<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file number 0-22056
RURAL/METRO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 86-0746929
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8401 EAST INDIAN SCHOOL ROAD
SCOTTSDALE, ARIZONA
85251
(Address of principal executive offices)
(Zip Code)
(602) 994-3886
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At November 12, 1996 there were 11,450,108 shares of Common Stock outstanding,
exclusive of treasury shares held by the Registrant.
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RURAL/METRO CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
Page
Part I. Financial Statements
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 745 $ 1,388
Accounts receivable, net 76,532 68,642
Inventories 5,556 5,170
Prepaid expenses and other 5,933 5,710
--------- ---------
Total current assets 88,766 80,910
PROPERTY AND EQUIPMENT, net 49,205 48,401
INTANGIBLE ASSETS, net 95,385 96,373
OTHER ASSETS 4,956 4,430
--------- ---------
$ 238,312 $ 230,114
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,484 $ 4,092
Accrued liabilities 14,083 14,806
Current portion of long-term debt 6,651 6,610
--------- ---------
Total current liabilities 24,218 25,508
LONG-TERM DEBT, net of current portion 63,228 60,731
NON-REFUNDABLE SUBSCRIPTION INCOME 12,893 12,582
DEFERRED INCOME TAXES 9,017 9,060
OTHER LIABILITIES 1,801 2,267
--------- ---------
Total liabilities 111,157 110,148
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 115 113
Additional paid-in capital 96,084 92,359
Retained earnings 33,480 30,181
Deferred compensation (1,285) (1,448)
Treasury stock (1,239) (1,239)
--------- ---------
Total stockholders' equity 127,155 119,966
--------- ---------
$ 238,312 $ 230,114
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
------- -------
(Unaudited)
<S> <C> <C>
REVENUE
Ambulance services $59,028 $43,404
Fire protection services 10,305 9,255
Other 4,661 3,104
------- -------
Total revenue 73,994 55,763
------- -------
OPERATING EXPENSES
Payroll and employee benefits 40,634 30,462
Provision for doubtful accounts 9,755 6,818
Depreciation 2,733 2,138
Amortization of intangibles 1,090 829
Other operating expenses 13,190 10,702
------- -------
Total expenses 67,402 50,949
------- -------
OPERATING INCOME 6,592 4,814
INTEREST EXPENSE, net 1,010 1,149
------- -------
INCOME BEFORE INCOME TAXES 5,582 3,665
PROVISION FOR INCOME TAXES 2,283 1,563
------- -------
NET INCOME $ 3,299 $ 2,102
======= =======
EARNINGS PER COMMON STOCK
AND COMMON STOCK EQUIVALENT $ 0.28 $ 0.23
======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING 11,944 9,307
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 3,299 $ 2,102
Adjustments to reconcile net income to cash
provided by (used in) operations --
Depreciation and amortization 3,823 2,967
Amortization of deferred compensation 163 137
Amortization of gain on sale of real estate (26) (9)
Provision for doubtful accounts 9,755 6,818
Change in assets and liabilities,
net of effect of businesses acquired --
Increase in accounts receivable (17,645) (11,386)
Increase in inventories (386) (2)
Increase in prepaid expenses and other (325) (1,218)
Decrease in accounts payable (608) (1,697)
Increase (decrease) in accrued liabilities and other (1,163) 2,080
Increase in nonrefundable subscription income 311 210
Increase (decrease) in deferred income taxes (43) 477
-------- --------
Net cash provided by (used in) operating activities (2,845) 479
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities, net 4,000 15,600
Repayments of debt and capital lease obligations (1,462) (10,577)
Borrowings of debt -- 2,016
Issuance of common stock 3,727 855
-------- --------
Net cash provided by financing activities 6,265 7,894
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (3,537) (3,295)
Increase in other assets (526) (54)
Cash paid for businesses acquired -- (1,857)
-------- --------
Net cash used in investing activities (4,063) (5,206)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH (643) 3,167
EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period 1,388 900
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 745 $ 4,067
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements.
INTERIM RESULTS
In the opinion of management, the consolidated financial statements for the
three month periods ended September 30, 1996 and 1995 include all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of the consolidated financial position and results of operations for that
period.
The results of operations for the three month periods ended September 30, 1996
and 1995 are not necessarily indicative of the results of operations for a full
fiscal year.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company derives its revenue primarily from fees charged for ambulance and
fire protection services. The Company provides ambulance services in response to
emergency medical calls ("911" emergency ambulance services) and non-emergency
transport services (general transport services) to patients on both a
fee-for-service basis and non-refundable subscription fee basis. Per transport
revenue depends on various factors, including the mix of rates between existing
markets and new markets and the mix of activity between "911" emergency
ambulance services and general transport services as well as other competitive
factors. Fire protection services are provided either under contracts with
municipalities or fire districts or on a non-refundable subscription fee basis
to individual homeowners or commercial property owners.
Ambulance service fees are recorded net of Medicare, Medicaid and other
reimbursement limitations and are recognized when services are provided.
Payments received from third-party payors represent a substantial portion of the
Company's ambulance service fee receipts. Provision for doubtful accounts is
made for the expected difference between ambulance services fees and amounts
actually collected. The Company's provision for doubtful accounts generally is
higher with respect to collections to be derived directly from patients than for
collections to be derived from third-party payors and generally is higher for
"911" emergency ambulance services than for general ambulance transport
services.
Because of the nature of the Company's ambulance services, it is necessary to
respond to a number of calls, primarily "911" emergency ambulance service calls,
which may not result in transports. Results of operations are discussed below on
the basis of actual transports since transports are more directly related to
revenue. Expenses associated with calls that do not result in transports are
included in operating expenses. The percentage of calls not resulting in
transports varies substantially depending upon the mix of general transport and
"911" emergency ambulance service calls in the Company's markets and is
generally higher in markets in which the calls are primarily "911" emergency
ambulance service calls. Rates in the Company's markets take into account the
anticipated number of calls that may not result in transports. The Company does
not separately account for expenses associated with calls that do not result in
transports.
Revenue generated under fire protection 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 is generally one
year.
Other revenue consists primarily of fees associated with alternative
transportation services and is recognized when the services are provided.
Other operating expenses consist primarily of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.
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<PAGE> 8
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
REVENUE
Total revenue increased $18.2 million, or 32.6%, from $55.8 million for the
three months ended September 30, 1995 to $74.0 million for the three months
ended September 30, 1996. Approximately $11.3 million of this increase resulted
from the acquisition of ambulance service providers during the last three
quarters of fiscal 1996. Ambulance service revenue in markets served by the
Company in both of the three month periods ended September 30, 1995 and 1996
increased by 9.9%. Fire protection services revenue increased by $1.0 million,
or 10.8%, from $9.3 million for the three months ended September 30, 1995 to
$10.3 million for the three months ended September 30, 1996. Other revenue
increased by $1.6 million, or 51.6%, in the three months ended September 30,
1996.
Total ambulance transports increased by 43,000, or 26.2%, from 164,000 for the
three months ended September 30, 1995 to 207,000 for the three months ended
September 30, 1996. The acquisition of fourteen ambulance service companies
during the last three quarters of fiscal 1996 accounted for 36,000 of these
additional transports.
Fire protection services revenue increased due to revenue generated from new
fire protection contracts awarded to the Company through competitive bidding and
due to rate increases for fire protection services.
OPERATING EXPENSES
Payroll and employee benefit expenses increased $10.1 million, or 33.1%, from
$30.5 million for the three months ended September 30, 1995 to $40.6 million for
the three months ended September 30, 1996. This increase was primarily due to
the acquisition of fourteen ambulance service providers during the last three
quarters of fiscal 1996.
Provision for doubtful accounts increased $3.0 million, or 44.1%, from $6.8
million for the three months ended September 30, 1995 to $9.8 million for the
three months ended September 30, 1996. Provision for doubtful accounts increased
from 12.2% of total revenue for the three months ended September 30, 1995 to
13.2% of total revenue for the three months ended September 30, 1996, reflecting
the effect of the acquisition of ambulance service providers during the second
half of fiscal 1996 operating in markets with a greater mix of "911" emergency
activity.
Depreciation increased $0.6 million, or 28.6%, from $2.1 million for the three
months ended September 30, 1995 to $2.7 million for the three months ended
September 30, 1996, primarily as a result of increased property and equipment
caused primarily by recent acquisition activity. Depreciation decreased from
3.8% of total revenue for the three months ended September 30, 1995 to 3.7% of
total revenue for the three months ended September 30, 1996.
Amortization of intangibles increased by $0.3 million, or 37.5%, from $0.8
million for the three months ended September 30, 1995 to $1.1 million for the
three months ended September 30, 1995. This increase is primarily a result of
increased intangible assets caused by recent acquisition activity. Amortization
of intangibles was 1.5% of total revenue for the three months ended September
30, 1995 and 1996.
Other operating expenses increased approximately $2.5 million, or 23.3%, from
$10.7 million for the three months ended September 30, 1995 to $13.2 million for
the three months ended September 30, 1996, primarily due to increased expenses
associated with the operation of the fourteen
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<PAGE> 9
ambulance service providers acquired during the last three quarters of fiscal
1996. Other operating expenses decreased from 19.2% of total revenue for the
three months ended September 30, 1995 to 17.8% of total revenue for the three
months ended September 30, 1996 as a result of operational efficiencies.
Interest expense decreased by $0.1 million from $1.1 million for the three
months ended September 30, 1995 to $1.0 million for the three months ended
September 30, 1996. This decrease was attributable to lower interest rates on
the Company's $125 million revolving credit facility which was funded in
September 1995.
The Company's effective tax rate decreased from 42.6% for the three months ended
September 30, 1995 to 40.9% for the three months ended September 30, 1996,
primarily the result of tax planning strategies implemented by the Company
during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash requirements principally through
cash flow from operating activities, term and revolving indebtedness, capital
equipment lease financing, the sale of stock through an initial public offering
in July 1993, subsequent public stock offerings in May 1994 and April 1996, and
the on-going exercise of stock options.
During the three months ended September 30, 1996 the Company used cash flow from
operations of $2.8 million. This compares to cash flow provided by operations of
$0.5 million for the three months ended September 30, 1995. This change resulted
primarily from increases in accounts receivable, inventories and prepaid
expenses and a decrease in accounts payable and other accrued liabilities.
Approximately $54.0 million was outstanding on the Company's revolving credit
facility at September 30, 1996.
The Company expects that cash flow from operations and additional borrowing
capacity will be sufficient to meet its operating and capital needs for existing
operations as well as to fund certain service area expansion and acquisitions
for the twelve months subsequent to September 30, 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
financing. The availability of these capital sources will depend upon prevailing
market conditions, interest rates and the financial condition of the Company.
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RURAL/METRO CORPORATION AND SUBSIDIARIES
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RURAL/METRO CORPORATION
Date: November 14, 1996 By /s/ W. R. Crowell
------------------
W. R. Crowell, Vice President
and Principal Accounting Officer
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 745
<SECURITIES> 0
<RECEIVABLES> 100,764
<ALLOWANCES> 24,232
<INVENTORY> 5,556
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0
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