As filed with the Securities and Exchange Commission on June 9, 2005
Registration no. 333-124359
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Rural/Metro Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 4119 86-0746929
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code No.) Identification No.)
--------------
9221 East Via de Ventura, Scottsdale, Arizona 85258
(480) 606-3886
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------
Michael S. Zarriello
Chief Financial Officer
Rural/Metro Corporation
9221 East Via de Ventura,
Scottsdale, Arizona 85258
(480) 606-3886
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------
With copies to:
Christopher E. Kevane, Esq. Todd Chandler, Esq.
Rural/Metro Corporation Weil, Gotshal & Manges LLP
9221 East Via de Ventura, 767 Fifth Avenue
Scottsdale, Arizona 85258 New York, NY 10153
(480) 606-3886 (212) 310-8172
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Approximate date of commencement of proposed sale to the public: From
time to time after this registration statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement from the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -------------------------------- ------------------------------ ----------------- ------------------ -----------------
Title of Each Class of Amount to be Registered Proposed Proposed Maximum Amount of
Securities to be Registered Maximum Aggregate Registration
Offering Price Offering Price Fee (3)
Per Security (1)(2)
(1)(2)
- -------------------------------- ------------------------------ ----------------- ------------------ -----------------
Common Stock, $.01 par value 3,487,739 $ 7.78 $ 27,134,609.42 $ 3,193.74
per share
- -------------------------------- ------------------------------ ----------------- ------------------ -----------------
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also covers such additional shares of common stock
to be issued as the result of stock splits, stock dividends and similar
transactions.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
based upon the average high and low sale prices of the common stock as
reported on the NASDAQ SmallCap Market on June 7, 2005.
(3) $2,306.33 has previously been paid in connection with part of this
registration statement (with an additional $887.41 being paid in
connection with the filing of this Amendment No. 1).
-----------------------
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
================================================================================
SUBJECT TO COMPLETION, DATED JUNE 9, 2005
3,487,739 Shares
[Rural/Metro Corporation logo]
Common Stock
----------------
This prospectus relates solely to the offer and sale by the selling stockholders
listed on page 41 of this prospectus of up to 3,487,739 shares of our common
stock. We will not receive any of the proceeds from the shares of common stock
sold by the selling stockholders.
Our common stock is listed on the NASDAQ SmallCap Market under the symbol
"RURL". The last reported sale price on June 7, 2005, was $7.70 per share.
The selling stockholders may sell the shares of common stock described in this
prospectus in a number of different ways and at varying prices. See "Plan of
Distribution" beginning on page 45 for more information about how a selling
stockholder may sell its shares of common stock.
Investing in our common stock involves risks. See "Risk Factors" on page 4.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------
The date of this prospectus is _________, 2005.
IMPORTANT INFORMATION ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS
You should rely only on the information in this prospectus and the
information incorporated by reference. We have not authorized anyone to provide
you with different information. The selling stockholders are not offering to
sell, or seeking offers to buy, the shares of common stock in any state where
offers or sales are not permitted. We do not claim the accuracy of the
information in this prospectus as of any date other than the date stated on the
cover or that information incorporated by reference into this prospectus is
accurate as of any date other than its respective date of its being filed with
the SEC.
TABLE OF CONTENTS
Important Information About The Information Presented In This Prospectus.........................................ii
Where You Can Find More Information.............................................................................iii
Incorporation Of Certain Information By Reference...............................................................iii
Summary...........................................................................................................1
Risk Factors......................................................................................................4
Special Note Regarding Forward-Looking Statements................................................................12
Use of Proceeds..................................................................................................13
Market Price of Our Common Stock And Dividends...................................................................14
Capitalization...................................................................................................15
Business.........................................................................................................16
Selling Stockholders.............................................................................................40
Description Of Capital Stock.....................................................................................41
Plan of Distribution.............................................................................................44
Legal Matters....................................................................................................46
Experts..........................................................................................................46
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ii
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is a part of a registration statement on Form S-3
that we filed with the SEC, but the registration statement includes additional
information and also attaches exhibits that are referenced in this prospectus.
We also file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). Our SEC filings
are available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document that we file with at the SEC's public
reference room at:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
1-800-SEC-0330
Please call the SEC at 1-800-SEC-0330 for more information on the
public reference rooms and their copy charges.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are "incorporating by reference" into this prospectus certain
information we file with the SEC, which means that we are disclosing important
information to you by referring you to those documents. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in this prospectus.
This prospectus incorporates by reference:
o our annual report on Form 10-K for the fiscal year ended June 30,
2004, other than exhibits 32.1 and 32.2 thereto;
o our proxy statement relating to our 2004 annual meeting of
stockholders;
o our quarterly report on Form 10-Q for the quarter ended September
30, 2004, other than exhibits 32.1 and 32.2 thereto;
o our quarterly report on Form 10-Q for the quarter ended December
31, 2004, other than exhibits 32.1 and 32.2 thereto and our
quarterly report on Form 10-Q for the quarter ended March 31,
2005, other than exhibits 32.1 and 32.2 thereto;
o our current reports on Form 8-K filed with the SEC on November
24, 2004, December 14, 2004, December 22, 2004, December 23,
2004, February 7, 2005, February 9, 2005, February 14, 2005,
February 16, 2005, February 17, 2005, March 10, 2005, March 11,
2005, March 25, 2005, April 11, 2005 and April 22, 2005 (as
amended by the amendment on Form 8-K/A filed with the SEC on June
3, 2005); and
o the description of our common stock set forth in our Registration
Statement on Form 8-A filed on July 8, 1993, including any
amendments or reports filed for the purpose of updating such
description.
All documents we file with the SEC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, from the date of
this prospectus to the end of the offering of the common stock under this
document shall also be deemed to be incorporated herein by reference and will
automatically update information in this prospectus.
You may request a copy of these filings at no cost by writing or
calling us at the following address or telephone number:
Corporate Secretary
Rural/Metro Corporation
9221 East Via de Ventura
Scottsdale, Arizona 85258
(480) 606-3886
iii
Any statements contained in a document incorporated by reference in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus (or
in any other subsequently filed document which also is incorporated by reference
in this prospectus) modifies or supersedes such statement. Without limiting the
foregoing, please be advised that the information in our current report on Form
8-K filed with the SEC on February 16, 2005, supersedes the equivalent
information in our annual report on Form 10-K for the fiscal year ended June 30,
2004. Any statement so modified or superseded shall not be deemed to constitute
a part of this prospectus except as so modified or superseded.
You should carefully read this prospectus and the documents
incorporated by reference in their entirety. They contain information that you
should consider when making your investment decision.
iv
SUMMARY
The following summary contains information about our business. You
should read this entire prospectus carefully, including the information under
"Risk Factors" and our consolidated financial statements and the accompanying
notes incorporated by reference into this prospectus.
Founded in 1948, we are a leading provider of medical transportation
services, which consist primarily of emergency and non-emergency ambulance
services. We currently provide services to approximately 365 communities in 23
states, including many of the fastest growing states in the nation such as
Arizona, Florida, Georgia, California and New Mexico. We have approximately 100
exclusive contracts to provide 911 emergency ambulance services and
approximately 650 contracts to provide non-emergency medical transportation
services. In addition, we provide non-emergency medical transportation services
to a broad customer base, including hospitals, nursing homes and specialized
healthcare facilities on a non-contractual basis. We transported more than 1
million patients during the twelve months ended December 31, 2004. Our objective
is to provide our customers and patients with high-quality care, efficient and
reliable response times and cost-effective services. Our common stock is traded
on the NASDAQ SmallCap Market under the symbol "RURL".
We provide medical transportation services which consist primarily of
emergency and non-emergency ambulance services. We provide these medical
transportation services under contracts with governmental entities, hospitals,
nursing homes and other healthcare facilities and organizations. Approximately
half of our medical transports are initiated by 911 calls with the remainder
primarily consisting of a variety of non-emergency transports, such as
transports between hospitals, nursing homes and specialized healthcare
facilities. We believe that providing a mix of emergency and non-emergency
medical transportation services diversifies our revenue base and permits us to
utilize our medical transportation vehicles more efficiently. We derive revenue
from our medical transportation services through reimbursements we receive from
private insurance companies and government-funded healthcare programs such as
Medicare and Medicaid and, to a lesser extent, from fees paid to us directly by
our individual patients and from government subsidies paid to us under our 911
emergency ambulance contracts.
In addition to medical transportation services, we offer fire
protection services on a subscription-fee basis to residential and commercial
property owners in three states and under long-term contracts with fire
districts, industrial sites and airports at 12 sites located in 10 states. Our
fire protection and other services consist primarily of fire suppression, fire
prevention and first responder medical care.
We expanded our business significantly from the late 1970s through
the late 1990s through acquisitions and internal growth, incurring significant
debt in the process. This growth, consisting primarily of mergers and
acquisitions in the 1990s, provided us with significant market presence
throughout the United States, as well as in parts of Latin America and Canada.
To manage this growth and achieve productivity gains, we invested in the
development of management and operating systems. We believe that our
acquisitions have provided us a strong domestic platform of core operations with
a substantial revenue base and a reputation for quality service.
During the last several years, we have implemented a number of
operational initiatives designed to improve our financial performance. These
initiatives have included discontinuing operations in approximately 35 markets
that we determined did not fit with our long-term strategy and consolidating our
billing, cash management, payroll, purchasing, account payable and insurance and
risk operations and entering several select new markets.
We are a Delaware corporation. Our principal office is located at
9221 East Via de Ventura, Scottsdale, Arizona 85258, and our telephone number is
480-606-3886. Our website address is http://www.ruralmetro.com. No information
on, or accessible through, our website is incorporated into this prospectus, and
you should not consider it part of this prospectus.
1
Recent Developments
Effective April 18, 2005, the Area Metropolitan Ambulance Authority
d/b/a MedStar ("MedStar") for metropolitan Forth Worth, Texas approved our
proposal to discontinue operations in metropolitan Fort Worth. We ceased
providing service to the metropolitan Fort Worth, Texas area on May 1, 2005. We
provided emergency and non-emergency ambulance services to the Forth Worth area
using ambulances, equipment and other assets of MedStar. MedStar was obligated
to pay us for its services through April 30, 2005. We were not required to pay a
termination fee in connection with this discontinuation of service, and MedStar
returned the letter of credit that was furnished to MedStar by us as a
performance security. Our assets not otherwise sold to MedStar generally were
not disposed of by us, but instead were redeployed in our other operations. In
addition, we understand that the majority of our current employees serving the
Fort Worth area were offered employment with MedStar. Following our
discontinuation of service in Forth Worth, we now provide services to
communities in 22 states.
2
THE OFFERING
Common stock offered by the selling stockholders Up to 3,487,739 shares of our common stock
Common stock to be outstanding before and after the 23,438,310 shares
offering
Use of Proceeds We will not receive any proceeds from the sale of
common stock by the selling stockholders.
NASDAQ SmallCap Market Symbol RURL
The number of shares of common stock outstanding is based on the
number of shares outstanding as of June 7, 2005 and excludes:
o 2,383,357 shares of common stock reserved for issuance upon the exercise of
outstanding stock options;
o 467,329 shares of common stock reserved for future awards under our 2000
Non-Qualified Stock Option Plan; and
o 96,246 shares of common stock held in treasury.
3
RISK FACTORS
Investing in our common stock involves a high degree of risk. The
following risks could affect our business, financial condition, results of
operations or cash flows. In such a case, you may lose all or part of your
original investment. You should carefully consider the risks described below as
well as the other information and data included in this prospectus or
incorporated herein before making an investment decision with respect to the
common stock.
WE MAY FAIL TO RECEIVE REIMBURSEMENT FROM THIRD-PARTY PAYERS.
We provide our medical transportation services on a fee-for-service
basis and collect a substantial portion of our revenue from reimbursements of
these fees we receive from third-party payers, including government-funded
healthcare programs such as Medicare and Medicaid and private insurance
programs. We recognize revenue when we provide medical transportation services;
however, the reimbursement process is complex and there can be lengthy delays
before we receive payment. In addition, third-party payers may disallow, in
whole or in part, requests for reimbursement based on assertions that certain
amounts and services are not reimbursable or that additional supporting
documentation is necessary. Retroactive adjustments made by third-party payers
may change amounts realized from them. We received approximately 90% of our
medical transportation fee collections from third-party payers during fiscal
2004 and 2003 and for the nine months ended March 31, 2005 and 2004, including
approximately 28%, 27%, 28% and 28%, respectively, from Medicare, and
approximately 14%, 14%, 15% and 14%, respectively, from Medicaid. To the extent
our claims are not reimbursed or not allowed it could have a material adverse
effect on our revenues, results of operations and cash flows.
WE MAY NOT BE ABLE TO SUCCESSFULLY COLLECT AMOUNTS BILLED DIRECTLY TO INDIVIDUAL
PATIENTS.
We are required to provide emergency medical transportation service
regardless of the ability or willingness of the patient to pay. We face the risk
of non-payment to the extent that uninsured individuals require emergency
ambulance service in service areas where an adequate subsidy is not provided by
the related municipality or governing authority and the risk of increased rates
of non-payment should the number of such uninsured individuals using our
services increase in our service areas. Our failure to receive payments from a
significant number of individual patients could result in a material adverse
effect on our business, financial condition, results of operations or cash
flows.
WE HAVE EXPERIENCED MATERIAL INCREASES IN THE COST OF OUR INSURANCE PROGRAMS AND
MAY EXPERIENCE FUTURE INCREASES THAT COULD ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
We have experienced a substantial rise in the costs associated with
our insurance programs in recent years. Our total insurance premiums and related
expenses increased to $37.1 million for our 2004 fiscal year from $32.9 million
for our 2003 fiscal year. Many counties, municipalities and fire districts also
require us to provide a surety bond or other assurance of financial and
performance responsibility. Increases in insurance rates, surety and
re-insurance markets have resulted in demands for larger premiums,
collateralization of payment obligations and increasingly rigorous underwriting
requirements. In addition, an increase in our claim experience may result in
further increases in our premiums. If we experience further increases in our
premiums or in our pre-funded deductible obligations, it could have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
CLAIMS AGAINST US COULD EXCEED OUR INSURANCE COVERAGE; WE MAY NOT HAVE COVERAGE
FOR CERTAIN CLAIMS.
We are subject to a significant number of accident, injury and
patient care incident lawsuits as a result of the nature of our business and
day-to-day operations. Some of these lawsuits may involve large claim amounts
and substantial defense costs. In order to minimize the risk of our exposure, we
maintain insurance coverage for workers' compensation, comprehensive general
liability, automobile liability and professional liability claims. In certain
limited instances we may not have coverage for certain claims. When we do have
coverage, the coverage limits of our policies may not be adequate. Liabilities
in excess of our insurance coverage could have a material adverse effect on our
business, financial condition, results of operations or cash flows. Claims
against us, regardless of their merit or outcome, also may have an adverse
effect on our reputation and business.
4
OUR CLAIM RESERVES MAY PROVE INADEQUATE.
Under our insurance programs, we are responsible for deductibles and
self-insurance retentions in varying amounts. We have established reserves for
losses and loss adjustment expenses under these policies based on our historical
experience, industry data, judgments relating to the effect of future economic
and social forces on the type of risk involved, circumstances surrounding
individual claims and trends that may affect the number and nature of claims.
Consequently, loss reserves are inherently uncertain and subject to a number of
circumstances difficult to predict. For these reasons, we cannot assure you that
our ultimate liability will not materially exceed our reserves at any point. If
our reserves prove to be inadequate we will be required to increase our reserves
with a corresponding charge to operations in the period in which the deficiency
is identified and such charge could be material.
TWO INSURANCE COMPANIES WITH WHICH WE HAVE PREVIOUSLY DONE BUSINESS ARE IN
LIQUIDATION PROCEEDINGS AND WE MAY BE REQUIRED TO COVER A PORTION OF CLAIMS
COVERED BY THESE INSURERS OR LOSE DEPOSITS WE HAVE WITH THEM.
Two of our previous workers' compensation and general liability
programs insurers, Reliance Insurance Company ("Reliance"), from whom we
purchased coverage for policy years 1992 through 2000, and Legion Insurance
Company ("Legion"), from whom we purchased coverage in 2001 and 2002, are
currently in liquidation proceedings in Pennsylvania. In the event that we incur
workers' compensation or general liability claims for the policy years covered
by these insurers and they are not covered by the applicable insurer or state
guaranty fund, we may be required to fund any losses related to such claims. As
of March 31, 2005, we had $1.3 million of cash on deposit with Reliance and $2.6
million of cash on deposit with Legion. The liquidation proceedings may result
in the loss of all or part of the collateral and/or funds currently held by
these insurers, and may result in restricted access to both insurance and
reinsurance proceeds relating to our general liability program. A requirement to
fund significant claims or the loss of some or all of the amounts on deposit
could have a material adverse effect on our business, financial condition,
result of operations and cash flows.
OUR REVENUES MAY DECLINE IF MEDICARE REDUCES THE REIMBURSEMENTS IT PAYS TO US OR
CHANGES ITS PROGRAMS.
Our revenues may decline if Medicare reduces its reimbursement rates
or otherwise changes its current Medicare fee schedule. We received
approximately 28%, 27%, 28% and 28% of our medical transportation fee
collections from Medicare during each of fiscal 2004 and 2003 and for the nine
months ended March 31, 2005 and 2004. Any reductions in reimbursement rates or
other changes to under the Medicare fee schedule could result in a reduction in
the reimbursement rates we receive for our medical transportation services.
SOME STATE AND LOCAL GOVERNMENTS REGULATE OUR RATE STRUCTURES AND MAY LIMIT OUR
ABILITY TO INCREASE OUR RATES OR MAINTAIN A SATISFACTORY RATE STRUCTURE.
State or local government regulations or administrative policies
regulate the rates we can charge in some states for medical transportation
services. For example, the State of Arizona establishes the rates we may charge
in the various communities we serve in that state. Medical transportation
services revenue generated in Arizona accounted for approximately 21% of net
revenue for each of fiscal 2004 and 2003, and 23% and 20% of net revenue for
each of the nine months ended March 31, 2005 and 2004, respectively. In some
service areas in other states in which we are the exclusive provider of
services, the municipality or fire district sets the rates for emergency medical
transportation services pursuant to a master contract and establishes the rates
for general medical transportation services that we are permitted to charge. In
areas where we are regulated, there is no assurance that we will receive medical
transportation service rate increases on a timely basis, or at all.
Due to budget deficits in many states, significant decreases in state
funding for Medicaid programs have occurred or are proposed. Some states have
reduced the scope of Medicaid eligibility and coverage. For example, patients
covered by Medicare are required to make a 20% co-payment for medical
transports. In most states, Medicaid makes this co-payment on behalf of its
insureds (this is called a "cross-over payment"). Indiana recently passed
legislation eliminating crossover payments by Medicaid and prohibiting medical
transportation providers from collecting the 20% co-payment from patients. Other
states have proposed taking similar steps.
5
If we are not able to charge satisfactory rates in one or more of the
communities in which we operate it could have a material adverse effect on our
revenues, results of operations and cash flows.
OUR BUSINESS IS SUBJECT TO LAWS, RULES AND REGULATIONS THAT CAN IMPOSE FINES,
PENALTIES OR OTHER LIABILITIES, REVOKE NECESSARY LICENSES OR OTHERWISE CAUSE
MATERIAL ADVERSE EFFECTS.
Numerous laws, rules and regulations govern the medical
transportation and fire fighting service business covering matters such as
licensing, rates, employee certification, environmental matters and radio
communications. Certificates of Need that certain states may employ to award
market rights to geographic areas may change. Master contracts from governmental
authorities are subject to risks of cancellation or unenforceability as a result
of budgetary and other factors and may subject us to certain liabilities or
restrictions.
Any failure to comply with all, or any changes in, applicable laws,
rules and regulations could result in the revocation of contracts or licenses to
conduct business in the relevant jurisdictions, fines or cause other material
adverse effects. Federal and state laws also can require the owner or operator
of real property to clean up historic contamination (or pay for that cleanup),
without regard to fault.
Changes to existing programs also can create unanticipated risks.
Certain governmental actions could:
o change existing laws, rules or regulations;
o adopt new laws, rules or regulations that increase our cost of
doing business;
o lower reimbursement levels; or
o otherwise adversely affect our business, financial condition,
results of operations or cash flows.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL REGULATION AND, IF WE FAIL TO COMPLY WITH
ALL APPLICABLE LAWS AND GOVERNMENT REGULATIONS, WE COULD SUFFER PENALTIES OR BE
REQUIRED TO MAKE SIGNIFICANT CHANGES TO OUR OPERATIONS.
We are subject to extensive regulation at both the federal and state
levels. The laws that directly or indirectly affect our ability to operate our
business include the following:
o federal laws (including the Federal False Claims Act) that
prohibit entities and individuals from knowingly or recklessly
making claims to Medicare, Medicaid and other government
programs, as well as third-party payers, that contain false or
fraudulent information;
o a provision of the Social Security Act, commonly referred to as
the "anti-kickback statute," that prohibits the knowing and
willful offering, payment, solicitation or receipt of any bribe,
kickback, rebate or other remuneration in return for the referral
or recommendation of patients for items and services covered, in
whole or in part, by federal healthcare programs, such as
Medicare and Medicaid;
o a provision of the Social Security Act that imposes criminal
penalties on healthcare providers who fail to disclose or refund
known overpayments;
o similar state law provisions pertaining to anti-kickback,
self-referral and false claims issues which typically are not
limited to relationships with federal payers;
o provisions of the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA") that prohibit knowingly and willfully
executing a scheme or artifice to defraud any healthcare benefit
program or falsifying, concealing or covering up a material fact
or making any material false, fictitious or fraudulent statement
in connection with the delivery of or payment for healthcare
benefits, items or services;
o federal laws that impose civil administrative sanctions for,
among other violations, inappropriate billing of services to
federally funded healthcare programs, and employing individuals
who are excluded from participation in federally funded
healthcare programs;
6
o reassignment of payment rules that prohibit certain types of
billing and collection practices in connection with claims
payable by the Medicare and Medicaid programs and some other
payers programs and some other payers;
o provisions of HIPAA limiting how healthcare providers may use and
disclose individually identifiable health information and the
security measures taken in connection with that information and
related systems, as well as similar state laws; and
o federal and state laws governing ambulance transport services,
including 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,
communications systems, vehicles and equipment.
If our operations are found to be in violation of any of the laws and
regulations described above or the other laws and regulations which govern our
activities, we may be subject to penalties, including civil and criminal
penalties, exclusion from federal healthcare programs, damages, fines and the
curtailment of our operations. Any material penalties, individually or in the
aggregate, would adversely affect our ability to operate our business and our
financial results. The risk of our being found in violation of these laws and
regulations is increased by the fact that many of them have not been fully
interpreted by the regulatory authorities or the courts, and their provisions
are sometimes open to a variety of interpretations. Any action against us for
violation of these laws or regulations, even if we successfully defend against
it, could cause us to incur significant legal expenses and divert our
management's attention from the operation of our business.
Healthcare laws and regulations may change significantly in the
future. We monitor these developments and modify our operations from time to
time where we perceive a need to do so in response to the regulatory changes.
However, we cannot assure you that any new healthcare laws or regulations will
not materially adversely affect our business. We cannot assure you that a review
of our business by judicial, law enforcement, or regulatory authorities will not
result in a determination that could adversely affect our operations or that
healthcare regulation will not change in a way that may have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
HIPAA REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS EITHER IF
WE FAIL TO COMPLY WITH THE REGULATIONS OR AS A RESULT OF THE COSTS ASSOCIATED
WITH COMPLIANCE.
The privacy standards under HIPAA took effect April 14, 2001 and
cover all individually identifiable health information used or disclosed by a
healthcare provider. HIPAA establishes standards concerning the privacy,
security and the electronic transmission of patients' health information. Under
the statute, there are civil penalties of up to $100 per violation (not to
exceed $25,000 per calendar year for each type of violation) and criminal
penalties for knowing violations of up to $250,000 per violation. The enforcing
agency, the Office of Civil Rights (the "OCR") of the Department of Health and
Human Services, has announced a compliance-based and compliance improvement type
of enforcement program. We believe there is not sufficient basis to understand
OCR's enforcement posture and the potential for fines which may result from
OCR's finding of a violation of the privacy regulations. The significant costs
associated with compliance and the potential penalties as a result of our
failure to comply with the rule could result in a material adverse effect on our
business, financial condition, results of operations or cash flows.
HIPAA also mandates compliance with the approved HIPAA format when we
submit claims electronically. We are filing claims in the approved HIPAA format
with all our Medicare plans. We submit Medicaid claims to 19 states all of which
allow electronic claim submissions. We have completed the testing process in all
19 states and are receiving payments electronically from those states. In
addition, we await announcements from the commercial insurers regarding their
compliance with the electronic claims submission requirements.
The final security rule, which became effective April 20, 2005,
requires healthcare suppliers and other entities to set security standards for
health information and to maintain reasonable and appropriate safeguards to
ensure the integrity and confidentiality of this information. It also requires
that we protect health information against unauthorized use or disclosure. We
believe we have developed the appropriate policies and procedures to comply with
the final security rule. Failure to do so could result in a material adverse
effect on our business, financial condition, results of operations or cash
flows.
7
We could experience a material adverse effect on our business,
financial condition, results of operations, or cash flows due to: (i)
significant costs associated with continued compliance under HIPAA or related
legislative enactments, (ii) potential fines from our noncompliance, (iii)
adverse affects on our collection cycle arising from non-compliance or delayed
HIPAA compliance by our payers, customers and other constituents or (iv) impacts
to the healthcare industry as a whole that may directly or indirectly cause a
material adverse affect on our business.
PROVIDERS AND SUPPLIERS IN THE HEALTH CARE INDUSTRY, SUCH AS US, ARE THE SUBJECT
OF FEDERAL AND STATE INVESTIGATIONS RELATED TO BILLING AND OTHER MATTERS.
Both federal and state government agencies have pursued civil and
criminal enforcement efforts related to billing and other matters as part of
numerous ongoing investigations of healthcare companies and their executives and
managers. Although there are a number of civil and criminal statutes that can be
applied to healthcare providers, a significant number of these investigations
involve the Federal False Claims Act. These investigations can be initiated not
only by the government but also by a private party asserting direct knowledge of
fraud. These "qui tam" whistleblower lawsuits may be initiated against any
person or entity alleging such person or entity has knowingly or recklessly
presented, or caused to be presented, a false or fraudulent request for payment
from the federal government, or has made a false statement or used a false
record to get a claim approved. Penalties for False Claims Act violations
include fines ranging from $5,500 to $11,000 for each false claim, plus up to
three times the amount of damages sustained by the federal government. A False
Claims Act violation may provide the basis for exclusion from the
federally-funded healthcare programs. In addition, some states have adopted
similar insurance fraud, whistleblower and false claims provisions.
From time to time, we receive requests and subpoenas for information
from government agencies in connection with their regulatory and investigative
authority, and are likely to be subject to such requests and subpoenas for
information in the future. We review such requests and subpoenas and attempt to
take appropriate action. We are currently subject to a lawsuit concerning
questionable billing practices by a subsidiary operating in Pennsylvania. The
lawsuit alleges various improper billing practices under the Medicare program,
including those practices we self-disclosed to the Office of the Inspector
General in the Department of Health and Human Services ("OIG"). An unfavorable
resolution of this lawsuit could have a material adverse effect on our business,
financial condition, results of operations or cash flows. We are also subject to
requests and subpoenas for information in independent investigations. A
determination by a regulatory or investigative authority in any of these
investigations that we have violated the Federal False Claims Act or another
civil or criminal statute could result in significant penalties or exclusion
from federally-funded healthcare programs, which could result in a material
adverse effect on our business, financial condition, results of operations or
cash flows.
WE ARE THE SUBJECT OF CERTAIN LAWSUITS.
We are a party to, or otherwise involved in, lawsuits, claims,
proceedings and other legal matters that have arisen in the ordinary course of
conducting our business. We cannot predict with certainty the ultimate outcome
of any of these lawsuits, claims, proceedings and other legal matters to which
we are a party to, or otherwise involved in, due to, among other things, the
inherent uncertainties of litigation, government investigations and proceedings
and legal matters generally. An unfavorable outcome in any of the lawsuits
pending against us, including those described above, could result in substantial
potential liabilities and have a material adverse effect on our business,
consolidated financial condition and results of operations, our liquidity, our
operations, and/or our ability to comply with any debt covenants. Further, these
proceedings, and our actions in response to these proceedings, could result in
substantial potential liabilities, additional defense and other costs, increase
our indemnification obligations, divert management's attention, and/or adversely
affect our ability to execute our business and financial strategies.
WE ARE DEPENDENT ON MAINTAINING OUR BUSINESS RELATIONSHIPS.
We depend to a great extent on contracts with municipalities or fire
districts to provide emergency medical transportation services. The services we
provide in our ten largest markets accounted for approximately 35.8%, 36.8%,
35.2% and 35.9% of net revenue for fiscal 2004 and 2003, and for each of the
nine months ended March 31, 2005 and 2004, respectively. Contracts or other
8
agreements with municipalities, counties or fire districts may have certain
budgetary approval constraints. Failure to allocate funds for a contract may
adversely affect our ability to continue to perform services without suffering
significant losses. In addition, most of our contracts are terminable by either
party upon agreed notice periods or upon the occurrence of certain events of
default. We may not be successful in retaining our existing contracts or in
obtaining new contracts for emergency medical transportation or other services.
The loss or cancellation of several of these contracts could have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
AREAS IN WHICH WE PROVIDE SUBSCRIPTION FIRE PROTECTION SERVICES MAY BE CONVERTED
TO TAX-SUPPORTED FIRE DISTRICTS OR ANNEXED BY MUNICIPALITIES.
We provide residential and commercial fire protection services on a
subscription-fee basis to property owners in unincorporated areas who do not
receive services through municipal fire departments, volunteer fire departments,
or fire protection districts. If several of the areas in which we provide
subscription services were to convert to tax-supported fire districts or be
annexed by municipalities, the loss of those arrangements could have a material
adverse effect on our business, financial condition, results of operations or
cash flows.
WE MAY NOT ACCURATELY ASSESS THE COSTS OF OR REVENUES GENERATED BY NEW
CONTRACTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITIONS,
RESULTS OF OPERATIONS OR CASH FLOWS.
Our new contracts increasingly involve a competitive bidding process.
When we obtain new contracts, we must accurately assess the costs we will incur
in providing services, as well as other factors such as expected transport
volume, geographical issues affecting response time and the implementation of
technology upgrades, in order to realize adequate profit margins or otherwise
meet our financial and strategic objectives. Increasing pressures from
healthcare payers to restrict or reduce reimbursement rates at a time when the
costs of providing medical services continue to increase make assessing the
costs associated with the pricing of new contracts, as well as maintenance of
existing contracts, more difficult. In addition, integrating new contracts,
particularly those in new geographic locations, could prove more costly, and
could require more management time, than we anticipate. Our failure to
accurately predict costs or to negotiate an adequate profit margin could have a
material adverse effect on our business, financial condition, results of
operations or cash flows. We face risks in attempting to terminate unfavorable
contracts prior to their stated termination date because of the possibility of
forfeiting performance bonds and the potential material adverse effect on our
public relations, business, financial condition, results of operations or cash
flows.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY. IF WE DO NOT COMPETE EFFECTIVELY, WE
COULD LOSE BUSINESS OR FAIL TO GROW.
The medical transportation service industry is highly competitive. We
compete to provide our emergency medical transportation services with
governmental entities, hospitals, local and volunteer private providers and
private providers, including national and regional providers such as American
Medical Response. In order to compete successfully, we must make continuing
investments in our fleet, facilities, and operating systems. We believe that
counties, fire districts and municipalities and health-care institutions
consider the following factors in awarding a contract:
o quality of medical care;
o historical response time performance;
o customer service;
o financial stability;
o personnel policies and practices;
o managerial strength; and
o cost.
9
Some of our current competitors and certain potential competitors may
have access to greater capital and other resources than us. Counties,
municipalities, fire districts, and healthcare organizations that currently
contract for medical transportation services could choose to provide medical
transportation services directly in the future. We are experiencing increased
competition from fire departments in providing emergency ambulance service. We
cannot assure you that we will be able to successfully compete to provide our
medical transportation services.
Municipal fire departments, tax-supported fire districts and
volunteer fire departments represent the principal providers of fire protection
services for residential and commercial properties. Private companies 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 these services or has not assumed the financial responsibility for
fire protection. In these situations, we provide services for a municipality or
fire district on a contract basis or provide fire protection services directly
to residences and businesses who subscribe for this service.
Private providers, such as Wackenhut Services, Inc., also provide
fire protection services to airports and industrial sites. We cannot assure you
that:
o we will be able to continue to maintain current contracts or
subscriptions or to obtain additional fire protection business on
a contractual or subscription-fee basis;
o fire districts or municipalities will not choose to provide fire
protection services directly in the future; or
o we will be able to successfully compete with private providers of
fire protection services.
THE DEPARTURE OF OUR KEY MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
Our success depends upon our ability to recruit and retain key
management personnel. We could experience difficulty in retaining our current
key management personnel or in attracting and retaining necessary additional key
management personnel. We have entered into employment agreements with some, but
not all of our executive officers and certain other key management personnel.
Failure to retain or replace our key management may have an adverse effect on
our business, financial condition, results of operations or cash flows.
WE MAY NOT BE ABLE TO SUCCESSFULLY RECRUIT AND RETAIN HEALTHCARE PROFESSIONALS
WITH THE QUALIFICATIONS AND ATTRIBUTES DESIRED BY US AND OUR CUSTOMERS.
Our ability to recruit and retain healthcare professionals
significantly affects our business. Medical personnel shortages in some of our
market areas currently make the recruiting, training and retention of full-time
and part-time personnel more difficult and costly. Our internal growth will
require the addition of new personnel. Failure to retain or replace our medical
personnel or to attract new personnel may have an adverse effect on our
business, financial condition, results of operations or cash flows.
ANY FAILURE TO COMPLY, OR MATERIAL UNEXPECTED COSTS RELATING TO COMPLIANCE, WITH
THE REQUIREMENTS OF SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS OR RESULTS OF OPERATIONS.
We are required to comply with Section 404 of the Sarbanes-Oxley Act
of 2002 with our Annual Report on Form 10-K for fiscal 2005. The requirements of
Section 404 include that we furnish a report by our management on our internal
control over financial reporting, including an assessment of the effectiveness
of our internal control over financial reporting as of the end of each fiscal
year. The report will also contain a statement that our independent registered
public accounting firm has issued an audit opinion on management's assessment of
internal control over financial reporting.
If we are unable to determine that our internal control is effective
as of June 30, 2005 (or if our independent registered public accounting firm is
unable to provide an audit opinion that management's report is fairly stated or
they are unable to express an opinion on our management's evaluation or on the
effectiveness of our internal controls), we will not be able to provide the
certification required by Section 404 which would result in our noncompliance
10
with our reporting requirements under the Exchange Act. Any such non-compliance
could, among other things, indicate that our internal control over financial
reporting is not effective. In addition, any material unexpected costs of
complying with the requirements of Section 404 could have an adverse effect on
our results of operations.
WE MAY NOT PAY DIVIDENDS.
We have never paid any cash dividends on our common stock. We
currently plan to retain any earnings for use in our business rather than to pay
cash dividends. Payments of any cash dividends in the future will depend on our
financial condition, results of operations and capital requirements as well as
other factors deemed relevant by our Board of Directors. Our senior subordinated
notes due 2015, senior discount notes due 2016 and our credit facilities contain
restrictions on our ability to pay cash dividends, and any future borrowings may
contain similar restrictions.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, AND THIS COULD DEPRESS OUR
STOCK PRICE.
We are a Delaware company which has adopted a Shareholder Rights Plan
pursuant to which we issued one preferred stock purchase right, or a Right, for
each outstanding share of common stock (See "Description of Capital Stock -
Preferred Stock" and "Description of Capital Stock - Shareholder Rights Plan".
Our Shareholder Rights Plan could make it difficult for a third party to acquire
us, even if doing so would benefit security holders. The rights issued under the
plan have certain anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire us in a manner or on
terms not approved by our Board of Directors. Anti-takeover provisions in
Delaware law, certain provisions of our charter and the Shareholder Rights Plan
could depress our stock price and may result in entrenchment of existing
management, regardless of their performance.
11
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus and the documents we
incorporate by reference that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including without limitation, statements regarding our management's
expectations, hopes, beliefs, intentions or strategies regarding the future.
These statements may use words such as "anticipate," "believe," "estimate,"
"expect," "intend," "predict," "may," "will," "should," "if," "project" and
similar expressions as they relate to us or our management. These
forward-looking statements are based on our current expectations and beliefs
concerning future developments and their potential effects on us. There can be
no assurance that future developments affecting us will be those that we have
anticipated. These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond our control) or other assumptions that
may cause actual results or performance to be materially different from those
expressed or implied by such forward-looking statements. As described in this
prospectus, such risks, uncertainties and other assumptions include, among
others:
o our failure to receive reimbursement by third-party payers and
payment from individual patients;
o material increases in the cost of insurance;
o insufficient or no insurance coverage for certain claims;
o inadequate claim reserves;
o the financial distress of two of our previous insurers;
o reductions in the reimbursements we receive from third-party
payers;
o state and local governmental rate structure regulation;
o other governmental regulation, including regulation under the
Health Insurance Portability and Accountability Act;
o federal and state investigations under civil and criminal statues
applicable to the healthcare industry;
o the outcome of certain lawsuits and governmental investigations
to which we are subject;
o our dependence on certain business relationships;
o the conversion of areas in which we provide subscription fire
protection services to tax-supported fire districts;
o the level of competition in our industry;
o retaining and attracting key management personnel and healthcare
professionals;
o our level of indebtedness; and
o other risks described in "Risk Factors."
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, after the date of this prospectus to conform them to actual
results. We do not, nor does any other person, assume responsibility for the
accuracy and completeness of those statements. All the forward-looking
statements are qualified in their entirety by reference to the factors discussed
under the caption "Risk Factors."
12
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the
selling stockholders. We will pay certain fees and expenses incurred by the
selling stockholders incident to this offering.
13
MARKET PRICE OF OUR COMMON STOCK AND DIVIDENDS
MARKET INFORMATION.
Our common stock is traded on The Nasdaq SmallCap Market ("Nasdaq").
The following table sets forth the high and low sale prices of the common stock
for the fiscal quarters indicated.
- ------------------------------------------------------- ----------- ------------
HIGH LOW
- ------------------------------------------------------- ----------- ------------
YEAR ENDED JUNE 30, 2005
- ------------------------------------------------------- ----------- ------------
First quarter $2.25 $1.10
- ------------------------------------------------------- ----------- ------------
Second quarter $5.19 $2.10
- ------------------------------------------------------- ----------- ------------
Third quarter $7.81 $4.71
- ------------------------------------------------------- ----------- ------------
Fourth quarter (through June 7, 2005) $8.00 $4.05
- ------------------------------------------------------- ----------- ------------
YEAR ENDED JUNE 30, 2004
- ------------------------------------------------------- ----------- ------------
First quarter $1.98 $1.01
- ------------------------------------------------------- ----------- ------------
Second quarter $2.10 $1.25
- ------------------------------------------------------- ----------- ------------
Third quarter $2.48 $1.67
- ------------------------------------------------------- ----------- ------------
Fourth quarter $2.20 $1.11
- ------------------------------------------------------- ----------- ------------
YEAR ENDED JUNE 30, 2003
- ------------------------------------------------------- ----------- ------------
First quarter $3.85 $1.65
- ------------------------------------------------------- ----------- ------------
Second quarter $3.40 $1.86
- ------------------------------------------------------- ----------- ------------
Third quarter $2.33 $0.72
- ------------------------------------------------------- ----------- ------------
Fourth quarter $1.50 $0.80
- ------------------------------------------------------- ----------- ------------
DIVIDENDS
We have never paid any cash dividends on our common stock. We
currently plan to retain earnings, if any, for use in our business rather than
to pay cash dividends. Payments of any cash dividends in the future will depend
on our financial condition, results of operations and capital requirements as
well as other factors deemed relevant by our Board of Directors. Our senior
subordinated notes due 2015, senior discount notes due 2016 and the Credit
Agreement, dated as of March 4, 2005, by and among Rural/Metro Operating
Company, LLC, the Lenders party thereto, the guarantors party thereto, Citicorp
North America, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as
Syndication Agent, and Citigroup Global Markets Inc. and J.P. Morgan Securities
Inc., as Joint Lead Arrangers and Joint Lead Bookrunners contain restrictions on
our ability to pay cash dividends, and any future borrowings may contain similar
restrictions.
14
CAPITALIZATION
The following table sets forth Rural/Metro Corporation's
capitalization as of March 31, 2005.
You should read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
consolidated financial statements and the accompanying notes filed with the SEC
incorporated by reference into this prospectus.
March 31, 2005
-----------------
Rural/Metro
Corporation
-----------------
(dollars in
millions)
Long Term Debt
Revolving credit facility (1).................. --
Term loan(1)................................... 135.0
Senior subordinated notes (2).................. 125.0
Senior discount notes (3)...................... 50.7
Other long-term debt........................... 2.1
Total debt........................... 312.8
Total stockholders' deficit (4)................ (185.9)
Total members deficit.......................... --
Total capitalization.......................... ---------------
$ 126.9
____________________
(1) Rural/Metro Operating Company, LLC's senior secured credit facility
consists of a six year $135.0 million term loan B facility, a five year
$20.0 million revolving facility (none of which was drawn on the closing
date) and a $35.0 million prefunded letter of credit facility, which under
certain circumstances may be increased to $45.0 million.
(2) Represents the outstanding principal amount of Rural/Metro Operating
Company, LLC's $125,000,000 aggregate principal amount 9 7/8% senior
subordinated notes due 2015.
(3) Represents the accreted value on February 28, 2005 of Rural/Metro
Corporation's $93,500,000 aggregate principal amount at maturity 12 3/4%
senior discount notes due 2016.
(4) Includes $8.2 million relating to the write-off of existing debt issue
costs as well premium and consent solicitation fees relating to the tender
for and redemption of our old senior notes, net of related income tax
effects.
15
BUSINESS
INDUSTRY OVERVIEW
Medical Transportation Business
We estimate that expenditures for emergency and non-emergency medical
transportation services in the United States were in the range of $6.5 billion
to $8.5 billion in 2004. Medical transportation services are provided by
governmental entities, private companies, hospitals and volunteer organizations.
It is estimated that the emergency medical services ("EMS") industry is
comprised of approximately 15,300 service providers including approximately
6,800 fire department-based providers, 1,100 hospital-based providers and 7,400
private and other providers. According to the Journal of Emergency Medical
Services' 2003 Annual 200-City Survey, the percentage of emergency medical
transportation provided by private service providers in the nation's largest 200
cities increased from 34% in 1999 to 39% in 2003. Non-emergency services are
primarily provided by private companies. Most private medical transportation
providers are small organizations serving one or limited number of markets.
There are a limited number of multi-state medical transportation providers and
only two national providers of medical transportation services.
We believe the following are the key factors affecting the medical
transportation business:
o Aging U.S. population. An aging population is expected to
increase demand for medical transportation services in the United
States. According to the U.S. Census Bureau, about 62 million
Americans or 18% of the U.S. population, will be age 65 or older
in 2025 compared to 35 million, or 12% today. As the population
continues to age, it is expected that demand for medical
transportation will increase because people over the age of 65
generally require more frequent hospital visits and medical
transportation services than does the general population;
o Stable reimbursement environment. The reimbursement environment
for medical transportation services has stabilized over the last
several years, reflecting improvements in private insurance
pricing as well as the implementation of a revised Medicare
pricing schedule. Historically, Medicare reimbursement rates were
based on a complex reasonable charge-based methodology under
which rates varied widely among communities. The Medicare fee
schedule implemented in 2002 simplified and stabilized Medicare
reimbursement. The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 modified the Medicare fee schedule by
providing for a 1% increase in reimbursement for urban transports
and a 2% increase for rural transports through 2006. Other fee
adjustments will be phased in through 2009. We believe this
enhanced predictability will provide opportunities for medical
transportation providers to improve financial performance;
o Increased use of medical transportation services. Increased
availability and use of emergency services, together with
increased patient travel between specialized treatment healthcare
facilities and greater use of outpatient care facilities, nursing
homes and home care have contributed to a greater demand for
medical transportation services;
o Increase in number of public/private partnerships. We believe the
complexities associated with the emergency medical transportation
business, including the exacting and time-consuming requirements
of third-party payers such as Medicare and Medicaid, are leading
many public providers of emergency medical transportation
services to consider partnerships with private medical
transportation companies. An example from our experience is that
some local fire departments have entered into collaborations with
private medical transportation companies in which the fire
department provides first responder services and the private
company transports the patient and handles billing. In these
instances, a fire department-employed paramedic often continues
to care for the patient in the ambulance with the private company
reimbursing the fire department for its employee's time. These
partnerships benefit both parties--they allow public entities to
preserve a revenue source while relieving them of the operational
complexities and billing and collection obligations associated
with delivering emergency services. This enables public entities
to use their emergency resources (e.g., fire department vehicles)
for other emergency calls and permits well-positioned private
providers of emergency medical transportation services to operate
in communities that may not otherwise have outsourced emergency
medical transportation services.
16
Private Fire Protection Business
Municipal fire departments, tax-supported tire districts and
volunteer fire departments constitute the principal providers of fire protection
services in the United States. In a limited number of communities, private
companies provide subscription fire protection services to residential and
commercial property owners. Typically, these are unincorporated areas where
neither a public sector or volunteer fire department operates. A small number of
private companies also provide such services to industrial sites, airports and
other self-contained facilities on a national basis.
We believe the most significant area of growth for subscription fire
protection services will come from new communities, principally in Arizona, that
have no public sector or volunteer fire protection services and, on a limited
basis, from growing communities in which private fire protection services are
already provided. We also believe there will be growth in demand in airport fire
protection services as a result of a recently issued Federal Aviation
Administration final rule that requires approximately 120 medium- and
small-sized airports that do not have on-site firefighting capabilities to
provide such capabilities by 2007.
17
INTRODUCTION
Founded in 1948, we are a leading provider of medical transportation
services, which consist primarily of emergency and non-emergency ambulance
services. We currently provide services to approximately 365 communities in 23
states, including many of the fastest growing states in the nation such as
Arizona, Florida, Georgia, California and New Mexico. We have approximately 100
exclusive contracts to provide 911 emergency ambulance services and
approximately 650 contracts to provide non-emergency medical transportation
services. In addition, we provide non-emergency medical transportation services
to a broad customer base, including hospitals, nursing homes and specialized
healthcare facilities on a non-contractual basis. We transported more than 1
million patients during the twelve months ended December 31, 2004. Our objective
is to provide our customers and patients with high-quality care, efficient and
reliable response times and cost-effective services. Our common stock is traded
on the NASDAQ SmallCap Market under the symbol "RURL."
We provide medical transportation services which consist primarily of
emergency and non-emergency ambulance services. We provide these medical
transportation services under contracts with governmental entities, hospitals,
nursing homes and other healthcare facilities and organizations. Approximately
half of our medical transports are initiated by 911 calls with the remainder
primarily consisting of a variety of non-emergency transports, such as
transports between hospitals, nursing homes and specialized healthcare
facilities. We believe that providing a mix of emergency and non-emergency
medical transportation services diversifies our revenue base and permits us to
utilize our medical transportation vehicles more efficiently. We derive revenue
from our medical transportation services through reimbursements we receive from
private insurance companies and government-funded healthcare programs such as
Medicare and Medicaid and, to a lesser extent, from fees paid to us directly by
our individual patients and from government subsidies paid to us under our 911
emergency ambulance contracts.
In addition to medical transportation services, we offer fire
protection services on a subscription-fee basis to residential and commercial
property owners in three states and under long-term contracts with fire
districts, industrial sites and airports at 12 sites located in 10 states. Our
fire protection and other services consist primarily of fire suppression, fire
prevention and first responder medical care.
We expanded our business significantly from the late 1970s through
the late 1990s through acquisitions and internal growth, incurring significant
debt in the process. This growth, consisting primarily of mergers and
acquisitions in the 1990s, provided us with significant market presence
throughout the United States, as well as in parts of Latin America and Canada.
To manage this growth and achieve productivity gains, we invested in the
development of management and operating systems. We believe that our
acquisitions have provided us a strong domestic platform of core operations with
a substantial revenue base and a reputation for quality service.
During the last several years, we have implemented a number of
operational initiatives designed to improve our financial performance. These
initiatives included discontinuing operations in approximately 35 markets that
we determined did not fit with our long-term strategy and consolidating our
billing, cash management, payroll, purchasing, accounts payable and insurance
and risk operations and entering several select new markets.
OUR STRENGTHS
We believe that we are well positioned to take advantage of industry
trends and believe that our strong competitive position is attributable to a
number of factors, including the following:
Demonstrated Ability to Improve Cash Flow
Over the last several years, we have implemented a number of
initiatives which have allowed us to improve our cash flow. These initiatives
included discontinuing operations in approximately 35 markets that we determined
did not fit with our long-term strategy. We also consolidated our billing, cash
management, payroll, purchasing, accounts payable and insurance and risk
management operations. In addition, we entered select new markets.
18
Broad Presence in Attractive Markets
We operate in geographically diverse markets with attractive
demographics. Seventy percent of our revenues are generated in states with
population growth in excess of the national average, such as Arizona, Florida,
Georgia, California and New Mexico. We have exclusive 911 emergency ambulance
service contracts in three out of the top five fastest-growing cities in the
United States with a population of 100,000 or more, and have contracts to be the
sole provider of 911 emergency ambulance service in communities within the
metropolitan areas of San Diego, Denver, Atlanta, Seattle and Phoenix. A key
driver of the rapid population growth in many of the states we serve has been
the migration of the elderly seeking to retire or vacation in warmer climates
and, as a result, the average age of our patients has increased to 62 years of
age. The elderly require on average a greater amount of emergency and
non-emergency medical transports than does the general population.
Competitively Well Positioned
We are a party to approximately 100 contracts granting us the
exclusive right to provide 911 emergency ambulance service for a particular city
or county. We have 31 Certificates of Need or the equivalent in 7 states. In
those states that issue them, a Certificate of Need is required in order to bid
on 911 emergency ambulance service contracts in that state. Typically only a
limited number of Certificates of Need are granted by a state, and our
experience has been that obtaining a Certificate of Need is a significant
barrier to entry because a prospective provider of emergency medical services
must establish that existing services in a particular area of the state are
inadequate to meet the community's needs in order to receive a Certificate of
Need.
We are often able to use the visibility created by our status as a
community's 911 emergency ambulance service provider to win non-emergency
ambulance transportation business. We believe that we are well-positioned to
capitalize on the needs of our local markets due to our emphasis on providing an
effective, quality-care service model, enhanced by response time reliability and
cost efficiencies.
Due to the quality and reliability of our service and our focus on
building community ties, we have long-term, well-established relationships with
the municipalities and agencies we serve. We have provided services to our top
10 customers for an average of 20 years. We have renewed all our 911 emergency
ambulance service contracts that were eligible for renewal during the last three
years, except for those in markets from which we made a prior determination to
withdraw for strategic reasons.
Decentralized Operating Structure with National Efficiencies
Medical transportation and fire protection are locally-delivered
services and strong local operations are critical to providing these services
successfully. We grant our regional executives and local operations managers
significant authority to make key decisions regarding the day-to-day operations
in our service areas, and consequently, we have built strong, efficient
operations at the regional and local levels. We have combined our strong local
operations with a centralized national platform of shared services, including
billing and collections, insurance and safety programs, information services,
accounts payable, payroll, benefits, purchasing and corporate compliance. This
operating structure has allowed us to optimize cost savings while at the same
time maintaining superior field operations.
Strong Billing and Collections Capability
In 2000, we began to implement a number of initiatives to improve our
billing and collections capability. These initiatives include consolidating our
billing operations and streamlining our overall medical transportation billing
processes by expediting the timely filing of medical transportation claims and
creating added controls over the day-to-day flow of aging claims. Additionally,
we have improved the quality of data gathering and entry by emergency and
non-emergency medical transport personnel to assure compliance with medical
necessity standards set by third-party payers. We have implemented quality
assurance controls and procedures for review of claim submissions prior to
submitting the claims to third-party payers and for following up on any denials
of claims by third-party payers. We have also placed a high priority on
submitting medical transportation claims electronically in order to expedite
payment and maximize the efficiencies afforded by such systems, and we currently
submit the majority of our bills electronically.
19
We maximize our collections from private payers by pre-screening
non-emergency transport requests and utilizing an in-house group of collections
experts concentrating on collecting on accounts older than 120 days. Our
initiatives have contributed to a reduction of bad debt expense to 15.4% of net
revenues in the nine months ended March 31, 2005 and an average days' sales
outstanding, or DSO, of 43 days, which has improved from an average of 45 days
for the last six quarters. Days' sales outstanding is calculated by dividing
average accounts receivable by net revenue per day.
Experienced Management Team
We believe that the disciplined approach of our senior management,
including our chief executive officer and chief financial officer, has been the
key reason for our growth in net revenues. Our senior management team is
supported by 23 front-line division general managers who have an average of 19
years of industry experience and who manage the day-to-day provision of service
in, and our relationships with, the communities we serve. Our management
combines extensive knowledge of medical transportation and fire protection
services with operations, finance, billing and collections, insurance, risk and
safety and federal affairs expertise. A significant portion of the compensation
of our senior management and division general managers comes from an incentive
program that ties bonuses to achieving financial and operating goals and other
individual objectives established for each participant.
BUSINESS STRATEGY
Our business strategy is to continue to strengthen our core
businesses and build upon our economies of scale, while providing the highest
possible quality of medical transportation, fire protection and related services
for the customers and patients we serve. The key elements of our business
strategy are the following.
Expand Within Existing and Contiguous Service Areas
We believe we can maximize our return on the infrastructure we have
built in our existing operating areas by continuing to expand our services in
those areas and the areas contiguous to them. We have significantly improved our
financial performance since fiscal 2002 by focusing on same service area growth.
In areas where we are the 911 emergency ambulance provider, we seek to leverage
our visibility and stature as the community's 911 emergency ambulance provider
to compete for and win non-emergency medical transportation business. This
strategy increases our utilization of ambulances through a balanced growth of
both emergency and non-emergency ambulance services. Our strategy also enables
us to gain operational efficiencies and effectively manage our costs and assets
by leveraging our fleet, communications systems and management within our
existing service areas. Our efforts contributed to same-service area revenue
growth in the medical transportation and related service segment of 8.8%, 7.5%
and 7.7% for the last three fiscal years, respectively.
Maximize Cash Collection
We will continue to focus on maximizing cash collections by improving
billing practices, implementing or negotiating rate increases to meet the
escalating costs of delivering high-quality services and seeking subsidies to
offset the cost of providing service to uninsured or economically disadvantaged
patients.
Selectively Enter New Markets
We continue to pursue contracts and alliances with municipalities,
other government entities, hospital-based emergency providers and fire districts
in select new markets. Among the criteria we set for entering a new market are
whether we can provide both 911 emergency and non-emergency medical
transportation services, geographic proximity to our existing operations,
expected revenues and margins, payer mix, medical transportation demands,
competitive profiles and demographic trends. In entering new markets we have
employed a number of innovative strategies and solutions, such as in San Diego
where we have formed a limited liability company with the city through which we
partner to share expenses and split profits, and in other communities where we
work with existing emergency responders, for example by integrating members of
the community's fire department with our crews. We believe that these and other
innovative solutions can create closer ties between us and the community and
provide operating economies, coordination of the delivery of services,
efficiencies in the use of personnel and equipment and enhanced levels of
service while saving taxpayer dollars.
20
Invest in Proprietary Technology to Improve Operating Efficiencies
We have developed proprietary technological systems to create
operating efficiencies and improve the overall quality of service offerings. For
example, we developed proprietary medical transportation billing and collections
systems which are operated from a single nationwide platform that allows for
standardized procedures and training, thereby minimizing duplication and
maximizing collections. This information technology has resulted in a
significant improvement in our ability to collect outstanding claims on a timely
basis. We expect to continue to invest in and utilize technology to improve the
performance of our operations and utilization of our fleet, including through
the following specific initiatives:
o Rural/Metro Electronic Patient Care Record. R/M EPCR is a
hand-held data-entry system used by EMS workers to collect
billing and patient data in the field. Implementing this
technology over the next several years will help us improve the
quality of our patient data gathering and increases our billing
and collections efficiency.
o Internet-based scheduling software. In an effort to minimize
unnecessary overtime and eliminate duplicative scheduling among
EMS and fire crews, we are implementing this technology over the
next several years across all operations. The software enables us
to reduce unscheduled overtime while producing schedules by
shift, department and location and has resulted in an overall
reduction of our labor costs.
o Drive Cam technology. In an effort to reduce insurance cost and
improve safety, we have begun to install on-board monitoring
systems in our ambulances. These systems measure operator
performance against safe driving standards. We expect that the
implementation of this technology over the next several years in
selected areas will continue to reduce claims and vehicle
maintenance costs.
Improve Workplace Safety and Reduce Insurance Costs
We have consistently placed workplace health and safety among our
highest priorities due, in part, to escalating insurance costs. Our management,
risk management and quality assurance staffs aggressively conduct risk
management programs for quality assurance, loss prevention and early
intervention. We believe in creating a culture among our workforce that
encourages and demonstrates a committed approach to workplace health and safety.
Beginning in fiscal 2003, we implemented a variety of safety initiatives that
supported this commitment, including enhanced facility audits, additional
accident reporting guidelines, introduction of an employee risk-management
hotline and an in-depth loss data report that can be utilized by regional
managers to identify trends in their areas. We have developed an extensive
claims database which we use to manage our business and identify risks and
trends, thereby allowing us to focus our programs and training on identifying
and minimizing risk exposure. We actively promote early reporting, evaluation
and resolution of incidents that may evolve into claims. We will continue to
search out and implement innovative ways to reduce our insurance claims, manage
insurance expenses and improve the overall safety of our work environment.
SERVICES
Medical Transportation Services
We provide two primary levels of medical transportation
services--Advanced Life Support ("ALS") and Basic Life Support ("BLS"). We staff
our ALS ambulances with either two paramedics or one paramedic and an EMT and
equip them with ALS equipment (such as cardiac monitors/defibrillators, advanced
airway equipment and oxygen delivery systems) as well as pharmaceuticals and
medical supplies. We staff our BLS ambulance with two EMTs and equip them with
medical supplies and equipment necessary to administer first aid and basic
medical treatment.
EMERGENCY MEDICAL TRANSPORTATION SERVICES. We generally provide our
911 emergency ambulance services pursuant to long-term exclusive agreements with
counties, municipalities, fire districts and other governmental entities. Our
agreements require that we respond to all 911 emergency calls in a designated
area within a specified response time. Generally, we respond to all emergency
calls with ALS ambulances unless otherwise specified by contract.
21
Under most of our agreements, the local fire department is the first
responder to an emergency scene. In these situations, the fire department
typically begins stabilization of the patient. Upon arrival, our ALS crew
members deploy portable life support equipment, ascertain the patient's medical
condition and, if required, administer ALS interventions, including tracheal
intubation, cardiac monitoring, defibrillation of certain cardiac dysrhythmias
and the administration of medications and intravenous solutions under the
direction of a physician. The crew also may perform BLS services, including
cardiopulmonary resuscitation ("CPR"), basic airway management and basic first
aid. As soon as medically appropriate, the patient is placed on a portable
gurney and transferred into the ambulance. While one crew member monitors and
treats the patient, the other crew member drives the ambulance to a hospital
designated either by the patient or applicable medical protocol. While on scene
or en route, the ambulance crew alerts the hospital regarding the patient's
medical condition and, if necessary, the attending ambulance crew member seeks
advice from an emergency physician as to treatment. Upon arrival at the
hospital, the patient generally is taken to the emergency department where care
is transferred to the emergency department staff.
In certain communities where the fire department historically has
been responsible for both first response and emergency medical transportation
services, we seek to develop public/private partnerships with fire departments
to provide emergency ambulance transportation services. These partnerships
emphasize collaboration with the fire departments and afford us the opportunity
to provide 911 emergency ambulance services in communities that, for a variety
of reasons, may not otherwise have outsourced this service to a private
provider. In most instances, the provision of emergency ambulance services under
our partnerships closely resembles that of our usual 911 emergency ambulance
contracts. What differentiates the public/private partnerships is the level of
contractually negotiated collaboration and coordination between us and the fire
department. As an example, in several of our public/private partnerships, such
as Aurora, Colorado and Mesa, Arizona, we utilize a fire department-employed
paramedic when we transport the patient and subsequently reimburse the fire
department for its employee's time. These partnerships benefit both
parties--they create a new revenue source for the fire department while
relieving it of the complexities associated with the emergency transport
business, and they enable us to provide emergency response services in
communities that may not otherwise have outsourced this service. In addition,
public/private partnerships generally lower our costs by reducing the number of
full-time paramedics we would otherwise employ.
As of December 31, 2004, we had approximately 100 contracts to
provide emergency medical transportation services. We provide emergency medical
transportation services on a fee-for-service basis, however, our fee-for-service
revenue may be supplemented by the communities we serve in the form of a subsidy
to offset the cost of providing uncompensated care.
NON-EMERGENCY MEDICAL TRANSPORTATION SERVICES. We provide
non-emergency medical transportation services and critical care transports,
often as a preferred provider, pursuant to exclusive and non-exclusive contracts
with governmental entities, healthcare facilities or at the request of a
patient. Non-emergency medical transportation services may be scheduled in
advance or provided on an as-needed basis.
We utilize either ALS or BLS ambulance units to provide non-emergency
medical transportation services, depending on the patient's medical condition.
We provide inter-facility non-emergency medical transportation services to
patients requiring either advanced or basic levels of medical supervision and
treatment during transfer to and from residences, hospitals, nursing homes,
long-term care centers and other healthcare facilities. These services may be
provided when a home-bound patient requires examination or treatment at a
healthcare facility or when a hospital patient requires tests or treatments
(such as MRI testing, CAT scans, dialysis and chemotherapy) at another facility.
We provide critical care transport services to medically unstable
patients (such as cardiac patients and neonatal patients) who require critical
care while being transported between healthcare facilities. Critical care
services differ from ALS or BLS services in that the ambulance may be equipped
with additional medical equipment and may be staffed by a medical specialist
provided by us or by a healthcare facility. Staffing may also include registered
nurses, respiratory therapists, neo-natal nurse specialists and/or specially
trained paramedics.
22
As of December 31, 2004, we had approximately 650 contracts to
provide non-emergency medical transportation services with governmental
entities, hospitals, nursing homes and other healthcare facilities. In addition,
we had non-contractual working relationships with numerous hospitals, nursing
homes and other healthcare facilities pursuant to which we provide non-emergency
medical transportation services. We provide our non-emergency medical
transportation services on a fee-for-service basis. Our contracts typically
permit us to charge a base fee, mileage and other additional fees for the use of
particular medical equipment and supplies.
Aside from our day-to-day operations, we maintain disaster response
teams that are occasionally called upon by state, county and local governments
to assist in responding to local or national emergencies. For example, at the
request of the New York State Emergency Medical Services Bureau, we provided
assistance in New York City following the September 11, 2001 terrorist attacks
on the World Trade Center. In addition, following the September 11, 2001
terrorist attack on the Pentagon, we responded to requests to move patients from
area hospitals to outlying facilities, thereby clearing hospital beds for more
seriously injured patients. We staff these emergencies based upon available
resources from our existing pool of employees and equipment around the country,
committing resources in a manner that is designed to avoid any interruption of
service in our existing service areas. Such services are typically provided on a
contractual basis pursuant to contracts with the requesting agency or
governmental entity.
ALTERNATIVE TRANSPORTATION SERVICES. In addition to medical
transportation services, we provide non-medical transportation for the
handicapped and certain non-ambulatory persons on a very limited basis. We
primarily contract with healthcare facilities, such as hospitals and long-term
care centers, to provide this service. When providing this service we typically
utilize wheelchair vans.
Fire Protection Services and Related Services
RESIDENTIAL AND COMMERCIAL FIRE PROTECTION SERVICES. We generally
provide our residential and commercial fire protection services, consisting
primarily of fire suppression and first responder medical care, on a
subscription-fee basis to property owners in unincorporated areas who do not
receive services through municipal fire departments, volunteer fire departments
or fire protection districts.
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 battalion chief, and such other personnel and equipment
as circumstances warrant. The amount of equipment and personnel dispatched
depends upon the type, location and severity of the incident. We utilize our
dispatch capabilities to reposition equipment and firefighters to maximize their
availability and our use of resources in a cost-effective manner.
We provide the majority of our residential and commercial fire
protection services on a subscription basis. Subscription fees are billed
annually to individual residential or commercial property owners. We also
provide fire protection services to newly developed communities where the
subscription fee may be included in the homeowner's association assessment.
Property owners in areas where we provide our residential and commercial fire
protection services on a subscription basis may, but are not required to,
subscribe for our services. We provide services to residential or commercial
property owners in our service areas who do not subscribe for our fire
protection service on a fee-for-service basis. We provide fire protection
services to the town of Fountain Hills of Arizona pursuant to agreements with a
governing entity, rather than on a subscription basis.
As of March 31, 2005 we provided residential and commercial fire
protection services in Arizona. The principal growth in our fire protection
business has been in the area of subscription fire services in communities
without pre-existing municipal fire departments. Based on historical and
projected housing and development trends, we believe these areas will continue
to experience population increases and offer the greatest growth potential for
our private fire protection business.
Airport and industrial Fire Protection Services
AIRCRAFT RESCUE AND FIRE FIGHTING SERVICES ("ARFF"). We provide
aircraft rescue and firefighting services on a limited basis under exclusive
contracts at regional airports throughout the United States. In addition to
aircraft rescue and fire fighting services, we also provide emergency medical
response for certain of these regional airports. Our ARFF firefighters have
completed comprehensive professional training programs and are cross-trained as
EMTs or paramedics, as well as in hazardous materials response. Our capabilities
include value-added services such as co-responder medical service in support of
local fire departments for on-site medical emergencies, safety training for fuel
handlers and other airport personnel, fire prevention activities, security
services and testing and maintenance of fire suppression equipment. Our ARFF
contracts provide for reimbursement under master contracts with the airports we
serve.
23
We expect the demand for ARFF services to grow as a result of the
Federal Aviation Administration's recently issued a final rule requiring
airports serving scheduled air carrier operations for aircraft designed for more
than 9 passenger seats but less than 31 passenger seats to have on-site
firefighting capabilities. The rule provides for a 36 month window for newly
certifiable airports to comply with certification requirements and effectively
requires approximately 120 medium- and small-size airports to have on-site
firefighting capabilities by 2007.
INDUSTRIAL FIRE PROTECTION SERVICES. We provide fire protection
services and, on a limited basis, unarmed security services under exclusive
contracts to five large industrial complexes, petrochemical plants and other
self-contained facilities in five states. 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 reduced cost to our industrial customers for such
services. Our contracts range up to three years in duration and expire at
various dates through fiscal 2007. Industrial fire protection services contracts
provide for reimbursement under master contracts with the facilities we serve.
OUR CURRENT SERVICE AREAS
We currently provide our services in approximately 365 communities in
the following 23 states:
- ---------------------- ----------------------- ------------------------- --------------------------
Alabama Indiana New Mexico South Dakota
- ---------------------- ----------------------- ------------------------- --------------------------
Arizona Kentucky New York Tennessee
- ---------------------- ----------------------- ------------------------- --------------------------
California Louisiana North Dakota Texas
- ---------------------- ----------------------- ------------------------- --------------------------
Colorado Mississippi Ohio Washington
- ---------------------- ----------------------- ------------------------- --------------------------
Florida Nebraska Oregon Wisconsin
- ---------------------- ----------------------- ------------------------- --------------------------
Georgia New Jersey Pennsylvania
- ---------------------- ----------------------- ------------------------- --------------------------
We provide medical transportation services in 20 states, primarily
under the names Rural/Metro Ambulance or Rural/Metro Medical Services, and in
New Mexico and certain areas of Arizona under the name Southwest Ambulance. We
provide fire protection services under the name Rural/Metro Fire Department in
ten states, and also in Oregon under the name Valley Fire Services. We also
operate under other names depending upon local statutes or contractual
agreements.
We generally provide our medical transportation services pursuant to
contracts or Certificates of Need on an exclusive or nonexclusive basis. We
provide emergency medical transportation services primarily pursuant to
contracts or in conjunction with our providing fire protection services. In
certain service areas, we are the only provider of both emergency ambulance and
non-emergency medical transportation services. In other service areas, we
compete to provide non-emergency medical transportation services.
Contracts
As of December 31, 2004 we had approximately 100 contracts with
counties, municipalities, fire districts and other governmental entities to
provide 911 emergency ambulance services, 19 of which are up for renewal in
2005. These contracts typically specify maximum fees that we may charge and set
forth required criteria, such as response times, staffing levels, types of
vehicles and equipment, quality assurance, indemnity and insurance coverage. In
certain instances, we are required by contract or by law to post a surety bond
or other assurance of financial or performance responsibility. The rates that we
may charge under a contract for emergency medical transportation services depend
largely on:
o patient mix;
o the nature of services rendered;
o the local political climate; and
o the amount of subsidy, if any, that will be considered by a
governmental entity to cover costs of uncompensated care.
24
Our emergency medical transportation services contracts generally
extend for terms of three to five years. Generally, these contracts may be
terminated by either party upon notice ranging from 30 to 180 days. Counties,
fire districts and municipalities generally award contracts to provide emergency
medical transportation services either through requests for competitive
proposals or bidding processes. In some instances in which we are the incumbent
provider, the county or municipality may elect to renegotiate our existing
contract rather than re-bid the contract. We will continue to seek to enter into
public/private alliances to compete for new business. Our contracts often
contain options for earned extensions or for evergreen provisions. We have
renewed all our 911 emergency ambulance contracts that were eligible for renewal
during the last five years except for those in markets from which we made a
prior determination to withdraw for strategic reasons.
As of December 31, 2004, we had approximately 650 contracts to
provide non-emergency medical transportation services with governmental
entities, hospitals, nursing homes and other healthcare facilities. These
contracts typically designate us as the preferred provider of non-emergency
medical transportation services to those facilities and permit us to charge a
base fee, mileage and other additional fees for the use of particular medical
equipment and supplies.
We offer fire protection services on a subscription-fee basis to
residential and commercial property owners in three states and under long-term
contracts with fire districts, industrial sites and airports at 12 sites located
in 10 states. Our residential and commercial subscription fire protection
services may be provided pursuant to contracts with the governmental entity,
such as a county, in which we provide such services. We provide fire protection
services on a subscription basis in areas where no governmental entity has
assumed the financial responsibility for providing fire protection. Fire
subscription rates are not generally regulated by any governmental agency in our
service areas. Certain contracts with fire districts are performance-based and
require us 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 us to provide
a certain number of personnel for a certain time period for a particular
function, such as fire prevention or fire suppression.
No contract accounted for more than 10% of our annual net revenue
during fiscal 2004, 2003 or 2002. The services we provide under our ten largest
contracts accounted for approximately 35.2% and 35.9% of net revenue during the
nine months ended March 31, 2005 and 2004, respectively, and 35.8%, 36.8% and
36.5% of net revenue during fiscal 2004, 2003 and 2002, respectively.
25
The following table sets forth certain information regarding
contracts in our 10 largest markets, based on revenue, during fiscal 2004 with
counties, fire districts and municipalities for medical transportation services
and for fire protection services.
- ------------------------------------------------ ------------------------------- ----------------------------
TYPE OF SERVICE LENGTH OF SERVICE EXPIRATION DATE
- ------------------------------------------------ ------------------------------- ----------------------------
- ------------------------------------------------ ------------------------------- ----------------------------
Medical transportation(1)
- ------------------------------------------------ ------------------------------- ----------------------------
Orange County, Florida................... 1962 to present October 2006
- ------------------------------------------------ ------------------------------- ----------------------------
Tucson, Arizona.......................... 1964 to present July 2005
- ------------------------------------------------ ------------------------------- ----------------------------
Rochester, New York...................... 1988 to present September 2006
- ------------------------------------------------ ------------------------------- ----------------------------
Knox County, Tennessee................... 1985 to present July 2007
- ------------------------------------------------ ------------------------------- ----------------------------
Mesa, Arizona............................ 1990 to present March 2007
- ------------------------------------------------ ------------------------------- ----------------------------
Fort Worth, Texas(2)..................... 1999 to present August 2010
- ------------------------------------------------ ------------------------------- ----------------------------
Tacoma, Washington....................... 1996 to present December 2009
- ------------------------------------------------ ------------------------------- ----------------------------
Augusta, Georgia......................... 1996 to present January 2009
- ------------------------------------------------ ------------------------------- ----------------------------
Community Fire
- ------------------------------------------------ ------------------------------- ----------------------------
Scottsdale, Arizona(3)................... 1952 to present June 2005
- ------------------------------------------------ ------------------------------- ----------------------------
Public/Private Alliance(1)
- ------------------------------------------------ ------------------------------- ----------------------------
San Diego, California.................... 1997 to present June 2008
- ------------------------------------------------ ------------------------------- ----------------------------
- ------------------------------------------------ ------------------------------- ----------------------------
______________
(1) All these contracts are for the provision of 911 emergency ambulance
services. We also provide general medical transportation services within
each of these service areas.
(2) Effective May 1, 2005, we discontinued service to the Fort Worth
metropolitan area.
(3) The contract was first entered into in 1952. We have notified the City of
Scottsdale that we elected not to renew the contract effective June 30,
2005 because we determined that it did not fit with our long-term strategy.
In addition, we generate significant revenues from emergency medical services
provided in Erie County, New York. Our operations therein are conducted under a
Certificate of Need issued by the State of New York and pursuant to the grant of
an exclusive right to emergency medical transport services within specific zones
of the City of Buffalo. On February 23, 2005, following a vote of the Buffalo
Common Council, we announced that we had been awarded a five-year contract,
effective March 1, 2005, to continue service to the City of Buffalo, New York.
The new contract contains one optional, two-year renewal period, for a total
possible length of seven years. Although we and our predecessors have served the
greater Buffalo area since the 1960s, the Council vote designated Rural/Metro
Medical Services as the city's sole ambulance provider.
Prior to the scheduled termination of a contract, we may determine
that a contract is no longer favorable and may seek to modify or terminate the
contract. When making such a determination, we may consider factors, such as
weaker than expected transport volume, geographical issues adversely affecting
response times, and delays in implementing technology upgrades. We continuously
review our contracts to ensure positive operational and financial performance.
Our analyses include many factors, such as sustained growth in transport volume,
response time reliability, competitive market strength, and changes in payer
mix. From time to time we may determine that a contract no longer meets our
operational and financial performance standards and may seek to modify or exit
the contract. We face risks in attempting to exit unfavorable contracts,
including the possibility of performance bond forfeiture, severance costs, and
adverse political and public relations consequences.
SHARED SERVICES
We support our regions with integrated information systems and
standardized procedures that enable us to efficiently manage the billing and
collections processes and financial support functions. Our recently developed
technology solutions provide information for operations personnel, including
real-time operating statistics, tracking of strategic plan initiatives,
electronic purchasing and inventory management solutions.
26
Our centralized systems are designed to significantly augment local
processes and permit managers to direct their attention primarily to the
performance and growth of their operations. Centralized billing and collection
procedures provide for efficient tracking and collection of accounts receivable.
Centralized purchasing permits us to achieve discounts in the purchase of
medical equipment and supplies. Other centralized infrastructure components such
as cash management, payroll, accounts payable and insurance and risk operations
provide us the capability to purchase related products and services on a
national basis, identify and respond to national trends and provide internal
support and administrative services in a more cost-effective, efficient and
consistent manner across all our operations. We provide services and allocate
costs for these centralized systems pursuant to administrative services
agreements with each of our direct and indirect wholly owned subsidiaries.
Accordingly, each subsidiary's operational management has the ultimate
responsibility and decision-making authority for the utilization and direction
of these corporate services.
MANAGEMENT INFORMATION SYSTEMS
We believe our management information systems have significantly
enhanced our operations. Among the most significant of these systems are the
following:
PROPRIETARY BILLING SYSTEM. We continue to develop and implement
initiatives to improve our billing and collections results. Over the last
several years, we have consolidated our billing operations, cash management,
payroll, purchasing, accounts payable and insurance and risk operations, and
currently fulfill these functions primarily on the national or regional level.
In fiscal 2004, we further streamlined our overall medical transportation
billing processes by expediting the timely filing of medical transportation
claims and creating added controls over the day-to-day flow of aging claims.
Additionally, we continue to focus on improving the quality of data gathering
and entry by emergency and non-emergency medical transports to assure compliance
with medical necessity standards set by third-party payers, improving quality
assurance controls and review of claim submissions by personnel prior to
submitting the claims to third-party payers and by promptly following-up on any
denials of claims by third-party payers. We also place a high priority on
submitting medical transportation claims electronically in order to expedite
payment and maximize the efficiencies afforded by such systems and work with our
customers who do not accept electronic payments in an effort to cause them to
implement electronic bill-receipt procedures. We currently submit the majority
of our bills electronically.
We focus on collecting from private payers by pre-screening
non-emergency transport requests and through the efforts of our national
collections team, including an in-house group of collections experts
concentrating on collecting on accounts older than 120 days. These initiatives
have contributed to a reduction of bad debt expense in the nine months ended
March 31, 2005 to 15.4% of net revenues and have resulted in our having an
average DSO of 43 days.
RURAL/METRO ELECTRONIC PATIENT CARE RECORD ("R/M EPCR"). Our R/M EPCR
technology initiative is designed to enhance the process of capturing clinical
patient data. The electronic record replaces the paper patient care record and
provides the ambulance crew with clinical flowcharts to document each assessment
and procedure performed. The technology also integrates patient clinical and
demographic information with billing information, allowing the ambulance crew to
ensure that patient information is updated at the scene. Billing information can
be transmitted electronically while the ambulance is en route, thus reducing the
billing cycle time and the cost associated with the manual input of patient care
record information. We have participated in the development, testing and
successful implementation of a system similar to R/M EPCR in Fort Worth, Texas.
We plan to conduct a pilot project of the R/M EPCR system in Youngstown, Ohio,
in 2005 and to phase in the system nationwide over the next few years.
INTERNET BASED SCHEDULING SOFTWARE. In an effort to minimize
unnecessary overtime and eliminate duplicative scheduling among EMS and fire
crews, we implemented across operations an Internet-based scheduling software
designed to maximize efficiencies in crew staffing. The software enables the
reduction of unscheduled overtime while producing schedules by shift, department
and location and has resulted in an overall reduction of labor costs.
27
DRIVE CAM TECHNOLOGY. An on-board monitoring system that measures
operator performance against safe driving standards. We expect that the
implementation of this technology over the next several years in selected areas
will continue to reduce claims and vehicle maintenance costs.
In addition, in our larger communication 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. See "--Dispatch and Communications."
We believe that our investment in management information systems and
our effective use of these systems represent key components of our success.
Process and personnel improvements in these areas are continuing. We are
committed to further strengthening the productivity and efficiency of our
business and believe that our management systems have the capability to support
future growth.
DISPATCH AND COMMUNICATIONS
Most of our emergency transportation communications centers utilize
sophisticated communications systems to direct fleet deployment and utilization
24 hours a day, seven days a week. In all of our operating sites we communicate
with our vehicles over dedicated radio frequencies licensed by the Federal
Communications Commission. We use system status plans and flexible deployment
systems to position our ambulances within a designated service area because
effective fleet deployment represents a key factor in reducing response times
and efficiently using our resources. We analyze data on traffic patterns,
demographics, usage frequency and other factors to determine optimal ambulance
deployment and selection through the use of our computer-aided dispatch systems.
The center that controls the deployment and dispatch of ambulances in response
to emergency medical calls may be owned and operated either by the applicable
county or municipality or by us.
Depending on the emergency medical dispatch system used in a
designated service area, the public authority that receives 911 emergency
medical calls either dispatches our ambulances directly from the public
communication center or communicates information regarding the location and type
of medical emergency to our communication center, which in turn dispatches
ambulances to the scene while the call taker communicates with the caller.
Substantially all our call takers and dispatchers are trained EMTs or Emergency
Medical Dispatchers with additional training that enables them to instruct a
caller on pre-arrival emergency medical procedures, if necessary. In our larger
communication 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 emergency medical team receives information concerning the
patient's condition. Also, in many operations across the country, we use
automated vehicle locator technology in the vehicles to enhance our dispatch
system.
Our 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 condition and to receive
instructions directly from emergency department personnel on specific
pre-hospital medical treatment. These systems also facilitate coordination with
other emergency service providers, such as the appropriate police and fire
departments that also may be responding to a call.
Prompt deployment and dispatch are also important components of
non-emergency medical transportation services. Requests for non-emergency
medical transports are made by physicians, nurses, case managers and hospital
discharge coordinators who demand prompt ambulance arrival at the pick-up time.
We also offer online, web-enabled transportation ordering to certain facilities.
We implement system status plans for these services designed to assure
appropriate response times to non-emergency calls and use our computer-aided
dispatch software to track and manage requests for medical transportation
services for large healthcare facilities and managed care companies. We have
developed extensive customer service models, based on patient condition and the
level of care and specialized equipment that will be required by the patient, to
enable our communications centers to meet the needs of our customers.
We utilize communication centers in our community 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 our medical
transportation services. Response time represents an important criteria in the
effectiveness of fire suppression, which is dependent on the level of protection
sought by our 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.
28
BILLING AND COLLECTIONS
We currently maintain eight regional billing and payment processing
centers and a centralized private-pay collection system at our headquarters in
Scottsdale, Arizona. All invoices are generated at the regional level, and an
account is forwarded to our centralized collection system for private-pay
accounts only if payment is not received in a timely manner. Regional centers
provide customer services. All our revenue is billed and collected through our
integrated billing and collection system.
We derive a substantial portion of our medical transportation fee
collections from reimbursements by third-party payers, including private
insurance companies and government-funded healthcare programs such as Medicare
and Medicaid. We typically invoice and collect payments directly from those
third-party payers. The composition of our net medical transportation fee
collections is as follows:
- ------------------------------------------- ---------------------------- --------------------------------------
Nine months ended March 31, Years ended June 30,
- ------------------------------------------- ---------------------------- --------------------------------------
2005 2004 2004 2003 2002
- ------------------------------------------- --------------- ------------ ----------- ----------- --------------
Medicare............................... 28% 28% 28% 27% 25%
- ------------------------------------------- --------------- ------------ ----------- ----------- --------------
Medicaid............................... 15% 14% 14% 14% 12%
- ------------------------------------------- --------------- ------------ ----------- ----------- --------------
Private insurers....................... 47% 48% 48% 49% 51%
- ------------------------------------------- --------------- ------------ ----------- ----------- --------------
Patients............................... 10% 10% 10% 10% 12%
- ------------------------------------------- --------------- ------------ ----------- ----------- --------------
100% 100% 100% 100% 100%
- ------------------------------------------- --------------- ------------ ----------- ----------- --------------
We also receive a small amount of fees from subsidies to offset the cost of
providing uncompensated care.
Companies in the emergency medical transportation service industry
maintain significant provisions for doubtful accounts compared 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,
state licensing requirements as well as contracts with counties and
municipalities require us to provide emergency medical transportation services
without regard to a patient's insurance coverage or ability to pay. As a result,
we often receive partial or no compensation for services provided to patients
who are not covered by Medicare, Medicaid or private insurance companies. Our
allowance for doubtful accounts generally is higher with respect to revenue
derived directly from patients than for revenue derived from third-party payers
and generally is higher for transports resulting from emergency ambulance calls
than for non-emergency ambulance requests. The anticipated level of
uncompensated care and uncollectible accounts may be considered in determining a
government-paid subsidy to provide for uncompensated care, if any, and permitted
rates under contracts with a county or municipality.
We have substantial experience in processing claims to third-party
payers and employ a billing staff trained in third-party coverage and
reimbursement procedures. Our integrated billing and collection system uses
proprietary software to tailor the submission of claims to Medicare, Medicaid
and other third-party payers and has the capability to electronically submit
claims to the extent third-party payers' systems permit. Our integrated billing
and collection system provides for tracking of accounts receivable and status
pending payment, which facilitates the utilization of specially trained billing
personnel. When collecting from individuals, we sometimes use an automated
dialer that pre-selects and dials accounts based on their status within the
billing and collection cycle. We believe the automated dialer enhances the
efficiency of the collection staff.
SALES AND MARKETING
We utilize Division General Managers, Market General Managers,
Marketing Directors and EMS Healthcare Account Executives in our sales and
marketing efforts. Division General Managers have overall responsibility, while
Market General Managers, Marketing Directors and EMS Healthcare Account
Executives are responsible for daily interaction with our various customer
constituencies, ranging from governing authorities that oversee emergency
medical transportation contracts to regional and local healthcare and nursing
facilities.
29
Our Division General Managers generally oversee all sales and
marketing efforts in their assigned markets, as well as establish and maintain
relationships with potential and existing significant customers. Our sales and
marketing teams focus primarily on targeting new business relationships and
leveraging existing contacts to grow market share. Our Division General Managers
also are the primary lead on major bids for emergency medical transportation
contracts.
Market General Managers and Operations Managers oversee marketing and
sales activity within their market and are responsible for contract and
operational decisions and, in certain areas, handle hospital and government
contracts and focus on relationships with larger systems within the communities.
Healthcare Account Executives are responsible for new business
development, maintaining positive relationships with existing customers,
coordinating community and public relations events in their respective areas,
and responding to customer service concerns when they arise.
In Arizona, Oregon and Tennessee our fire operations employ
subscription sales and marketing representatives who are responsible for fire
subscription sales to residential and commercial property owners. These
employees are responsible for direct mail campaigns, customer service, renewal
notices and invoicing fees for service to non-subscribers. We also provide
specialized sales and marketing to large commercial customers such as industrial
parks, apartment complexes and other commercial centers.
RISK MANAGEMENT
We have consistently placed workplace health and safety among our
highest priorities and that effort has proven effective in controlling our
insurance costs. We believe in creating a culture among our work force that
encourages and demonstrates a committed approach to workplace health and safety.
New programs include enhanced facility audits, additional accident
reporting guidelines, introduction of an employee/risk-management hotline and an
in-depth loss data report that can be utilized by regional managers to identify
trends in their areas. We will continue to search out and implement innovative
ways to reduce our insurance costs and improve the overall safety of our work
environment.
We train and educate all emergency response personnel about our
safety programs including, among others, emergency vehicle operations, medical
protocols, use of equipment and patient focused care and advocacy. Our safety
training also involves continuing education programs and a monthly safety
awareness campaign.
Our safety and risk management team develops and executes strategic
planning initiatives focused on mitigating the factors that drive losses in our
operations. We aggressively investigate and respond to all incidents we believe
may result in a claim. Operations supervisors submit documentation of such
incidents to the third-party administrator handling the claim. We have a
dedicated liability unit with our third-party administrator which actively
engages with our staff to gain valuable information for closure of claims.
Information from the claims database is an important resource for identifying
trends and developing future safety initiatives.
Our Driver Development Program ("DDP") is based on the Coaching
Emergency Vehicle Operator ("CEVO") program, a nationally recognized drivers'
training program for emergency services vehicle operators sponsored by the
National Safety Council. DDP combines classroom and field training, and its
curriculum includes instruction on staging, proper inspection of vehicles and
driving in emergency situations. We modified and enhanced CEVO based on our
analysis of over ten years of vehicle incidents as well as drivers' experiences.
We began developing the program in December 2002 and began training in July
2003.
We are implementing an on-board monitoring system, DriveCam, which
measures operator performance against our safe driving standards. The systems
are designed to videotape any driving performance that is outside of acceptable
protocols, including excessive speed, unsafe turns and rapid stops.
30
We estimate that for our 2004 insurance plan year, costs for vehicle
collisions were 45% lower and our average per-vehicle claim was 47% lower than
in our 2003 insurance plan year. During the same period, we estimate that we
reduced general liability and personal liability claims by 88% and employee
injury claims by 13%.
INSURANCE AND SURETY BONDING
Many of our contracts and certain provisions of local law require us
to carry specified amounts of insurance coverage. As is common for our industry,
we carry a broad range of comprehensive general liability, automobile, property
damage, professional, workers' compensation and other liability insurance
policies. As a result of the nature of our services and the day-to-day operation
of our vehicle fleet, we are subject to accident, injury and professional claims
in the ordinary course of business. We operate in some states that adhere to a
gross negligence standard for the delivery of emergency medical care, which
reduces our potential exposure for tort judgments.
Based upon historical claim trends, we consider our insurance program
adequate for the protection of our assets and operations. Our insurance policies
are either occurrence or claims-made policies and are subject to deductibles and
self-insured retention limits that we believe are typical for the industry. We
have attempted to minimize our claims exposure by instituting process
improvements and increasing the utilization of experts in connection with our
legal, risk management and safety programs.
Counties, municipalities and fire districts sometimes require us to
provide a surety bond or other assurance of financial and performance
responsibility. We may also be required by law to post a surety bond as a
prerequisite to obtaining and maintaining a license to operate. As a result, we
have a portfolio of surety bonds that is renewed annually. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Insurance Programs", incorporated by reference into this prospectus,
for additional information.
COMPETITION
The medical transportation service industry is highly competitive.
The principal providers of medical transportation services include governmental
entities (including fire districts), other national medical transportation
service providers, large regional medical transportation service providers,
hospitals and numerous local and volunteer private providers. Counties,
municipalities, fire districts, hospitals or healthcare organizations that
presently contract for medical transportation services may choose to provide
medical transportation services directly in the future. We experience continuing
competition from municipal fire departments in providing emergency ambulance
service. However, we believe that the non-emergency transport services market
currently is unattractive to municipal fire departments due to their primary
role as emergency first responders in the communities they serve.
We believe that counties, fire districts, and municipalities consider
quality of care, historical response time performance and cost to be among the
most important factors in awarding a contract, although other factors, such as
customer service, financial stability, personnel policies and practices and
managerial strength, also may be considered. Commercial providers, including our
largest national competitor, American Medical Response, often compete intensely
for business within a particular community.
We believe 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 for entry into new markets other than through acquisition. We
further believe that our status as an emergency ambulance service provider in a
service area increases our visibility and stature, and enhances our ability to
compete for non-emergency services within such areas.
In the fire protection industry, services for residential and
commercial properties are provided primarily by tax-supported fire districts,
municipal fire departments and volunteer departments. Private companies, such as
us, represent a small portion of the total fire protection market and generally
provide fire protection services where a tax-supported fire district or
municipality has decided to contract for the provision of fire protection
services or has not assumed financial responsibility for fire protection. Fire
districts or municipalities may not continue to contract for fire protection
services. In certain areas where no governmental entity has assumed financial
31
responsibility for providing fire protection, we provide fire protection
services on a subscription basis. Municipalities may annex a subscription area
or that area may be converted to a fire district that provides service directly,
rather than through a master contract. In the case of industrial or airport fire
protection contracts, our customers may elect to put a contract out to
competitive bid. Our key competitors for the provision of fire protection
services to airports and industrial sites include, respectively, Pro-tec Fire
Services, Ltd. and Wackenhut Services, Inc.
PERSONNEL
Employees
At March 31, 2005, we employed approximately 8,300 full-time and
part-time employees of whom approximately 5,700 are emergency care
professionals, including paramedics, EMTs and firefighters. Approximately 400 of
our employees are involved in billing and collections and approximately 2,200
are involved in field support services, including dispatch/communications, fleet
services, home medical care, administrative and clerical. We are party to a
total of 15 independent collective bargaining agreements in the following
locations:
- ----------------------------------------------- --------------------------------
Rochester, New York Gadsden, Alabama
- ----------------------------------------------- --------------------------------
Three agreements in Buffalo, New York Knoxville, Tennessee
- ----------------------------------------------- --------------------------------
Corning, New York Seattle, Washington
- ----------------------------------------------- --------------------------------
Youngstown, Ohio Orlando, Florida
- ----------------------------------------------- --------------------------------
Two agreements in San Diego, California Three agreements in Arizona
- ----------------------------------------------- --------------------------------
Seven of these agreements, covering approximately 1,500 employees, are scheduled
to expire at various times over the next two years. We consider our relations
with our employees to be good.
Effective July 1, 2004, we established a defined benefit pension plan
covering eligible employees of one of our subsidiaries, primarily those
employees covered by collective bargaining arrangements. Eligibility is achieved
upon the completion of one year of service. A participant becomes 100% vested in
his or her accrued benefit after the completion of five years of service. The
amount of benefit is determined using a two-part formula, one of which is based
upon compensation and the other that is based upon a flat dollar amount
multiplied by the number of years of service. We anticipate that our fiscal 2005
contributions will be approximately $0.8 million.
The net periodic benefit cost under this plan for the three months
ended March 31, 2005 was $185,000 and consisted of $191,000 of service cost
offset by $6,000 relating to the expected return on plan assets. Net periodic
benefit cost under this plan for the nine months ended March 31, 2005 was
$603,000 and consisted of $622,000 of service cost offset by $19,000 relating to
the expected return on plan assets. Net periodic benefit cost was determined
using the following assumptions: discount rate of 6.25%, annual pay increases of
4.0% and long-term rate of return on invested assets of 7.5%.
We maintain an employee stock ownership plan under which we have
fiduciary responsibility for the investment of the assets of such plan.
Medical Personnel and Quality Assurance
Paramedics and EMTs must be state certified in order 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 U.S. 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. Certification as a paramedic requires the completion
of more than 800 hours of training in advanced patient care assessment,
pharmacology, cardiology and other clinical skills in addition to completion of
the EMT training program. Many of the paramedics currently employed by us served
as EMTs for us prior to their certification as paramedics. We are subject to
market-specific shortages of qualified EMTs and paramedics. We compete with
hospitals, municipal fire departments and other healthcare providers for these
valued individuals. We have undertaken efforts to minimize the effect of these
shortages and have implemented a number of programs to attract and retain a
quality workforce, such as providing training programs, recruitment bonuses,
moving allowances and various other retention strategies. 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.
32
Local physician advisory boards and medical directors develop medical
protocols to be followed by paramedics and EMTs in our service areas.
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. In each location in which we
provide services, a medical director, who usually is a physician associated with
a hospital we serve, monitors adherence to medical protocol and conducts
periodic audits of the care provided. In addition, we conduct retrospective
patient care report audits with our employees to evaluate compliance with
medical and performance standards.
We are a member of a number of professional organizations, such as
the American Ambulance Association, National Emergency Number (911) Association,
International Association of Fire Chiefs and National Association of EMS
Physicians. In those states where we provide service, we are involved in the
state ambulance association, if one exists, and in many instances our
involvement includes holding elected positions. In addition, we also are
involved in the Commission on Accreditation of Ambulance Services ("CAAS"), the
National Registry of Emergency Medical Technicians, the National Fire Protection
Association. Also, many of our employees are members of the National Association
of EMTs, National Association of EMS Educators and other industry organizations.
Our commitment to quality is reflected in the fact that eight of our
operations across the country are accredited by CAAS. We were one of the first
ambulance service providers to obtain accreditation for many of our larger
ambulance operations from CAAS. The process is voluntary and evaluates numerous
qualitative factors in the delivery of services. Municipalities and managed care
providers often consider accreditation as one of the criteria in awarding
contracts.
Fire Protection Personnel
Firefighting personnel consists of full-time firefighters as well as
trained reservists who work on an as-needed basis. All our full-time and reserve
firefighters undergo extensive training which exceeds the standards recommended
by the National Fire Protection Association, and must qualify for state
certification before being eligible for full-time employment by us. Because
approximately 70% to 80% of our fire response activity consists of emergency
medical response, all our full-time firefighters are trained EMTs or paramedics
and are subject to the training and continued education described above. Our
ongoing training includes instruction in new fire service tactics and fire
fighting techniques as well as physical conditioning.
PROPERTIES
Facilities
In January, 2005, we relocated our corporate headquarters within
Scottsdale, Arizona. Our new lease for our headquarters expires January 31,
2020. In those areas where we provide ambulance and fire services, we also lease
facilities at which we base and maintain ambulances and fire apparatus. We also
own 14 facilities within our service areas. Rent expense totaled $8.8 million
and $8.1 million for the nine months ended March 31, 2005 and 2004 and $11.0
million, $10.7 million and $10.5 million in fiscal 2004, 2003 and 2002,
respectively.
Vehicle Fleet
At March 31, 2005, our fleet included approximately 1,321 owned
ambulances and alternative transportation vehicles, 124 owned and 62 leased fire
vehicles, and 282 owned and 24 leased other vehicles.
LEGAL PROCEEDINGS
From time to time, we are a party to, or otherwise involved in,
lawsuits, claims, proceedings and other legal matters that have arisen in the
ordinary course of conducting our business. We cannot predict with certainty the
ultimate outcome of any of these lawsuits, claims, proceedings and other legal
matters which we are a party to, or otherwise involved in, due to, among other
things, the inherent uncertainties of litigation, government investigations and
proceedings and legal matters generally. We are also subject to requests and
33
subpoenas for information in independent investigations. An unfavorable outcome
in any of the lawsuits pending against us or in a government investigation or
proceeding, including those described below, could result in substantial
potential liabilities and have a material adverse effect on our business,
consolidated financial condition and results of operations, in our liquidity,
our operations, and/or our ability to comply with any debt covenants. Further,
these proceedings, and our actions in response to these proceedings, could
result in substantial potential liabilities, additional defense and other costs,
increase our indemnification obligations, divert management's attention, and/or
adversely affect our ability to execute our business and financial strategies.
Our outstanding litigation includes the following:
The United States Of America Ex Rel. Richard S. Buckman v. Rural
Metro Corporation and Donlock, Ltd. On March 5, 1999, we made a voluntary
disclosure to the Office of the Inspector General ("OIG") of the Department of
Health and Human Services ("HHS") concerning questionable billing practices by a
subsidiary operating in Pennsylvania. These practices evidently began prior to
our January 1997 acquisition of that subsidiary and continued, to some extent,
until December 1998. On October 25, 1999, a lawsuit: THE UNITED STATES OF
AMERICA ex rel. RICHARD S. BUCKMAN V. RURAL METRO CORPORATION AND DONLOCK, LTD.,
Civil Action No. 3:CV 99-1883, was filed under seal in United States District
Court for the Middle District of Pennsylvania. The lawsuit alleged various
improper billing practices under the Medicare program, including those practices
we self-disclosed to the OIG several months earlier. On November 15, 2002, the
government elected to intervene in one count concerning the issue we
self-disclosed to the OIG and declined to intervene in the lawsuit's remaining
counts. The seal was lifted by court order on February 26, 2004. Accrued
liabilities at December 31, 2004, June 30, 2004 and 2003, respectively include a
$1.5 million, $1.0 million and $0.8 million reserve for this matter. An
unfavorable resolution of this lawsuit could have a material adverse effect on
our business, financial condition, results of operations or cash flows.
On October 28, 2003, the SEC notified us that it was conducting an
informal fact-finding inquiry. We have voluntarily provided the information
requested by the SEC Staff and we intend to cooperate fully. In early 2004, we
met with the Staff to discuss the materials that had been submitted to the SEC.
Shortly after the meeting, additional materials were provided to the Staff. We
have not been contacted by the SEC since that time.
REGULATION
Market Reform and Changing Reimbursement Regulations
Market reform and the passage of the Balanced Budget Act of 1997,
along with other regulatory changes, have impacted and reshaped the healthcare
delivery system in the U.S. and, by extension, the medical transportation
industry. As with all other healthcare providers, we must comply with various
requirements in order to participate in Medicare and Medicaid. Medicare is a
federal health insurance program for the elderly and for chronically disabled
individuals, which, among other things, pays for medical transportation services
when medically necessary. 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 we operate. 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. We receive only the reimbursement
permitted by Medicaid and are not permitted to collect from the patient any
difference between our customary charge and the amount reimbursed.
As are other Medicare and Medicaid suppliers, we are subject to
governmental audits of our Medicare and Medicaid reimbursement claims. We have a
national corporate compliance department that works closely with senior
management, local managers, billing and collections personnel and both the human
resources and legal departments, as well as governmental agencies, to ensure
substantial compliance with all established regulations and procedures.
Nevertheless, despite our best efforts, there can be no assurance that we can
achieve 100% compliance at all times, particularly in light of the complicated
and ever-changing nature of the reimbursement regulations, and the high volume
of daily transports that we provide nationwide. Failure to comply may lead to a
significant penalty or lower levels of reimbursement, which could have a
material adverse effect on our business, financial condition, results of
operations and cash flows. From time to time, we have taken corrective action to
34
address billing inconsistencies, which we have identified through our periodic
internal reviews of billing procedures or which have been brought to our
attention through governmental examination of our records and procedures. These
matters cover periods prior to and after our acquisition of operations. As part
of our commitment to working with those governmental agencies responsible for
enforcement of Medicare and Medicaid compliance, we have voluntarily
self-disclosed billing issues identified at some of our operations. For example,
we self-disclosed Medicare overpayments from 1997 and 1998 in our former
Scranton, Pennsylvania operation to the Office of the Inspector General. The
billing practices that resulted in the Medicare overpayments were instituted by
the former owners of that operation. We discovered the inconsistencies after
acquiring the operation and promptly instituted new billing practices. Due to
the nature of our business and our participation in the Medicare and Medicaid
reimbursement programs, we are routinely subject to regulatory reviews and/or
inquiries by governmental agencies. We expect these regulatory agencies to
continue their practice of performing periodic reviews related to our industry.
We fully cooperate with such federal and state agencies to provide requested
information and to incorporate any recommended modifications of our existing
compliance programs.
Government funding for healthcare programs is subject to statutory
and regulatory changes, administrative rulings, interpretations of policy and
determinations by intermediaries and governmental funding restrictions, all of
which could materially impact program reimbursements for medical transportation
services. In recent years, Congress has consistently attempted to curb federal
spending on such programs. In June 1997, the Health Care Financing
Administration, now renamed the Centers for Medicare and Medicaid Services,
issued proposed rules that would revise Medicare policy on the coverage of
medical transportation services. The proposed rules were the result of a mandate
under the Balanced Budget Act of 1997 to establish a national fee schedule for
payment of medical transportation services that would control increases in
expenditures under Part B of the Medicare program, establish definitions for
medical transportation services that link payments to the type of services
furnished, consider appropriate regional and operational differences and
consider adjustments to account for inflation, among other provisions.
Prior to April 1, 2002, when the national fee schedule began a
five-year phase-in, Medicare used a charge-based reimbursement system for
medical transportation services and reimbursed 80% of charges determined to be
reasonable, subject to the limits fixed for the particular geographic area. The
patient was responsible for co-pay amounts, deductibles and the remaining
balance if we did not accept the assigned reimbursement, and Medicare required
us to expend reasonable efforts to collect the balance. In determining
reasonable charges, Medicare considered and applied 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.
On April 1, 2002, the Medicare Ambulance Fee Schedule Final Rule
became effective. The Final Rule categorizes seven levels of ground medical
transportation services, ranging from basic life support to specialty care
transport, and two categories of air medical transportation services. The base
rate conversion factor (the rate for BLS non-emergency service, the lowest fee
of the seven service levels) for services to Medicare patients was set at
$170.54 (which is adjusted each year by the Consumer Price Index, or "CPI") plus
separate mileage charges based on specified relative value units for each level
of ambulance service. Adjustments also were included to recognize differences in
relative practice costs among geographic areas, and higher transportation costs
that may be incurred by ambulance providers in rural areas with low population
density. The Final Rule requires ambulance providers to accept assignment on
Medicare claims, which means a provider must accept Medicare's allowed
reimbursement rate as full payment. Medicare reimburses 80% of that rate and the
remaining 20% is the responsibility of the patient or their secondary insurance.
We cannot balance bill the difference between the Medicare allowable and our
customary rate.
Originally, the Final Rule called for a five-year phase-in period to
allow time for providers to adjust to the new payment rates. The national fee
schedule was to be phased in at 20 percent increments each year, with payments
being made at 100 percent of the national fee schedule in 2006 and thereafter.
With the passage of the Medicare Prescription Drug Improvement and
Modernization Act of 2003, modifications were made to the phase-in of the
ambulance fee schedule. Effective July 1, 2004, a regional fee schedule
component of reimbursement is being phased in with the original national fee
schedule. In addition, the new legislation extended the phase-in period to 2010.
Under the new rules, the Medicare allowable reimbursement rate will be the
greater of (a) the national fee schedule, or (b) a blend of the national fee
schedule and the regional fee schedule. For 2004 that blended rate will be 20%
35
of the national fee schedule and 80% of the regional fee schedule. For each
succeeding year through 2007, the percentages will increase 20% for the national
fee schedule and decrease 20% for the regional fee schedule portions of the
blended rate. For 2008 and 2009, the fee schedule will remain at the 2007 mix of
80% national and 20% regional. In addition to the fee schedule phase-in changes,
a provision for additional reimbursement for medical transportation services was
provided to Medicare patients. Among other relief, the Act provides for a 1%
increase in reimbursement for urban transports and a 2% increase for rural
transports for the remainder of the original phase-in period of the national
ambulance fee schedule, or through 2006. We believe the final impact on our
results of operations will be slightly favorable, primarily due to the
geographic diversity of our operations.
Reimbursement by Medicare accounted for 28%, 28%, 28%, 27% and 25% of
our domestic net ambulance revenue for the nine months ended March 31, 2005 and
2004 and for fiscal 2004, 2003 and 2002, respectively.
While we believe that the Medicare Ambulance Fee Schedule will have a
positive impact on our medical transportation revenue at incremental and full
phase-in periods, these rules could, however, result in contract renegotiations
or other actions by us to offset any negative impact at the regional level that
could have a material adverse effect on our business, financial condition,
results of operations and cash flows. Changes in reimbursement policies, or
other governmental action, together with the financial challenges of some
private, third-party payers and budget pressures on other payer sources could
influence the timing and, potentially, the receipt of payments and
reimbursements. A reduction in coverage or reimbursement rates by third-party
payers or an increase in our cost structure relative to the rate of increase in
the CPI could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Federal False Claims Act
We are subject to the Federal False Claims Act that imposes civil and
criminal liability on individuals or entities that submit false or fraudulent
claims for payment to the government. Government agencies continue civil and
criminal enforcement efforts in connection with investigations of healthcare
companies and their executives and managers, many of which enforcement actions
involve the Federal False Claims Act. The Federal False Claims Act provides, in
part, that the federal government may bring a lawsuit against any person whom it
believes has knowingly or recklessly presented, or caused to be presented, a
false or fraudulent request for payment from the federal government, or who has
made a false statement or used a false record to get a claim approved. In
addition, private parties may initiate "qui tam" whistleblower lawsuits against
any person or entity under the False Claims Act in the name of the government
and share in the proceeds of the lawsuit.
The government and a number of courts have taken the position that
claims presented in violation of the various statutes, including the federal
anti-kickback statute, can be considered a violation of the Federal False Claims
Act based on the contention that a provider impliedly certifies compliance with
all applicable laws, regulations and other rules when submitting claims for
reimbursement. Penalties for False Claims Act violations include fines ranging
from $5,500 to $11,000 for each false claim, plus up to three times the amount
of damages sustained by the federal government. A False Claims Act violation may
provide the basis for exclusion from the federally-funded healthcare programs.
In addition, some states have adopted similar insurance fraud, state
whistleblower and false claims provisions. Although we intend and endeavor to
conduct our business in compliance with all applicable fraud and abuse laws, we
cannot assure you that our arrangements or business practices will not be
subject to government scrutiny or be found to violate applicable fraud and abuse
laws.
Federal Anti-Kickback Statute
We are subject to the federal anti-kickback statute, The
anti-kickback statute is broadly worded and prohibits the knowing and willful
offering, payment, solicitation or receipt of any form of remuneration in return
for, or to induce, (1) the referral of a person, (2) the furnishing or arranging
for the furnishing of items or services reimbursable under Medicare, Medicaid or
other governmental programs or (3) the purchase, lease or order, or arranging or
recommending purchasing, leasing or ordering of any item or service reimbursable
under Medicare, Medicaid or other governmental programs.
36
In addition to a few statutory exceptions, the OIG, has been
authorized to publish safe harbor regulations that outline categories of
activities that are deemed protected from prosecution under the anti-kickback
statute provided all applicable criteria are met. The failure of a financial
relationship to meet all of the applicable safe harbor criteria does not
necessarily mean that the particular arrangement violates the anti-kickback
statute. In order to obtain additional clarification on arrangements that may
not be subject to a statutory exception or may not satisfy the criteria of a
safe harbor, Congress established a process under the Health Insurance
Portability and Accountability Act of 1996 in which parties may seek an advisory
opinion from the OIG.
We and others in the healthcare community have taken advantage of the
advisory opinion process, and a number of advisory opinions have addressed
issues that pertain to our various operations, such as discounted medical
transportation services being provided to skilled nursing facilities, patient
co-payment responsibilities and ambulance restocking arrangements. In a number
of these advisory opinions the government concluded that such arrangements could
be problematic if the requisite intent was present. Although advisory opinions
are binding only as to the Department of Health and Human Services (the "HHS")
and the requesting party or parties, when new advisory opinions are issued,
regardless of the requestor, we review them and their application to our
operations as part of our ongoing corporate compliance program and endeavor to
make appropriate changes where we perceive the need to do so. See "--Corporate
Compliance Program and Corporate Integrity Obligations."
In light of the breadth of the anti-kickback statute, many of our
business arrangements with hospitals and other healthcare entities could be
subject to government investigation and prosecution. Noncompliance with the
anti-kickback statute can result in exclusion from Medicare, Medicaid or other
governmental programs as well as civil and criminal penalties, any of which
could have a material adverse effect on our business, financial condition and
results of operations.
Other Federal Healthcare Fraud and Abuse Laws
We are also subject to other federal healthcare fraud and abuse laws.
Under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
there are two additional federal crimes that could have an impact on our
business: "Healthcare Fraud" and "False Statements Relating to Healthcare
Matters." The Healthcare Fraud provision prohibits knowingly and recklessly
executing a scheme or artifice to defraud any healthcare benefit program,
including private payers. A violation is a felony and may result in fines,
imprisonment and/or exclusion from government-sponsored programs. The False
Statements Relating to Healthcare Matters provision prohibits knowingly and
willfully falsifying, concealing or covering up a material fact by any trick,
scheme or device or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits,
items or services. A violation is a felony and may result in fines and/or
imprisonment.
Although we intend and endeavor to conduct our business in compliance
with all applicable fraud and abuse laws, we cannot assure you that our
arrangements or business practices will not be subject to government scrutiny or
be found to violate applicable fraud and abuse laws.
Administrative Simplification Provisions of the Health Insurance
Portability and Accountability Act of 1996
The Administrative Simplification Provisions of HIPAA required the
HHS to adopt standards to protect the privacy and security of health-related
information. All healthcare providers were required to be compliant with the new
federal privacy requirements enacted by the HHS no later than April 14, 2003. We
believe we have taken reasonable measures to comply with these requirements.
The HIPAA privacy requirements contain detailed requirements
regarding the use and disclosure of individually identifiable health
information. Improper use or disclosure of identifiable health information
covered by the HIPAA privacy regulations can result in the following civil and
criminal penalties: (1) civil money penalties for HIPAA privacy violations are
$100 per incident, to a maximum of $25,000, per person, per year, per standard
violated; (2) a person who knowingly and in violation of the HIPAA privacy
regulations obtains individually identifiable health information or discloses
such information to another person may be fined up to $50,000 and imprisoned up
to one year, or both; (3) if the offense is committed under false pretenses, the
fine may be up to $100,000 and imprisonment for up to five years; and (4) if the
offense is done with the intent to sell, transfer or use individually
identifiable health information for commercial advantage, personal gain or
malicious harm, the fine may be up to $250,000 and imprisonment for up to ten
years.
37
In addition to enacting the foregoing privacy requirements, the HHS
issued a final rule creating security requirements for healthcare providers and
other covered entities on February 20, 2003. The final security rule requires
covered entities to meet specified standards. The security standards contained
in the final rule do not require the use of specific technologies (e.g., no
specific hardware or software is required), but instead require healthcare
providers and other covered entities to comply with certain minimum security
procedures in order to protect data integrity, confidentiality and availability.
We believe we have developed the appropriate policies and procedures to comply
with the final security regulations.
HIPAA also required the HHS to adopt national standards establishing
electronic transaction standards that all healthcare providers must use when
submitting or receiving certain healthcare transactions electronically. We
believe we have taken reasonable steps to comply with these standards.
Fair Debt Collection Practices Act
Some of our operations may be subject to compliance with certain
provisions of the Fair Debt Collection Practices Act and comparable statutes in
many states. Under the Fair Debt Collection Practices Act, a third-party
collection company is restricted in the methods it uses to contact consumer
debtors and elicit payments with respect to placed accounts. Requirements under
state collection agency statutes vary, with most requiring compliance similar to
that required under the Fair Debt Collection Practices Act. We believe we are in
substantial compliance with the Fair Debt Collection Practices Act and
comparable state statutes where applicable.
Occupational Safety and Health Administration
At the federal level, we are subject to regulations under the
Occupational Safety and Health Administration ("OSHA"), designed to protect our
employees. We endeavor to protect the health and safety of our employees and we
believe we are in compliance with the requirements of the OSHA regulations.
State Fraud and Abuse Provisions
We are subject to state fraud and abuse statutes and regulations.
Most of the states in which we operate have adopted a form of anti-kickback law,
almost all of those states also have adopted self-referral laws and some have
adopted separate false claims or insurance fraud provisions. The scope of these
laws and the interpretations of them vary from state to state and are enforced
by state courts and regulatory authorities, each with broad discretion,
Generally, state laws cover all healthcare services and not just those covered
under a federally-funded healthcare program. A determination of liability under
such laws could result in fines and penalties and restrictions on our ability to
operate in these jurisdictions.
Although we intend and endeavor to conduct our business in compliance
with all applicable fraud and abuse laws, we cannot assure you that our
arrangements or business practices will not be subject to government scrutiny or
be found to violate applicable fraud and abuse laws.
Corporate Compliance Program and Corporate Integrity Obligations
We have developed a program in an effort to monitor compliance with
federal and state laws and regulations applicable to healthcare entities, to
ensure that we maintain high standards of conduct in the operation of our
business and to implement policies and procedures so that employees act in
compliance with all applicable laws, regulations and company policies. Our
program also attempts to monitor compliance with our Corporate Compliance Plan,
which details our standards for: (1) business ethics, (2) compliance with
applicable federal, state and local laws, (3) business conduct, and (4) quality
of service. The Plan's focus is to prevent, detect and mitigate regulatory
risks. We attempt to accomplish this mission through:
o providing guidance, education and proper controls based on the
regulatory risks associated with our business model and strategic
plan,
o resolving regulatory matters, and
o enhancing the ethical culture and leadership of the organization.
38
We believe our compliance program has been structured in light of the
guidance provided by the OIG. The primary recommended standards, all of which we
have attempted to implement, include:
o formal policies and written procedures,
o designation of a Compliance Officer,
o education and training programs,
o internal monitoring and reviews,
o responding appropriately to detected misconduct,
o open lines of communication, and
o discipline and accountability.
The compliance program is based on the overall goal of promoting a
culture that encourages employees to conduct activities with integrity, dignity
and care for those we serve. Notwithstanding the foregoing, we audit compliance
with our compliance program on a sample basis. Although such an approach
reflects a reasonable and accepted approach in the industry, we cannot assure
you that our program will detect and rectify all compliance issues in all
markets and for all time periods.
Other Governmental Regulations
Our business is also subject to other governmental regulations at the
federal, state, local and foreign levels. The federal government recommends
standards for ambulance design and construction, medical training curriculum and
designation of appropriate trauma facilities, and regulates our radio licenses.
Various state agencies may modify these standards or require additional
standards.
Each state where we operate regulates various aspects of its
ambulance and fire business. These regulations may vary widely from state to
state. 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
equipment. State or local government regulations or administrative policies
regulate rate structures in certain states in which we conduct ambulance
operations. The process of determining rates includes cost reviews, analyses of
levels of reimbursement from all sources and determination of reasonable
profits. In certain service areas in which we are the exclusive provider of
services, the municipality or fire district sets the rates for emergency medical
transportation services pursuant to a master contract as well as establishes the
rates for general medical transportation services that we are permitted to
charge.
Applicable federal, state and local laws and regulations are subject
to change. We believe that we currently are in substantial compliance with
applicable regulatory requirements. These regulatory requirements, however, may
require us in the future to increase our capital and operating expenditures in
order to maintain current operations or initiate new operations. See "Risk
Factors--State and local governments regulate our rate structures and may limit
our ability to increase our rates or maintain a satisfactory rate structure,"
"-- Our business is subject to laws, rules and regulations," "--Our business is
subject to substantial federal regulations" and "--HIPAA regulations could have
a material adverse effect on our business."
39
SELLING STOCKHOLDERS
In connection with amendments to our prior credit facilities, we
issued 211,549 Series B Shares and 283,979 Series C Shares to certain of our
lenders. On June 30, 2004, we settled the Series B Shares and Series C Shares
through the issuance of 4,955,278 shares of common stock and granted the holders
of such shares of common stock certain registration rights. Pursuant to such
registration rights, the holders are entitled to request the registration of the
shares of common stock for public resale upon providing a request from the
holders of at least 20% of the common stock that was issued upon settlement of
the Series B Shares and the Series C Shares. On September 10, 2004, we received
written notice from the holders of at least 20% of the outstanding common stock
that was issued upon settlement of the Series B Shares and Series C Shares
requesting the registration of such shares.
We have filed a registration statement with the SEC, of which this
prospectus forms a part, to register the shares of common stock listed below
held by the holders of the common stock that were issued in the settlement of
the Series B Shares and Series C Shares. As of the close of business on June
7, 2005, we had outstanding an aggregate of 23,438,310 shares of common stock,
and any shares sold pursuant to this prospectus will not affect the number of
our outstanding shares.
The following table sets forth the number of shares of common stock
beneficially owned by the selling stockholders as of June 7, 2005, the number of
shares of common stock covered by this prospectus and the percentage of total
shares of common stock that the selling stockholders will beneficially own
assuming that the selling stockholders sell all of the shares of common stock
covered by this prospectus. The amounts and information set forth below are
based upon information provided to us by representatives of the selling
stockholders as of June 7, 2005, our records and the filings of the selling
stockholders with the SEC as of June 7, 2005. It is possible, however, that the
selling stockholders may acquire or dispose of additional shares of common stock
from time to time after June 7, 2005. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. Each selling stockholder's percentage of
ownership before and after the sale of all shares of common stock covered by
this prospectus is based on 23,438,310 shares of common stock outstanding as of
June 7, 2005.
- ------------------------------------ --------------------------------- ---------------- ------------------------------
Shares Beneficially Owned Prior Amount Offered Shares Beneficially Owned
to the Offering After the Offering
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
Selling Stockholder (1) Shares % Shares Shares %
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
Tennenbaum Capital Partners, LLC,
SVIM/MSM II, LLC and Tennenbaum &
Co. LLC, Michael E. Tennenbaum (2) 2,204,813 9.4 2,204,813 -- --
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
Cerberus Partners, L.P. 711,391 3.0 711,391 -- --
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
GE Capital CFE, Inc 346,098 1.5 346,098 -- --
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
Pam Capital Ltd. 225,437 1.0 225,437 -- --
- ------------------------------------ ----------------- --------------- ---------------- -------------- ---------------
______________
1 Other than as described in this prospectus, the selling stockholders have
not held any office or position or, to our knowledge, had any material
relationship with us or our affiliates within the past three years.
2 Includes 747,188 shares owned by Special Value Absolute Return Fund, LLC,
and 1,457,625 shares owned by Special Value Bond Fund II, LLC, each
affiliates of Tennenbaum Capital Partners, LLC, SVIM/MSM II, LLC and
Tennenbaum & Co. LLC, Michael E. Tennenbaum.
40
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common
stock, par value $0.01 per share, and 2,000,000 shares of preferred stock, par
value $0.01 per share. At June 7, 2005, there were outstanding 23,438,310
shares of common stock held by approximately 1,350 holders of record and, no
shares of preferred stock were outstanding. The following descriptions of our
capital stock and provisions of our certificate of incorporation and bylaws are
only summaries, and we encourage you to review complete copies of our
certificate of incorporation and bylaws, which are filed as an exhibit to this
registration statement of which this prospectus is a part.
COMMON STOCK
Subject to the rights of the holders of preferred stock then
outstanding, holders of our common stock are entitled to one vote for each share
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Subject to preferences that may be applicable to any then
outstanding preferred stock, the holders of our common stock will be entitled to
receive such dividends, if any, as may be declared by our Board of Directors in
its discretion out of legally available funds. Upon our liquidation, dissolution
or winding up, the holders of our common stock will be entitled to share ratably
in all assets that are legally available for distribution, after payment of all
debts and other liabilities, and subject to the prior rights of holders of any
preferred stock then outstanding. Holders of our common stock have no
preemptive, subscription, redemption, or conversion rights. The rights,
preferences and privileges of holders of our common stock will be subject to the
rights of the holders of shares of any series of preferred stock that we may
issue in the future.
PREFERRED STOCK
Our charter authorizes the issuance of 2,000,000 shares of preferred
stock. Currently, 15,000 shares of preferred stock are designated as Series A
Junior Participating Preferred Stock in connection with the adoption of our
Shareholder Rights Plan described below. Our authorized but unissued preferred
stock may be issued from time to time in one or more series, without stockholder
approval. Subject to limitations prescribed by law and by our charter, the Board
of Directors, without further approval of the stockholders, has the authority to
fix the rights and terms relating to dividends, conversion, voting, redemption,
liquidation preferences, sinking funds and any other rights, preferences,
privileges, and restrictions applicable to each such series of preferred stock.
While providing flexibility in connection with possible financings,
acquisitions, and other corporate purposes, the issuance of preferred stock,
among other things, could adversely affect the voting power of the holders of
our common stock and, under certain circumstances, be used as a means of
discouraging, delaying, or preventing certain business combinations with us. Any
preferred stock converted, redeemed, exchanged or otherwise acquired by us will,
upon cancellation, have the status of authorized but unissued preferred stock
undesignated as to series subject to reissuance by our Board of Directors. Other
than the Shareholder Rights Plan, there currently are no outstanding shares of
preferred stock or any commitments or options or other rights currently
outstanding for the issuance of preferred stock. Presently, we do not have any
plan to issue shares of our preferred stock, although we continue to evaluate
capital restructuring alternatives, which may result in the issuance of
preferred stock or common stock.
SHAREHOLDER RIGHTS PLAN
We have adopted a Shareholder Rights Plan pursuant to which we issued
one preferred stock purchase right, or a Right, for each outstanding share of
common stock. Our Shareholder Rights Plan is designed to protect our company and
our stockholders against unfair or coercive takeover tactics. It accomplishes
this goal by making it more costly and thus more difficult to gain control of us
without the consent of our Board of Directors. The description presented below
is intended as a summary only and is qualified in its entirety by reference to
the rights agreement, which is an exhibit to the registration statement of which
this prospectus is a part.
Each Right entitles the registered holder to purchase from us a unit
consisting of one one-thousandth of a share of Series A Junior Participating
Preferred Stock at a cash exercise 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 our 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 our common stock. If the Rights become
exercisable, each Right, unless redeemed by us, entitles the holder to purchase
an amount of our common stock 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 then effective exercise price.
41
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire us on terms
not approved by the Board of Directors, except pursuant to an offer conditioned
on a substantial number of Rights being acquired. We may redeem the Rights at
$.01 per Right prior to the tenth day (as such period may be extended) after the
public announcement of the existence of a 15% holder.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging, under certain circumstances, in various
"business combination" transactions with any "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless:
o Prior to the date at which the stockholder became an interested
stockholder, the Board of Directors approved the transaction;
o the stockholder acquires more than 85% of the outstanding voting
stock of the corporation (excluding shares held by directors who
are officers or held in certain employee stock plans) upon
consummation of the transaction in which the stockholder becomes
an interested stockholder; or
o the business combination is approved by the Board of Directors
and by two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder)
at a meeting of stockholders (and not by written consent) held on
or subsequent to the date of the business combination.
A "business combination" is defined to include mergers, asset sales
and other transactions resulting in financial benefit to a stockholder. In
general, an "interested stockholder" is a person who, together with affiliates
or associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or more of a corporation's voting stock.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws contain a number of other
provisions that could have an anti-takeover effect. The provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board. These provisions
also are intended to help ensure that the board, if confronted by an unsolicited
proposal from a third party which has acquired a block of our stock, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interest of the
stockholders. The following is a summary of such provisions included in our
certificate of incorporation and by-laws:
o a classified Board of Directors;
o the authority of the Board of Directors to fill vacancies on the
Board of Directors;
o the authority of the Board of Directors to issue series of
preferred stock with such voting rights and other powers as the
Board of Directors may determine;
o notice requirements relating to nominations to the Board of
Directors and to the raising of business matters at stockholder
meetings;
o a provision that special meetings of the stockholders may be
called only by the Chairman of the Board or the Board of
Directors;
o a prohibition on stockholder action by written consent except
with respect to actions to which the Board of Directors has
granted its prior approval and consent;
42
o a fair price provision, which is intended to ensure that
stockholders receive fair consideration for shares sold at all
stages of takeovers or attempted takeovers of our company;
o the authority of the Board of Directors to consider certain
factors including, without limitation, the potential impact on
our employees and our other constituents and the communities in
which we operate when evaluating certain matters such as tender
offers, merger proposals or sales of our property or assets; and
o the requirement that certain "anti-takeover" provisions in the
certificate of incorporation and bylaws may be amended only by
super majority vote.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation, as amended, provides that no
director shall be personally liable to us or to our stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for any
breach of the director's duty of loyalty to us or our stockholders, for acts or
omissions not in good faith, for acts or omissions involving intentional
misconduct or a knowing violation of law or for any transaction, or for any
transaction from which the director derived an improper personal benefit. Our
bylaws provide that our directors and officers will be indemnified against
liabilities that arise from their service as directors and officers, subject to
certain exceptions. We have entered into agreements with our directors and
officers that also provide for such indemnification and expenses and liability
reimbursement. We have obtained insurance which insures our directors and
officers against certain losses and which insures us against our obligations to
indemnify the directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is
Computershare Trust Company.
43
PLAN OF DISTRIBUTION
The selling stockholders may resell or redistribute the shares of
common stock offered hereby from time to time on any stock exchange or automated
interdealer quotation system on which the shares are listed, in the
over-the-counter market, in privately negotiated transactions, or in any other
legal manner, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to prevailing market prices or at
negotiated prices. Persons who are pledgees, donees, transferees, or other
successors in interest of any of the named selling stockholders (including but
not limited to persons who receive shares from a named selling stockholder as a
gift, partnership distribution or other non-sale-related transfer after the date
of this prospectus) may also use this prospectus and are included when we refer
to "selling stockholders" in this prospectus. Selling stockholders may sell the
shares by one or more of the following methods, without limitation:
o block trades (which may include cross trades) in which the broker
or dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the
broker or dealer for its own account;
o an exchange distribution or secondary distribution in accordance
with the rules of any stock exchange on which the shares are
listed;
o ordinary brokerage transactions and transactions in which the
broker solicits purchases;
o an offering at other than a fixed price on or through the
facilities of any stock exchange on which the shares are listed
or to or through a market maker other than on that stock
exchange;
o privately negotiated transactions, directly or through agents;
o short sales;
o through the writing of options on the shares, whether or not the
options are listed on an options exchange;
o through the distribution of the shares by any selling stockholder
to its partners, members or stockholders;
o one or more underwritten offerings;
o agreements between a broker or dealer and one or more of the
selling stockholders to sell a specified number of the shares at
a stipulated price per share; and
o any combination of any of these methods of sale or distribution,
or any other method permitted by applicable law.
The selling stockholders may also transfer the securities by gift. We
do not know of any current arrangements by the selling stockholders for the sale
or distribution of any of the securities.
The selling stockholders may engage brokers and dealers, and any
brokers or dealers may arrange for other brokers or dealers to participate in
effecting sales of the securities. These brokers, dealers or underwriters may
act as principals, or as an agent of a selling stockholder. Broker-dealers may
agree with a selling stockholder to sell a specified number of the securities at
a stipulated price per security. If the broker-dealer is unable to sell
securities acting as agent for a selling stockholder, it may purchase as
principal any unsold securities at the stipulated price. Broker-dealers who
acquire securities as principals may thereafter resell the securities from time
to time in transactions in any stock exchange or automated interdealer quotation
system on which the securities are then listed, at prices and on terms then
prevailing at the time of sale, at prices related to the then-current market
price or in negotiated transactions. Broker-dealers may use block transactions
and sales to and through broker-dealers, including transactions of the nature
described above. The selling stockholders may also sell the securities in
accordance with Rule 144 under the Securities Act rather than pursuant to this
prospectus, regardless of whether the securities are covered by this prospectus.
44
From time to time, one or more of the selling stockholders may
pledge, hypothecate or grant a security interest in some or all of the
securities owned by them. The pledgees, secured parties or persons to whom the
securities have been hypothecated will, upon foreclosure in the event of
default, be deemed to be selling stockholders. The number of a selling
stockholder's securities offered under this prospectus will decrease as and when
it takes such actions. The plan of distribution for that selling stockholder's
securities will otherwise remain unchanged. In addition, a selling stockholder
may, from time to time, sell the securities short and, in those instances, this
prospectus may be delivered in connection with the short sales and the
securities offered under this prospectus may be used to cover short sales.
The selling stockholders and any underwriters, brokers, dealers or
agents that participate in the distribution of the securities may be deemed to
be "underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the
securities in the course of hedging the positions they assume with that selling
stockholder, including, without limitation, in connection with distributions of
the securities by those broker-dealers. A selling stockholder may enter into
option or other transactions with broker-dealers that involve the delivery of
the securities offered hereby to the broker-dealers, who may then resell or
otherwise transfer those securities. A selling stockholder may also loan or
pledge the securities offered hereby to a broker-dealer and the broker-dealer
may sell the securities offered hereby so loaned or upon a default may sell or
otherwise transfer the pledged securities offered hereby.
The selling stockholders and other persons participating in the sale
or distribution of the securities will be subject to applicable provisions of
the Exchange Act and the related rules and regulations adopted by the SEC,
including Regulation M. This regulation may limit the timing of purchases and
sales of any of the securities by the selling stockholders and any other person.
The anti-manipulation rules under the Exchange Act may apply to sales of
securities in the market and to the activities of the selling stockholders and
their affiliates. Furthermore, Regulation M may restrict the ability of any
person engaged in the distribution of the securities to engage in market-making
activities with respect to the particular securities being distributed for a
period of up to five business days before the distribution. These restrictions
may affect the marketability of the securities and the ability of any person or
entity to engage in market-making activities with respect to the securities.
We have agreed to indemnify the selling stockholders and their
respective officers and directors, and any underwriter who participates in the
offering of the securities, against specified liabilities, including liabilities
under the federal securities laws. The selling stockholders have agreed to
indemnify us, the other selling stockholders, us, and any underwriter who
participates in the offering of the securities, against specified liabilities
arising from information provided by the selling stockholder for use in this
prospectus, including liabilities under the federal securities laws. In each
case, indemnification includes each person who is an affiliate of or controls
one of these specified indemnified persons within the meaning of the federal
securities laws.
The securities offered hereby were originally issued to the selling
stockholders pursuant to an exemption from the registration requirements of the
Securities Act. We agreed to register the securities under the Securities Act,
and to keep the registration statement of which this prospectus is a part
effective until the earlier of the date on which the selling stockholders have
sold all of the securities or such time when all of the securities offered by
this prospectus may be sold pursuant to Rule 144 under the Securities Act. We
have agreed to pay all expenses in connection with this offering, including the
fees and expenses of a single counsel for the selling stockholders, but not
including underwriting discounts, concessions, commissions or fees of the
selling stockholders.
We will not receive any proceeds from sales of any securities by the
selling stockholders.
We can not assure you that the selling stockholders will sell all or
any portion of the securities offered hereby.
45
We will supply the selling stockholders and any stock exchange upon
which the securities are listed with reasonable quantities of copies of this
prospectus. To the extent required by Rule 424(b) under the Securities Act in
connection with any resale or redistribution by a selling stockholder, we will
file a prospectus supplement setting forth:
o the aggregate number of shares to be sold;
o the purchase price;
o the public offering price;
o if applicable, the names of any underwriter, agent or
broker-dealer; and
o any applicable commissions, discounts, concessions, fees or other
items constituting compensation to underwriters, agents or
broker-dealers with respect to the particular transaction (which
may exceed customary commissions or compensation).
If a selling stockholder notifies us that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange, distribution or secondary distribution or a
purchase by a broker or dealer, the prospectus supplement will include any other
facts that are material to the transaction. If applicable, this may include a
statement to the effect that the participating broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this prospectus.
LEGAL MATTERS
Weil, Gotshal & Manges LLP, New York has passed upon the validity of
the shares of common stock on our behalf.
EXPERTS
The financial statements incorporated in this prospectus by reference
to Rural/Metro Corporation's Current Report on Form 8-K dated February 14, 2005
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
46
================================================================================
[Rural/Metor Corporation logo]
3,487,739 Shares of Common Stock
----------------
PROSPECTUS
----------------
______, 2005
================================================================================
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be paid by the
Registrant in connection with the distribution of the common stock registered
hereby:
Nature of Expense Amount(+)
- ----------------- ---------
SEC Registration Fee $ 3,193.74
Accounting Fees and Expenses $ 15,000.00
Legal Fees and Expenses $ 15,000.00
Miscellaneous $ 7,000.00
TOTAL $ 40,193.74
+ The amounts set forth above, except for the SEC registration fee, are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification of
officers, directors and other corporate agents under specific circumstances and
subject to specific limitations. Rural/Metro's certificate of incorporation, as
amended, and restated bylaws provide that Rural/Metro shall indemnify its
directors and officers to the full extent permitted by Delaware General
Corporation Law, including in circumstances in which indemnification is
otherwise discretionary under Delaware law.
Rural/Metro has entered into indemnification agreements with its directors and
executive officers that provide the maximum indemnity allowed to directors and
executive officers by Section 145 of the Delaware General Corporation Law, as
well as certain additional procedural protections. The indemnity agreements
provide that directors will be indemnified to the fullest extent not prohibited
by law against all expenses (including attorney's fees) and settlement amounts
paid or incurred by them in any action or proceeding as directors or executive
officers of Rural/Metro, including any action on account of their services as
executive officers or directors of any other company or enterprise when they are
serving in such capacities at the request of Rural/Metro, and including any
action by or in the right of Rural/Metro. In addition, the indemnity agreements
provide for reimbursement of expenses incurred in conjunction with being a
witness in any proceeding to which the indemnitee is not a party. Rural/Metro
must pay in advance of a final disposition of a proceeding or claim the expenses
incurred by the indemnitee no later than 10 days after receipt of an undertaking
by or on behalf of the indemnitee, to repay the amount of the expenses to the
extent that it is ultimately determined that the indemnitee is not entitled to
be indemnified by Rural/Metro. The indemnity agreements also provide the
indemnitee with remedies in the event that Rural/Metro does not fulfill its
obligations under the indemnity agreements.
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation
to provide in its certificate of incorporation that a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. Rural/Metro's restated certificate of incorporation provides for that
limitation of liability.
Policies of insurance are maintained by Rural/Metro under which its directors
and officers are insured, within the limits and subject to the limitations of
the policies, against specific expenses in connection with the defense of, and
specific liabilities which might be imposed as a result of, actions, suits or
proceedings to which they are parties by reason of being or having been
directors or officers.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with amendments to our prior credit facilities, we issued 211,549
Series B Shares and 283,979 Series C Shares to certain of our lenders. The
Series B Shares and Series C Shares could be settled, at Rural/Metro's election,
into shares of common stock of Rural/Metro.
As a sufficient number of common shares were not available to permit settlement,
Rural/Metro sought and obtained stockholder approval at its Annual Meeting of
Stockholders held on June 10, 2004 to amend its certificate of incorporation to
authorize additional shares of common stock. The amendment increased
Rural/Metro's authorized shares of common stock from 23,000,000 to 40,000,000.
On June 30, 2004, Rural/Metro settled the Series B Shares and Series C Shares
through the issuance of 4,955,278 shares of common stock. Due to the settlement
of the Series B and Series C Shares, as of June 30, 2004 there are currently no
Series B or Series C Shares outstanding, and the related rights and privileges
associated with the Series B Shares and Series C Shares expired upon the
settlement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Specimen Certificate representing shares of Common Stock,
par value $.01 per share (1)
4.2 Registration Rights Agreement dated as of September 30, 2002
by and among the Registrant, Special Value Bond Fund II,
LLC, GE Capital CFE, Inc., Continental Casualty Company,
Cerberus Partners, L.P., Pamco Cayman Ltd., and Pam Capital
Funding LP (2)
4.2(a) Amendment dated as of September 26, 2003 to the Registration
Rights Agreement dated as of September 30, 2002, by and
among the Registrant, Tennenbaum & Co., LLC, General
Electric Capital Corporation, Highland Crusader Offshore
Partners, L.P., Cerberus Partners, L.P., and Pam Capital
Funding LP (3)
4.3 Second Restated Certificate of Incorporation of the
Registrant filed with the Secretary of State of Delaware on
January 18, 1995; as amended by the Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock filed with the Secretary of
State of Delaware on August 23, 1995; as amended by the
Certificate of Designation, Preferences, and Rights of
Series B Preferred Stock filed with the Secretary of State
of Delaware on September 26, 2002; as amended by the
Certificate of Designation, Preferences, and Rights of
Series C Preferred Stock filed with the Secretary of State
of Delaware on September 26, 2003; as amended by that
Certificate of Amendment filed with the Secretary of State
of Delaware on June 15, 2004 (4)
4.4(a) Rights Agreement dated as of August 23, 1995 between the
Registrant and American Securities Transfer, Inc., the
Rights Agent (5)
4.4(b) Amendment No. 1 dated as of October 30, 2002 to the Rights
Agreement dated as of August 23, 1995 between the Registrant
and American Securities Transfer, Inc., the Rights Agent (6)
II-2
4.4(c) Amendment No. 2 dated as of September 26, 2003 to the Rights
Agreement dated as of August 23, 1995 between the Registrant
and Computershare Trust Company, Inc. (successor to American
Securities Transfer, Inc.), the Rights Agent (3)
4.5 Amended and Restated Bylaws of the Registrant (1)
5.1 Opinion of Weil, Gotshal & Manges LLP as to the legality of
the securities*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Weil, Gotshal & Manges, LLP (included in Exhibit
5.1 hereto)*
24.1 Powers of Attorney (included in the signature pages)**
_________________
* Filed herewith.
** Previously filed.
+ Management contracts or compensatory plan or arrangement.
(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 Registrant's Form 8-K Current Report filed
with the Commission on October 16, 2002.
(3) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on October 3, 2003.
(4) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the year ended June 30, 2004 filed with the Commission on September 28,
2004.
(5) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about August 28, 1995.
(6) Incorporated by reference to the Registrant's Form 10-Q filed with the
Commission on February 14, 2003.
(b) Financial Statement Schedules.
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
Consolidated Financial Statements or in the Notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
II-3
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
above do not apply if the registration statement is on Form
S-3, Form S-8 or Form F-3, and the information required to
be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934
(and where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Scottsdale, State of
Arizona, on June 9, 2005.
RURAL/METRO CORPORATION
By: /s/ Jack E. Brucker
---------------------------------------
Jack E. Brucker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Cor J. Clement Chairman of the Board of Directors June 9, 2005
- ----------------------------------------------
Cor J. Clement
/s/ Louis G. Jekel Vice Chairman of the Board of Directors June 9, 2005
- ----------------------------------------------
Louis G. Jekel
/s/ Jack E. Brucker President, Chief Executive June 9, 2005
- ---------------------------------------------- Officer and Director
Jack E. Brucker (Principal Executive Officer)
/s/ Michael S. Zarriello Senior Vice President, Secretary and June 9, 2005
- ---------------------------------------------- Chief Financial Officer
Michael S. Zarriello (Principal Financial Officer)
/s/ Matthew J. Majoros Managing Director of Finance and June 9, 2005
- ---------------------------------------------- Accounting and Corporate Controller
Matthew J. Majoros (Principal Accounting Officer)
/s/ Mary Anne Carpenter Director June 9, 2005
- ----------------------------------------------
Mary Anne Carpenter
/s/ William C. Turner Director June 9, 2005
- ----------------------------------------------
William C. Turner
/s/ Henry G. Walker Director June 9, 2005
- ----------------------------------------------
Henry G. Walker
/s/ Robert E. Wilson Director June 9, 2005
- ----------------------------------------------
Robert E. Wilson
II-5
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Specimen Certificate representing shares of Common Stock,
par value $.01 per share (1)
4.2 Registration Rights Agreement dated as of September 30, 2002
by and among the Registrant, Special Value Bond Fund II,
LLC, GE Capital CFE, Inc., Continental Casualty Company,
Cerberus Partners, L.P., Pamco Cayman Ltd., and Pam Capital
Funding LP (2)
4.2(a) Amendment dated as of September 26, 2003 to the Registration
Rights Agreement dated as of September 30, 2002, by and
among the Registrant, Tennenbaum & Co., LLC, General
Electric Capital Corporation, Highland Crusader Offshore
Partners, L.P., Cerberus Partners, L.P., and Pam Capital
Funding LP (3)
4.3 Second Restated Certificate of Incorporation of the
Registrant filed with the Secretary of State of Delaware on
January 18, 1995; as amended by the Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock filed with the Secretary of
State of Delaware on August 23, 1995; as amended by the
Certificate of Designation, Preferences, and Rights of
Series B Preferred Stock filed with the Secretary of State
of Delaware on September 26, 2002; as amended by the
Certificate of Designation, Preferences, and Rights of
Series C Preferred Stock filed with the Secretary of State
of Delaware on September 26, 2003; as amended by that
Certificate of Amendment filed with the Secretary of State
of Delaware on June 15, 2004 (4)
4.4(a) Rights Agreement dated as of August 23, 1995 between the
Registrant and American Securities Transfer, Inc., the
Rights Agent (5)
4.4(b) Amendment No. 1 dated as of October 30, 2002 to the Rights
Agreement dated as of August 23, 1995 between the Registrant
and American Securities Transfer, Inc., the Rights Agent (6)
4.4(c) Amendment No. 2 dated as of September 26, 2003 to the Rights
Agreement dated as of August 23, 1995 between the Registrant
and Computershare Trust Company, Inc. (successor to American
Securities Transfer, Inc.), the Rights Agent (3)
II-6
4.5 Amended and Restated Bylaws of the Registrant (1)
5.1 Opinion of Weil, Gotshal & Manges LLP as to the legality of
the securities *
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Weil, Gotshal & Manges, LLP (included in Exhibit
5.1 hereto)*
24.1 Powers of Attorney (included in the signature pages)**
* Filed herewith.
** Previously filed.
+ Management contracts or compensatory plan or arrangement.
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 Registrant's Form 8-K Current Report filed
with the Commission on October 16, 2002.
3) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on October 3, 2003.
4) incorporated by reference to the Registrant's Form 10-K Annual Report for
the year ended June 30, 2004 filed with the Commission on September 28,
2004.
5) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about August 28, 1995.
6) Incorporated by reference to the Registrant's Form 10-Q filed with the
Commission on February 14, 2003.
II-7