June 30, 1997 were $219.0 million and $142.8 million, respectively. The Company's accounts receivable, net of the allowance for doubtful accounts, were $169.7 million and $107.0 million as of such dates, respectively. The Company believes that the increase in accounts receivable is related significantly to acquisition activity and to recent revenue growth. The Company also attributes the increase in accounts receivable and the increased age of receivables to certain factors, including delays in payments from certain third-party payors, particularly in certain of the Company's regional billing areas and a general industry trend toward a lengthening payment cycle of accounts receivable due from third-party payors. In addition, the Company believes certain transitional aspects of the integration of acquired companies into the Company's centralized billing and collection function has resulted in increases in the amount and age of accounts receivable during the transition period. During the nine months ended March 31, 1998, the Company increased the amount of its revolving credit facility from $175.0 million to $200.0 million. The revolving credit facility was also amended by extending the maturity date to March 16, 2003 and converting it to an unsecured credit facility. The revolving credit facility is priced at prime rate, Federal Fund Rate plus 0.5% or a LIBOR-based rate. The LIBOR-based rates range from LIBOR plus 0.875% to LIBOR plus 1.7%. Interest rates and availability under the revolving credit facility are dependent upon the Company meeting certain financial covenants. Approximately $82.5 million was outstanding on the revolving credit facility at March 31, 1998. Availability on the facility was $24.2 million at March 31, 1998. In November 1997, the Company entered into a $5.0 million term loan (Term Loan). The Company used the proceeds from the loan to fund acquisitions, capital expenditures and for general corporate purposes. In February 1998, the Company entered into a $5.0 million capital equipment lease line of credit. Approximately $1.5 million was outstanding on this line of credit at March 31, 1998. On March 16, 1998, the Company issued $150.0 million of 7 7/8% Senior Notes due 2008 (the Notes) effected under Rule 144A under the Securities Act of 1933 as amended (Securities Act). A portion of the net proceeds of the offering, sold through private placement transactions, was used to repay the Term Loan and a portion of the balances owed on the revolving credit facility. Interest under the Notes is payable semi-annually -15- 16 commencing September 15, 1998, and the Notes are not callable until March 2003 subject to the terms of the Note Agreement. The Company incurred expenses related to the offering of approximately $4.9 million and will amortize such costs over the life of the Notes. In April 1998, the Company filed a registration statement under the Securities Act relating to an exchange offer for the Notes. Such registration became effective on May 14, 1998. The Notes are general unsecured obligations of the Company and are unconditionally guaranteed on a joint and several basis by substantially all of the Company's domestic wholly-owned current and future subsidiaries. The Notes contain certain covenants which, among other things, limit the Company's ability to incur any indebtedness, sell assets, or enter into certain mergers or consolidations. During the nine months ended March 31, 1998, the Company purchased all of the issued and outstanding stock of two ambulance service providers operating in Arizona and Georgia, and the assets of four ambulance service providers operating in Alabama, Maryland, New Jersey and South Carolina. Also, during the nine months ended March 31, 1998, the Company purchased all of the issued and outstanding stock of four operating companies that provide urgent home medical attention and ambulance transport services in three cities in Argentina. The combined purchase price of the operations accounted for as purchases was $77.3 million. The Company paid cash of $34.2 million, issued notes payable to sellers of $6.5 million, issued to sellers 311,330 shares of the Company's common stock valued at $8.5 million, and assumed $28.1 million of liabilities. The Company funded the cash portion of the acquisitions primarily from the Company's revolving credit facility. During the nine months ended March 31, 1998, subsidiaries of the Company merged with and into three ambulance service providers operating in Idaho, Mississippi, New Jersey, New York, Tennessee and Washington. The Company issued an aggregate of 803,565 shares of its common stock in exchange for all of the issued and outstanding stock of the acquired companies. These transactions were accounted for as poolings-of-interest in accordance with Accounting Principles Board Opinion No. 16. The acquisitions were not considered significant; accordingly, prior year financial statements have not been restated. During the nine months ended March 31, 1998 the Company entered into a joint venture to provide non-emergency ambulance service and medical transportation in Maryland, Washington D.C. and northern Virginia. For financial statement purposes, the results of operations and the assets and liabilities of the joint venture are consolidated and included in the accompanying consolidated financial statements. Minority interest is recorded for the results of operations and the equity interest attributable to the joint venture partner. 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 expansions and acquisitions for the twelve months subsequent to March 31, 1998. The Company is engaged in an active acquisition program. In addition to using cash from operations, credit facilities, seller notes payable and the issuance of common stock, the Company may seek to raise additional capital through public or private debt or equity financing to fund acquisitions. The availability and desirability of these capital sources will depend upon prevailing market conditions, interest rates and the financial condition of the Company. There can be no assurance such financing will be available on favorable terms, if at all. EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS The results of operations of the Company for the periods discussed have not been affected significantly by inflation or foreign currency fluctuations. The Company's revenue from international operations is denominated primarily in the currency of the country in which it is operating. Although the Company has not incurred any material exchange gains or losses to date, there can be no assurance that fluctuations in the currency exchange rates in the future will not have an adverse effect on the Company's business, financial condition, cash flows and results of operations. The Company does not currently engage in foreign currency hedging transactions. However, as the Company continues to expand its international operations, exposure to gains and losses on foreign currency transactions may increase. The Company may choose to limit such exposure by entering into forward exchange contracts or engaging in similar hedging strategies. -16- 17 YEAR 2000 COMPLIANCE The Company has implemented a Year 2000 compliance program designed to ensure that the Company's medical equipment, computer systems and applications will function properly beyond 1999. Although the Company believes that it has allocated adequate resources for this purpose and expects its Year 2000 date conversion program to be completed on a timely basis without incurring significant expenditures to address this issue, there can be no assurance that the Company will not experience unforseen difficulties. The failure by medical equipment suppliers or third-party payors, such as private insurers, managed care providers, healthcare organizations, preferred provider organizations and federal and state government agencies that administer Medicare and/or Medicaid, to adequately address their Year 2000 issues could impact their ability to reimburse the Company or otherwise adversely affect the Company's business, financial condition, cash flows and results of operations. -17- 18 PART II - OTHER INFORMATION Item 2.(c) Changes in Securities Pursuant to a private placement under Section 4(2) of the Securities Act, in February 1998, the Company issued 81,275 shares at $33.83 per share to the former shareholders of United Medical Services, Inc. ("UMS") in connection with the Company's acquisition of UMS. Pursuant to a private placement under Section 4(2) of the Securities Act, in March 1998, the Registrant issued $150.0 million 77/8% senior notes due 2008 to four initial purchasers in a Rule 144A transaction. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedules (b) Reports on Form 8-K Pursuant to a Purchase Agreement dated January 16, 1998 and a Complementary Agreement dated March 26, 1998 between Registrant as buyer and Messrs. Horacio Artagaveytia, Jose Mateo Campomar, Alberto Fluerquin, Carlos Mezzera, Renato Ribeiro, Gervasio Reyes and Carlos Arturo Delmiro Marfetan, the Registrant acquired all of the issued and outstanding stock of Peimu S.A., Recor S.A., Marlon S.A. and Semercor S.A. The transaction was reported on Form 8-K dated April 1, 1998. On February 27, 1998, the Registrant filed a Form 8-K announcing the Registrant's 144A Senior Note offering. -18- 19 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: May 15, 1998 By /s/ Dean P. Hoffman --------------------- Dean P. Hoffman, Vice President and Principal Accounting Officer -19- EX-27 2 EX-27
5 1,000 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 9,058 0 219,010 49,324 11,196 206,376 148,657 59,690 536,890 58,119 254,952 0 0 143 187,546 536,890 338,898 338,898 0 255,847 0 46,223 9,114 27,710 11,256 16,454 0 0 0 16,454 1.23 1.18
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