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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996 Commission file number 0-22056
Rural/Metro Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-0746929
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
8401 East Indian School Road, Scottsdale, Arizona 85251
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(602) 994-3886
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Securities registered pursuant to Section 12(b) of the Act:
None
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Title of each Class
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
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(Title of class)
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
As of September 24, 1996, the aggregate market value of the voting
stock held by non-affiliates of the registrant, computed by reference to the
average sales price of such stock as of such date on the Nasdaq National Market,
was $322,276,891. Shares of Common Stock held by each officer and director and
by each person who owned 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive.
As of September 24, 1996, there were 11,353,874 shares of the
registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's 1996 Annual Meeting of Stockholders are incorporated by reference
in Part III hereof.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I .................................................................. 2
ITEM 1. BUSINESS................................................... 2
ITEM 2. PROPERTIES................................................. 22
ITEM 3. LEGAL PROCEEDINGS.......................................... 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 23
PART II ................................................................. 24
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................... 24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA....................... 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................... 33
PART III ................................................................ 34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........ 34
ITEM 11. EXECUTIVE COMPENSATION.................................... 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................ 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 34
PART IV ................................................................. 35
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.............................................. 35
SIGNATURES .............................................................. 39
FINANCIAL STATEMENTS .................................................... F-1
</TABLE>
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company provides "911" emergency and general transport ambulance
services, fire protection services, and other safety or health care related
services to municipal, residential, commercial, and industrial customers. The
Company believes that it is the only multi-state provider of both ambulance and
fire protection services in the United States and that it ranks as one of the
largest private-sector providers of ambulance services and the largest
private-sector provider of fire protection services. The Company currently
serves over 150 communities located in Alabama, Arizona, Florida, Georgia,
Indiana, Iowa, Kentucky, Louisiana, Nebraska, New York, Ohio, Oregon,
Pennsylvania, South Carolina, South Dakota, Tennessee, and Texas. Ambulance
services and fire protection services accounted for approximately 79% and 15%,
respectively, of the Company's revenue for the fiscal year ended June 30, 1996.
Founded in 1948, the Company has been instrumental in the development
of protocols and policies applicable to the emergency services industry. The
Company has grown significantly since the late 1970s both through internal
growth and through acquisitions. To manage this growth, the Company invested in
the development of management and operational systems that have resulted in
productivity gains and increased profitability. The Company believes its current
systems and controls position it to continue its growth internally as well as
through acquisitions and enable it to operate profitably in both large and small
communities. The Company completed four acquisitions in the fiscal year ended
June 30, 1993, eight acquisitions in the fiscal year ended June 30, 1994, 11
acquisitions in the fiscal year ended June 30, 1995, and 18 acquisitions in the
fiscal year ended June 30, 1996.
Based on generally available industry data, the Company believes that
expenditures for ambulance services in the United States exceeded $4 billion in
1994. Various factors, including the growth and aging of the population, and
trends towards the use of outpatient services and specialized treatment
facilities in an effort to contain health care costs have increased the demand
for ambulance services. At the same time, industry factors have increased the
standards of pre-hospital emergency care and have required faster ambulance
response times, increasing the capital and technological resources necessary to
provide higher levels of service. These factors, combined with the fragmented
nature of the ambulance service industry, are contributing to consolidation
within the industry. Volunteer fire departments, tax-supported fire districts,
and municipal fire departments constitute the primary providers of fire
protection services in the United States. Because emergency medical response
represents a significant portion of fire response activity within fire
departments, the Company believes that its ambulance and fire protection
services operations are complementary. The Company believes that its integration
of such services can provide operating economies, optimal coordination of the
delivery of services, efficiencies in the use of personnel and equipment, and
enhanced levels of service, especially in lower-utilization communities.
Additionally, a variety of economic pressures on the public sector have
increased opportunities for privatization and public/private partnerships in
fire protection services.
The Company pursues a strategy designed to enable it to expand its
business in existing service areas, establish additional service areas, expand
fire protection services, integrate existing services, improve productivity, and
respond to the needs of the public sector and health care providers. This
strategy includes plans to (i) acquire additional ambulance service providers
operating in metropolitan areas and in communities surrounding the metropolitan
areas that the Company currently serves or plans to serve; (ii) expand its
emergency ambulance services through the pursuit of new contracts with
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municipalities and fire districts and its general ambulance services through
increased marketing efforts to, and pursuit of other alliances with, managed
care providers and other health care providers; (iii) expand its fire protection
services into selected additional service areas through the pursuit of
opportunities to supplant or enhance services provided by volunteer fire
departments, expand its services to newly developed communities, and to
privatize or develop public/private partnerships with tax supported fire
districts and municipal fire departments; (iv) continue the integration of its
fire protection and ambulance services to maximize operational efficiencies and
synergies; and (v) improve its productivity through the more efficient
utilization of equipment and personnel.
The Company was incorporated in Arizona in 1948 and reincorporated in
Delaware in May 1993. Unless the context indicates otherwise, all references to
the "Company" refer to Rural/Metro Corporation and its subsidiaries. The Company
maintains its principal executive offices at 8401 East Indian School Road,
Scottsdale, Arizona 85251, and its telephone number is (602) 994-3886.
INDUSTRY CONSIDERATIONS
Public-sector entities, private companies, and hospitals provide
ambulance services. Public-sector entities generally serve as the first
responder to requests for such emergency ambulance services and often provide
emergency ambulance transport. When the public sector serves as first responder,
private companies often serve as the second responder and support the first
responder as needed. The private sector provides the majority of general
ambulance services. It is estimated that the ambulance service industry includes
more than 10,000 providers of service, 2,000 or more of which are private. Most
commercial providers are small companies serving one or a limited number of
markets. Several multi-state providers, including the Company, have emerged
through the acquisition and consolidation of smaller ambulance service providers
in recent years.
The growth in ambulance service expenditures has resulted from both an
increase in the number of transports and an increase in the average expenditures
per transport. The growth and aging of the population, the greater use of
outpatient care facilities and home care in response to health care cost
containment efforts, and increased patient travel between specialized treatment
health care facilities have increased the demand for emergency medical services
and general ambulance services. The increased availability of "911" emergency
service, the impact of educational programs on its use, and the practice of some
members of the population of utilizing a hospital's emergency room as the source
of their primary medical care also have increased the number of ambulance
transports. Industry considerations require ambulance service providers to
acquire more sophisticated emergency medical, dispatch, and communications
equipment, hire more highly trained personnel, and develop more sophisticated
dispatch and management systems to satisfy the faster response time and higher
quality of medical care assurance criteria required by municipalities and fire
districts for emergency ambulance services. Average expenditures per ambulance
transport have increased as a result of the additional costs to meet these
requirements. These requirements, combined with the fragmented nature of the
industry, are contributing to consolidation within the industry. Service
providers that do not have the financial or management resources to meet the
requirements for higher levels of service are candidates for acquisition.
Market reform continues to reshape the health care delivery system,
with a shift from fee-for-service providers to managed care providers. Managed
care providers are focusing on cost containment measures while seeking to
provide the most appropriate level of service at the most appropriate treatment
facility. Managed care providers are attempting to manage hospital utilization
by working with ambulance service providers to ensure transport of patients to
affiliated facilities and avoid unnecessary inter-facility transports.
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Based on the Company's experience, the Company believes that its
ambulance and fire protection services are complementary. Municipal fire
departments, tax-supported fire districts, and volunteer fire departments
constitute the principal providers of fire protection services in the United
States. In most of the communities served by municipal fire departments and
tax-supported fire districts, the fire department is the first to respond to a
call for emergency medical services. Approximately 27,000 volunteer fire
departments operate throughout the United States. Volunteer fire departments
range from departments comprised entirely of volunteer personnel to departments
that utilize one or more paid personnel located at each station supplemented by
volunteers who proceed directly to the fire scene. In addition to providing fire
protection services to municipalities and tax-supported fire districts, the
private sector also provides fire protection services to industrial complexes,
including airports, large industrial and petrochemical plants, power plants, and
other large self-contained facilities.
STRATEGY
The Company's strategy is to enhance its position as a leading provider
of emergency services in the United States. Key elements of this strategy
include the acquisition of ambulance service providers, increased marketing
efforts, expansion of fire protection services, integration of ambulance and
fire protection operations, improved productivity, and satisfying the needs of
the public sector and health care providers.
Acquisition of Ambulance Service Providers
The Company seeks acquisitions that enable it to establish new service
areas and acquisitions that enable it to expand its operations within its
existing service areas. The Company believes that the fragmented nature of the
industry, combined with the lack of capital and limited management systems that
characterize many providers, continues to provide an opportunity for the Company
to acquire additional ambulance service providers that would benefit from its
management and operational systems, resulting in productivity gains and enhanced
levels of service.
The Company considers a number of factors in evaluating a proposed
acquisition candidate, including the quality of its management and medical
personnel, its historical operating results and future earnings potential, the
size and anticipated growth of its market, its relative position within that
market, and the competition to be encountered in such market. The Company pays
special attention to those potential service areas in which it can achieve
maximum productivity by achieving market leadership over a regional area, by
utilizing its ambulances to provide both "911" emergency and general ambulance
services, and by integrating ambulance services with fire protection services.
Increased Marketing Efforts in Existing Ambulance Service Areas
In addition to expansion through acquisitions, the Company plans to
expand its general ambulance services through increased marketing efforts to
hospitals, health maintenance organizations, and other health care providers and
its emergency ambulance services through the pursuit of new contracts with
municipalities and fire districts. These efforts will focus on the increased
demand for emergency ambulance services caused by various factors, including the
growth and aging of the population, as well as on the increased use of general
ambulance services caused in part by increases in home health care, patient
travel between specialized health care facilities, and increased requirements
for transport to specific facilities operated by managed care providers. The
Company intends to respond to the needs of managed care providers by delivering
high quality, efficient, cost-effective services and the ability to transport
patients to the most appropriate treatment facility, particularly in those
geographic areas in which it has been able to achieve market leadership. The
Company expects to pursue alliances with health
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care providers through the pursuit of service contracts, the development of
relationships, and through acquisitions of health care and safety related
providers, which would provide opportunities for the Company to integrate its
services with such other service providers.
Expansion of Fire Protection Services
The Company plans to increase its efforts to expand its fire protection
services into areas not currently served by it, with particular emphasis on
areas contiguous to its existing fire protection service areas as well as on
certain areas in which the Company currently provides ambulance but not fire
protection services. In seeking to expand its fire protection services, the
Company plans to emphasize the benefits of its services in terms of lower per
capita fire service costs, reduced insurance rates, and lower loss of life and
property resulting from its extensive experience, its fire prevention
initiatives, its management and operational systems, and its system utilizing
full-time fire fighters and part-time reservists. The Company's strategy
includes efforts to provide service to businesses and residences in newly
developed communities that have not yet arranged for fire protection services as
well as in areas served by volunteer fire departments, tax-supported fire
districts, and municipal fire departments. The Company plans to respond to the
economic pressures on the public sector to reduce taxes and expenditures for
emergency services by offering the opportunity for the privatization of tax-
supported fire districts and municipal fire departments or for the establishment
of public/private partnerships with fire districts and municipalities. The
Company also intends to pursue opportunities to provide fire protection services
to large industrial complexes, including airports, large industrial and
petrochemical plants, power plants, and other self-contained facilities.
Integration of Ambulance and Fire Protection Services
Building upon the Company's successful integration of ambulance and
fire services under its contract with the City of Scottsdale, the Company plans
to continue the integration of its fire and ambulance services in certain of its
service areas and to pursue opportunities to provide integrated services in new
service areas. The Company believes that its integration of such services can
provide operating economies, optimal coordination of the delivery of services,
efficiencies in the use of personnel and equipment, and enhanced levels of
service, especially in lower-utilization communities.
Productivity Improvement and Enhancement
The Company intends to utilize its management and operational systems
to achieve enhanced productivity and profitability in its existing operations
and in acquired operations. The centralization of key management and operating
systems permits the Company to achieve economies of scale at both the
operational and corporate levels.
The Company believes that the achievement of its goal of establishing
market leadership in its various service areas (through initial acquisitions,
follow-on acquisitions, alliances, and internal growth) will enable it to
continue to improve its productivity in those areas by enabling it to more
efficiently utilize its equipment and personnel, to better serve large regional
health care providers, and to more effectively market its services. In certain
cases, follow-on acquisitions in existing service areas enable the Company to
enhance its productivity in that service area to an extent greater than the size
of the acquisition itself.
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CURRENT SERVICE AREAS
The following table sets forth certain information with respect to the
Company's current service areas. The Company provides its ambulance services
pursuant to a contract or certificate of necessity on an exclusive or
nonexclusive basis. It provides "911" emergency ambulance services primarily
pursuant to contracts or as a result of providing fire protection services.
Ambulance service contracts in some service areas provide for the payment of a
subsidy to the Company. In some service areas, the Company is the only provider
of both emergency and general ambulance services. In other service areas, the
Company competes for general ambulance services. In all service areas, the
Company responds to "911" emergency calls if requested by a municipality or fire
district, even in the absence of a contract. The Company provides fire
protection services under the name Rural/Metro Fire Department. Fire protection
services are provided pursuant to master contracts or on a subscription basis.
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<TABLE>
<CAPTION>
INCEPTION OF SERVICE OR
LOCATION TYPE OF SERVICE DATE OF ACQUISITION
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<S> <C> <C> <C>
ALABAMA Baldwin County ambulance 1996
Montgomery ambulance 1996
ARIZONA Scottsdale fire and ambulance 1951 and 1984
Maricopa County(1) fire and ambulance 1948 and 1976
Phoenix Metro Area ambulance 1984
Tucson Metro Area and fire and ambulance 1969 and 1972
Pima County
Yuma and Yuma County fire and ambulance 1969 and 1981
FLORIDA Orange County and Orlando
Metro Area ambulance 1984
Pensacola and Panhandle Area ambulance 1994
GEORGIA Gainesville/Northeast Georgia ambulance 1995
Augusta ambulance 1995
INDIANA Indianapolis Metro Area ambulance 1995
Terre Haute ambulance 1995
Anderson ambulance 1995
Richmond ambulance 1995
IOWA Council Bluffs Area ambulance 1994
KENTUCKY Covington ambulance 1996
LOUISIANA England Industrial Park fire 1995
NEBRASKA Lincoln/Omaha Metro Areas ambulance 1994
NEW YORK Syracuse Metro Area ambulance 1994
Rochester Metro Area ambulance 1994
Buffalo Metro Area ambulance 1995
Corning Metro Area ambulance 1995
Village of Rye Brook fire 1996
Niagara Falls ambulance 1996
OHIO Cleveland Metro Area ambulance 1994
Columbus Metro Area ambulance 1994
Port Columbus Airport fire 1995
Akron ambulance 1994
Youngstown/Eastern Ohio ambulance 1995
Cincinnati Metro Area ambulance 1996
OREGON Grants Pass Area fire 1995
PENNSYLVANIA Northwestern Pennsylvania ambulance 1995
SOUTH CAROLINA Columbia Metro Area ambulance 1995
Charleston Metro Area ambulance 1996
SOUTH DAKOTA Sioux Falls ambulance 1996
TENNESSEE Knoxville Metro Area fire and ambulance 1977 and 1985
Anderson County ambulance 1995
Blount County ambulance 1985
Cocke County ambulance 1995
TEXAS Houston Metro Area ambulance 1988
Borger ambulance 1985
Pampa ambulance 1985
Waco ambulance 1982
Abilene ambulance 1992
Polk County ambulance 1992
Dallas Metro Area ambulance 1992
Montgomery County ambulance 1995
Arlington ambulance 1996
</TABLE>
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(1) Certain incorporated areas and a substantial portion of unincorporated
Maricopa County.
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AMBULANCE SERVICES
Emergency Medical Services
The Company generally provides emergency medical ambulance services
pursuant to contracts with counties, fire districts, and municipalities. These
contracts typically appoint the Company as the exclusive provider of "911"
emergency ambulance services in designated service areas and require the Company
to respond to every "911" emergency medical call in those areas. The Company
responds to virtually all "911" calls with advanced life support ("ALS")
ambulance units. The Company staffs its ALS ambulance units with two paramedics
or one paramedic and an emergency medical technician ("EMT") and equips such
units with ALS equipment (such as cardiac monitors, defibrillators, and oxygen
delivery systems) as well as pharmaceuticals and medical supplies.
Upon arrival at an emergency, the ALS crew members deploy portable life
support equipment, ascertain the patient's medical condition and, if required,
begin life support techniques and procedures that may include airway intubation,
cardiac monitoring, defibrillation of cardiac arrhythmias, and the
administration of medications and intravenous solutions. The crew also may
perform basic life support ("BLS") services which include basic airway
management, hemorrhage control, stabilization of fractures, emergency
childbirth, and basic vehicle extrication. As soon as medically appropriate, the
patient is placed on a portable gurney and carried into the ambulance. While a
paramedic monitors and treats the patient, the other crew member drives the
ambulance to a hospital designated either by the patient or the applicable
medical protocol. En route, the ALS crew alerts the hospital regarding the
patient's medical condition, and if necessary, the attending paramedic seeks
advice from a hospital emergency room physician as to treatment. Upon arrival at
the hospital, the patient generally is taken to the emergency room.
General Ambulance Services
The Company provides general ambulance services to patients requiring a
basic level of medical supervision during transfer to and from residences and
health care facilities. These services may be provided when a home-bound patient
requires examination or treatment at a health care facility or when a hospital
inpatient requires tests or treatments (such as MRI testing, CAT scans,
dialysis, or chemotherapy treatment) available at another facility. The Company
utilizes ALS or BLS ambulance units to provide general ambulance services
depending on the patient's needs and the proximity of available units. The
Company staffs its BLS ambulance units with two EMTs and equips such units with
medical supplies and equipment necessary to administer first aid and basic
medical treatment.
The Company also provides critical care transport services to medically
unstable patients (such as cardiac patients and neonatal patients) who require
critical care while being transported between health care facilities. Critical
care services differ from ALS services in that the ambulance may be equipped
with additional medical equipment and may be staffed by a medical specialist
provided by the Company or by a health care facility to attend to a patient's
special medical needs.
In addition to ambulance services, the Company provides nonmedical
transportation for the handicapped and the elderly in certain service areas.
Such transportation generally takes place between residences or nursing homes
and hospitals or other health care facilities. In providing this service, the
Company utilizes vans that contain hydraulic wheelchair lifts or ramps operated
by drivers who generally are trained in cardiopulmonary resuscitation ("CPR").
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The Company provides general ambulance services, critical care
transports, and nonmedical transportation services pursuant to contracts with
health care facilities or at the request of a patient. Such services may be
scheduled in advance or provided on an as needed basis. Contracts with managed
care providers provide for reimbursement on a per transport basis or on a
"capitated" basis under which the Company receives a fixed fee per person per
month.
Medical Personnel and Quality Assurance
Paramedics and EMTs must be state certified in order to transport
patients and to perform emergency care services. Certification as an EMT
requires completion of a minimum of 164 hours of training in a program
designated by the United States Department of Transportation and supervised by
state authorities. EMTs also may complete advanced training courses to become
certified to provide certain additional emergency care services, such as
administration of intravenous fluids and advanced airway management. In addition
to completion of the EMT training program, the certification as a paramedic
requires the completion of more than 800 hours of training in advanced patient
care assessment, pharmacology, cardiology, and clinical and field skills. Many
of the paramedics currently employed by the Company served as EMTs for the
Company prior to their certification as paramedics.
Local physician advisory boards develop medical protocols to be
followed by paramedics and EMTs in a service area. In addition, instructions are
conveyed on a case-by-case basis through direct communications between the
ambulance crew and hospital emergency room physicians during the administration
of advanced life support procedures. Both paramedics and EMTs must complete
continuing education programs and, in some cases, state supervised refresher
training examinations to maintain their certifications. Certification and
continuing education requirements for paramedics and EMTs vary among states and
counties.
The Company maintains a commitment to provide high quality pre-hospital
emergency medical care. In each location in which the Company provides services,
a medical director, who usually is a physician associated with a hospital the
Company serves, monitors adherence to medical protocol and conducts periodic
audits of the care provided. In addition, the Company holds retrospective care
audits with its employees to evaluate compliance with medical and performance
standards.
The Company was one of the first ambulance service providers to obtain
accreditation from the Commission on Accreditation of Ambulance Services, a
joint program between the American Ambulance Association and the American
College of Emergency Physicians. The process is voluntary and evaluates numerous
qualitative factors in the delivery of services. The Company believes
municipalities and managed care providers will consider accreditation as one of
the criteria in awarding contracts in the future.
FIRE PROTECTION SERVICES
Fire protection services consist primarily of fire prevention and fire
suppression. Other fire protection related activities include hazardous material
containment, underwater search and recovery, mountain and confined space rescue,
and public education. The Company provides various levels of fire protection
services ranging from fire stations that are fully staffed 24 hours per day to
unmanned reserve stations. The Company generally provides its services to
municipalities and other governmental bodies pursuant to master contracts or
certificates of necessity and to residences, commercial establishments, and
industrial complexes pursuant to subscription fee and other fee-for-service
arrangements. Federal and state governments contract with the Company from time
to time to suppress forest fires or wildfires on government lands.
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The Company has placed fire prevention and education in the forefront
of its fire protection services and has developed a comprehensive program to
prevent and minimize fires rather than emphasizing a standing army to respond to
fires that occur. The Company believes that effective fire protection requires
the intensive training of personnel, the effective utilization of fire
equipment, the establishment of effective communication centers for the receipt
of emergency calls and the dispatch of equipment and personnel, the
establishment and enforcement of strict fire codes, and community educational
efforts.
The Company seeks to provide quality fire protection services at
reduced costs. The Company believes that it provides fire protection services at
a cost significantly lower than the national average as a result of its emphasis
on fire prevention, its advanced systems, and its use of a combination of
full-time fire fighters and part-time reservists. Based upon generally available
industry data, the Company believes that fire loss per capita in the areas
serviced by the Company has been substantially less than the national average.
Fire Protection Personnel
The Company's ability to provide its fire protection services at
relatively low costs results from its efficient use of personnel in addition to
its fire prevention efforts. Typically, personnel costs represent more than two-
thirds of the cost of providing fire protection services. The Company has been
able to reduce its labor costs through a system that utilizes full-time
firefighters complemented by paid part-time reservists as well as a modified
every other day shift schedule. By using trained reservists on an as needed
basis, the Company has the ability to utilize full-time fire fighters on a
cost-effective basis. Reservists comprise approximately 45% of the Company's
operational work force.
All full-time and reservist firefighters undergo extensive training,
which exceed the standards established by the National Fire Protection
Association ("NFPA"), and must qualify for state certification before being
eligible for full-time employment by the Company. Since approximately 70% to 80%
of the Company's fire response activity consists of emergency medical response,
all of the Company's firefighters are trained EMTs and some firefighters are
paramedics. Ongoing training includes instruction in new fire service tactics
and fire fighting techniques as well as continual physical conditioning.
Fire Response
An alarm typically results in the dispatch of one or more engine
companies (each of which consists of an engine and two to four firefighters,
including a captain), a fire chief, and such other equipment as circumstances
warrant. The amount of equipment and personnel depends upon the type, location,
and severity of the incident. The Company generally responds to emergency
medical calls and small fires (such as grass or dumpster fires not involving the
risk of spreading) with a single engine staffed by two firefighters. The Company
utilizes its dispatch capabilities to reposition equipment and firefighters to
maximize the availability and use of resources in a cost-effective manner.
Fire Prevention
The Company believes that fire prevention programs result in both lower
fire loss and significant overall cost savings. The Company's fire prevention
programs include advice and recommendations for and the encouragement of various
fire prevention methods, including fire code design, building design to inhibit
the spread of fire, the design of automatic fire suppression sprinklers, fire
detector and smoke detector installations, the design of monitoring and alarm
systems, the
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placement and inspection of fire hydrants, fire code inspection and enforcement,
and the determination of fire cause and origin in arson suspected fires. In
addition, the Company's personnel perform community education programs designed
to reduce the risk of fire and increase the Company's community profile.
The Company believes that its long standing public/private relationship
with the City of Scottsdale provides an example of an effective, cost-efficient
fire protection program. The Scottsdale program emphasizes the Company's
philosophy of fire prevention. With the cooperation and assistance of the
Company, the City of Scottsdale has designed comprehensive fire prevention
measures, including fire codes, inspections, and sprinkler and smoke detector
ordinances. The Company believes that as a result of strict fire codes, the
enactment of a sprinkler ordinance, and the effectiveness of the services
provided by the Company, Scottsdale's per capita cost for fire protection is 46%
lower than the national average and that its per capita fire loss is more than
200% less than the national average.
FIRE TRAINING SERVICES AND PROTECTION SERVICES
The Company has instituted industrial fire training services and
protection services and provides sophisticated training for industrial,
professional, and specialized firefighters using live burn training to simulate
realistic firefighting situations. The training permits fire brigade and
emergency response teams to meet increased federal training requirements, the
Occupational Safety and Health Act ("OSHA"), and other regulatory requirements
for work place safety and on-site response teams.
The Company anticipates that its training services to industrial,
petrochemical, and other large private concerns will enhance its ability to
enter into contractual relationships to provide fire protection, security, and
other safety related services to these concerns and permit the complexes to
replace their fire brigades with professional firefighters and emergency
response teams. These activities have not resulted in significant revenue to
date. The combination of fire protection services with security services in
large industrial complexes has the potential to provide for greater efficiency
and utilization in the delivery of such services and to result in greatly
reduced cost to the industrial complexes for such services.
The Company is testing the use of its communications centers for home
security and home fire alarm monitoring to complement the emergency services it
offers. The Company believes protection services can be integrated with fire
protection and ambulance services for optimal efficiency and maximum
cost-effectiveness.
MANAGEMENT SYSTEMS
The Company utilizes sophisticated management systems, which it
believes enhance the productivity and profitability of the Company's existing
operations and enable it to enhance the productivity and profitability of
acquired operations. These systems permit the Company to achieve economies of
scale at the local operational level through the proper utilization of personnel
and equipment and at the corporate level through centralized systems for
billings, collections, purchasing, accounting, cash management, human resources,
risk management, and third-party reimbursement.
The Company has developed measurement systems that permit management to
monitor the performance level of each operation on a continual basis. The
Company's centralized management and information systems permit managers to
direct their attention primarily to operations. The systems include centralized
billings and collections procedures that provide for more efficient tracking and
collection of accounts receivable. Centralized purchasing permits the Company to
achieve significant discounts in the purchase of equipment and supplies through
a Company-developed catalogue from
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which managers select items needed for their operations. Centralized third-party
reimbursement allows the Company to maximize the utilization of its expertise in
Medicare, Medicaid, and other third-party payor reimbursement programs and to
ensure the most favorable classification for all of the Company's operations
under such programs.
The Company believes its investment in management systems and its
effective use of such systems represent key components in its success. The
Company's financial reporting system facilitates the Company's successful
integration of acquired companies. The Company is committed to an ongoing
enhancement of its systems to provide productive, timely information, and
effective controls and believes that its management systems have the capability
to support sustained long-term growth.
HUMAN RESOURCES
The Company strives to maximize the operational autonomy of its
managers. Managers receive extensive training in the use of management systems,
customer service, and supervisory practices. The Company's centralized human
resources division increases the Company's ability to assign the most
appropriate personnel for a position within any given operation and to reassign
personnel as necessary to meet operational needs. The human resources department
participates in all areas of training, career development, and succession
planning of employees and assesses the Company's personnel needs.
DISPATCH AND COMMUNICATIONS
The Company uses system status plans and flexible deployment systems to
position its ambulances within a designated service area because effective fleet
deployment represents a key factor in reducing response time and increasing
efficient use of resources. In certain service areas with a large volume of
calls, the Company analyzes data on traffic patterns, demographics, usage
frequency, and similar factors with the aid of computers to help it determine
optimal ambulance deployment and selection. The center that controls the
deployment and dispatch of ambulances in response to calls for ambulance service
may be owned and operated either by the applicable county or municipality or by
the Company itself. Each control center utilizes computer hardware and software
and sophisticated communications equipment and maintains responsibility for
fleet deployment and utilization 24 hours a day, seven days a week.
Depending on the emergency medical dispatch system used in a designated
service area, the public authority that receives "911" emergency medical calls
either dispatches the Company's ambulances directly from the public control
center or communicates information regarding the location and type of medical
emergency to the Company's control center which in turn dispatches ambulances to
the scene. In most service areas, the Company's control center receives the
calls from the police after the police have determined the call is for emergency
medical services. When the Company receives the "911" call, it dispatches one or
more ambulances directly from its control center while the call taker
communicates with the caller. All call takers and dispatchers are trained EMTs
with additional training that enables them to instruct a caller about applicable
emergency medical procedures, if necessary. In the Company's larger control
centers, a computer assists the dispatcher by analyzing a number of factors,
such as time of day, ambulance location, and historical traffic patterns, in
order to recommend optimal ambulance selection. In all cases, a dispatcher
selects and dispatches the ambulance. While the ambulance is en route to the
scene, the ambulance receives information concerning the patient's condition
prior to the ambulance's arrival at the scene.
The Company's communication systems allow the ambulance crew to
communicate directly with the destination hospital to alert hospital medical
personnel of the arrival of the patient and the patient's
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<PAGE> 14
condition and to receive instructions directly from emergency room personnel on
specific pre-hospital medical treatment. These systems also facilitate close and
direct coordination with other emergency service providers, such as the
appropriate police and fire departments, that also may be responding to a call.
Deployment and dispatch also represent important factors in providing
non-emergency ambulance services. The Company implements system status plans for
these services designed to assure appropriate response times to non-emergency
calls.
The Company utilizes communication centers in its fire protection
activities for the receipt of fire alarms and the dispatch of equipment and
personnel that are the same as or similar to those maintained for its ambulance
services. Response time represents an important criteria in the effectiveness of
fire suppression. Depending upon the area served, the Company's response time
from the receipt of a call to the arrival on the scene generally varies from 4
to 15 minutes. Response times depend on the level of protection sought by the
Company's customers in terms of fire station spacing, the size of the service
area covered, and the amount of equipment and personnel dedicated to fire
protection.
BILLINGS AND COLLECTIONS
The Company currently maintains twelve billing and payment processing
centers and a centralized billing and collection system at its headquarters in
Arizona. Invoices are generated at the regional level, and the account is
processed by the centralized system only if payment is not received in a timely
manner. Customer service is directed from each of the regional centers.
The Company derives a substantial portion of its ambulance fee
collections from reimbursement by third-party payors, including payments under
Medicare, Medicaid, and private insurance programs, typically invoicing and
collecting payments directly to and from those third-party payors. The Company
also collects payments directly from patients, including payments under
deductible and co-insurance provisions and otherwise. During fiscal 1994, 1995,
and 1996, the Company derived approximately 35%, 33%, and 27%, respectively, of
its net ambulance fee collections from Medicare, 11%, 12%, and 11%,
respectively, from Medicaid, 37%, 40%, and 41%, respectively, from private
insurers (including prepaid health plans and other non-government sources), and
17%, 15%, and 21%, respectively, directly from patients. Companies in the
ambulance service industry maintain high provisions for doubtful accounts
relative to companies in other industries. Collection of complete and accurate
patient billing information during an emergency service call is sometimes
difficult, and incomplete information hinders post-service collection efforts.
In addition, it is not possible for the Company to evaluate the creditworthiness
of patients requiring emergency transport services. The Company's allowance for
doubtful accounts generally is higher with respect to revenue derived directly
from patients than for revenue derived from third-party payors and generally is
higher for transports resulting from "911" emergency calls than for general
transport requests.
The Company has substantial experience in processing claims to
third-party payors and employs a collection staff specifically trained in
third-party coverage and reimbursement procedures. The Company uses specialized
proprietary software systems to specifically tailor the submission of claims to
Medicare, Medicaid, and certain other third-party payors and has the capability
to electronically submit claims to the extent third-party payors systems permit.
The Company's systems provide for accurate tracking of accounts receivable and
status pending payment, which facilitates the effective utilization of personnel
resources to resolve workload distribution and problem invoices. The Company
uses an automated dialer that preselects and dials accounts based on their
status within the billing and
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<PAGE> 15
collection cycle, which optimizes the efficiency of the collection staff. The
Company believes that its experience in processing third-party claims reduces
the collection time of its receivables and results in fewer rejected claims
based on incomplete or inaccurate information.
State licensing requirements as well as contracts with counties,
municipalities, and health care facilities typically require the Company to
provide ambulance services without regard to a patient's insurance coverage or
ability to pay. As a result, the Company often does not receive compensation for
services provided to patients who are not covered by Medicare, Medicaid, or
private insurance. The anticipated level of uncompensated care and allowance for
uncollectible accounts may be considered in determining the Company's subsidy
and permitted rates under contracts with a county or municipality.
MARKETING AND SALES
Counties, fire districts, and municipalities generally award contracts
to provide "911" emergency services either through requests for competitive
proposals or bidding processes. In some instances in which the Company is the
existing provider, the county or municipality may elect to renegotiate the
Company's existing contract rather than re-bid the contract. The Company
believes that counties, fire districts, and municipalities consider the quality
of care, historical response time performance, and total cost, both to the
municipality or county and to the public, to be the most important factors in
awarding contracts.
The Company markets its non-emergency ambulance services to hospitals,
health maintenance organizations, convalescent homes, and other health care
facilities that require a stable and reliable source of medical transportation
for their patients. The Company believes that its status as a "911" provider in
a designated service area increases its visibility and enhances its marketing
efforts for non-emergency services in that area. Contracts for non-emergency
services usually are based on criteria (such as quality of care, customer
service, response time, and cost) similar to those in contracts for emergency
services. The Company has implemented customer service training for all its
personnel in recognition of the increasing awareness of managed care providers
to the importance of customer service.
The Company markets its fire protection services to subscribers in
rural and suburban areas, volunteer fire departments, tax-supported fire
districts and municipalities, newly developed communities, and industrial
complexes, including airports, large industrial and petrochemical plants, power
plants, and other large self-contained facilities. The Company also provides
fire protection services to newly developed communities where the subscription
fee is included in the homeowner's association assessment.
CONTRACTS
The Company enters into contracts with counties, municipalities, and
fire districts to provide "911" emergency ambulance services in designated
service areas. These contracts typically specify maximum fees that the Company
may charge and set forth required criteria, such as response times, staffing
levels, types of vehicles and equipment, quality assurance, and insurance
coverage. Counties, municipalities, and fire districts also may require the
Company to provide a performance bond or other assurances of financial
responsibility. The amount of the subsidy, if any, that the Company receives
from a county, municipality, or fire district, and the rates that the Company
may charge for services under a contract for emergency ambulance services,
depend in large part on the nature of the services rendered and performance
requirements. The four largest ambulance contracts accounted for 29%, 24%, and
16% of total revenue for the fiscal years ended June 30, 1994, 1995, and 1996,
respectively, with
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<PAGE> 16
the contract with Orange County, Florida accounting for 14%, 9%, and 7%,
respectively, of total revenue for the same periods. Rates to be charged under
the Orange County contract are agreed upon between the Company and the county.
The Company does not receive any subsidy from the county under this contract.
The Company provides fire protection services pursuant to master
contracts or on a subscription basis. Master contracts provide for negotiated
rates with governmental entities. Certain contracts are performance based and
require the Company to meet certain dispatch and response times in a certain
percentage of responses. These contracts also set maximum thresholds for
variances from the performance criteria. These contracts establish the level of
service required and may encompass fire prevention and education activities as
well as fire suppression. Other contracts are level-of-effort based and require
the Company to provide a certain number of personnel for a certain time period
for a particular function, such as fire prevention or fire suppression. The
largest of these contracts accounted for 8%, 6%, and 4% of total revenue for the
fiscal years ended June 30, 1994, 1995, and 1996, respectively.
The Company provides fire protection services on a subscription basis
in areas where no governmental entity has assumed the financial responsibility
for providing fire protection. The Company derived approximately 53% of its fire
protection service revenue from subscriptions for fiscal 1994, 56% for fiscal
1995, and 51% for fiscal 1996. The Company had subscription contracts with
approximately 93,000 and 107,000 subscribing households as of June 30, 1995 and
1996, respectively, and approximately 3,000 commercial subscribers as of June
30, 1995 and 1996, primarily in Arizona, Knox County, Tennessee and Grants Pass,
Oregon. Subscription fees are collected annually in advance. Subscribers also
pay a membership fee upon subscribing for service. In the event that the Company
provides service for a nonsubscriber, the Company directly bills the property
owner for the cost of services rendered. The Company has developed a
computerized fire subscription billing system that allows the Company to monitor
accounts. The Company experienced renewal rates of approximately 88% during the
prior three fiscal years. Fire subscription rates are not currently regulated by
any government agency in the Company's service areas.
The Company's contracts generally extend for terms of three to five
years, with several contracts having terms of up to ten years. The Company
attempts to renegotiate contracts substantially in advance of the expiration
date and generally has been successful in such renegotiations. The following
table sets forth certain information regarding the Company's five primary
contracts at September 24, 1996 with counties, fire districts, and
municipalities for ambulance services and for fire protection services.
<TABLE>
<CAPTION>
EXPIRATION
TERM IN YEARS DATE TYPE OF SERVICE(1)
------------- ---------- ------------------
<S> <C> <C> <C>
Ambulance
Orange County, Florida(2).......... 2 September 1998 911/General
Rochester, New York(3)............. 4 October 2000 911
Knox County, Tennessee(4).......... 4 June 1997 911
Tucson, Arizona(5)................. 3 July 1997 911
Integrated Fire and Ambulance
Scottsdale, Arizona(6)............. 5 July 2001 911
</TABLE>
- -------------------
(1) Type of service for ambulance contracts indicates whether "911"
emergency or general ambulance services or both are provided pursuant
to the contract.
(2) The contract was first entered into in 1962 by a provider that was
acquired by the Company in July 1984.
(3) The contract was first entered into in 1988 by a provider that was
acquired by the Company in May 1994.
(4) The contract was first entered into in July 1985 by the Company.
(5) The contract was first entered into in July 1993 by the Company.
(6) The contract was first entered into in 1952 by the Company. The
contract has two five-year renewal options exercisable by the City of
Scottsdale.
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<PAGE> 17
The Company also enters into contracts with hospitals, nursing homes,
and other health care facilities to provide non-emergency and critical care
ambulance services. These contracts typically designate the Company as the first
ambulance service provider contacted to provide non-emergency ambulance services
to those facilities and permit the Company to charge a base fee, mileage
reimbursement, and additional fees for the use of particular medical equipment
and supplies. The Company provides a discount in rates charged to facilities
that assume the responsibility for payment of the charges to the persons
receiving services.
COMPETITION
The ambulance service industry is highly competitive. The principal
participants include governmental entities (including fire districts), other
national ambulance service providers, large regional ambulance service
providers, hospitals, and numerous local and volunteer private providers. In
addition, there can be no assurance that counties, municipalities, fire
districts, hospitals, or health care facilities that presently contract for
ambulance services will not choose to provide ambulance services directly in the
future. The Company is experiencing increased competition from fire departments
to provide ambulance service. Several of the Company's current and potential
competitors have greater capital and other resources than the Company. Ambulance
service providers compete primarily on the basis of quality of service,
performance, and cost. The Company believes that counties, fire districts, and
municipalities consider quality of care, historical response time performance,
and cost to be the most important factors in awarding a contract, although other
factors, such as customer service, financial stability, and personnel policies
and practices, also may be considered. Although commercial providers often
compete intensely for business within a particular community, it is generally
difficult to displace a provider that has a history of satisfying the quality of
care and response time performance criteria established within the service area.
Moreover, significant start-up costs together with the long-term nature of the
contracts under which services are provided and the relationships many providers
have within their communities create barriers to providers seeking to enter new
markets other than through acquisition.
Fire protection services for residential and commercial properties are
provided primarily by tax-supported fire districts or municipalities, and
volunteer departments. Private providers represent a small portion of the total
fire protection market. The private sector provides fire protection services
primarily where a tax-supported fire district or municipality has decided to
contract for the provision of fire protection services. No assurance can be
given that fire districts or municipalities will continue to contract for fire
protection services. In areas where no governmental entity has assumed financial
responsibility for providing fire protection, the Company provides fire
protection services on a subscription basis. No assurance can be given that a
subscription area will not be annexed by a municipality or be converted to a
fire district that provides service directly rather than through a master
contract.
GOVERNMENTAL REGULATION
The Company's business is subject to governmental regulation at the
federal, state, and local levels. At the federal level, the Company is subject
to regulations under OSHA designed to protect employees of the Company. The
federal government also recommends standards for ambulance design and
construction, medical training curriculum, and designation of appropriate trauma
facilities. Various state agencies may modify these standards.
Each state in which the Company operates regulates various aspects of
its ambulance business. State requirements govern the licensing or certification
of ambulance service providers, training and certification of medical personnel,
the scope of services that may be provided by medical personnel, staffing
requirements, medical control, medical procedures, communication systems,
vehicles, and
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<PAGE> 18
equipment. The Company's contracts in its current service areas typically
prescribe maximum rates that the Company may charge for services. The process of
determining rates includes cost reviews, analyses of levels of reimbursement
from all sources, and determination of reasonable profits. Rate setting agencies
may set rates to compensate service providers by requiring paying customers to
subsidize those who do not or cannot pay. Regulations applicable to ambulance
services may vary widely from state to state.
Applicable federal, state, and local laws and regulations are subject
to change. The Company believes that it currently is in substantial compliance
with applicable regulatory requirements. These regulatory requirements, however,
may require the Company in the future to increase its capital and operating
expenditures in order to maintain current operations or initiate new operations.
REIMBURSEMENT
The Company must comply with various requirements in connection with
its participation in Medicare and Medicaid. Medicare is a federal health
insurance program for the elderly and for chronically disabled individuals,
which pays for ambulance services when medically necessary. Medicare uses a
charge-based reimbursement system for ambulance services and reimburses 80% of
charges determined to be reasonable by Medicare, subject to the limits fixed for
the particular geographic area. The patient is responsible for paying the
balance of the bill, and Medicare requires the Company to expend reasonable
efforts to collect the balance. In determining reasonable charges, Medicare
considers and applies the lowest of various charge factors, including the actual
charge, the customary charge, the prevailing charge in the same locality, the
amount of reimbursement for comparable services, or the inflation-indexed charge
limit.
Medicaid is a combined federal-state program for medical assistance to
impoverished individuals who are aged, blind, or disabled or members of families
with dependent children. Medicaid programs or a state equivalent exist in all
states in which the Company operates. Although Medicaid programs differ in
certain respects from state to state, all are subject to federal requirements.
State Medicaid agencies have the authority to set levels of reimbursement within
federal guidelines. The Company receives only the reimbursement permitted by
Medicaid and is not permitted to collect from the patient any difference between
its customary charge and the amount reimbursed.
Like other Medicare and Medicaid providers, the Company is subject to
governmental audits of its Medicare and Medicaid reimbursement claims. The
Company has not experienced significant losses as a result of any such audit.
Government funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
determinations by intermediaries, and governmental funding restrictions, all of
which could materially increase or decrease program reimbursements for ambulance
services. In recent years, Congress has consistently attempted to curb federal
spending on such programs. Congressional hearings in December 1994 addressed
efforts within the Health Care Financing Administration ("HCFA") to revise
reimbursements for ALS service. Reimbursement is currently permitted if, based
on an assessment of the patient's condition, it is determined that ALS service
is medically necessary or if ALS response is required under "911" contracts or
state or local law. The new proposal would reimburse at ALS rates only if ALS
services were medically necessary. The Company expects such a proposal to
receive substantial opposition and may require contract renegotiations or other
action by the Company to offset any negative impact of a change in reimbursement
policies. No assurance can be given that future funding levels for Medicare and
Medicaid programs will be comparable to present levels. Changes in the
reimbursement policies as a result of budget cuts or other government action
could adversely affect the Company's operations.
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<PAGE> 19
INSURANCE
The Company carries a broad range of automobile and general liability,
comprehensive property damage, malpractice, workers' compensation, and other
insurance coverages that the Company considers adequate for the protection of
its assets and operations. The Company operates in some states that adhere to
legal standards that hold emergency service providers to a gross negligence
standard in the delivery of emergency medical care, thereby subjecting them to
less exposure for tort judgments. The Company is subject to accident claims as a
result of the normal operation of its fleet of ambulances and fire vehicles.
There can be no assurance, however, that the coverage limits of the Company's
policies will be adequate. A successful claim against the Company in excess of
its insurance coverage could have a material adverse effect on the Company and
its financial condition. Claims against the Company, regardless of their merit
or outcome, also may have an adverse effect on the Company's reputation and
business. The Company has undertaken to minimize its exposure through an active
risk management program.
EMPLOYEES
At September 24, 1996, the Company employed approximately 3,950
full-time and 2,950 part-time employees, including 4,500 involved in ambulance
services, 550 in fire protection services, 500 in integrated ambulance and fire
protection services, and 1,350 in management, administrative, clerical, and
billing activities. Of these employees, 1,850 are paramedics and 2,700 are EMTs.
The Company is a party to a collective bargaining agreement relating to its
Rochester, New York operations. The Company considers its relations with
employees to be good.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Warren S. Rustand 53 Chairman of the Board, Chief Executive
Officer, and Director
James H. Bolin 44 President and Director
Robert T. Edwards 56 Executive Vice President and Director
Mark E. Liebner 44 Senior Vice President -- Chief Financial
Officer and Treasurer
John E. Stuart 55 Senior Vice President -- Marketing and
New Business Development
Tracy Bannon 37 Vice President -- Human Resources
William R. Crowell 37 Vice President -- Financial Services
Kurt R. Davis 34 Vice President -- Public Affairs and Corporate
Communications
James E. Stenger 53 Vice President -- Executive Assistant to the President
Michel A. Sucher, M.D. 49 Vice President -- Medical Affairs
Martin A. Yenawine 50 Vice President -- Assistant to the President
Louis G. Jekel 55 Secretary and Director
</TABLE>
In March 1995, the Board of Directors established an Office of Chief
Executive; it is currently comprised of three members, Mr. Rustand, Mr. Bolin
and Mr. Edwards. The Office of Chief Executive oversees the operation and
management of the Company and develops and implements strategic and long-range
planning for the Company.
18
<PAGE> 20
WARREN S. RUSTAND has served as Chief Executive Officer of the Company
since August 1996, Chairman of the Board of Directors since May 1994, and a
member of the Board of Directors since August 1993. He also is a member of the
Office of Chief Executive. Mr. Rustand has been Chairman and Chief Executive
Officer of The Cambridge Company, Ltd., a merchant banking and management
consulting firm, since 1987. He has served as Chairman of Health Partners of
Arizona, a managed care provider, since February 1996. Mr. Rustand is also
Chairman of an additional company and director of four companies, including
LucasVarity PLC, a New York Stock Exchange listed company. Mr. Rustand served
as appointments secretary to President Ford from 1974 to 1976, and as special
assistant to Mr. Ford while he was Vice President in 1973 and 1974.
JAMES H. BOLIN has served as the President of the Company since March
1995 and a member of its Board of Directors since February 1981. He also is a
member of the Office of Chief Executive. Mr. Bolin served as Senior Vice
President-Ambulance Services of the Company from October 1991 until March 1995,
Chief Financial Officer from October 1988 through September 1991, Senior Vice
President-Finance from August 1986 through September 1988, and Vice
President-Finance from April 1981 through July 1986. Mr. Bolin also is the
Chairman and Treasurer of the Rural/Metro ESOP Administrative Committee. Mr.
Bolin is a certified public accountant.
ROBERT T. EDWARDS has served as Executive Vice President of the Company
since October 1995 and a member of its Board of Directors since May 1993. He is
also a member of the Office of Chief Executive. He served as Senior Vice
President -- Fire Protection Services of the Company from August 1991 until
October 1995. He served as Vice President and General Manager of the Company's
Maricopa County operations from February 1989 to August 1991 and as Vice
President from July 1986 until August 1991. From 1978 to July 1986, Mr. Edwards
served in various capacities with the Company.
MARK E. LIEBNER has served as Senior Vice President of the Company
since August 1994 and as Chief Financial Officer of the Company since October
1991. From October 1991 to August 1994, Mr. Liebner served as Vice President of
the Company. From July 1988 until September 1991, he was a Vice President of Van
Kampen Merritt, a Xerox financial services company, having served in a
consulting capacity to the Company in connection with its 1990 debt
restructurings.
JOHN E. STUART has served as Senior Vice President -- Marketing and New
Business Development of the Company since January 1996 after having served as
Senior Vice President -- Marketing of the Company from May 1993 through January
1996. Mr. Stuart served as Senior Vice President-Service Establishments for
American Express Travel Related Services, Inc. in London from January 1990 until
joining the Company in May 1993 and as Senior Vice President-Marketing and Sales
of that company from January 1988 through December 1989.
TRACY BANNON has served as Vice President -- Human Resources since
November 1993. She served as Corporate Director of Human Resources for
Doubletree Hotels, Inc. from 1987 until joining the Company in November 1993.
WILLIAM R. CROWELL has served as Vice President -- Financial Services
of the Company since January 1993 after having served as Director of Financial
Services from July 1992 through December 1992. Mr. Crowell served as Vice
President -- Finance of Peter Piper, Inc., an international franchisor and
food-service retailer, from January 1990 through June 1992 and as Assistant
Corporate Controller of W.A. Krueger Co., a publicly held printing company, from
April 1988 through December 1989. Mr. Crowell is a certified public accountant.
KURT R. DAVIS has served as Vice President -- Public Affairs and
Corporate Communications since August 1995. Mr. Davis joined the Company in
February 1992 as Director of Governmental Relations. After an eighteen-month
sabbatical as Executive Assistant to Arizona Governor Fife Symington, Mr. Davis
returned to the Company in January 1995 as National Director of Public Affairs.
Mr. Davis served as Executive Director of the Arizona Republican Party from 1987
through 1991, and as Director of Intergovernmental Affairs and Issues Analysis
in the Arizona Attorney General's Office from 1991 until joining the Company.
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<PAGE> 21
JAMES E. STENGER has served as Vice President -- Executive Assistant to
the President of the Company since February 1989. He served as Vice President
and General Manager of the Company's Pima and Yuma Counties operations from
February 1989 through June 1991 and as a Vice President and General Manager of
the Company's Maricopa County operations from July 1987 through January 1989. He
served in various capacities with the Company from 1966 to June 1987.
MICHEL A. SUCHER, M.D., has served as Vice President -- Medical Affairs
of the Company since January 1995. He served as National Medical Director for
the Company from 1984 to 1995. From 1974 to 1995, Dr. Sucher engaged in the
private practice of emergency medicine and held several positions at Scottsdale
Memorial Hospital, including the most recent position as President of the
Medical Staff. Dr. Sucher is board certified by the American Board of Emergency
Medicine and is a member of the American College of Emergency Physicians.
MARTIN A. YENAWINE has served as Vice President -- Assistant to the
President since August 1995. Mr. Yenawine joined the Company in February 1994 as
Assistant to the President. Prior to joining the Company, Mr. Yenawine was
President of Eastern Paramedics, Inc., an ambulance service provider acquired by
the Company in February 1994. He currently serves as the president of the
American Ambulance Association.
LOUIS G. JEKEL has served as Secretary of the Company and as a member
of its Board of Directors since 1968. Mr. Jekel directs the Company's Wildland
Fire Protection Operations with the State of Arizona and the federal government.
Mr. Jekel is also the Secretary of the Rural/Metro ESOP Administrative
Committee. Mr. Jekel is a partner in the law firm of Jekel & Howard, Scottsdale,
Arizona.
SPECIAL CONSIDERATIONS
Dependence on Certain Business Relationships
The Company depends to a great extent on certain contracts with
municipalities or fire districts to provide "911" emergency ambulance services
and fire protection services. The Company's five largest contracts accounted for
approximately 30% and 22% of total revenue for the fiscal years ended June 30,
1995 and 1996, respectively, with one contract accounting for approximately 9%
and 7% of total revenue for the same periods. The loss or cancellation of any
one or more of these contracts could have a material adverse effect on the
Company and its operations. No assurance can be given that the Company will be
successful in retaining its existing contracts or in obtaining new contracts for
ambulance services or for fire protection services. The Company also faces the
risk that areas in which it provides fire protection services through
subscription arrangements with residents and businesses will be converted to
tax-supported fire districts or annexed by municipalities. See "Business -
Marketing and Sales," "Business - Contracts" and "Business - Competition"
contained in Item 1 of this Report.
Acquisition Strategy
The Company's strategy with respect to ambulance services depends in
large part on its continued ability to acquire and to operate successfully
additional ambulance service providers. The Company completed four acquisitions
in fiscal 1993, eight acquisitions in fiscal 1994, 11 acquisitions in fiscal
1995, and 16 acquisitions of ambulance service providers in fiscal 1996. There
can be no assurance that the Company will be able to identify additional
suitable acquisition candidates, that it will be able to consummate any such
acquisitions, or that it will be able to integrate any such acquisitions
successfully into its operations. In addition, competition for acquisitions is
increasing within the ambulance service industry and may result in the
escalation of purchase prices for acquisitions and the decreased availability of
attractive acquisition candidates. The Company expects to use cash and
securities, including Common Stock, as the principal consideration for future
acquisitions. The Company's acquisition program could be adversely affected if
the Company does not generate sufficient cash for future acquisitions from
existing operations or through external financings. There can be no assurance
that the Company's operations will generate sufficient cash for acquisitions,
that any additional financings for acquisitions will be available if and when
needed or on terms acceptable to the Company, or that financing that is obtained
will be able to be deployed on a prompt basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in Item 7
of this Report.
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<PAGE> 22
Possible Adverse Changes in Reimbursement Rates or Coverage
Payments received from third-party payors (including Medicare,
Medicaid, and private insurers) represent a substantial portion of the Company's
ambulance receipts. The Company derived approximately 85% and 79% of its net
ambulance fee collections from such third-party payors during fiscal 1995 and
1996, respectively. The continuing efforts of third-party payors to control
expenditures for health care, including proposals to revise reimbursement
policies, may affect the revenue, cash flow, and profitability of the Company.
In addition, the financial instability of private third-party payors as well as
budget pressures and cost shifting by governmental payors may influence the
Company's receipt of reimbursements. A reduction in coverage or reimbursement
rates by third-party payors could have a material adverse effect on the
Company's results of operations. See "Business - Billings and Collections,"
"Business - Governmental Regulation" and "Business - Reimbursement" contained in
Item 1 of this Report.
Impact of Rate Structures and Limitations on Rates of Return
State or local government regulations or administrative policies
regulate rate structures in most states in which the Company conducts ambulance
operations. In certain service areas in which the Company is the exclusive
provider of services, the municipality or fire district sets the rates for
emergency service pursuant to a master contract and establishes the rates for
general ambulance services that the Company is permitted to charge. Rates in
most service areas are set at the same amounts for emergency and general
ambulance services. The State of Arizona establishes a rate of return on sales
the Company is permitted to earn in determining the ambulance service rates the
Company may charge in that state. Ambulance services revenue generated in
Arizona accounted for approximately 14% and 11% of total revenue for the fiscal
years ended June 30, 1995 and 1996, respectively. No assurance can be given that
the Company will be able to receive ambulance service rate increases on a timely
basis where rates are regulated or to establish or maintain satisfactory rate
structures where rates are not regulated. Under present coverage programs with
third-party payors, the Company faces the continuing risk of nonreimbursement to
the extent that uninsured individuals require ambulance service. Changes in
demographics in the Company's markets could increase the Company's risk of
doubtful accounts which, in turn, could have a material adverse effect on the
Company's operating results. See "Business - Billings and Collections" and
"Business - Governmental Regulation" contained in item 1 of this Report.
Municipalities and fire districts negotiate the payments to be made to
the Company for fire protection services pursuant to master contracts. These
master contracts are based on a budget and on level of effort or performance
criteria desired by the municipalities and fire districts. No assurance can be
given that the Company will be successful in negotiating or maintaining
profitable contracts with municipalities and fire districts. See "Business -
Contracts" contained in Item 1 of this Report.
Governmental Regulation
Numerous federal, state, and local laws and regulations govern various
aspects of the business of ambulance service providers, covering matters such as
licensing, rates, employee certification, environmental matters, and other
factors. Certificates of necessity may be required from state or local
governments to operate ambulance services in a designated service area. Master
contracts from governmental authorities are subject to risks of cancellation or
unenforceability as a result of budgetary and other factors and may subject the
Company to certain liabilities or restrictions which traditionally have applied
only to governmental bodies or to which they are otherwise immune. There can be
no assurance that federal, state, or local governments will not adopt laws or
regulations that would increase the Company's cost of doing business, lower
reimbursement levels, or otherwise have a material adverse effect on the
Company's business. See "Business - Governmental Regulation" and "Business -
Reimbursement" contained in Item 1 of this Report.
21
<PAGE> 23
Industry Considerations
Numerous legislative proposals have been considered that would result
in major reforms in the United States health care system. The Company cannot
predict which, if any, health care reforms may be proposed or enacted or the
effect that any such legislation would have on the Company's business. In
addition, managed care providers are attempting to contain health care costs
through the use of outpatient services and specialized treatment facilities. No
assurance can be given that changing industry practices will not have an adverse
effect on the Company.
Competition
The ambulance service industry is highly competitive. The Company
currently encounters competition in providing ambulance services from
governmental entities (including fire districts), hospitals, other national
ambulance service providers, large regional ambulance service providers, and
numerous local and volunteer private providers. In addition, there can be no
assurance that municipalities, fire districts, or health care organizations that
currently contract for ambulance services will not choose to provide ambulance
services directly in the future. The Company is experiencing increased
competition from fire departments to provide emergency ambulance service. Some
of the Company's current competitors and certain potential competitors have
greater capital and other resources than the Company. Tax-supported fire
districts, municipal fire departments, and volunteer fire departments represent
the principal providers of fire protection services for residential and
commercial properties. Private providers represent only a small portion of the
total fire protection market and generally provide services where a
tax-supported municipality or fire district has decided to contract for the
provision of fire protection services or has not assumed the financial
responsibility for fire protection. In these situations, the Company provides
services for a municipality or fire district on a contract basis or provides
fire protection services directly to residences and businesses on a subscription
basis. There can be no assurance that the Company will be able to obtain
additional fire protection businesses on a contractual or subscription basis,
that fire districts or municipalities will not choose to provide fire protection
services directly in the future, or that areas in which the Company provides
services through subscriptions will not be converted to tax-supported fire
districts or annexed by municipalities. See "Business - Competition" contained
in Item 1 of this Report.
Dependence on Management and Other Key Personnel
The Company's success depends upon the retention of principal key
personnel and the recruitment and retention of additional key personnel. The
loss of existing key personnel or the failure to recruit and retain necessary
additional personnel would adversely affect the Company's business prospects.
There can be no assurance that the Company will be able to retain its current
personnel or attract and retain necessary additional personnel. The Company's
internal growth and its expansion into new geographic areas will require
additional expertise, such as marketing and operational management. These growth
and expansion activities will further increase the demand on the Company's
resources and require the addition of new personnel and the development of
additional expertise by existing personnel. The failure of the Company to
attract and retain personnel with the requisite expertise or to develop
internally such expertise could adversely affect the prospects for the Company's
success. The Company entered into three-year employment agreements with its
executive officers in May 1993, which were renewed in December 1995, and has
entered into similar agreements with certain other executive officers as they
have joined the Company. The Company maintains "key person" insurance on several
of its key executive officers. See "Business - Executive Officers and Key
Employees" contained in Item 1 of this Report.
Control by Current Stockholders
The directors, executive officers, and their affiliates currently own
beneficially approximately 10%, and the Company's Employee Stock Ownership
Plan (the "ESOP") currently holds approximately 10%, of the outstanding shares
of Common Stock. Accordingly, these persons, if they act as a group, likely will
be able to significantly influence the election of the Company's directors and
the outcome of matters requiring approval by the stockholders of the Company.
22
<PAGE> 24
Change in Control Provisions
The Company's Second Restated Certificate of Incorporation (the
"Restated Certificate") and the Delaware General Corporation Law (the "General
Corporation Law") contain provisions that may have the effect of making more
difficult or delaying attempts by others to obtain control of the Company, even
when these attempts may be in the best interests of stockholders. The Restated
Certificate also authorizes the Board of Directors, without stockholder
approval, to issue one or more series of preferred stock which could have voting
and conversion rights that adversely affect the voting power of the holders of
Common Stock and provides for a classified board of directors. The General
Corporation Law also imposes conditions on certain business combination
transactions with "interested stockholders" (as defined therein).
The Company has also adopted a Rights Plan whereby, if and when the
Rights become exercisable, holders of shares of Common Stock will be entitled to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $145 (subject to certain antidilution
adjustments). The Rights will expire 10 years after issuance, and will be
exercisable only if a person or group becomes the beneficial owner of 15% or
more of the Common Stock (such person or group, a "15% holder") or commences a
tender or exchange offer which would result in the offeror beneficially owning
15% or more of the Common Stock. If the Rights become exercisable, each Right,
unless redeemed by the Company, entitles the holder to purchase for $145 an
amount of Common Stock of the Company, or in certain circumstances a combination
of securities and/or assets or the common stock of the acquiror, having a market
value of twice the purchase price.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by the Company at $.01
per Right prior to 10 days (as such period may be extended) after the public
announcement of the existence of a 15% holder.
Possible Volatility of Stock
The market price of the Company's Common Stock has increased since the
Company's initial public offering in July 1993. See "Market for the Registrant's
Common Equity and Related Stockholder Matters" contained in Item 5 of this
Report. The period was marked by generally rising stock prices, favorable
industry conditions, and improved operating results by the Company. The trading
price of the Company's Common Stock in the future could be subject to wide
fluctuations in response to quarterly variations in operating results of the
Company and others in its industry, actual or anticipated announcements
concerning the Company or its competitors, including government regulations and
reimbursement changes, the announcement and implementation of health care reform
proposals, changes in analysts' estimates of the Company's financial
performance, general conditions in the health care industry, general economic
and financial conditions, and other events or factors. In addition, the stock
market has experienced extreme price and volume fluctuations which have affected
the market prices for many companies involved in health care and related
industries and which often have been unrelated to the operating performance of
such companies. These broad market fluctuations and other factors may adversely
affect the market price of the Company's Common Stock. See "Business -
Competition" and "Business - Governmental Regulation" contained in Item 1 of
this Report.
Shares Eligible for Future Sale
Sales of Common Stock in the public market could adversely affect
prevailing market prices. A total of approximately 1,300,000 Restricted Shares
(as defined in "Shares Eligible For Future Sale") held by non-affiliates are
eligible for sale in the public market without restriction pursuant to Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act"), and
approximately 2,200,000 Restricted Shares are eligible for sale in the public
market subject to compliance with the volume limitations and other requirements
of Rule 144. The Company has registered 3,200,000 shares of Common Stock for
issuance in connection with acquisitions (of which 1,468,643 shares have been
issued), which shares are generally freely tradeable after their issuance under
Rule 145 of the
23
<PAGE> 25
Securities Act, unless held by an affiliate, in which case such shares will be
subject to the volume and manner of sale restrictions under Rule 144.
The Company has registered for offer and sale up to 3,965,625 shares of
Common Stock that are reserved for issuance pursuant to the Company's stock
option plans. Shares issued after the effective date of such registration
statement upon the exercise of stock options issued under the Company's stock
option plans generally will be eligible for sale in the public market, except
that affiliates of the Company will continue to be subject to volume
limitations. The Company also has the authority to issue additional shares of
Common Stock and shares of one or more series of Preferred Stock. The issuance
of such shares could have a dilutive effect on earnings per share, and the sale
of such shares could depress the market price of the Company's Common Stock.
ITEM 2. PROPERTIES
FACILITIES AND EQUIPMENT
The Company leases its principal executive offices in Scottsdale,
Arizona. The Company leases administrative facilities and other facilities used
principally for ambulance and fire apparatus basing, garaging and maintenance in
those areas in which it provides ambulance and fire protection services. The
Company also owns two administrative facilities and eleven other facilities
within its service areas. Aggregate rental expense was approximately $4.0 and
$5.3 million during fiscal 1995 and 1996, respectively. At September 24, 1996,
the Company's fleet included 1,170 owned and 73 leased ambulances, 134 owned and
15 leased fire vehicles and 176 owned and 10 leased other vehicles.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is subject to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims. In the opinion of management, the Company is not engaged in any
legal proceedings expected to have a material adverse effect on the financial
condition or results of operations of the Company.
Rural/Metro Corporation of Texas, Inc., as successor by merger to
Rural/Metro Corporation of New Mexico-Texas d/b/a American Medical Transport
("AMT"), a subsidiary of the Company that provides ambulance service, has been
named, among others, as a defendant in Civil Actions No. W93CA138, No. W94CA089,
No. W94CA157 and No. W94CA082 in Federal District Court in the Western District
of Texas, Waco Division. The claims assert negligence, breach of contract and
violation of state and federal statutes. The alleged causes of action arise out
of the raid of the Branch Davidian Compound outside of Waco, Texas in February
1993 by agents of the Bureau of Alcohol, Tobacco and Firearms. The plaintiffs
are five agents injured or killed in the raid or their estates, as well as 94
intervening plaintiffs. In October 1995, AMT filed a motion for summary
judgment. The court denied the motion on April 2, 1996. AMT's appeal of the
court's decision has also been denied. Although the Company believes that it
maintains adequate insurance coverage, the plaintiffs are seeking damages from
the Company and the other defendants in excess of the Company's insurance
coverage, and there can be no assurance that the Company's insurance coverage
will be adequate to cover any liabilities arising out of the litigation. AMT is
vigorously defending these actions, and the Company believes that these claims
will not have a material adverse effect on the financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
<PAGE> 26
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded on the Nasdaq National
Market under the symbol RURL since its initial public offering on July 16, 1993
at $12.50 per share. The following table sets forth the high and low sale prices
of the Common Stock for the fiscal quarters indicated as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED JUNE 30, 1995
First quarter........................................... $19.00 $14.50
Second quarter.......................................... 21.25 17.75
Third quarter........................................... 20.75 17.50
Fourth quarter.......................................... 22.25 16.75
YEAR ENDED JUNE 30, 1996
First quarter........................................... $26.50 $21.75
Second quarter.......................................... 25.25 22.50
Third quarter........................................... 28.75 22.00
Fourth quarter.......................................... 35.75 26.75
</TABLE>
On September 24, 1996, the closing sale price of the Company's Common
Stock was $36.50 per share. On September 24, 1996, there were approximately
1,246 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently plans to retain earnings to finance the growth of the
Company's business rather than to pay cash dividends. Payments of any cash
dividends in the future will depend on the financial condition, results of
operations, and capital requirements of the Company as well as other factors
deemed relevant by the Board of Directors. The Company's term notes and
revolving credit facility contain restrictions on the Company's ability to pay
cash dividends, and future borrowings may contain similar restrictions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" contained in Item 7 of this
Report.
25
<PAGE> 27
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the fiscal years
ended June 30, 1996, 1995, 1994, 1993, and 1992 is derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated financial data
provided below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and related notes thereto appearing
elsewhere in this Report on Form 10-K.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data
Revenue
Ambulance services ...................... $ 197,201 $ 127,461 $ 68,942 $ 52,539 $ 38,656
Fire protection services ................ 38,770 32,274 30,502 28,165 26,938
Other ................................... 14,292 11,848 4,920 3,377 2,627
--------- --------- --------- --------- ---------
Total revenue ........................ 250,263 171,583 104,364 84,081 68,221
Operating expenses
Payroll and employee benefits ........... 135,464 90,843 54,750 44,178 37,541
Provision for doubtful accounts ......... 31,036 22,263 13,658 11,083 7,962
Depreciation ............................ 9,778 6,654 4,369 3,522 2,628
Amortization of intangibles ............. 3,569 2,074 584 448 380
Other operating expenses ................ 45,752 33,809 21,613 17,798 15,151
--------- --------- --------- --------- ---------
Operating income ............................ 24,664 15,940 9,390 7,052 4,559
Interest expense, net ....................... 5,108 3,059 1,780 2,896 2,512
--------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item .......................... 19,556 12,881 7,610 4,156 2,047
Provision for income taxes .................. (8,044) (5,288) (2,884) (1,471) (713)
--------- --------- --------- --------- ---------
Income before extraordinary item ............ 11,512 7,593 4,726 2,685 1,334
Extraordinary item .......................... -- (693) -- -- --
--------- --------- --------- --------- ---------
Net income .............................. $ 11.512 $ 6,900 $ 4,726 $ 2,685 $ 1,334
========= ========= ========= ========= =========
Net income available for common stock ....... $ 11,512 $ 6,900 $ 4,726 $ 2,610 $ 1,305
========= ========= ========= ========= =========
Earnings per common stock and
common stock equivalent (1)
Income before extraordinary item ........ $ 1.14 $ .92 $ .71 $ .63 $ .33
Extraordinary item ...................... -- (.08) -- -- --
--------- --------- --------- --------- ---------
Net income ........................... $ 1.14 $ .84 $ .71 $ .63 $ .33
========= ========= ========= ========= =========
Earnings per common stock equivalent
assuming full dilution (1) .................. $ .61
=========
Weighted average number of common stock and
common stock equivalents outstanding
Primary ................................. 10,075 8,249 6,668 4,171 3,970
Fully diluted ........................... 4,414
Balance Sheet Data (at end of period)
Working capital ............................. $ 55,402 $ 26,358 $ 23,915 $ 4,784 $ 3,279
Total assets ................................ 230,114 159,430 88,247 45,816 37,963
Current portion of long-term debt (2) ....... 6,610 8,377 3,590 9,827 9,592
Long-term debt, net of current portion (3) .. 60,731 53,282 13,339 15,382 14,313
Stockholders' equity (deficit) .............. 119,966 65,648 47,349 4,093 (239)
</TABLE>
26
<PAGE> 28
- --------------
(1) Primary and fully diluted earnings per share are considered to be the
same in all periods presented except for the year ended June 30, 1993.
(2) Includes balances outstanding under the Company's revolving credit
facility of $6,690,000 and $5,345,000 at June 30, 1993 and 1992,
respectively.
(3) Includes balances outstanding under the Company's revolving credit
facility of $49,500,000 and $34,900,000 at June 30, 1996 and 1995,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Selected Consolidated Financial Data and the Consolidated Financial
Statements of the Company and related notes appearing elsewhere in this Report
on Form 10-K.
INTRODUCTION
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 nonrefundable 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 nonrefundable 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 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 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 primarily consists of fees associated with alternative
transportation services and home health care services and are recognized when
the services are provided.
Other operating expenses primarily consists of rent and related
occupancy expenses, maintenance and repairs, insurance, fuel and supplies,
travel, and professional fees.
27
<PAGE> 29
The Company's net income for the year ended June 30, 1996 was $11.5
million or $1.14 per share. This compares to net income of $6.9 million and $4.7
million, or $0.84 and $0.71 per share for the years ended June 30, 1995 and
1994, respectively. Included in 1995 net income is an extraordinary charge to
earnings item of $0.7 million, net of a $0.5 million tax benefit, or $0.08 per
share, to reflect the loss on early extinguishment of debt. During fiscal 1996,
the Company completed the acquisition of sixteen ambulance service providers
operating in Alabama, Florida, Georgia, Indiana, Kentucky, New York, Ohio, South
Carolina, South Dakota, and Texas. The following discussion provides greater
detail of the Company's results of operations and liquidity and capital
resources.
RESULTS OF OPERATIONS
The following table sets forth for the years ended June 30, 1996, 1995,
and 1994, certain items from the Company's consolidated financial statements
expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue
Ambulance services ............................ 78.8% 74.3% 66.1%
Fire protection services ...................... 15.5 18.8 29.2
Other ......................................... 5.7 6.9 4.7
------ ------ ------
Total revenue ................................ 100.0 100.0 100.0
Operating expenses
Payroll and employee benefits ................. 54.1 52.9 52.4
Provision for doubtful accounts ............... 12.4 13.0 13.1
Depreciation .................................. 3.9 3.9 4.2
Amortization of intangibles ................... 1.4 1.2 0.6
Other operating expenses ...................... 18.3 19.7 20.7
------ ------ ------
Operating income ................................ 9.9 9.3 9.0
Interest expense, net ......................... 2.1 1.8 1.7
------ ------ ------
Income before income taxes and extraordinary item 7.8 7.5 7.3
Provision for income taxes .................... 3.2 3.1 2.8
------ ------ ------
Income before extraordinary item ................ 4.6% 4.4% 4.5%
====== ====== ======
</TABLE>
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1996
Revenue
Total revenue increased $78.7 million, or 45.9%, from $171.6 million
for the year ended June 30, 1995 to $250.3 million for the year ended June 30,
1996. Approximately $56.1 million of this increase resulted from the acquisition
of ambulance service providers during fiscal 1996. Fire protection services
revenue increased by $6.5 million and other revenue increased by $2.4 million.
Total ambulance transports increased by 241,000, or 51.4%, from 469,000
for the year ended June 30, 1995 to 710,000 for the year ended June 30, 1996.
The acquisition of sixteen ambulance service companies during fiscal 1996
accounted for 227,000 of these additional transports.
Fire protection services revenue increased due to rate increases for
fire protection services and greater utilization of the Company's services under
fee-for-service arrangements. The increase also resulted from the acquisition of
a fire protection service company during the first quarter of fiscal 1996 and
revenue generated from new fire protection contracts awarded to the Company
through competitive bidding.
Operating Expenses
Payroll and employee benefit expenses increased $44.6 million, or
49.1%, from $90.8 million for the year ended June 30, 1995 to $135.4 million for
the year ended June 30, 1996. This increase was primarily due to the acquisition
of eighteen companies during fiscal 1996.
28
<PAGE> 30
Provision for doubtful accounts increased $8.7 million, or 39.0% , from
$22.3 million for the year ended June 30, 1995 to $31.0 million for the year
ended June 30, 1996. Provision for doubtful accounts decreased from 13.0% of
total revenue for the year ended June 30, 1995 to 12.4% of total revenue for the
year ended June 30,1996 reflecting the effect of the acquisition of ambulance
service providers operating in markets with higher receivable collections as a
result of a greater mix of general transport activity.
Depreciation increased $3.1 million, or 46.3%, from $6.7 million for
the year ended June 30, 1995 to $9.8 million for the year ended June 30, 1996,
primarily due to increased property and equipment from recent acquisition
activity.
Amortization of intangibles increased by $1.5 million, or 71.4%, from
$2.1 million for the year ended June 30, 1995 to $3.6 million for the year ended
June 30, 1996. This increase was the result of increased intangible assets
caused by recent acquisition activity. Amortization of intangibles increased
from 1.2% of total revenue for the year ended June 30, 1995 to 1.4% for the year
ended June 30, 1996.
Other operating expenses increased by $11.9 million, or 35.2%, from
$33.8 million for the year ended June 30, 1995 to $45.7 million for the year
ended June 30, 1996, primarily due to increased expenses associated with the
operation of the eighteen companies acquired during fiscal 1996. Other
operating expenses decreased from 19.7% of total revenue for the year ended
June 30, 1995 to 18.3% of total revenue for the year ended June 30, 1996 as a
result of operational efficiencies.
Interest expense increased by $2.0 million, or 64.5%, from $3.1 million
for the year ended June 30, 1995 to $5.1 million for the year ended June 30,
1996. 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 41.0% for the year
ended June 30, 1995 to 41.1% for the year ended June 30, 1996, 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. This
increase was partially offset by tax planning strategies implemented by the
Company during fiscal 1996.
YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1995
Revenue
Total revenue increased $67.2 million, or 64.4%, from $104.4 million
for the year ended June 30, 1994 to $171.6 million for the year ended June 30,
1995. Approximately $48.6 million of this increase resulted from the acquisition
of ambulance service providers during fiscal 1995 and during the last two
quarters of fiscal 1994. Fire protection services revenue increased by $1.8
million, and other revenue increased by $6.9 million.
Total ambulance transports increased by 235,000 from 234,000 for the
year ended June 30, 1994 to 469,000 for the year ended June 30, 1995. The
acquisition of ambulance service companies during fiscal 1995 and during the
last two quarters of fiscal 1994 accounted for 208,000 of these additional
transports. Ambulance transports in markets served by the Company in both of the
years ended June 30, 1994 and 1995 increased by approximately 27,000 transports,
or 11.5%.
Fire protection services revenue increased as a result of rate
increases for fire protection services and greater utilization of the Company's
services under fee-for-service arrangements. This increase was partially offset
by the effect of the loss of a municipal master fire protection contract as of
June 30, 1994. This contract represented fire protection services revenue of
$1.8 million for the year ended June 30, 1994. Revenue generated under fire
protection contracts covering markets served by the Company in both periods
increased 12.4%.
Other revenue increased by $6.9 million primarily because of the
acquisition of ambulance service providers with wheelchair transport and home
health care operations.
29
<PAGE> 31
Operating Expenses
Payroll and employee benefit expenses increased $36.0 million, or
65.7%, from $54.8 million for the year ended June 30, 1994 to $90.8 million for
the year ended June 30, 1995. This increase resulted primarily from the
acquisition of ambulance service providers during fiscal 1995 and during the
last two quarters of fiscal 1994.
Provision for doubtful accounts increased $8.6 million, or 62.8%, from
$13.7 million for the year ended June 30, 1994 to $22.3 million for the year
ended June 30, 1995. Provision for doubtful accounts decreased from 13.1% of
total revenue for the year ended June 30, 1994 to 13.0% of total revenue for the
year ended June 30, 1995, reflecting the effect of the acquisition of ambulance
service providers operating in markets with increased general transport services
and higher receivable collections.
Depreciation expense increased $2.3 million, or 52.3%, from $4.4
million for the year ended June 30, 1994 to $6.7 million for the year ended June
30, 1995 primarily as a result of increased property and equipment caused
primarily by recent acquisition activity. Depreciation decreased from 4.2% of
total revenue for the year ended June 30, 1994 to 3.9% of total revenue for the
year ended June 30, 1995.
Amortization of intangibles increased $1.5 million from $0.6 million
for the year ended June 30, 1994 to $2.1 million for the year ended June 30,
1995 primarily as a result of increased intangible assets caused by recent
acquisition activity. Amortization of intangibles increased from 0.6% of total
revenue for the year ended June 30, 1994 to 1.2% of total revenue for the year
ended June 30, 1995.
Other operating expenses increased $12.2 million, or 56.5%, from $21.6
million for the year ended June 30, 1994 to $33.8 million for the year ended
June 30, 1995 primarily as a result of increased expenses associated with the
operation of ambulance service providers acquired during fiscal 1995 and during
the last two quarters of fiscal 1994. Other operating expenses decreased from
20.7% of total revenue for the year ended June 30, 1994 to 19.7% of total
revenue for the year ended June 30, 1995 as a result of operational
efficiencies.
Interest expense increased $1.3 million, or 72.2%, from $1.8 million
for the year ended June 30, 1994 to $3.1 million for the year ended June 30,
1995 primarily as a result of additional borrowings on the Company's revolving
credit facility to fund certain acquisitions.
The Company's effective tax rate increased from 37.9% for the year
ended June 30, 1994 to 41.0% for the year ended June 30, 1995 primarily as a
result of the amortization of nondeductible goodwill associated with
acquisitions.
30
<PAGE> 32
SEASONALITY AND QUARTERLY RESULTS
The following table reflects certain selected unaudited quarterly
operating results for each quarter of fiscal 1995 and 1996. The operating
results of any quarter are not necessarily indicative of results of any future
period.
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1994 1994 1995 1995 1995 1995 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Ambulance service ......... $ 25,496 $ 28,911 $ 33,159 $ 39,895 $ 43,404 $ 48,053 $ 51,789 $ 53,955
Fire protection services .. 7,971 7,827 8,022 8,454 9,255 9,435 9,813 10,267
Other revenue ............. 2,804 3,221 2,605 3,218 3,104 3,351 3,382 4,455
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue ............. 36,271 39,959 43,786 51,567 55,763 60,839 64,984 68,677
Operating income ............ 2,912 3,340 4,265 5,423 4,814 5,339 6,775 7,736
Income before
extraordinary item ........ 1,434 1,660 2,050 2,449 2,102 2,396 2,989 4,025
Net income .................. 1,434 1,660 2,050 1,756 2,102 2,396 2,989 4,025
Earnings per share
Income before
extraordinary item ........ $ 0.18 $ 0.21 $ 0.25 $ 0.28 $ 0.23 $ 0.25 $ 0.31 $ 0.35
Extraordinary item ........ -- -- -- (0.08) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ................ $ 0.18 $ 0.21 $ 0.25 $ 0.20 $ 0.23 $ 0.25 $ 0.31 $ 0.35
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The Company has historically experienced, and expects to continue to
experience, moderate seasonality in quarterly operating results. This
seasonality has resulted from a number of factors, including relatively higher
second and third fiscal quarter demand for transport services in the Company's
Arizona and Florida regions resulting from the greater winter populations in
those regions. The effect of the acquisition of ambulance service providers in
the northeastern and midwestern regions of the United States has reduced, and
will continue to reduce, the overall seasonality in operating results.
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, generating net proceeds of approximately
$19.5 million, and subsequent public stock offerings in May 1994 and April 1996,
generating net proceeds of approximately $17.4 million and $34.8 million,
respectively.
During the year ended June 30, 1996, the Company generated $1.4 million
in cash flow from operations compared with $8.5 million in the preceding year,
due primarily to increases in accounts receivable, inventories and prepaid
expenses and a decrease in accounts payable.
During September 1995, the Company funded a fully underwritten credit
agreement for a $125 million revolving credit facility. The Company used the
proceeds from the facility to repay the Company's then existing revolving credit
facility and its notes payable. Approximately $49.5 million was outstanding on
the credit facility at June 30, 1996. This six-year revolving credit facility is
priced at the prime rate or a LIBOR-based rate. The LIBOR-based rates range from
LIBOR plus 0.75% to LIBOR plus 1.75% depending upon the Company meeting certain
financial covenants. Beginning September 30, 1998, the amount available under
the facility begins to reduce at three-month intervals until the termination
date at September 30, 2001. The facility is collateralized by the Company's
accounts and notes receivable, common stock of its subsidiaries and partnership
interests. Costs previously deferred related to certain indebtedness resulted in
an extraordinary charge to earnings of $693,000, net of a $480,000 tax benefit,
or $.08 per share in the year ended June 30, 1995. At September 24, 1996,
borrowings on the revolving credit facility were approximately $54.0 million.
Exclusive of payments on the revolving credit facility, the Company
repaid $20.3 million of notes payable and capital lease obligations during the
year ended June 30, 1996 and $10.8 million during the year ended June 30, 1995.
Capital expenditures were $18.2 million during the year ended June 30, 1996
compared to $11.5 million during the prior year, of which $2.0 million and $2.7
million were financed through capital lease obligations in each year,
respectively.
31
<PAGE> 33
During the year ended June 30, 1996, the Company purchased either all
of the issued and outstanding stock or certain of the assets of eighteen
companies operating in Alabama, Florida, Georgia, Indiana, Kentucky, New York,
Ohio, Oregon, South Carolina, South Dakota and Texas. The combined purchase
price was $31.3 million. The Company paid cash of $17.2 million, issued notes
payable to sellers totalling $4.7 million, issued 1.3 million shares of common
stock to sellers (0.7 million shares were related to pooling-of-interests
transactions and the remaining shares were valued at $1.2 million), and
assumed $8.2 million of liabilities. The Company funded the cash portion of the
acquisitions through operating cash flow, from the proceeds of the April 1996
public stock offering and from the Company's revolving credit facility.
The Company expects that existing working capital, together with cash
flow from operations and additional borrowing capacity, will be sufficient to
meet its operating and capital needs for existing operations for the 12 months
subsequent to June 30, 1996. 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 financings. The
availability of these capital sources will depend upon prevailing market
conditions, interest rates, and the financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, the Notes
thereto and Report of Independent Public Accountants thereon commencing at page
F-1 of this Report, which Consolidated Financial Statements, Notes and Report
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
32
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference
to the information contained under the headings "Proposal to Elect Directors -
Nominees" as set forth in the Company's definitive proxy statement for its 1996
Annual Meeting of Stockholders. The information required by this Item relating
to executive officers of the Company is included in "Business - Executive
Officers and Key Employees" contained in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 relating to directors of the
Company is incorporated herein by reference to the information under the heading
"Director Compensation and Other Information" and the information relating to
executive officers of the Company is incorporated herein by reference to the
information under the heading "Executive Compensation" as set forth in the
Company's definitive proxy statement for its 1996 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the information under the heading "Security Ownership of Principal
Stockholders, Directors and Officers" as set forth in the Company's definitive
proxy statement for its 1996 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the information under the heading "Certain Relationships and Related
Transactions" as set forth in the Company's definitive proxy statement for its
1996 Annual Meeting of Stockholders.
33
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2 Plan and Agreement of Merger and Reorganization, dated as of April 26, 1993(1)
3.1(a) Second Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of
Delaware on January 18, 1995(12)
3.1(b) Rights Agreement dated as of August 23, 1995 between the Registrant and American Securities
Transfer, Inc., the Rights Agent(13)
3.2 Amended and Restated Bylaws of the Registrant(1)
4 Specimen Certificate representing shares of Common Stock, par value $.01 per share(1)
10.1 Amended Agreement by and between the City of Scottsdale and Registrant, dated July 1, 1991(1)
10.2 Ambulance Service Contract by and between Orange County, Florida and Registrant, dated June 18,
1991(1)
10.3(a) 1989 Employee Stock Option Plan of Registrant, adopted August 10, 1989, as amended(1)
10.3(b) Third Amendment to the 1989 Employee Stock Option Plan of Registrant, dated February 4, 1994(2)
10.3(c) Fourth Amendment to 1989 Employee Stock Option Plan, dated August 25, 1994.(5)
10.4 Form of Stock Option Agreement pursuant to 1989 Employee Stock Option Plan of Registrant(1)
10.5 Amended and Restated 1992 Stock Option Plan of Registrant, amended through October 1995(14)
10.6 Forms of Stock Option Agreements pursuant to the Amended and Restated 1992 Stock Option Plan of
Registrant(1)
10.7 Employment Agreement by and between Mark E. Liebner and Registrant, dated May 17, 1993(1)
10.14 Employment Agreement by and between John Stuart and Registrant, dated May 17, 1993(1)
10.15 Forms of Conditional Stock Grant and Repurchase Agreements by and between Registrant and each of
its executive officers and directors, dated May 14, 1993 and November 1, 1994(1)
10.16(a) Form of Employment Agreement by and between Registrant and each of the following executive
officers: James H. Bolin, Robert T. Edwards, Mark E. Liebner, John E. Stuart, William R. Crowell,
James E. Stenger, Michel A. Sucher, and Martin A. Yenawine, each dated October 27, 1995.
10.16(c) Form of Change of Control Agreement by and between the Registrant and the following executive
officers: (i) Warren S. Rustand, dated November 3, 1995 and (ii) James H. Bolin, Robert T. Edwards,
Mark E. Liebner, Tracy Bannon, William R. Crowell, James E. Stenger, Michel A. Sucher, Martin A.
Yenawine, and John E. Stuart, each dated December 1, 1995(18)
10.16(d) Employment Agreement by and between Registrant and Warren S. Rustand, dated November 3, 1995.(18)
10.17 Form of Indemnity Agreement by and between Registrant and each of its officers and directors, dated
in April, May, August and November 1993 and as of October 13, 1994(1)
10.18(a) Employee Stock Ownership Plan and Trust of the Registrant, effective July 1, 1989(1)
10.18(b) Amendment No. 1 to the Employee Stock Ownership Plan of the Registrant, dated February 4, 1994(12)
10.18(c) Amendment No. 2 to the Employee Stock Ownership Plan of the Registrant, dated April 14, 1994(13)
10.21 Retirement Savings Value Plan 401(k) of Registrant, as amended, dated July 1, 1990(1)
10.22 Master Lease Agreement by and between Plazamerica, Inc. and the Registrant, dated January 30, 1990(1)
10.29 Stock Purchase Agreement by and among Rural/Metro Corporation of New Mexico-Texas and John A.
Suess with respect to the stock of Allied Ambulance, Inc., dated as of May 26, 1994(3)
10.30 Stock Purchase Agreement by and among Rural/Metro Corporation of New Mexico-Texas and Michael
S. Harris and Stephanie J. Harris with respect to the stock of M.T.S. Ambulance, Inc., dated as of May
21, 1994(3)
10.31 Stock Purchase Agreement by and among Rural/Metro Corporation of New Mexico-Texas and Randy
J. Cohen with respect to the stock of Medical Transportation Services, Inc., dated as of May 21, 1994(3)
</TABLE>
34
<PAGE> 36
<TABLE>
<S> <C>
10.33 Bill of Sale and Asset Purchase Agreement by and between Patient Transfer System, Inc., Charles B.
Brockette, Sr., and Apollo Ambulance Service, Inc., dated August 13, 1994(3)
10.34 Stock Purchase Agreement by and among Rural/Metro of Nebraska, Inc. and Marty J. Miller, Michael
G. Dodge, Russel J. Bayer, Mike Stuhr, Rick Sheehy, and Doug Wyatt, with respect to the stock of
Eastern Ambulance Service, Inc., dated July 22, 1994(3)
10.35 Asset Purchase Agreement by and among PHAS, Inc., an indirect, wholly owned subsidiary of the
Company, Physicians Ambulance Service, Incorporated, PhysiciansLifeline, Inc., Physmed, Inc.,
Physicians/Medic Transport, Incorporated, and Hess Ambulance Service, Inc., and Ronald C. Hess and
Robert Hess, Jr., dated September 11, 1994(4)
10.36 Employee Stock Purchase Plan of Registrant, amended through June 30, 1995(11)
10.37 Loan and Security Agreement by and among the CIT Group/Equipment Financing, Inc. and the
Registrant, together with its subsidiaries, dated December 28, 1994, and related Promissory Note and
Guaranty Agreement(5)
10.38 Loan Agreement by and between the Registrant, together with its subsidiaries, and Bank One, Arizona,
NA, with respect to the Registrant's existing revolving credit facility, dated January 20, 1995(5)
10.39 Stock Purchase Agreement by and among Rural/Metro of Georgia, Inc., Barbara Gallagher and Derek
Fowkes with respect to the stock of E.M.S. Ventures, Inc. and Professional Convalescent Ambulance
Service, Inc., dated January 19, 1995(6)
10.40 Agreement of Merger and Plan of Reorganization by and among American Amco, Inc., Rural/Metro
Corporation, American Ambulance Company and Donald P Doepping, Sr., dated February 24, 1995(7)
10.41 Stock Purchase Agreement by and among Rural/Metro of New York, Inc., and Douglas H. Baker with
respect to the stock of LaSalle Ambulance, Inc., and The Western New York Emergency Medical
Services Training Institute, Inc., dated January 26, 1995(8)
10.42 Asset Purchase Agreement by and among EMS Ventures of South Carolina, Inc., Midlands Ambulance
Corp. and Jane L. East, dated May 4, 1995(9)
10.43 Stock Purchase Agreement by and among Rural/Metro of New York, Inc., Joseph H. Oddo and Lillian
E. Oddo with respect to the stock of Towns Ambulance Service, Inc., dated May 10, 1995(9)
10.44 Agreement and Plan of Reorganization by and between the Registrant and Daniel H. Becker, dated May
19, 1995(10)
10.45 Credit Agreement, dated as of September 29, 1995, by and among Registrant as guarantor, certain of
its subsidiaries as borrowers, First Union National Banking Association, as agent and as lender, and
various other lenders, and related Form of Note, Form of Security Agreement and Form of Pledge
Agreement(15)
10.46 Stock Purchase Agreement by and among Rural/Metro of New York, Inc. and Alan D. Lewis, Sr. and
Pamela A. Lewis with respect to the stock of Corning Ambulance Service, Inc., dated June 15, 1995(16)
10.47 Agreement of Merger and Plan of Reorganization by and among Aid Acquisition, Inc., Rural/Metro
Corporation and The Aid Company, Inc., Stanley I. Guilkey, Jack H. Herider, and Nancy C. Herider,
dated October 10, 1995(17)
10.48 Agreement of Merger and Plan of Reorganization by and among Vigo Acquisition, Inc., Rural/Metro
Corporation, and Aid Ambulance at Vigo County, Inc., Stanley I. Guilkey, Jack H. Herider and Nancy
C. Herider, Jean M. Yoho and Gregory A. Yoho, dated October 10, 1995(17)
21 Subsidiaries of Registrant
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
- --------------------
(1) Incorporated by reference to the Registration Statement on Form S-1 of
the Registrant (Registration No. 33-63448) filed May 27, 1993 and
declared effective July 15, 1993.
(2) Incorporated by reference to the Registration Statement on Form S-1 of
the Registrant (Registration No. 33-76458) filed March 15, 1994 and
declared effective May 5, 1994.
(3) Incorporated by reference to the Registrant's Form 10-K Annual Report
filed with the Commission on or about September 28, 1994.
35
<PAGE> 37
(4) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about September 26, 1994, as amended by
the Registrant's Form 8-K/A Current Reports filed on or about November
25, 1994 and August 1, 1995.
(5) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about May 12, 1995.
(6) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about February 2, 1995.
(7) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about March 10, 1995.
(8) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about April 7, 1995, as amended by the
Registrant's Form 8-K/A Current Reports filed on or about May 15, 1995
and August 1, 1995.
(9) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about May 19, 1995.
(10) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about June 2, 1995.
(11) Incorporated by reference to the Registrant's Post-Effective Amendment
No. 1 to Form S-8 Registration Statement filed with the Commission on or
about June 30, 1995.
(12) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (Registration No. 33- 88172) filed with the Commission on
December 30, 1994 and declared effective January 19, 1995.
(13) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about August 28, 1995.
(14) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about February 14, 1996.
(15) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about November 14, 1995.
(16) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about August 18, 1995, as amended by the
Registrant's Form 8-K/A Current Report filed on or about August 28, 1995.
(17) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about November 10, 1995.
(18) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about May 15, 1996.
(b) Financial Statements filed as part of this report:
Consolidated Financial Statements and Supplemental Schedules as
listed in the Index to Consolidated Financial Statements on page F-1
of this report.
(c) Reports on Form 8-K:
None.
(d) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted on the basis of immateriality
or because such schedules are not otherwise applicable.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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
By: /s/William R. Crowell
-----------------------------------------------------
William R. Crowell, Vice President-Financial Services
September 27, 1996
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
By /s/Warren S. Rustand Chairman of the Board of Directors September 27, 1996
--------------------------- and Chief Executive Officer
Warren S. Rustand (Principal Executive Officer)
By /s/James H. Bolin President and Director September 27, 1996
--------------------------- (Principal Executive Officer)
James H. Bolin
By /s/Robert T. Edwards Executive Vice President and Director September 27, 1996
--------------------------- (Principal Executive Officer)
Robert T. Edwards
By /s/Mark E. Liebner Senior Vice President, Chief September 27, 1996
--------------------------- Financial Officer and Treasurer
Mark E. Liebner (Principal Financial Officer)
By /s/William R. Crowell Vice President-Financial Services September 27, 1996
--------------------------- (Principal Accounting Officer)
William R. Crowell
By /s/Cor J. Clement Vice Chairman of the Board of Directors September 27, 1996
---------------------------
Cor J. Clement
By /s/William C. Turner Director September 27, 1996
---------------------------
William C. Turner
By /s/Louis G. Jekel Director September 27, 1996
---------------------------
Louis G. Jekel
By /s/Louis A. Witzeman Director September 27, 1996
---------------------------
Louis A. Witzeman
By /s/Frank G. Zarb Director September 27, 1996
---------------------------
Frank G. Zarb
</TABLE>
37
<PAGE> 39
RURAL/METRO CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Supplemental Schedules
Schedule II - Valuation and Qualifiying Accounts F-19
</TABLE>
F-1
<PAGE> 40
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rural/Metro Corporation:
We have audited the accompanying consolidated balance sheets of
RURAL/METRO CORPORATION (a Delaware corporation) and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rural/Metro
Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 19, 1996.
F-2
<PAGE> 41
RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,388 $ 900
Accounts receivable, net of allowance for doubtful
accounts of $26,571 and $10,412, respectively (Note 1) 68,642 41,090
Inventories (Note 1) 5,170 3,296
Prepaid expenses and other 5,710 3,466
--------- ---------
Total current assets 80,910 48,752
PROPERTY AND EQUIPMENT, net (Note 3) 48,401 31,510
INTANGIBLE ASSETS, net (Notes 1 and 2) 96,373 73,558
OTHER ASSETS 4,430 5,610
--------- ---------
$ 230,114 $ 159,430
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,092 $ 5,048
Accrued liabilities (Note 1) 14,806 8,969
Current portion of long-term debt (Notes 3 and 4) 6,610 8,377
--------- ---------
Total current liabilities 25,508 22,394
LONG-TERM DEBT, net of current portion (Notes 3 and 4) 60,731 53,282
NON-REFUNDABLE SUBSCRIPTION INCOME 12,582 10,917
DEFERRED INCOME TAXES (Note 9) 9,060 4,957
OTHER LIABILITIES 2,267 2,232
--------- ---------
Total liabilities 110,148 93,782
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (Notes 2, 6 and 7)
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued at June 30, 1996 and 1995 -- --
Common stock, $.01 par value, 23,000,000 shares
authorized; 11,092,736 and 8,927,351 shares issued
and outstanding at June 30, 1996 and 1995, respectively 113 90
Additional paid-in capital 92,359 52,431
Retained earnings 30,181 15,912
Deferred compensation (1,448) (1,546)
Treasury stock, at cost, 149,456 shares at June 30,
1996 and 1995 (1,239) (1,239)
--------- ---------
Total stockholders' equity 119,966 65,648
--------- ---------
$ 230,114 $ 159,430
========= ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE> 42
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Ambulance services $197,201 $127,461 $ 68,942
Fire protection services 38,770 32,274 30,502
Other 14,292 11,848 4,920
-------- -------- --------
Total revenue 250,263 171,583 104,364
-------- -------- --------
OPERATING EXPENSES
Payroll and employee benefits 135,464 90,843 54,750
Provision for doubtful accounts 31,036 22,263 13,658
Depreciation 9,778 6,654 4,369
Amortization of intangible assets 3,569 2,074 584
Other operating expenses 45,752 33,809 21,613
-------- -------- --------
Total expenses 225,599 155,643 94,974
-------- -------- --------
OPERATING INCOME 24,664 15,940 9,390
INTEREST EXPENSE, net (Note 4) 5,108 3,059 1,780
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 19,556 12,881 7,610
PROVISION FOR INCOME TAXES (Note 9) 8,044 5,288 2,884
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 11,512 7,593 4,726
EXTRAORDINARY ITEM (Note 4)
Loss on early extinguishment of debt
(net of tax effect of $480) -- 693 --
-------- -------- --------
NET INCOME $ 11,512 $ 6,900 $ 4,726
======== ======== ========
EARNINGS PER COMMON STOCK AND
COMMON STOCK EQUIVALENT (Note 1)
Income before extraordinary item $ 1.14 $ .92 $ .71
Extraordinary item -- .08 --
-------- -------- --------
Net income $ 1.14 $ .84 $ .71
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 10,075 8,249 6,668
OUTSTANDING
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE> 43
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED DEFERRED TREASURY
STOCK STOCK CAPITAL EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1993 $-- $ 46 $ 5,135 $ 2,159 $ (2,208) $ (1,039) $ 4,093
Issuance of 3,167,540 shares of common
stock, net of offering costs of $3,906 -- 32 38,280 -- -- -- 38,312
Purchase of 25,406 shares of treasury stock -- -- -- -- -- (200) (200)
Amortization of deferred compensation -- -- -- -- 418 -- 418
Net income -- -- -- 4,726 -- -- 4,726
---- ---- -------- -------- -------- -------- ---------
BALANCE, June 30, 1994 -- 78 43,415 6,885 (1,790) (1,239) 47,349
Issuance of 507,692 shares of common
stock for pooling-of-interests (Note 2) -- 5 27 2,127 -- -- 2,159
---- ---- -------- -------- -------- -------- ---------
BALANCE, June 30, 1994 as restated for
effect of pooling-of-interests -- 83 43,442 9,012 (1,790) (1,239) 49,508
Issuance of 682,331 shares of common stock -- 7 8,989 -- (205) -- 8,791
Amortization of deferred compensation -- -- -- -- 449 -- 449
Net income -- -- -- 6,900 -- -- 6,900
---- ---- -------- -------- -------- -------- ---------
BALANCE, June 30, 1995 -- 90 52,431 15,912 (1,546) (1,239) 65,648
Issuance of 657,329 shares of common
stock for pooling-of-interests (Note 2) -- 7 151 2,757 -- -- 2,915
---- ---- -------- -------- -------- -------- ---------
BALANCE, June 30, 1995 as restated for
effect of pooling-of-interests -- 97 52,582 18,669 (1,546) (1,239) 68,563
Issuance of 1,657,512 shares of comon stock
net of offering costs of $2,506 -- 16 39,777 -- (535) -- 39,258
Amortization of deferred compensation -- -- -- -- 633 -- 633
Net income -- -- -- 11,512 -- -- 11,512
---- ---- -------- -------- -------- -------- ---------
BALANCE, June 30, 1996 $-- $113 $ 92,359 $ 30,181 $ (1,448) $ (1,239) $ 119,966
==== ==== ======== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE> 44
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,512 $ 6,900 $ 4,726
Adjustments to reconcile net income to net cash
provided by operating activities
Extraordinary item -- 693 --
Depreciation and amortization 13,347 8,728 4,953
Amortization of deferred compensation 633 449 418
Amortization of gain on sale of real estate (103) (103) (103)
Provision for doubtful accounts 31,036 22,263 13,658
Changes in assets and liabilities, net of effect
of businesses acquired
Increase in accounts receivable (52,474) (31,369) (17,133)
Increase in inventories (1,684) (996) (645)
Increase in prepaid expenses and other (2,937) (273) (1,027)
Increase (decrease) in accounts payable (1,653) 1,946 288
Increase (decrease) in accrued liabilities 1,334 (1,586) 2,534
Increase in non-refundable subscription income 788 931 967
Increase in deferred income taxes 1,580 966 640
-------- -------- --------
Net cash provided by operating activities 1,379 8,549 9,276
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) on revolving credit facility, net 15,100 34,900 (6,690)
Repayment of debt and capital lease obligations (20,346) (10,784) (6,758)
Borrowings of debt 2,016 2,702 --
Purchase of treasury stock -- -- (68)
Issuance of common stock and treasury stock 38,048 998 37,418
-------- -------- --------
Net cash provided by financing activities 34,818 27,816 23,902
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for businesses acquired (Note 2) (17,164) (32,914) (19,762)
Capital expenditures (18,237) (11,474) (5,260)
(Increase) decrease in other assets (308) (926) 21
-------- -------- --------
Net cash used in investing activities (35,709) (45,314) (25,001)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 488 (8,949) 8,177
CASH, beginning of year 900 9,849 1,672
-------- -------- --------
CASH, end of year $ 1,388 $ 900 $ 9,849
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE> 45
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND OPERATIONS
Rural/Metro Corporation, a Delaware Corporation, and its subsidiaries
(collectively, the Company) is a diversified emergency services company
providing ambulance transport services, fire protection and training services,
and home health care services and equipment in Alabama, Arizona, Florida,
Georgia, Indiana, Iowa, Kentucky, Louisiana, Nebraska, New York, Ohio, Oregon,
Pennsylvania, South Carolina, South Dakota, Tennessee and Texas. The Company
provides "911" emergency and general transport ambulance services to patients on
both a fee-for-service basis and a non-refundable subscription fee basis. 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.
The Company depends on certain contracts with municipalities or fire
districts to provide "911" emergency ambulance services and fire protection
services. The five largest contracts accounted for 22%, 30% and 37% of total
revenue for the fiscal years ended June 30, 1996, 1995 and 1994, respectively,
with one contract accounting for 7%, 9% and 14%, respectively, of total revenue
for the same periods. These contracts are subject to requests for proposals,
competitive bid processes or renegotiation upon expiration and may be subject to
termination for failure to meet performance criteria.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Rural/Metro Corporation
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Ambulance service fees are recorded net of Medicare, Medicaid and other
reimbursement limitations and recognized when services are provided. Payments
received from third-party payors represent a substantial portion of the
Company's ambulance service fee receipts. The continuing efforts of third-party
payors to control expenditures for health care may affect the revenue, cash
flows and profitability of the Company. In addition, the financial instability
of private third-party payors as well as budget pressures and cost shifting by
governmental payors may influence the Company's receipt of reimbursements.
Provision for doubtful accounts is recorded for the expected difference between
ambulance service fees and amounts actually collected.
Revenue generated under fire protection service 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, generally
one year.
Other revenue is comprised primarily of fees associated with alternative
transportation services and home health care services and is recognized when the
services are provided.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income available for
common stock by the weighted average number of shares of common stock and common
stock equivalents assumed outstanding during the period. Primary and fully
diluted earnings per share are considered to be the same in all periods
presented.
F-7
<PAGE> 46
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES
Inventories, consisting of ambulance, fire and home health care supplies,
are stated at the lower of cost, on a first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated
depreciation, and is depreciated over the estimated useful lives using the
straight-line method. Equipment and vehicles are depreciated over three to ten
years and buildings are depreciated over fifteen to thirty years. Property and
equipment held under capital leases is stated at the present value of minimum
lease payments, net of accumulated amortization. These assets are amortized over
the lesser of the lease term or the estimated useful life of the underlying
assets using the straight-line method. Major additions and improvements are
capitalized; maintenance and repairs which do not improve or significantly
extend the life of assets are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets include costs in excess of the fair value of net assets
of acquired businesses of $95,827,000 and $73,281,000 and covenants not to
compete of $546,000 and $277,000 at June 30, 1996 and 1995, respectively. Costs
in excess of the fair value of net assets acquired are amortized over
twenty-five to thirty-five year periods using the straight-line method.
Covenants not to compete are amortized using the straight-line method over the
term of the related agreements, generally three to five years. Accumulated
amortization of these intangible assets was $6,092,000 and $2,631,000 at June
30, 1996 and 1995, respectively.
ACCRUED LIABILITIES
Included in accrued liabilities is $6,450,000 and $3,890,000 for
salaries, wages and related payroll expenses and $1,618,000 and $2,314,000 for
accrued insurance premiums at June 30, 1996 and 1995, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. The Company places its cash equivalents with
federally-insured institutions and limits the amount of credit exposure to any
one institution. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's credit base and the geographical dispersion of the customers.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which is required to be adopted by the Company in fiscal 1997, is
not expected to have a material effect on the Company's financial position or
its results of operations upon adoption. SFAS No. 123, "Accounting for
Stock-Based Compensation," is required to be adopted by the Company in fiscal
1997. Pursuant to the provisions of SFAS No. 123, the Company will continue to
account for transactions with its employees pursuant to Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
Therefore, this Statement is not expected to have a material effect on the
Company's financial position or its results of operations when adopted.
F-8
<PAGE> 47
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments have been
determined by the Company using available market information and valuation
methodologies. Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates may not be
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions or valuation methodologies
could have a material effect on the estimated fair value assumptions. The
carrying values of cash, accounts receivable, accounts payable, accrued
liabilities and other liabilities approximate fair value due to the short-term
maturities of these instruments. The revolving line of credit approximates fair
value as it bears interest at a rate indexed to LIBOR. The notes payable and
capital lease obligations approximate fair value as rates on these instruments,
in the aggregate, approximate market rates currently available for
instruments with similar terms and remaining maturities.
(2) ACQUISITIONS
The Company acquired the operations of eighteen companies during the year
ended June 30, 1996 and the operations of eleven companies during the year ended
June 30, 1995. Fifteen of the acquisitions occurring during the year ended June
30, 1996 were accounted for as purchases in accordance with APB Opinion No. 16
and, accordingly, the purchased assets and assumed liabilities were recorded at
their estimated fair values at each respective acquisition date. Three
acquisitions were accounted for as pooling-of-interests in accordance with APB
Opinion No. 16. These transactions were not considered significant; accordingly,
prior year financial statements have not been restated. Ten of the acquisitions
occurring in the year ended June 30, 1995 were accounted for as purchases in
accordance with APB Opinion No. 16. One acquisition was accounted for as a
pooling-of-interests and was not considered significant. Adjustments, if any, to
these purchase price allocations are not expected to have a material impact on
the accompanying consolidated financial statements.
The aggregate purchase price of the operations acquired in each year
ended June 30 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Cash $17,164 $32,914
Common stock 1,212 7,793
Notes payable to sellers 4,673 9,353
Assumption of liabilities 8,221 15,010
------- -------
Total $31,270 $65,070
======= =======
</TABLE>
The Company issued 657,329 and 507,692 shares of its common stock in
connection with the pooling-of-interests transactions completed during the years
ended June 30, 1996 and 1995, respectively.
F-9
<PAGE> 48
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of the assets purchased has been allocated as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Property and equipment $ 3,330 $ 5,865
Intangible assets 25,752 48,329
Other assets 2,188 10,876
------- -------
Total $31,270 $65,070
======= =======
</TABLE>
The following consolidated pro forma financial information was prepared
assuming that each acquisition had occurred as of the beginning of each fiscal
year. This pro forma information does not necessarily reflect the results of
operations that would have occurred had the acquisitions taken place at the
beginning of each fiscal year and is not necessarily indicative of results that
may be obtained in the future (unaudited):
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------
1996 1995
------- -------
(in thousands, except per share amounts)
<S> <C> <C>
Revenue $279,075 $253,882
Income before extraordinary item $ 13,212 $ 12,001
Earnings per share before extraordinary item $ 1.26 $ 1.19
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment, including equipment held under capital leases,
consisted of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Equipment $ 30,455 $ 22,874
Vehicles 42,596 29,587
Land and buildings 9,786 2,959
Leasehold improvements 2,612 2,166
-------- --------
85,449 57,586
Less: Accumulated depreciation (37,048) (26,076)
-------- --------
$ 48,401 $ 31,510
======== ========
</TABLE>
The Company acquired equipment of $2,698,000, $3,603,000 and $521,000
under capital lease and other financing agreements during the years ended June
30, 1996, 1995 and 1994, respectively.
The Company held vehicles and equipment with a carrying value of
$7,528,000 and $7,272,000 at June 30, 1996 and 1995, respectively, under capital
lease agreements.
F-10
<PAGE> 49
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) CREDIT AGREEMENTS AND BORROWINGS
Notes payable and capital lease obligations consisted of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Revolving credit facility $ 49,500 $ 34,900
Unsecured promissory notes payable from
acquisitions at varying rates, from 6.0%
to 10.0%, due through 2000 9,821 9,722
Capital lease obligations and other notes
payable, collateralized by property and
equipment, at varying rates, from 5.94%
to 21.0%, due through 2001 8,020 8,439
Notes payable, interest rates of
12.16% and LIBOR plus 2.75% -- 8,598
-------- --------
67,341 61,659
Less: Current maturities (6,610) (8,377)
-------- --------
$ 60,731 $ 53,282
======== ========
</TABLE>
REVOLVING CREDIT FACILITY
During September 1995, the Company funded a fully underwritten credit
agreement for a $125 million revolving credit facility. The Company used the
proceeds from the facility to repay the Company's then existing revolving credit
facility and its notes payable. This six-year revolving credit facility is
priced at the prime rate or a LIBOR-based rate. The LIBOR-based rates range from
LIBOR plus 0.75% to LIBOR plus 1.75% depending upon the Company meeting certain
financial covenants. Beginning September 30, 1998, the amount available under
the facility begins to reduce at three-month intervals until the termination
date at September 30, 2001. The facility is collateralized by the Company's
accounts and notes receivable, common stock of its subsidiaries and partnership
interests. The Company is required to meet certain financial covenants as
defined in the credit agreement. At June 30, 1996, the Company had
approximately $65,731,000 available under the revolving credit facility. Costs
previously deferred related to certain indebtedness resulted in an
extraordinary charge to earnings of $693,000, net of a $480,000 tax benefit, or
$.08 per share in the year ended June 30, 1995.
At June 30, 1996, the revolving credit facility was priced at LIBOR plus
1.5%. The weighted average interest rate on the revolving credit facility was
6.96% at June 30, 1996.
F-11
<PAGE> 50
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Aggregate debt maturities for each of the years ending June 30 are as
follows:
<TABLE>
<CAPTION>
Notes Payable Capital Leases
------------- --------------
(in thousands)
<S> <C> <C>
1997 $ 4,550 $ 2,722
1998 4,359 1,762
1999 1,403 1,324
2000 13,228 1,023
2001 37,778 136
Thereafter 86 584
------- -------
$61,404 7,551
=======
Less: Amounts
representing interest (1,614)
-------
$ 5,937
=======
</TABLE>
The Company incurred interest expense of $5,205,000, $3,167,000 and
$2,164,000 and paid interest of $5,324,000, $2,863,000 and $2,165,000 in the
years ended June 30, 1996, 1995 and 1994, respectively.
The Company had outstanding letters of credit totalling $3,787,000 and
$3,105,000 at June 30, 1996 and 1995, respectively.
(5) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases various facilities and equipment under noncancellable
operating lease agreements. Rental expense charged to operations under these
leases was $5,345,000, $4,002,000 and $2,522,000 for the years ended June 30,
1996, 1995 and 1994, respectively.
Minimum rental commitments under non-cancelable operating leases for each
of the years ending June 30 are as follows (in thousands):
<TABLE>
<S> <C>
1997 $4,185
1998 3,521
1999 3,122
2000 2,580
2001 1,861
Thereafter 4,729
</TABLE>
OTHER
The Company is a party to various lawsuits arising in the ordinary course
of business. Management believes, based upon discussions with legal counsel,
that losses, if any, will be substantially covered under insurance policies and
will not have a material adverse effect on the consolidated financial
statements.
F-12
<PAGE> 51
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company established the ESOP in 1979 and makes contributions to the
ESOP at the discretion of the Board of Directors. The Board of Directors
approved a voluntary contribution of $100,000 and $290,000 for the years ended
June 30, 1996 and 1995, respectively. No contribution was made during the year
ended June 30, 1994. The ESOP held, for the benefit of all participants,
approximately 10% and 16% as of June 30, 1996 and 1995, respectively, of the
outstanding common stock of the Company. The ESOP is administered by the ESOP's
Administrative Committee, consisting of certain members of the Board of
Directors of the Company.
Most full and part-time employees of the Company who have completed 200
work hours per year and have reached age 21 are eligible for admission to the
ESOP. Each participant's account vests 20% after three years of service and an
additional 20% each year thereafter.
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan was adopted in November 1992 and
provides for the granting of options to acquire common stock of the Company,
direct granting of the common stock of the Company (Stock Awards), the granting
of stock appreciation rights (SARs), or the granting of other cash awards (Cash
Awards) (Stock Awards, SARs and Cash Awards are collectively referred to herein
as Awards). At June 30, 1996, the maximum number of shares of common stock
issuable under the 1992 Plan was 3,390,750. Options may be granted as incentive
stock options or non-qualified stock options.
Options and Awards may be granted only to persons who at the time of
grant are either (i) key personnel (including officers) of the Company or (ii)
consultants and independent contractors who provide valuable services to the
Company. Options that are incentive stock options may only be granted to key
personnel of the Company.
The 1992 Plan, as amended, provides for the automatic grant of options to
acquire the Company's common stock (the Automatic Grant Program), whereby each
non-employee member of the Board of Directors will be granted an option to
acquire 2,500 shares of common stock. Each year each non-employee member of the
Board of Directors will receive an automatic grant of options to acquire an
additional number of shares equal to 1,000 shares for each $0.05 increase in
earnings per share, subject to a maximum of 5,000 additional options. New
non-employee members of the Board of Directors will receive options to acquire
10,000 shares of common stock on the date of their first appointment or election
to the Board of Directors.
The expiration date, maximum number of shares purchasable and the other
provisions of the options will be established at the time of grant. Options may
be granted for terms of up to ten years and become exercisable in whole or in
one or more installments at such time as may be determined by the Plan
Administrator upon grant of the options. The exercise price of options will be
determined by the Plan Administrator, but may not be less than 100% (110% if the
option is granted to a stockholder who at the date the option is granted owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its subsidiaries) of the fair market value of the
common stock at the date of the grant.
F-13
<PAGE> 52
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Awards granted in the form of SARs would entitle the recipient to receive
a payment equal to the appreciation in market value of a stated number of shares
of common stock from the price stated in the award agreement to the market value
of the common stock on the date first exercised or surrendered. The Plan
Administrator may determine such terms, conditions, restrictions and/or
limitations, if any, on any SARs.
The 1992 Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its common stock,
Awards or any other type of award. To the extent permitted by applicable law,
the Company may issue any other options, warrants or awards other than pursuant
to the 1992 Plan without shareholder approval. The 1992 Plan will remain in
force until November 5, 2002.
The following summarizes the activity for stock options:
<TABLE>
<CAPTION>
Year ended June 30, 1996
--------------------------------------
Exercise Price
Number of Shares Per Share
---------------- --------------
<S> <C> <C>
Options outstanding at beginning of year 1,145,955 $ 5.60 - $ 19.50
Granted 841,750 $22.50 - $ 24.25
Cancelled (6,000) $ 24.00
Exercised (155,330) $ 5.60 - $ 17.25
---------
Options outstanding at end of year 1,826,375 $ 5.60 - $ 24.25
=========
Options exercisable at end of year 495,205 $ 5.60 - $ 19.50
=========
Options available for grant at end of year 1,573,820
=========
Year ended June 30, 1995
--------------------------------------
Exercise Price
Number of Shares Per Share
---------------- --------------
Options outstanding at beginning of year 842,880 $ 5.60 - $ 19.50
Granted 425,825 $17.25 - $ 18.75
Cancelled (49,750) $ 8.04 - $ 17.25
Exercised (73,000) $ 5.60 - $ 8.04
---------
Options outstanding at end of year 1,145,955 $ 5.60 - $ 19.50
=========
Options exercisable at end of year 421,255 $ 5.60 - $ 19.50
=========
Options available for grant at end of year 1,196,050
=========
</TABLE>
F-14
<PAGE> 53
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Year ended June 30, 1994
--------------------------------------
Exercise Price
Number of Shares Per Share
---------------- --------------
<S> <C> <C>
Options outstanding at beginning of year 563,750 $ 5.60 - $ 11.00
Granted 329,750 $12.50 - $ 19.50
Cancelled --
Exercised (50,620) $ 5.60 - $ 6.92
-------
Options outstanding at end of year 842,880 $ 5.60 - $ 19.50
=======
Options exercisable at end of year --
=======
Options available for grant at end of year 372,125
=======
</TABLE>
401(k) PLAN
The Company has a contributory retirement plan (the 401(k) Plan) covering
eligible employees with at least one month of service. The 401(k) Plan is
designed to provide tax-deferred income to the Company's employees in accordance
with the provisions of Section 401(k) of the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 12%
of their respective salary, not to exceed the statutory limit. The Company may
elect to make a fixed-matching contribution to each participant's account of up
to 2% of total annual cash compensation received by respective participants
and/or a discretionary-matching contribution in an amount equal to a percentage
of the contribution made by participants as determined by the Board of
Directors. Under the terms of the 401(k) Plan, the Company may also make
discretionary profit sharing contributions. Profit sharing contributions are
allocated among participants based on their annual compensation. Each
participant has the right to direct the investment of his or her funds among
certain named plans. The Company made fixed-matching contributions to the 401(k)
Plan aggregating approximately $995,000 and $615,000 for the 401(k) Plan years
ended December 31, 1995 and 1994, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (ESPP) through which
eligible employees may purchase shares of the Company's common stock, at
semi-annual intervals, through periodic payroll deductions. The ESPP is a
qualified employee benefit plan under Section 423 of the Internal Revenue Code.
The Company has reserved 150,000 shares of stock for issuance under the ESPP.
The purchase price per share will be 85% of the closing price of the stock on
the first day of the offering period or on the nearest prior day on which
trading occurred on the NASDAQ National Market System. As of June 30, 1996,
53,357 shares of common stock have been issued under the ESPP.
(7) STOCKHOLDERS' EQUITY
PREFERRED STOCK
In August 1995, the Company's Board of Directors adopted a shareholder
rights plan, which authorized the distribution of one right to purchase one
one-thousandth of a share of $0.01 par value Series A Junior Participating
Preferred Stock (a Right) for each share of common stock of the Company. Rights
will
F-15
<PAGE> 54
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
become exercisable following the tenth day (or such later date as may be
determined by the Board of Directors) after a person or group (a) acquires
beneficial ownership of 15% or more of the Company's common stock or (b)
accounces a tender or exchange offer, the consummation of which would result in
ownership by a person or group of 15% or more of the Company's common stock.
Upon exercise, each Right will entitle the holder (other than the party
seeking to acquire control of the Company) to acquire shares of the common stock
of the Company or, in certain circumstances, such acquiring person at a 50%
discount from market value. The Rights may be terminated by the Board of
Directors at any time prior to the date they become exercisable at a price of
$0.01 per Right; thereafter, they may be redeemed for a specified period of time
at $0.01 per Right.
COMMON STOCK
In April 1996, the Company issued 1,367,500 shares of common stock at
$27.25 per share, generating $34.8 million. The proceeds were used to reduce the
outstanding balance on the Company's revolving credit facility.
DEFERRED COMPENSATION
During December 1994 and October 1995, the Company granted certain
officers an aggregate of 10,000 and 27,500 shares, respectively, of restricted
common stock with a fair value of approximately $205,000 and $660,000,
respectively, in exchange for covenants not to compete in the future. The shares
covered under the 1994 grant vest one-third on the third anniversary date of the
grant and one-third per year over the remainder of the non-compete agreements.
The shares covered under the 1995 grant vest one-fifth per year over the life
of the non-compete agreement. The fair value of the common stock is reflected in
stockholders' equity as deferred compensation and is being amortized over the
terms of the non-compete agreements.
(8) RELATED PARTY TRANSACTIONS
The Company incurred legal fees of approximately $122,000, $158,000 and
$174,000 for the years ended June 30, 1996, 1995 and 1994, respectively, with a
law firm in which a member of the Board of Directors is a partner.
The Company incurred rental expense of $592,000, $635,000 and $78,000 in
each of the years ended June 30, 1996, 1995 and 1994, respectively, related to
leases of fire and ambulance facilities with a director of the Company and with
employees and an officer that were previously owners of businesses acquired by
the Company.
At June 30, 1996 and 1995, the Company had notes payable to
employees and an officer that were previously owners of businesses acquired by
the Company totalling $4,617,000 and $5,766,000, respectively.
(9) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes are provided for
differences between results of operations for financial reporting purposes and
income tax purposes.
F-16
<PAGE> 55
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
1996 1995 1994
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Current
Federal $4,219 $3,188 $1,830
State 796 1,115 644
------ ------ ------
5,015 4,303 2,474
Deferred 3,029 985 410
------ ------ ------
$8,044 $5,288 $2,884
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are recorded based on differences
between the financial statement and tax bases of amounts of liabilities and the
tax rates in effect when those differences are expected to reverse.
The components of net deferred taxes were as follows:
<TABLE>
<CAPTION>
June 30,
------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax liabilities
Amortization and accelerated depreciation $ (9,340) $ (3,187)
Allowance for doubtful accounts (2,274) (2,299)
Cash to accrual adjustment (895) (1,471)
-------- --------
(12,509) (6,957)
-------- --------
Deferred tax assets
Writedown of investment in real estate 608 656
Installment gain from sale of real estate
and property and equipment 196 254
Compensation related deferrals 794 737
Self insurance reserve 351 299
Other -- 54
-------- --------
1 ,949 2,000
-------- --------
Net deferred tax liability (10,560) (4,957)
Less current portion 1,500 --
-------- --------
Net long-term deferred tax liability $ (9,060) $ (4,957)
======== ========
</TABLE>
For the years ended June 30, 1996 and 1995 income tax benefits of
$982,000 and $376,000, respectively, were allocated to additional paid-in
capital for tax benefits associated with the exercise of nonqualified stock
options.
F-17
<PAGE> 56
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before income taxes.
The sources and tax effects of the differences were as follows:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------
1996 1995 1994
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Federal income tax provision at statutory rate $ 6,845 $ 4,508 $ 2,587
State taxes, net of federal benefit 491 606 751
Amortization of nondeductible goodwill 646 331 60
Utilization of tax credits -- (116) (646)
Other, net 62 (41) 132
------- ------- -------
$ 8,044 $ 5,288 $ 2,884
======= ======= =======
</TABLE>
Cash payments for income taxes were approximately $2,848,000, $3,381,000
and $1,906,000 during the years ended June 30, 1996, 1995 and 1994,
respectively.
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended June 30, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Revenue $55,763 $60,839 $64,984 $68,677
Operating income 4,814 5,339 6,775 7,736
Net income 2,102 2,396 2,989 4,025
Earnings per share $ .23 $ .25 $ .31 $ .35
1995
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Revenue $ 36,271 $ 39,959 $ 43,786 $ 51,567
Operating income 2,912 3,340 4,265 5,423
Income before extraordinary item 1,434 1,660 2,050 2,449
Net income 1,434 1,660 2,050 1,756
Earnings per share
Income before extraordinary item $ .18 $ .21 $ .25 $ .28
Extraordinary item -- -- -- (.08)
-------- -------- -------- --------
Net income $ .18 $ .21 $ .25 $ .20
</TABLE>
F-18
<PAGE> 57
SCHEDULE II
RURAL/METRO CORPORATION
VALUATION AND QUALIFIYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of period $ 10,412 $ 3,754 $ 3,558
Provision charged to expense 31,036 22,263 13,658
Write-offs (14,877) (15,605) (13,462)
-------- -------- --------
Balance at end of period $ 26,571 $ 10,412 $ 3,754
======== ======== ========
</TABLE>
F-19
<PAGE> 1
EXHIBIT 10.16(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the date set forth below (the "Effective Date"), by and between _____________
("Executive") and RURAL/METRO CORPORATION, its subsidiaries, affiliates, joint
ventures and partnerships ("Rural/Metro").
RECITALS
A. Executive is currently employed by Rural/Metro in the position of
_________.
B. Executive's current Employment Agreement, which is dated
_________________, is scheduled to expire on ________________, and the Board of
Directors of Rural/Metro believes it is in the best interests of Rural/Metro to
continue to employ Executive beyond said date.
C. Rural/Metro has decided to offer Executive a new employment
agreement, the terms and provisions of which are set forth below, to completely
replace and supersede the current Employment Agreement.
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. POSITION AND DUTIES.
Executive will continue to be employed as the President of
Rural/Metro and shall perform the duties of his position, as determined by the
Board of Directors of Rural/Metro, in accordance with the policies, practices
and bylaws of Rural/Metro.
Executive shall serve Rural/Metro faithfully, loyally, honestly and
to the best of his ability. Executive will devote his best efforts to the
performance of his duties for, and in the business and affairs, of Rural/Metro.
Rural/Metro reserves the right, in its sole discretion, to change or
modify Executive's position, title and duties during the term of this Agreement.
<PAGE> 2
2. SALARY.
During the first year of this Agreement, Executive's semimonthly salary
will be based upon annual compensation of _______________________ and 00/100
Dollars ($___________). Thereafter, the salary will be reviewed at least
annually in accordance with Rural/Metro's executive compensation review policies
and practices, all as determined by Rural/Metro, in its sole discretion.
3. MANAGEMENT INCENTIVE PROGRAM.
Executive shall be eligible to participate in the Rural/Metro
Management Incentive Program ("MIP") (or any other plan that is designated by
the Board as replacing the MIP) and to receive such additional compensation as
may be provided by the MIP from time to time.
4. OTHER AGREEMENTS.
Rural/Metro and Executive have entered into a Conditional Stock Grant
and Repurchase Agreement and one or more Stock Option Agreements.
Contemporaneously with or prior to the execution of this Agreement, Executive
also will be offered a Change of Control Agreement, which will provide the
Executive with certain additional protections if his employment is terminated in
certain instances following a "change of control". Nothing in this Agreement is
intended to alter or modify the Conditional Stock Grant and Repurchase
Agreement, the Stock Option Agreements, or the Change of Control Agreements,
which shall continue in full force and effect following the execution of this
Agreement.
5. TERM AND TERMINATION.
This Agreement will continue in full force and effect until it is
terminated by the parties. This Agreement may be terminated in any of the
following ways: (a) it may be renegotiated and replaced by a written agreement
signed by both parties; (b) Rural/Metro may elect to terminate this Agreement
with or without "Cause", as defined below; (c) Executive may elect to terminate
this Agreement with or without "Good Reason," as defined below; or (d) either
party may serve notice
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<PAGE> 3
on the other of its desire to terminate this Agreement at the end of the
"Initial Term" or any "Renewal Term".
The "Initial Term" of this Agreement shall expire by its terms on
__________________, unless sooner terminated in accordance with the provisions
of this Agreement. This Agreement will be renewed at the end of the Initial Term
for additional one-year periods commencing on each January 1 and ending on the
following December 31 (a "Renewal Term"), unless either party serves notice of
desire to terminate or modify this Agreement on the other. Such notice must be
given at least forty-five (45) days before the end of the Initial Term or the
applicable Renewal Term.
6. TERMINATION BY RURAL/METRO.
A. Termination For Cause. Rural/Metro may terminate this Agreement and
Executive's employment for Cause at any time upon written notice. This means
that Rural/Metro has the right to terminate the employment relationship for
Cause at any time should there be Cause to do so.
For purposes of this Agreement, "Cause" shall be limited to discharge
resulting from a determination by Rural/Metro that Executive: (a) has been
convicted of a felony involving dishonesty, fraud, theft or embezzlement; (b)
has repeatedly failed or refused, after written notice from Rural/Metro, in a
material respect to follow reasonable policies or directives established by
Rural/Metro; (c) has willfully and persistently failed, after written notice
from Rural/Metro, to attend to material duties or obligations imposed upon him
under this Agreement; (d) has performed an act or failed to act, which, if he
were prosecuted and convicted, would constitute a felony involving $1,000 or
more of money or property of Rural/Metro; or (e) has misrepresented or concealed
a material fact for purposes of securing employment with Rural/Metro or this
Employment Agreement.
Because Executive is in a position which involves great
responsibilities, Rural/Metro is not required to utilize its progressive
discipline policy.
-3-
<PAGE> 4
If this Agreement and Executive's employment is terminated for Cause,
Executive shall receive no Severance Benefits.
B. Termination Without Cause. Rural/Metro also may terminate this
Agreement and Executive's employment without Cause at any time by giving thirty
(30) days written notice to Executive. In the event this Agreement and
Executive's employment are terminated by Rural/Metro without Cause, Executive
shall be entitled to receive Severance Benefits pursuant to paragraph 9.
7. TERMINATION BY EXECUTIVE.
Executive may terminate this Agreement and his employment with or
without "Good Reason" in accordance with the provisions of this paragraph 7.
A. Termination For Good Reason. Executive may terminate this Agreement
and his employment for "Good Reason" by giving written notice to Rural/Metro
within thirty (30) days, or such longer period as may be agreed to in writing by
Rural/Metro, of Executive's receipt of notice of the occurrence of any event
constituting "Good Reason," as described below.
Executive shall have "Good Reason" to terminate this Agreement and his
employment upon the occurrence of any of the following events: (a) Executive is
demoted to a position of less stature or importance within Rural/Metro than the
position described in paragraph 1; (b) Executive is required to relocate to an
employment location that is more than 50 miles from his employment location on
the date of the execution of this Agreement; (c) Executive's annualized salary
rate is reduced to a level that is at least twenty percent (20%) less than the
salary paid to Executive during any prior calendar year, unless Executive has
agreed to said reduction; or (d) the potential incentive compensation (or bonus)
to which Executive may become entitled under the MIP at any level of performance
by the Executive or Rural/Metro is reduced by seventy-five percent (75%) or more
as compared to any prior year.
If Executive terminates this Agreement and his employment for Good
Reason, Executive shall be entitled to receive Severance Benefits pursuant to
paragraph 9.
-4-
<PAGE> 5
B. Termination Without Good Reason. Executive also may terminate this
Agreement and his employment without Good Reason at any time by giving thirty
(30) days notice to Rural/Metro. If Executive terminates this Agreement and his
employment without Good Reason, Executive shall not be entitled to receive
Severance Benefits pursuant to paragraph 9.
8. DEATH OR DISABILITY.
This Agreement will terminate automatically on Executive's death. Any
salary or other amounts due to Executive for services rendered prior to his
death shall be paid to Executive's surviving spouse, or if Executive does not
leave a surviving spouse, to Executive's estate. No other benefits shall be
payable to Executive's heirs pursuant to this Agreement, but amounts may be
payable pursuant to any life insurance or other benefit plans maintained by
Rural/Metro.
In the event Executive becomes "Disabled," and as a result is unable to
continue the proper performance of his duties hereunder, Executive's employment
hereunder and Rural/Metro's obligation to pay Executive's salary shall continue
for a period of twelve (12) months from the date of such Disability, at which
point Executive's employment hereunder shall automatically cease and terminate.
Executive shall be considered "Disabled" or to be suffering from a "Disability"
for purposes of this paragraph 8 if, in the judgment of a licensed physician
selected by the Board of Directors of Rural/Metro, Executive is unable to
perform the essential functions of his position required under this Agreement,
with or without reasonable accommodations, because of a physical or mental
impairment. The determination by said physician shall be binding and conclusive
for all purposes.
9. SEVERANCE BENEFITS.
If this Agreement and Executive's employment are terminated without
Cause by Rural/Metro pursuant to paragraph 6B prior to the last day of the
Initial Term or any Renewal Term, or if Executive elects to terminate this
Agreement for Good Reason pursuant to paragraph 7A, Executive shall receive the
"Severance Benefits" provided by this paragraph. Executive also shall
-5-
<PAGE> 6
receive Severance Benefits if his employment is terminated due to Disability
pursuant to paragraph 8. The Severance Benefits shall begin immediately
following termination of employment and will continue to be payable until the
latest of (a) the last day of the Initial Term or the then current Renewal Term,
as the case may be; (b) for _________ (____) months; or (c) or for the number of
weeks determined in accordance with Rural/Metro's standard severance benefit
policies, as in effect at the time of the execution of this Agreement.
The Executive's "Severance Benefits" shall consist of the continuation
of the Executive's salary pursuant to paragraph 2 and the continuation of any
health, life, disability, or other insurance benefits that Executive was
receiving as of his last day of active employment. If a particular insurance
benefit may not be continued for any reason, Rural/Metro shall pay the cash
equivalent to the Executive on a monthly basis or in a single lump sum. The
amount of the cash equivalent of the benefit and whether the cash equivalent
will be paid in monthly installments or in a lump sum will be determined by
Rural/Metro in the exercise of its discretion.
If Executive voluntarily terminates this Agreement and his employment
without Good Reason prior to the end of the Initial Term or any Renewal Term, or
if Rural/Metro terminates the Agreement and Executive's employment for Cause, no
Severance Benefits shall be paid to Executive. No Severance Benefits are payable
in the event of Executive's death while in the active employ of Rural/Metro.
Severance Benefits shall immediately cease if Executive commits a
material violation of any of the terms of this Agreement relating to
confidentiality and non-disclosure, as set forth in paragraph 11, or the
Covenant-Not-To-Compete, as set forth in paragraph 12. Only material violations
will result in the loss of Severance Benefits. In addition, if a violation, even
if material, is one that may be cured, the violation will not be considered to
be material unless Executive fails to cure said violation within thirty (30)
days after receiving written notice of said violation from Rural/Metro or unless
Executive repeats said violation at any time after receiving said notice.
-6-
<PAGE> 7
If, at the end of the Initial Term of this Agreement, the parties elect
not to renew or renegotiate its terms and Executive's employment is terminated,
Executive shall receive Severance Benefits for ________________ (____) months.
Executive shall not receive Severance Benefits (but may be entitled to receive
severance pay in accordance with general Company policies) if his employment by
Rural/Metro is continued following the expiration of the Initial Term.
10. BENEFITS.
Executive will be entitled to participate in any benefit plans,
including, but not limited to, retirement plans, stock option plans, life
insurance plans and health and dental plans available to other Rural/Metro
employees, subject to any restrictions (including waiting periods) specified in
said plans.
Executive is entitled to four (4) weeks of paid vacation per calendar
year, with such vacation to be scheduled and taken in accordance with
Rural/Metro's standard vacation policies.
11. CONFIDENTIALITY AND NON-DISCLOSURE.
During the course of his employment, Executive will become exposed to a
substantial amount of confidential and proprietary information, including, but
not limited to financial information, annual reports, audited and unaudited
financial reports, operational budgets and strategies, methods of operation,
customer lists, strategic plans, business plans, marketing plans and strategies,
new business strategies, merger and acquisition strategies, management systems
programs, computer systems, personnel and compensation information and payroll
data, and other such reports, documents or information (collectively the
"Confidential and Proprietary Information"). In the event his employment is
terminated by either party for any reason, Executive promises that he will not
take with him any copies of such Confidential and Proprietary Information in any
form, format or manner whatsoever (including computer print-outs, computer
tapes, floppy disks, CD roms, etc.) nor will he disclose the same in whole or in
part to any person or entity, in any manner either directly or indirectly.
Excluded from this Agreement is information that is already disclosed to third
parties and
-7-
<PAGE> 8
is in the public domain or that Rural/Metro consents to be disclosed, with such
consent to be in writing. The provisions of this paragraph shall survive the
termination of this Agreement.
12. COVENANT-NOT-TO-COMPETE.
A. Interests to be Protected. The parties acknowledge that prior to and
during the term of his employment, Executive has been and will continue to
perform essential services for Rural/Metro, its employees and shareholders, and
for clients of Rural/Metro. Therefore, Executive will be given an opportunity to
meet, work with and develop close working relationships with Rural/Metro's
clients on a first-hand basis and will gain valuable insight as to the clients'
operations, personnel and need for services. In addition, Executive will be
exposed to, have access to, and be required to work with, a considerable amount
of Rural/Metro's Confidential and Proprietary Information.
The parties also expressly recognize and acknowledge that the personnel
of Rural/Metro have been trained by, and are valuable to Rural/Metro, and that
if Rural/Metro must hire new personnel or retrain existing personnel to fill
vacancies it will incur substantial expense in recruiting and training such
personnel. The parties expressly recognize that should Executive compete with
Rural/Metro in any manner whatsoever, it could seriously impair the goodwill and
diminish the value of Rural/Metro's business.
The parties acknowledge that this covenant has an extended duration;
however, they agree that this covenant is reasonable and it is necessary for the
protection of Rural/Metro, its shareholders and employees.
For these and other reasons, and the fact that there are many other
employment opportunities available to Executive if he should terminate, the
parties are in full and complete agreement that the following restrictive
covenants (which together are referred to as the "Covenant- Not-To-Compete") are
fair and reasonable and are freely, voluntarily and knowingly entered into.
-8-
<PAGE> 9
Further, each party has been given the opportunity to consult with independent
legal counsel before entering into this Agreement.
B. Devotion to Employment. Executive shall devote substantially all his
business time and best efforts to the performance of his duties on behalf of
Rural/Metro. During his term of employment, Executive shall not at any time or
place or to any extent whatsoever, either directly or indirectly, without the
express written consent of Rural/Metro, engage in any outside employment, or in
any activity competitive with or adverse to Rural/Metro's business, practice or
affairs, whether alone or as partner, officer, director, employee, shareholder
of any corporation or as a trustee, fiduciary, consultant or other
representative. This is not intended to prohibit Executive from engaging in
nonprofessional activities such as personal investments or conducting to a
reasonable extent private business affairs which may include other boards of
directors' activity, as long as they do not conflict with Rural/Metro.
Participation to a reasonable extent in civic, social or community activities is
encouraged.
C. Non-Solicitation of Clients. During the term of Executive's
employment with Rural/Metro and for a period of _____________ (____) months
after the termination of employment with Rural/Metro, regardless of who
initiates the termination and for whatever reason, Executive shall not directly
or indirectly, for himself, or on behalf of, or in conjunction with, any other
person(s), company, partnership, corporation, or governmental entity, in any
manner whatsoever, call upon, contact, encourage, handle or solicit client(s) of
Rural/Metro with whom he has worked with as an employee of Rural/Metro at any
time prior to termination, or at the time of termination, for the purpose of
soliciting or selling such customer the same, similar, or related services that
he provided on behalf of Rural/Metro. This non-solicitation provision applies
even if Executive is terminated by Rural/Metro due to the cessation of
operations in any geographical service area where he was employed prior to
termination, or at the time of termination.
-9-
<PAGE> 10
D. Non-Solicitation of Employees. During the term of Executive's
employment with Rural/Metro and for a period of ____________ (____) months after
the termination of employment with Rural/Metro, regardless of who initiates the
termination and for any reason, Executive shall not directly or indirectly, for
himself, or on behalf of, or in conjunction with, any other person(s), company,
partnership, corporation, or governmental entity, seek to hire, and/or hire any
of Rural/Metro's personnel or employees for the purpose of having such employee
engage in services that are the same, similar or related to the services that
such employee provided for Rural/Metro.
E. Competing Business. During the term of this Agreement and for a
period of ___________ (____) months after the termination of employment with
Rural/Metro, regardless of who initiates the termination and for any reason,
Executive shall not, directly or indirectly, for himself, or on behalf of, or in
conjunction with, any other person(s), company, partnership, corporation, or
governmental entity, in any manner whatsoever, engage in the same or similar
business as Rural/Metro, which would be in direct competition with any
Rural/Metro line of business, in any geographical service area where Rural/Metro
is engaged in business, or was considering engaging in business at any time
prior to the termination or at time of termination. For the purposes of this
provision, the term "competition" shall mean directly or indirectly engaging in
or having a substantial interest in a business or operation which has been, is,
or will be, performing the same services provided by Rural/Metro.
F. Judicial Amendment. If the scope of any provision of this Agreement
is found by the Court to be too broad to permit enforcement to its full extent,
then such provision shall be enforced to the maximum extent permitted by law.
The parties agree that the scope of any provision of this Agreement may be
modified by a judge in any proceeding to enforce this Agreement, so that such
provision can be enforced to the maximum extent permitted by law. If any
provision of this
-10-
<PAGE> 11
Agreement is found to be invalid or unenforceable for any reason, it shall not
affect the validity of the remaining provisions of this Agreement.
G. Injunctive Relief, Damages and Forfeiture. Due to the nature of
Executive's position with Rural/Metro, and with full realization that a
violation of this Agreement will Cause immediate and irreparable injury and
damage, which is not readily measurable, and to protect Rural/Metro's interests,
Executive understands and agrees that in addition to instituting legal
proceedings to recover damages resulting from a breach of this Agreement,
Rural/Metro may seek to enforce this Agreement with an action for injunctive
relief, to cease or prevent any actual or threatened violation of this Agreement
on the part of Executive.
H. Survival. The provisions of this paragraph shall survive the
termination of this Agreement.
13. AMENDMENTS.
This Agreement, the Conditional Stock Grant and Repurchase Agreement,
the Change of Control Agreement, and the Stock Option Agreements constitute the
entire agreement between the parties as to the subject mater hereof.
Accordingly, there are no side agreements or verbal agreements other than those
which are stated in this document or in the Conditional Stock Grant and
Repurchase Agreement, the Change of Control Agreement, or the Stock Option
Agreements. Any amendment, modification or change in said Agreements must be
done so in writing and signed by both parties.
14. SEVERABILITY.
In the event a court or arbitrator declares that any provision of this
Agreement is invalid or unenforceable, it shall not affect or invalidate any of
the remaining provisions. Further, the court shall have the authority to
re-write that portion of the Agreement it deems unenforceable, to make it
enforceable.
-11-
<PAGE> 12
15. GOVERNING LAW.
The law of the Sate of Arizona shall govern the interpretation and
application of all of the provisions of this Agreement.
16. INDEMNITY.
Executive shall be indemnified in his position to the fullest extent
permitted or required by the laws of the State of Delaware.
17. DISPUTE RESOLUTION.
A. Mediation. Any and all disputes arising under, pertaining to or
touching upon this Agreement (excepting the confidentiality and non-disclosure
provisions of paragraph 11 and the Covenant-Not-To-Compete provisions of
paragraph 12), or the statutory rights or obligations of either party hereto,
shall, if not settled by negotiation, be subject to non-binding mediation before
an independent mediator selected by the parties pursuant to paragraph 17.D. Any
demand for mediation shall be made in writing and served upon the other party to
the dispute, by certified mail, return receipt requested, at the business
address of Rural/Metro, or at the last known residence address of Executive,
respectively. The demand shall set forth with reasonable specificity the basis
of the dispute and the relief sought. The mediation hearing will occur at a time
and place convenient to the parties in Maricopa County, Arizona, within thirty
(30) days of the date of selection or appointment of the mediator.
B. Arbitration. In the event that the dispute is not settled through
mediation, the parties shall then proceed to binding arbitration before a single
independent arbitrator selected pursuant to paragraph 17.D. The mediator shall
not serve as arbitrator. ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT
DISCRIMINATION, TERMINATION BY ALLEGED BREACH OF CONTRACT OR POLICY, OR ALLEGED
EMPLOYMENT TORT COMMITTED BY RURAL/METRO OR A REPRESENTATIVE OF RURAL/METRO,
INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR
PUBLIC POLICY, SHALL BE RESOLVED PURSUANT
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<PAGE> 13
TO THIS POLICY AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A
JURY TRIAL. The arbitration hearing shall occur at a time and place convenient
to the parties in Maricopa County, Arizona, within thirty (30) days of selection
or appointment of the arbitrator. If Rural/Metro has adopted a policy that is
applicable to arbitrations with executives, the arbitration shall be conducted
in accordance with said policy to the extent that the policy is consistent with
this Agreement and the Federal Arbitration Act, 9 U.S.C. Sections 1-16. If
no such policy has been adopted, the arbitration shall be governed by such
procedures as the parties may agree upon. The arbitrator shall issue written
findings of fact and conclusions of law, and an award, within fifteen (15) days
of the date of the hearing unless the parties otherwise agree.
C. Damages. In cases of breach of contract or policy, damages shall be
limited to contract damages. In cases of intentional discrimination claims
prohibited by statute, the arbitrator may direct payment consistent with 42
U.S.C. Section 1981(a) and the Civil Rights Act of 1991. In cases of employment
tort, the arbitrator may award punitive damages if proved by clear and
convincing evidence. Any award of punitive damages shall not exceed two times
(2x) any compensatory award and, in any event, shall not exceed Two Hundred
Fifty Thousand Dollars ($250,000). The arbitrator may award fees to the
prevailing party and assess costs of the arbitration to the non-prevailing
party. Issues of procedure, arbitrability, or confirmation of award shall be
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16, except
that Court review of the arbitrator's award shall be that of an appellate court
reviewing a decision of a trial judge sitting without a jury.
D. Selection of Mediators or Arbitrators. The parties shall select the
mediator or arbitrator from a panel list made available by Arizona Litigation
Alternatives ("ALA"). If the parties are unable to agree to a mediator or
arbitrator within ten (10) days of receipt of a demand for mediation or
arbitration, the mediator or arbitrator will be chosen by alternatively striking
from a list of five (5) mediators or arbitrators obtained by Rural/Metro from
ALA. Executive shall have the first strike.
-13-
<PAGE> 14
IN WITNESS WHEREOF, Rural/Metro and Executive have executed this
Agreement on this ____ day of _________________, 19___.
RURAL/METRO CORPORATION
By:_______________________________________________
Warren Rustand, its Chairman of the Board
"EXECUTIVE"
__________________________________________________
-14-
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
<S> <C>
Subsidiaries of Rural/Metro Corporation (Delaware):
Aid Ambulance at Vigo County, Inc. Indiana
City Wide Ambulance Service, Inc. Ohio
Metro Care Corp. Ohio
Myers Ambulance Service, Inc. Indiana
Rural/Metro Corporation Arizona
The Aid Company, Inc. Indiana
Subsidiaries of Rural/Metro Corporation (Arizona):
Coronado Health Services, Inc. Arizona
Metropolitan Fire Department, Inc. Arizona
R/M Management Co., Inc. Arizona
Rural/Metro Corporation of Florida Florida
Rural/Metro Corporation of Tennessee Tennessee
Rural/Metro Fire Dept., Inc. Arizona
Rural/Metro Texas Holdings, Inc. Delaware
Rural/Metro of Alabama, Inc. Delaware
Rural/Metro of Ardmore, Inc. Delaware
Rural/Metro of Georgia, Inc. Delaware
Rural/Metro of Indiana, Inc. Delaware
Rural/Metro of Nebraska, Inc. Delaware
Rural/Metro of New York, Inc. Delaware
Rural/Metro of Ohio, Inc. Delaware
Rural/Metro of Oregon, Inc. Delaware
Rural/Metro of South Carolina, Inc. Delaware
Rural/Metro of South Dakota, Inc. Delaware
W & W Leasing Company, Inc. Arizona
RISC America Alabama Fire Safety Services, Inc. Delaware
Subsidiaries of Rural/Metro Texas Holdings, Inc.:
R/M of Texas G.P., Inc. Delaware
Rural/Metro of Arlington, Inc. Delaware
Rural/Metro of Texas, Inc. Delaware
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
Subsidiaries of Rural/Metro Corporation of Florida:
Rural/Metro of North Florida, Inc. Florida
Subsidiaries of Rural/Metro of New York, Inc.:
Corning Ambulance Service Inc. New York
Eastern Paramedics, Inc. Delaware
The George Heisel Corporation New York
LaSalle Ambulance, Inc. New York
Towns Ambulance Service, Inc. New York
The Western New York Emergency Medical
Services Training Institute Inc. New York
Subsidiaries of The George Heisel Corporation:
Beacon Transportation, Inc. New York
National Ambulance & Oxygen Service, Inc. New York
Subsidiaries of Rural/Metro of Nebraska, Inc.:
Eastern Ambulance Service, Inc. Nebraska
Subsidiaries of Eastern Ambulance Service, Inc.:
Eastern Ambulance Service, Inc. - Lincoln (50% owned) Nebraska
Subsidiaries of Rural/Metro of Ohio, Inc.:
Gold Cross Ambulance Services, Inc. Delaware
Physicians Ambulance Service, Inc. Delaware
Rural/Metro of Central Ohio, Inc. Delaware
Subsidiaries of Rural/Metro of Georgia, Inc.:
E.M.S. Ventures, Inc. Georgia
Rural/Metro of Atlanta, Inc. Delaware
Subsidiaries of Rural/Metro of South Carolina, Inc.:
EMS Ventures of South Carolina, Inc. South Carolina
Subsidiaries of Rural/Metro of Central Ohio, Inc.:
American Limousine Service, Inc. Ohio
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Subsidiaries of Gold Cross Ambulance Services, Inc.:
Gold Cross Ambulance Service of Pa., Inc. Ohio
Subsidiaries of Rural/Metro Corporation of Tennessee:
R/M of Tennessee G.P., Inc. Delaware
R/M of Tennessee L.P., Inc. Delaware
Subsidiaries of Rural/Metro of Indiana, Inc.:
The Aid Ambulance Company, Inc. Delaware
Subsidiaries of Rural/Metro of Alabama, Inc.:
Medstar Emergency Medical Services, Inc. Delaware
Rural/Metro of Central Alabama, Inc. Delaware
Subsidiaries of Medical Transportation Services, Inc.:
Sioux Falls Ambulance, Inc. South Dakota
Subsidiaries of Rural/Metro of South Dakota, Inc.:
Medical Transportation Services, Inc. South Dakota
Subsidiaries of Rural/Metro of Oregon, Inc.:
Valley Fire Service, Inc. Delaware
</TABLE>
3
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-76526, 33-80454,33-88302,
333-2818 and 333-07457.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 27, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,388
<SECURITIES> 0
<RECEIVABLES> 95,213
<ALLOWANCES> 26,571
<INVENTORY> 5,170
<CURRENT-ASSETS> 80,910
<PP&E> 85,449
<DEPRECIATION> 37,048
<TOTAL-ASSETS> 230,114
<CURRENT-LIABILITIES> 25,508
<BONDS> 67,341
0
0
<COMMON> 113
<OTHER-SE> 119,853
<TOTAL-LIABILITY-AND-EQUITY> 230,114
<SALES> 250,263
<TOTAL-REVENUES> 250,263
<CGS> 0
<TOTAL-COSTS> 194,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31,036
<INTEREST-EXPENSE> 5,108
<INCOME-PRETAX> 19,556
<INCOME-TAX> 8,044
<INCOME-CONTINUING> 11,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,512
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
