EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

LOGO

 

CONTACT:    Liz Merritt, Rural/Metro Corporation (investors)
   (480) 606-3337
   Jeff Stanlis, Hayden Communications (media)
   (602) 476-1821

For immediate release

RURAL/METRO ANNOUNCES PRELIMINARY

FOURTH QUARTER AND FISCAL 2006 RESULTS

 

    9.4% Growth in Annual Net Revenue; 7.1% Quarterly Growth

 

    33.9% Increase in Annual Operating Income; 64.1% Quarterly Increase

 

    13.9% Increase in Annual EBITDA; 28.4% Quarterly Increase

SCOTTSDALE, Ariz. (Sept. 13, 2006) – Rural/Metro Corporation (Nasdaq: RURL), a leading provider of medical transportation and private fire protection services, announced today unaudited financial results for its fourth quarter and fiscal year ended June 30, 2006.

The company may file for an extension of the date to file its Annual Report on Form 10-K for the fiscal year ended June 30, 2006, as management may need additional time to complete the related financial statements and disclosures. Management expects final results to be consistent with the unaudited results announced today.

Jack Brucker, President and Chief Executive Officer, said, “We are pleased with our fourth quarter and full year performance as well as our ability to achieve consistent growth in revenue, EBITDA and operating income. We continued to benefit from ongoing market expansion efforts, the addition of new contracts, and rate increases applied to offset higher costs of providing quality medical care. Labor and operating expenses reflected continuing improvement, and the provision for doubtful accounts began to stabilize.”

Results of Operations for the Three Months Ended June 30, 2006

Net revenue for the fourth quarter increased 7.1 percent, or $9.2 million, to $139.1 million, compared to $129.9 million in the fourth quarter of the prior year. Revenue growth reflected an increase in the demand for medical transportation and subscription fire protection services, new contract activities, and rate increases.

Total operating expenses were $124.7 million, an increase of 3.0 percent or $3.6 million, compared to total operating expenses of $121.1 million in the prior year. Payroll and employee benefits increased $1.1 million, or 1.7 percent over the prior year, primarily due to a $4.4 million increase in wages related to greater medical transport activity and general wage rate increases, offset by a $2.2 million reduction in workers’ compensation insurance costs, and a $2.1 million reduction in management incentive expense related to bonuses paid in connection with the company’s fiscal 2005 debt refinancing. Payroll and employee benefits as a percentage of net


revenue improved to 48.3 percent from 50.9 percent in the prior year. Other operating expenses decreased by $1.7 million, related primarily to a $1.4 million decrease in professional fees and a $0.4 million decrease in general liability insurance costs. These improvements were partially offset by a $1.5 million increase in operating supplies related to increased transports. The provision for doubtful accounts increased $4.1 million, which is discussed below.

Operating income for the three months ended June 30, 2006 was $14.4 million, an increase of $5.6 million or 64.1 percent, compared to $8.8 million for the same period last year.

The company generated fourth-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of $15.5 million, an increase of 28.4 percent, compared with EBITDA of $12.1 million in the same quarter last year.

The company regards EBITDA, which is widely used by analysts, investors, creditors, and other interested parties, as relevant and useful information. The company provides this information to permit additional analysis of its ability to meet future debt service, capital expenditures, and working capital requirements. Additionally, management uses this information to evaluate the performance of the company’s operating units. EBITDA is not intended to represent cash provided by operating activities as defined by generally accepted accounting principles (GAAP), and it should not be considered as an indicator of operating performance or an alternative to cash provided by operating activities as a measure of liquidity. A reconciliation of EBITDA to GAAP financial measures is included with this release.

Net income was $1.2 million or $0.05 per diluted share, including a $1.2 million, or $0.05 per diluted share, loss from discontinued operations. This compared to net income of $83.8 million, or $3.37 per diluted share in the fourth quarter of fiscal 2005, which included a $1.4 million, or $0.06 per diluted share, loss from discontinued operations. The decrease from the prior-year period is primarily attributable to an $83.9 million, or $3.37 per diluted share, deferred tax benefit recognized in the fourth quarter of fiscal 2005. The deferred tax benefit resulted from management’s determination that the company’s deferred tax assets, primarily those relating to its net operating loss carryforward, would be realized in the future.

Results of Operations for the Fiscal Year Ended June 30, 2006

For the fiscal year ended June 30, 2006, net revenue increased 9.4 percent to $548.5 million, compared to $501.5 million for fiscal 2005. Annual revenue growth reflected an increase in the demand for medical transportation and subscription fire protection services, new contract activities, and rate increases.

Total operating expenses were $496.9 million, an increase of 7.3 percent or $33.9 million, compared to total operating expenses of $463.0 million in the prior year. Payroll and employee benefits increased $10.8 million, or 4.2 percent, over the prior year, primarily due to an $18.3 million increase in wages related to greater medical transport activity and general wage rate increases. These increases in payroll and employee benefits were partially offset by a $4.9 million decrease in workers’ compensation insurance costs, and a $3.5 million reduction in management incentive expense related to bonuses paid in connection with the company’s fiscal 2005 debt refinancing. As a percentage of net revenue, payroll and employee benefits improved to 48.9 percent from 51.4 percent. Other operating expenses increased $7.0 million which included a $2.6 million increase in fuel expense primarily driven by an overall increase in the cost of fuel, a $2.4 million increase in professional fees related to market share protection efforts and an amendment to the company’s credit facility, and a $2.0 million increase in contractual service and

 

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management fees related to increased transports. These expenses were partially offset by a $3.2 million reduction in general liability insurance costs. The provision for doubtful accounts increased $16.9 million, which is discussed below.

Operating income for fiscal 2006 was $51.6 million, an increase of $13.1 million or 33.9 percent, compared to $38.5 million for the same period last year.

The company generated EBITDA of $54.2 million in fiscal 2006, an increase of 13.9 percent, compared to $47.6 million in fiscal 2005.

For fiscal 2006, the company recorded an income tax provision of $10.9 million applicable to continuing operations. The effective tax rate for the 12-month period applicable to continuing operations was 51.6 percent, which differs from the federal statutory rate of 35.0 percent primarily due to the non-deductible portion of non-cash interest expense related to the Company’s 12.75% Senior Discount Notes, non-deductible executive compensation expense, and state income taxes. Cash payments for income taxes for fiscal 2006 totaled $0.6 million.

Net income for the fiscal year was $3.5 million or $0.14 per diluted share, including a $5.9 million, or $0.24 per diluted share, loss from discontinued operations. This compared to net income of $88.3 million, or $3.66 per diluted share in fiscal 2005. The decrease from the prior year is primarily attributable to the previously mentioned deferred income tax benefit recognized in the fourth quarter of fiscal 2005. In addition, 2005 results included an $8.2 million, or $0.34 per diluted share, loss on the early extinguishment of debt reported in the third quarter.

Certain items affecting fiscal 2006 results included respective $5.7 million and $0.8 million pre-tax losses related to the company’s exit from the New Jersey and Augusta, Georgia, medical transportation markets, and recognition of a $2.5 million pre-tax charge related to an ongoing government investigation into certain of the company’s former Texas operations. These amounts are included in the loss from discontinued operations in fiscal 2006.

Provision for Doubtful Accounts

The provision for doubtful accounts for the fiscal year ended June 30, 2006 was $98.9 million, representing 18.0 percent of net revenue, compared to $82.0 million, or 16.4 percent of net revenue, in 2005.

The $16.9 million year-over-year increase in the provision for doubtful accounts related to:

 

    Growth in medical transportation revenue: $7.7 million related to the expected level of provisioning for overall growth in medical transportation revenue across all payer classes.

 

    Rate increases: Rate increases are applicable to select classes of payers, primarily commercial insurers. The company increased its provision for doubtful accounts $4.9 million related to other payers.

 

    Billing center consolidation: The company consolidated three regional billing centers during fiscal 2006, resulting in a lengthening of the collection cycle and a related $2.8 million increase in the provision for doubtful accounts.

 

    Slowing of collections: A slowing of collections related to invoices for patients covered by certain forms of government insurance caused the company to increase the provision for doubtful accounts by $2.3 million. These collections related primarily to Medicare Advantage and Arizona Medicaid invoices. This was partially offset by improved collections in certain service areas of $0.8 million.

 

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“We believe that our provision for doubtful accounts began to stabilize during the fourth quarter, with overall collections showing gradual improvement,” Mr. Brucker said. “Collections also began to improve on accounts affected by the consolidation this year of three regional billing centers. We continue to work with Medicaid managed-care payers in Arizona to collect on accounts that have been subject to an extended payment cycle. While we have made some progress, there are accounts that remain unpaid.”

The company also identified a matter related to certain invoices for patients enrolled in Medicare Advantage plans, which is a new option for beneficiaries seeking prescription drug and healthcare benefits. The matter centers on the patient’s ability to enroll in, un-enroll from or switch Medicare Advantage plans during Medicare’s open enrollment period from January 1, 2006 through June 30, 2006.

“We have experienced an increasing number of invoices that must be resubmitted to alternative Medicare Advantage payers because the patients elected to change plan providers during the open enrollment period,” Mr. Brucker explained. “Our efforts to address this issue include the utilization of software to verify eligibility for patients enrolled in Medicare Advantage programs. We believe the invoices ultimately will be paid; however, we have experienced a lengthening of the collection cycle that is reflected in an increase in days sales outstanding.”

Key Operating Statistics

Following is a presentation of certain of the company’s key operating statistics. Medical transports and net/net EMS APC statistics have been adjusted to eliminate discontinued operations.

 

     Q4 ‘05
(6/30/05)
  

Q1 ‘06

(9/30/05)

  

Q2 ‘06

(12/31/05)

  

Q3 ‘06

(3/31/06)

  

Q4 ‘06

(6/30/06)

Medical Transports (1)

     255,185      259,288      260,697      263,157      262,580

Net/Net EMS Average Patient Charge (APC) (2)

   $ 337    $ 340    $ 345    $ 340    $ 338
Days Sales Outstanding (DSO) (3)      45      46      47      50      52

 

(1) Medical transports from continuing operations are defined as actual emergency and non-emergency patient transports.

 

(2) Net/Net EMS APC is defined as gross medical transport revenue less provisions for discounts applicable to Medicare, Medicaid and other third-party payers and doubtful accounts divided by emergency and non-emergency transports from continuing operations.

 

(3) DSO is calculated using the average accounts receivable balance on a rolling 13-month average and net revenue on a rolling 12-month basis and has not been adjusted to eliminate discontinued operations.

 

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Conference Call to Discuss Results

The company will discuss these results in a conference call today beginning at 2 p.m. Pacific/5 p.m. Eastern. To access the conference call, dial (800) 289-0494 (domestic), or (913) 981-5520 (international). The call also will be broadcast live on the company’s web site at www.ruralmetro.com. A telephone replay will be available from 6 p.m. (Eastern) today through midnight (Eastern) September 14, 2006. To access the replay, dial (888) 203-1112. From international locations, dial (719) 457-0820. The required pass code is 3451114. An archived webcast also will be available for 90 days following the call at www.ruralmetro.com.

About Rural/Metro

Rural/Metro Corporation provides emergency and non-emergency medical transportation, fire protection, and other safety services in 23 states and approximately 400 communities throughout the United States. For more information, visit the company’s web site at www.ruralmetro.com.

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, timely completion of the fiscal 2006 audit reflecting results consistent with the unaudited results presented herein; the company’s ability to collect its accounts receivable; competitors’ actions; litigation and regulatory matters; and the company’s ability to sustain operating cash flow, secure new contracts, retain existing contracts, and improve earnings and operating margins. Additional factors that could affect the company are described in its Form 10-K for the year ended June 30, 2005 under the caption “Risk Factors” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections and its Form 10-K for the year ended June 30, 2006 in “Item 1A – Risk Factors,” and other factors as described from time to time in the company’s SEC filings. The company disclaims any obligation to update its forward-looking statements.

(RURL/F)

 

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RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEET

(unaudited)

(in thousands, except share and per share data)

 

     June 30,
2006
    June 30,
2005
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 3,041     $ 17,688  

Short-term investments

     6,201       —    

Accounts receivable, net

     83,367       71,986  

Inventories

     13,135       12,743  

Deferred tax assets

     9,461       10,110  

Prepaid expenses and other

     3,702       9,449  
                

Total current assets

     118,907       121,976  

Property and equipment, net

     45,970       41,402  

Goodwill

     38,362       39,344  

Deferred tax assets

     69,657       75,551  

Insurance deposits

     2,842       9,037  

Other assets

     23,454       26,818  
                

Total assets

   $ 299,192     $ 314,128  
                

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY (DEFICIT)

    

Current liabilities:

    

Accounts payable

   $ 13,957     $ 14,738  

Accrued liabilities

     38,594       42,327  

Deferred revenue

     21,342       19,429  

Current portion of long-term debt

     37       1,497  
                

Total current liabilities

     73,930       77,991  

Long-term debt, net of current portion

     291,337       305,478  

Other liabilities

     25,332       27,846  
                

Total liabilities

     390,599       411,315  
                

Minority interest

     2,065       1,456  
                

Stockholders’ equity (deficit):

    

Preferred stock, $0.01 par value, 2,000,000 shares authorized, zero shares issued and outstanding at both June 30, 2006 and 2005

     —         —    

Common stock, $0.01 par value, 40,000,000 shares authorized, 24,495,518 and 24,117,499 shares issued and outstanding at June 30, 2006 and 2005, respectively

     245       241  

Additional paid-in capital

     153,955       152,305  

Treasury stock, 96,246 shares at both June 30, 2006 and 2005

     (1,239 )     (1,239 )

Accumulated deficit

     (246,433 )     (249,950 )
                

Total stockholders’ equity (deficit)

     (93,472 )     (98,643 )
                

Total liabilities, minority interest and stockholders’ equity (deficit)

   $ 299,192     $ 314,128  
                


RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Three Months Ended June 30, 2006 and 2005

(unaudited)

(in thousands, except per share amounts)

 

     2006     % of
Net revenue
    2005     % of
Net revenue
 

Net revenue

   $ 139,150     100.0 %   $ 129,904     100.0 %
                    

Operating expenses:

        

Payroll and employee benefits

     67,200     48.3 %     66,083     50.9 %

Provision for doubtful accounts

     25,796     18.5 %     21,723     16.7 %

Depreciation and amortization

     2,916     2.1 %     2,715     2.1 %

Other operating expenses

     28,785     20.7 %     30,531     23.5 %

(Gain) loss on sale of assets

     (9 )   —         38     —    
                    

Total operating expenses

     124,688     89.6 %     121,090     93.2 %
                    

Operating income

     14,462     10.4 %     8,814     6.8 %

Interest expense

     (7,875 )   (5.7 %)     (7,534 )   (5.8 %)

Interest income

     123     0.1 %     72     0.1 %
                    

Income from continuing operations before income taxes and minority interest

     6,710     4.8 %     1,352     1.0 %

Income tax (provision) benefit

     (4,148 )   (3.0 %)     83,982     64.6 %

Minority interest

     (108 )   (0.1 %)     (62 )   (0.0 %)
                    

Income from continuing operations

     2,454     1.8 %     85,272     65.6 %

Loss from discontinued operations, net of income taxes

     (1,241 )   (0.9 %)     (1,430 )   (1.1 %)
                    

Net income

   $ 1,213     0.9 %   $ 83,842     64.5 %
                    

Income per share:

        

Basic -

        

Income from continuing operations

   $ 0.10       $ 3.63    

Loss from discontinued operations

     (0.05 )       (0.06 )  
                    

Net income

   $ 0.05       $ 3.57    
                    

Diluted -

        

Income from continuing operations

   $ 0.10       $ 3.43    

Loss from discontinued operations

     (0.05 )       (0.06 )  
                    

Net income

   $ 0.05       $ 3.37    
                    

Average number of common shares outstanding - Basic

     24,468         23,475    
                    

Average number of common shares outstanding - Diluted

     24,910         24,910    
                    


RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Years Ended June 30, 2006 and 2005

(unaudited)

(in thousands, except per share amounts)

 

     2006     % of
Net revenue
    2005     % of
Net revenue
 

Net revenue

   $ 548,501     100.0 %   $ 501,514     100.0 %
                    

Operating expenses:

        

Payroll and employee benefits

     268,491     48.9 %     257,737     51.4 %

Provision for doubtful accounts

     98,929     18.0 %     82,016     16.4 %

Depreciation and amortization

     11,197     2.0 %     10,608     2.1 %

Other operating expenses

     119,588     21.8 %     112,543     22.4 %

(Gain) loss on sale of assets

     (1,311 )   (0.2 %)     72     —    
                    

Total operating expenses

     496,894     90.6 %     462,976     92.3 %
                    

Operating income

     51,607     9.4 %     38,538     7.7 %

Interest expense

     (31,025 )   (5.7 %)     (29,567 )   (5.9 %)

Interest income

     548     0.1 %     293     0.1 %

Loss on early extinguishment of debt

     —       —         (8,170 )   (1.6 %)
                    

Income from continuing operations before income taxes and minority interest

     21,130     3.9 %     1,094     0.2 %

Income tax (provision) benefit

     (10,907 )   (2.0 %)     83,816     16.7 %

Minority interest

     (759 )   (0.1 %)     (102 )   —    
                    

Income from continuing operations

     9,464     1.7 %     84,808     16.9 %

Income (loss) from discontinued operations, net of income taxes

     (5,947 )   (1.1 %)     3,523     0.7 %
                    

Net income

   $ 3,517     0.6 %   $ 88,331     17.6 %
                    

Income per share:

        

Basic -

        

Income from continuing operations

   $ 0.39       $ 3.74    

Income (loss) from discontinued operations

     (0.25 )       0.16    
                    

Net income

   $ 0.14       $ 3.90    
                    

Diluted -

        

Income from continuing operations

   $ 0.38       $ 3.52    

Income (loss) from discontinued operations

     (0.24 )       0.14    
                    

Net income

   $ 0.14       $ 3.66    
                    

Average number of common shares outstanding - Basic

     24,359         22,406    
                    

Average number of common shares outstanding - Diluted

     24,842         22,406    
                    


RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

For The Years Ended June 30, 2006 and 2005

(unaudited)

(in thousands)

 

     2006     2005  

Cash flows from operating activities:

    

Net income

   $ 3,517     $ 88,331  

Adjustments to reconcile net income to net cash provided by operating activities -

    

Provision for doubtful accounts

     105,403       88,030  

Depreciation and amortization

     11,430       11,630  

Non-cash adjustments to insurance claims reserves

     (8,440 )     (6,725 )

Accretion of 12.75% Senior Discount Notes

     6,895       2,066  

Deferred income taxes

     5,893       (84,155 )

Amortization of deferred financing costs

     2,367       2,604  

(Gain) loss on sale of property and equipment

     (1,412 )     454  

Book overdraft

     1,259       —    

Goodwill impairment

     982       —    

Earnings of minority shareholder

     759       102  

Stock based compensation

     28       —    

Non-cash portion of loss on early extinguishment of debt

     —         5,668  

Tax benefit from the exercise of stock options

     —         2,202  

Amortization of debt discount

     —         17  

Change in assets and liabilities -

    

Accounts receivable

     (116,784 )     (94,668 )

Inventories

     (392 )     (1,005 )

Prepaid expenses and other

     4,245       (3,049 )

Insurance deposits

     3,744       (5,311 )

Other assets

     1,833       1,510  

Accounts payable

     (1,885 )     750  

Accrued liabilities

     451       3,597  

Deferred revenue

     1,913       1,888  

Other liabilities

     5,291       10,919  
                

Net cash provided by operating activities

     27,097       24,855  
                

Cash flows from investing activities:

    

Purchases of short-term investments

     (62,351 )     —    

Sales of short-term investments

     56,150       —    

Capital expenditures

     (16,174 )     (12,521 )

Proceeds from the sale of property and equipment

     1,806       149  
                

Net cash used in investing activities

     (20,569 )     (12,372 )
                

Cash flows from financing activities:

    

Repayment of debt

     (22,496 )     (310,948 )

Tax benefit from the exercise of stock options

     895       —    

Issuance of common stock

     731       3,050  

Distributions to minority shareholders

     (305 )     —    

Issuance of debt

     —         310,209  

Cash paid for debt issuance costs

     —         (13,478 )
                

Net cash used in financing activities

     (21,175 )     (11,167 )
                

Increase (decrease) in cash and cash equivalents

     (14,647 )     1,316  

Cash and cash equivalents, beginning of year

     17,688       16,372  
                

Cash and cash equivalents, end of year

   $ 3,041     $ 17,688  
                


RURAL/METRO CORPORATION

RECONCILIATION OF EBITDA TO CASH FLOW

PROVIDED BY OPERATING ACTIVITIES

(unaudited)

(in thousands)

 

     Three Months Ended
June 30,
    Twelve Months Ended
June 30,
 
     2006     2005     2006     2005  

Net income

   $ 1,213     $ 83,842     $ 3,517     $ 88,331  

Add back:

        

Depreciation and amortization

     2,924       2,868       12,412       11,630  

Interest expense

     7,875       7,534       31,025       29,567  

Interest income

     (123 )     (72 )     (548 )     (293 )

Income tax provision (benefit)

     3,641       (82,071 )     7,767       (81,674 )
                                

EBITDA

     15,530       12,101       54,173       47,561  

Increase (decrease):

        

Interest expense

     (7,875 )     (7,534 )     (31,025 )     (29,567 )

Interest income

     123       72       548       293  

Income tax (provision) benefit

     (3,641 )     82,071       (7,767 )     81,674  

Provision for doubtful accounts

     25,877       23,429       105,403       88,030  

Non-cash adjustments to insurance claims reserves

     (6,053 )     (6,089 )     (8,440 )     (6,725 )

Accretion of 12.75% Senior Discount Notes

     1,818       1,586       6,895       2,066  

Deferred income taxes

     3,374       (84,155 )     5,893       (84,155 )

Amortization of deferred financing costs

     575       672       2,367       2,604  

(Gain) loss on sale of property and equipment

     (110 )     420       (1,412 )     454  

Book overdraft

     1,259       —         1,259       —    

Earnings of minority shareholder

     108       62       759       102  

Stock based compensation

     5       —         28       —    

Non-cash portion of loss on early extinguishment of debt

     —         —         —         5,668  

Tax benefit from the exercise of stock options

     —         2,043       —         2,202  

Amortization of debt discount

     —         —         —         17  

Changes in operating assets and liabilities

     (19,290 )     (7,908 )     (101,584 )     (85,369 )
                                

Net cash provided by operating activities

   $ 11,700     $ 16,770     $ 27,097     $ 24,855