<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
June 30, 1997 August 12,1997
(Date of earliest event reported)
RURAL/METRO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-22056 86-0746929
(Commission File Number) (IRS Employer Identification Number)
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)
<PAGE> 2
RURAL/METRO CORPORATION
FORM 8-K
CURRENT REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Agreement of Purchase and Sale dated February 25, 1997 between
Registrant as buyer and Robert E. Ramsey, Jr. and Barry Landon as Trustee of the
Employee Stock Ownership Plan for the benefit of the Company's employees, the
Purchaser acquired all of the issued and outstanding stock of SW General, Inc.
("SWG"), an Arizona corporation. SWG provides ambulance, emergency response and
medical transport service primarily in the metropolitan Phoenix, Arizona area.
The Registrant intends to continue the operations of the company.
The purchase price consisted of 439,394 shares of the Registrant's common stock
and liabilities assumed, including transaction costs, of approximately $8.2
million. The acquisition will be accounted for as a purchase in accordance with
APB No. 16.
Pursuant to an Agreement of Purchase and Sale dated February 25, 1997 between
Registrant as buyer and Robert E. Ramsey, Jr., the Registrant acquired all of
the issued and outstanding stock of Southwest Ambulance of Casa Grande, Inc.
("Casa Grande"), an Arizona corporation. Casa Grande provides ambulance,
emergency response and medical transport service primarily in southern and
eastern Arizona, including Pinal and Graham counties. The Registrant intends to
continue the operations of the company.
The purchase price consisted of cash of $5,000 and 408,940 shares of the
Registrant's common stock and liabilities assumed of approximately $2.2 million.
The acquisition will be accounted for as a purchase in accordance with APB No.
16.
Pursuant to an Agreement of Purchase and Sale dated February 25, 1997 between
Registrant as buyer and Robert E. Ramsey, Jr., Patrick McGroder, Barry Landon
and Gary Ramsey, the Registrant acquired all of the issued and outstanding stock
of Southwest General Services, Inc. ("Services"), an Arizona corporation.
Services provides billing services for SWG and Casa Grande and municipal
ambulance service providers. The Registrant intends to continue the operations
of the company.
The purchase price consisted of cash of $6,500,000. The acquisition will be
accounted for as a purchase in accordance with APB No. 16.
Pursuant to an Agreement of Purchase and Sale dated February 25, 1997 between
Registrant as buyer and Robert E. Ramsey, Jr., the Registrant acquired all of
the issued and outstanding stock of Medical Emergency Devices and Services, Inc.
("MEDS"), an Arizona corporation. MEDS provides supply procurement and fleet
maintenance services primarily for SWG and Casa Grande. The Registrant intends
to continue the operations of the company.
The purchase price consisted of cash of $13,300,000 and liabilities assumed of
approximately $0.4 million. The acquisition will be accounted for as a purchase
in accordance with APB No. 16.
The Registrant financed the cash portion of the purchase prices for the
acquisitions described above from cash from operations and its revolving credit
facility.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Combined Financial Statements of SW General, Inc., dba Southwest
Ambulance, Southwest Ambulance of Casa Grande, Inc., Medical
Emergency Devices and Services, Inc. and Southwest General
Services, Inc.
- Report of Independent Public Accountants
- Combined Balance Sheet as of March 31, 1997
- Combined Statement of Operations for the year ended March 31,
1997
- Combined Statement of Changes in Shareholders' Equity for the
year ended March 31, 1997
- Combined Statement of Cash Flows for the year ended March 31,
1997
- Notes to Combined Financial Statements
(b) Pro Forma Financial Statements
- Introduction
- Pro Forma Combined Statement of Income for the year ended
June 30, 1996
- Pro Forma Combined Statement of Income for the nine months
ended March 31, 1997
- Notes to Pro Forma Combined Statements of Income
<PAGE> 4
SW GENERAL, INC. dba SOUTHWEST AMBULANCE, SOUTHWEST AMBULANCE OF CASA GRANDE,
INC., MEDICAL EMERGENCY DEVICES AND SERVICES, INC. AND SOUTHWEST GENERAL
SERVICES, INC.
COMBINED FINANCIAL STATEMENTS
AS OF MARCH 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SW General, Inc. dba Southwest Ambulance, Southwest Ambulance
of Casa Grande, Inc., Medical Emergency Devices and Services, Inc.
and Southwest General Services, Inc.:
We have audited the accompanying combined balance sheet of SW General, Inc. dba
Southwest Ambulance, Southwest Ambulance of Casa Grande, Inc., Medical Emergency
Devices and Services, Inc., Southwest General Services, Inc., as of March 31,
1997, and the related combined statements of operations, changes in
shareholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of SW General,
Inc. dba Southwest Ambulance, Southwest Ambulance of Casa Grande, Inc., Medical
Emergency Devices and Services, Inc. and Southwest General Services, Inc. as of
March 31, 1997, and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
August 11, 1997.
<PAGE> 6
SW GENERAL, INC. dba SOUTHWEST AMBULANCE, SOUTHWEST AMBULANCE OF CASA
GRANDE, INC., MEDICAL EMERGENCY DEVICES AND SERVICES, INC. AND SOUTHWEST
GENERAL SERVICES, INC.
COMBINED BALANCE SHEET
MARCH 31,1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 272,400
Accounts receivable, net of allowance for
doubtful accounts of $848,100 6,989,200
Inventories 344,000
Prepaid expenses and other 232,300
-----------
Total current assets 7,837,900
-----------
VEHICLES AND EQUIPMENT, net of accumulated
depreciation 5,507,000
-----------
OTHER ASSETS (Note 1) 385,700
-----------
$13,730,600
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital leases (Note 4) $ 2,461,200
Line of credit (Note 3) 1,300,000
Accounts payable 1,500,900
Accrued liabilities 521,200
Income tax payable (Note 5) 340,800
Deferred income taxes (Note 5) 218,000
-----------
Total current liabilities 6,342,100
-----------
LONG-TERM DEBT AND CAPITAL LEASES, net of
current portion (Note 4) 1,176,700
-----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 6):
Common stock 5,000
Retained earnings 6,206,800
-----------
Total shareholders' equity 6,211,800
-----------
$13,730,600
===========
</TABLE>
The accompanying notes are an integral
part of this combined balance sheet.
<PAGE> 7
SW GENERAL, INC. dba SOUTHWEST AMBULANCE, SOUTHWEST AMBULANCE OF CASA
GRANDE, INC., MEDICAL EMERGENCY DEVICES AND SERVICES, INC. AND SOUTHWEST
GENERAL SERVICES, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31,1997
<TABLE>
<S> <C>
REVENUE $31,995,600
-----------
OPERATING EXPENSES:
Payroll and employee benefits 15,082,000
Provision for doubtful accounts 4,827,600
Depreciation and amortization 1,486,800
Other operating expenses 7,756,400
-----------
Total operating expenses 29,152,800
-----------
Operating income 2,842,800
-----------
OTHER EXPENSE:
Interest expense 513,600
Other 93,300
-----------
Total other expense 606,900
-----------
INCOME BEFORE INCOME TAXES: 2,235,900
Provision for income taxes 730,000
-----------
NET INCOME $ 1,505,900
===========
</TABLE>
The accompanying notes are an integral
part of this combined financial statement.
<PAGE> 8
SW GENERAL, INC. dba SOUTHWEST AMBULANCE, SOUTHWEST AMBULANCE OF CASA
GRANDE, INC., MEDICAL EMERGENCY DEVICES AND SERVICES, INC. AND SOUTHWEST
GENERAL SERVICES, INC.
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, March 31, 1996 $ 5,000 $ 6,718,900 $ 6,723,900
Net income 1,505,900 1,505,900
Distributions to shareholder, net (Note 6) (2,018,000) (2,018,000)
----------- ----------- -----------
BALANCE, March 31, 1997 $ 5,000 $ 6,206,800 $ 6,211,800
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of this combined financial statements.
<PAGE> 9
SW GENERAL, INC. dba SOUTHWEST AMBULANCE, SOUTHWEST AMBULANCE OF CASA
GRANDE, INC., MEDICAL EMERGENCY DEVICES AND SERVICES, INC. AND SOUTHWEST
GENERAL SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31,1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,505,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,486,800
Changes in assets and liabilities:
Accounts receivable (1,151,100)
Inventories (70,100)
Prepaid expenses and other assets 75,200
Accounts payable 248,900
Accrued liabilities (516,100)
Income taxes payable 973,600
-----------
Net cash provided by operating activities 2,553,100
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capital leases, net (2,105,900)
Borrowings on line of credit 3,224,000
Repayments on line of credit (3,174,000)
Cash distributions to owners (687,900)
-----------
Net cash used in financing activities (2,743,800)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of disposals (50,000)
-----------
DECREASE IN CASH (240,700)
CASH, beginning of year 513,100
-----------
CASH, end of year $ 272,400
===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 513,600
===========
Income tax refunds received $ 237,000
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Property acquired under capital leases $ 811,800
===========
Non-cash distributions to shareholders $ 1,559,200
===========
</TABLE>
The accompanying notes are an integral
part of this combined financial statement.
<PAGE> 10
SW GENERAL, INC. dba SOUTHWEST AMBULANCE, SOUTHWEST AMBULANCE OF
CASA GRANDE, INC., MEDICAL EMERGENCY DEVICES AND SERVICES, INC.
AND SOUTHWEST GENERAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31,1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
SW General, Inc. dba Southwest Ambulance (an Arizona corporation; Southwest
Ambulance) and Southwest Ambulance of Casa Grande, Inc. (an Arizona S
corporation) provide ambulance and other related emergency medical services
primarily to residents of the state of Arizona. Medical Emergency Devices and
Services, Inc. (an Arizona S corporation) primarily provides equipment,
supplies, uniforms and vehicle repair and maintenance to Southwest Ambulance and
Southwest Ambulance of Casa Grande, Inc. Southwest General Services, Inc. (an
Arizona S corporation) provides collection services for Southwest Ambulance and
Southwest Ambulance of Casa Grande, Inc. as well as maintains billing and
collection contracts with certain municipalities.
The Company depends on certain contracts with municipalities to provide "911"
emergency ambulance services. 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 Combination
The combined financial statements include the financial statements of Southwest
Ambulance, Southwest Ambulance of Casa Grande, Inc., Medical Emergency Devices
and Services and Southwest General Services, Inc. (collectively the Company).
All significant intercompany balances and transactions have been eliminated in
combination.
Revenue Recognition
Ambulance service fees are recorded net of estimated Medicare, Arizona Health
Care Cost Containment System (AHCCCS) and contractual 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.
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 estimated difference between ambulance service fees (net of contractual
limitations) and amounts to actually be collected.
Inventories
Inventories consist primarily of medical supplies that are stated at the lower
of cost, determined on a first-in, first-out basis, or market.
<PAGE> 11
Vehicles and Equipment
Vehicles and equipment is stated at cost. Depreciation and amortization is
provided using the straight-line method over the estimated useful lives of the
assets ranging from 4 to 5 years. Leasehold improvements are amortized over
the lives of the assets or the lease term, whichever is less. Major additions
and improvements are capitalized; maintenance and repairs which do not improve
or significantly extend the life of the related assets are expensed as incurred.
Other Assets
Other assets include $385,700, net of accumulated amortization of $165,000,
related to the purchase of Certificates of Operating Necessity (CONs) for
certain service areas. The cost of the CONs is being amortized over 7 years
on a straight line basis.
Income Taxes
Income taxes are provided in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in the tax
laws and rates on the date of enactment.
Southwest Ambulance of Casa Grande, Inc., Medical Emergency Devices and
Services, Inc. and Southwest General Services, Inc. have elected to be taxed as
subchapter S corporations under the provisions of the Internal Revenue Code;
accordingly, their taxable income is included in the individual tax returns of
the shareholders for federal and state income tax purposes.
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.
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.
<PAGE> 12
Recently Issued Accounting Pronouncement:
- -----------------------------------------
During fiscal year 1997, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. The impact of adopting this pronouncement was not
material.
2. VEHICLES AND EQUIPMENT:
Vehicles and equipment at March 31, 1997 consist of the following:
<TABLE>
<S> <C>
Ambulances and other vehicles $3,710,100
Equipment 652,700
Furniture and fixtures 2,129,300
Leasehold improvements 2,926,000
----------
9,418,100
Less: Accumulated depreciation (3,911,100)
----------
$5,507,000
==========
</TABLE>
The Company acquired equipment of $811,900 under capital lease and other
financing arrangements during the year ended March 31,1997.
The Company held vehicles and equipment with a book value of $948,900 (net of
accumulated amortization of $254,000) at March 31,1997 under capital lease
agreements.
3. LINE OF CREDIT:
The Company has a revolving line of credit agreement with a bank, as amended
June 6, 1997, under which it may borrow up to 60% of eligible receivables, not
to exceed $4,000,000; maturing August 31, 1997; collateralized by virtually all
assets of the Company and guaranteed by the majority shareholder of the Company.
Interest on borrowings is payable monthly at the lender's prime rate (8.5% at
March 31, 1997) plus 1.25%. The outstanding balance of the line at March 31,
1997 was $1,300,000.
This agreement and the third party long-term debt described in Note 4 include
various covenants which include, among others, a limitation on capital
expenditures and maintenance of certain financial ratios.
<PAGE> 13
4. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases at March 31, 1997 consist of the following:
<TABLE>
<S> <C>
Notes payable due in monthly installments aggregating
$58,264, plus interest ranging from 8.95% to 10.15%,
maturing through August 1999; collateralized by
equipment, vehicles and guaranteed by the majority
shareholder. $1,259,000
Notes payable due to majority shareholder,
interest at 6%, principal and accrued interest
due September 1, 1999 or on demand, unsecured. 1,395,900
Capital leases due in monthly installments of
$28,700, including interest at 9.5% to 10.5%,
maturing through January 2000, collateralized by
vehicles, equipment and furniture, guaranteed by
the majority shareholder. 726,000
Note payable due to bank in monthly installments
aggregating $7,113 including interest at 8.75%,
maturing in November 1999; collateralized by
equipment and guaranteed by the majority
shareholder. 207,900
Note payable due in monthly installments aggregating
$8,718, plus interest at prime (8.5% at March 31, 1997)
plus 2%, maturing through March 1998;
collateralized by equipment and guaranteed by
the majority shareholder. 49,100
----------
3,637,900
Less: Current maturities (2,461,200)
----------
$1,176,700
==========
</TABLE>
<PAGE> 14
Aggregate maturities of long-term debt and capital leases at March 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Long-Term Debt Capital Leases
-------------- --------------
<S> <C> <C>
1998 $ 2,175,500 $ 345,300
1999 453,400 305,000
2000 224,500 172,800
2001 58,500 --
----------- ---------
$ 2,911,900 823,100
===========
Less: amounts representing interest (97,100)
---------
726,000
Less: current maturities (285,800)
---------
$ 440,200
=========
</TABLE>
5. INCOME TAXES:
The components of the provision for income taxes for the year ended March 31,
1997 are as follows:
<TABLE>
<S> <C>
Current
Federal $384,000
State 109,000
--------
493,000
Deferred 237,000
--------
$730,000
========
</TABLE>
Deferred tax assets and liabilities are recorded based on differences between
the financial statement and tax bases of amounts of assets and liabilities and
the tax rates in effect when those differences are expected to reverse.
The components of net deferred taxes at March 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax liability
Allowance for doubtful accounts $(565,000)
Deferred tax asset
Contractual reserves 347,000
---------
Net deferred tax liability $(218,000)
=========
</TABLE>
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 for the year ended March 31, 1997 were as
follows:
<TABLE>
<S> <C>
Federal income tax provision at statutory rate $ 760,000
State taxes, net of federal benefit 105,000
Subchapter S earnings (277,000)
Other, net 142,000
---------
$ 730,000
=========
</TABLE>
<PAGE> 15
6. SHAREHOLDERS' EQUITY:
Common Stock
Common stock consists of 1,000,000 shares of $.0005 par value Southwest
Ambulance, 10,000 shares of $.25 par value Southwest Ambulance of Casa Grande,
Inc., 1,000 shares of $1 par value Medical Emergency Devices and Services, Inc.,
and 1,000 shares of $1 par value Southwest General, Inc. common stock.
Shareholder Distributions
During 1997, the Company made distributions to shareholders totaling
$2,247,100. $687,900 was paid in cash to the two majority shareholders and
$1,559,200 was distributed to the majority shareholder in the form of a note
payable (Note 4).
7. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases certain office and station space under various operating
leases which expire through December 31, 2006. The leases require the Company to
pay real estate and sales taxes, maintenance and insurance. The following is a
schedule, by year, of the future minimum lease payments required under these
operating leases as of March 31, 1997:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1998 $ 1,199,200
1999 1,144,300
2000 1,082,300
2001 1,046,800
2002 1,046,800
Thereafter 4,972,100
-----------
$10,491,500
===========
</TABLE>
Total facility rent expense was approximately $1,187,900 for the year ended
March 3l, 1997.
The Company leases certain office and station space from entities owned by the
majority shareholder, under various operating leases. Amounts paid to these
entities for facility rent totaled approximately $934,500 for the year ended
March 31, 1997
In addition, the Company paid $101,200 to entities owned by the Company's
majority shareholder, to rent equipment and office furniture during the year
ended March 31, 1997.
Contracts
Southwest General Services, Inc. is under contract with certain municipalities
to process, bill, collect and report emergency ambulance fees for transports
made and advanced life support rendered. The contracts expire on dates through
July, 1998, with extension options through July, 1999.
<PAGE> 16
0ther
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 financial position or results of
the operations of the Company.
8. BENEFIT PLANS:
Employee Stock Ownership Plan
The Company established an Employee Stock Ownership Plan (ESOP) in 1992. The
purpose of the ESOP was to enable full-time employees who are at least 21 years
of age and have been employed for at least one year to acquire stock ownership
in the Company. During the year ended March 31, 1993, the ESOP entered into a
note payable agreement with the Company's shareholders. The ESOP agreed to
purchase 300,000 shares of the outstanding common stock of the Company for
$3,000,000. The loan was to be repaid in monthly installments of $22,562,
including interest imputed at 4%, through July 2000. The Company guaranteed
repayment of the loan and was committed to make cash payments to the ESOP in
monthly amounts sufficient for it to meet debt service requirements.
Accordingly, the debt was recorded in the Company's balance sheet with a
corresponding amount of deferred compensation which reduced shareholders'
equity. The debt and the deferred compensation were reduced as the ESOP made
principal payments to the shareholders of the Company.
The Company recorded an expense for the ESOP totaling $187,390 for the year
ended March 31, 1997. In connection with preparing the Company for sale (Note
9), all ESOP related liabilities and debt were assumed by the majority
shareholder and therefore no balances related to the ESOP remain outstanding on
the Company's books at March 31, 1997. The net effect of these transactions is
reflected in the accompanying combined statement of changes in shareholders'
equity in distributions to shareholder.
Profit Sharing Plan
The Company has a contributory profit sharing plan which allows contributions by
employees, subject to limitations, under Section 401(k) of the Internal Revenue
Code. The Company matches the lesser of 25% of the employee's contribution or 6%
of the employee's gross compensation. To be eligible, an employee must have
attained the age of 18 and completed one year of service. The Company recorded
an expense for the profit sharing plan totaling $44,603 for the year ended March
31, 1997.
9. SUBSEQUENT EVENT
On June 30, l997, the Company's outstanding stock was purchased by Rural/Metro
Corporation. The total purchase price of the Company approximated $58.6 million.
The terms of the purchase include the payment of approximately $19.8 million in
cash, the assumption of approximately $10.8 million of liabilities and the
issuance of 848,334 shares of Rural/Metro Corporation common stock.
<PAGE> 17
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following pro forma financial data of the Company presents the Company's
unaudited pro forma combined statements of income for the fiscal year ended June
30, 1996 and the nine months ended March 31, 1997.
During the fiscal years ended June 30, 1996 and 1997, the Company purchased
either the stock or certain of the assets and assumed certain of the liabilities
of twenty-seven ambulance service providers and merged under
pooling-of-interests transactions with five ambulance service providers.
Eighteen acquisitions were completed during the fiscal year ended June 30, 1996
and fourteen such acquisitions were made during the year ended June 30, 1997.
The acquisitions occurring during the year ended June 30, 1996 are referred to
as "the fiscal 1996 acquisitions" and the acquisitions made subsequent to June
30, 1996 are referred to as "the fiscal 1997 acquisitions". All of these
acquisitions, with the exception of the pooling-of-interests transactions, were
accounted for as purchases in accordance with Accounting Principles Board
Opinion ("APB") No. 16. The aggregate purchase price for the fiscal 1996
acquisitions and for the fiscal 1997 acquisitions consisted of the following:
<TABLE>
<CAPTION>
FISCAL 1996 ACQUISITIONS FISCAL 1997 ACQUISITIONS TOTAL
------------------------ ------------------------ -----
(in thousands)
<S> <C> <C> <C>
Cash $17,164 $ 35,512 $ 52,676
Rural/Metro common stock 1,212 18,699 19,911
Notes payable to sellers 4,673 4,477 9,150
Assumption of liabilities 8,221 23,915 32,136
------- -------- --------
$31,270 $ 82,603 $113,873
======= ======== ========
</TABLE>
The unaudited pro forma combined statement of income for the year ended June 30,
1996 was prepared as if each of the fiscal 1996 acquisitions and fiscal 1997
acquisitions was consummated as of July 1, 1995. The unaudited pro forma
combined statement of income for the nine months ended March 31, 1997 was
prepared as if each of the fiscal 1997 acquisitions was consummated as of July
1, 1996.
The unaudited pro forma combined financial data should be read in conjunction
with the Consolidated Financial Statements of the Company and related notes
thereto.
The pro forma financial data does not purport to represent what the Company's
actual results of operations would have been had each transaction occurred as of
the beginning of each respective period nor does it project the Company's
results of operations for any future period.
<PAGE> 18
ITEM 7(b)
RURAL/METRO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATE)
<TABLE>
<CAPTION>
BUSINESSES PRO FORMA PRO FORMA
HISTORICAL (1) ACQUIRED (2) ADJUSTMENTS COMBINED
-------------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue
Ambulance services $ 197,201 $97,549 $ -- $ 294,750
Fire protection services 38,770 179 -- 38,949
Other 14,292 548 -- 14,840
--------- ------- --------- -------
Total 250,263 98,276 -- 348,539
--------- ------- --------- -------
Operating expenses
Payroll and employee benefits 135,464 45,355 (4,049)(4) 176,770
Provision for doubtful accounts 31,036 17,074 -- 48,110
Depreciation 9,778 3,973 (110)(5) 13,641
Amortization of intangibles 3,569 126 2,158 (6) 5,853
Other operating expenses 45,752 23,429 (1,607)(7) 67,574
--------- ------- --------- -------
Total 225,599 89,957 (3,608) 311,948
--------- ------- --------- -------
Operating income 24,664 8,319 3,608 36,591
Interest expense, net 5,108 1,401 2,623 (8) 9,132
--------- ------- --------- -------
Income before income taxes 19,556 6,918 985 27,459
Provision for income taxes 8,044 638 2,612 (9) 11,294
--------- ------- --------- -------
Net income $ 11,512 $ 6,280 $ (1,627) $16,165
========= ======= ========= =======
Earnings per common stock and
common stock equivalent $ 1.14 $ 1.38
Weighted average number of common stock
and common stock equivalents outstanding 10,075 1,660 (10) 11,735
</TABLE>
The accompanying notes to pro forma combined statements of income are an
integral part of this statement.
<PAGE> 19
ITEM 7(b)(continued)
RURAL/METRO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BUSINESSES PRO FORMA PRO FORMA
HISTORICAL(1) ACQUIRED(3) ADJUSTMENTS COMBINED
-------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Ambulance services $190,654 $46,179 $ -- $ 236,833
Fire protection services 31,205 -- -- 31,205
Other 14,586 17 -- 14,603
-------- ------- --------- ---------
Total 236,445 46,196 -- 282,641
-------- ------- --------- ---------
Operating expenses
Payroll and employee benefits 127,207 20,591 (1,913)(4) 145,885
Provision for doubtful accounts 32,037 9,851 -- 41,888
Depreciation 8,646 1,906 (83)(5) 10,469
Amortization of intangibles 3,349 31 1,173 (6) 4,553
Other operating expenses 41,640 10,277 (878)(7) 51,039
-------- ------- --------- ---------
Total 212,879 42,656 (1,701) 253,834
-------- ------- --------- ---------
Operating income 23,566 3,540 1,701 28,807
Interest expense, net 3,658 762 1,016 (8) 5,436
-------- ------- --------- ---------
Income before income taxes 19,908 2,778 685 23,371
Provision for income taxes 8,163 771 649 (9) 9,583
-------- ------- --------- ---------
Net income $ 11,745 $ 2,007 $ 36 $ 13,788
======== ======= ========= =========
Earnings per common stock and
common stock equivalent $ 0.97 $ 1.04
Weighted average number of common stock
and common stock equivalents outstanding 12,154 1,128 (10) 13,282
</TABLE>
The accompanying notes to pro forma combined statements of income are an
integral part of this statement.
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(1) Reflects the results of operations of the respective acquisitions from
the dates of acquisition through the end of each respective period.
(2) Reflects the results of operations of the fiscal 1996 acquisitions
from the beginning of the period through the dates of acquisition
and of the fiscal 1997 acquisitions for the entire year ended June 30,
1997.
(3) Reflects the results of operations of the fiscal 1997 acquisitions from
the beginning of the period through the dates of acquisition.
(4) Adjustment for payroll and employee benefits expense to reflect the
effects of certain individuals of the acquired businesses not being
employed by the Company and to reflect the differences between the
actual compensation paid to officers of the businesses acquired and the
aggregate compensation such individuals would have received under the
terms of employment agreements with the Company as if the businesses
had been acquired as of the beginning of the period.
(5) Adjustment for depreciation to reflect the depreciation of fixed assets
using the straight-line method.
(6) Adjustment for amortization to reflect amortization of the cost in
excess of the fair value of net assets acquired over a 35-year period.
(7) Adjustment for other operating expenses to reflect the reduction of
expenses related to certain assets, including real estate and
buildings, not acquired and sellers' costs incurred in connection with
the sale of their respective businesses, had each of the acquisitions
occurred as of the beginning of the period.
(8) Adjustment for interest expense to reflect the interest expense related
to the debt issued in connection with the acquisitions.
(9) Adjustment for provision for income taxes to reflect the effect of the
adjustments described above and the tax effect of treating each
acquisition as if it had C corporation tax status.
(10) Adjustment for weighted average number of common stock and common stock
equivalents outstanding as if the common stock issued in connection
with certain of the acquisitions had occurred as of the beginning of
the period.
<PAGE> 21
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: August 12, 1997 By: /s/ Dean P. Hoffman
---------------------------------
Dean P. Hoffman, Vice President
and Principal Accounting Officer
