Rural/metro (RURL) 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 0-22056

Rural/Metro Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	86-0746929
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

9221 East Via de Ventura, Scottsdale, Arizona 85258

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (480) 994-3886

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 24,739,103 shares of the registrant’s Common Stock outstanding on November 7, 2007.

RURAL/METRO CORPORATION

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

SEPTEMBER 30, 2007

			Page
Part I.	Financial Information
	Item 1.	Financial Statements (unaudited):
		Consolidated Balance Sheets	3
		Consolidated Statements of Operations	4
		Consolidated Statement of Changes in Stockholders’ Deficit	5
		Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	44
	Item 4.	Controls and Procedures	44
Part II.	Other Information
	Item 1.	Legal Proceedings	46
	Item 1A.	Risk Factors	46
	Item 5.	Other Information	55
	Item 6.	Exhibits	56
	Signatures		57

2

Part I. Financial Information

Item 1. Financial Statements

RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)

	September 30, 2007			June 30, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	4,009		$	6,181
Short-term investments		2,500			—
Accounts receivable, net		82,734			78,313
Inventories		8,845			8,782
Deferred income taxes		15,696			15,836
Prepaid expenses and other		17,814			18,273
Total current assets		131,598			127,385
Property and equipment, net		44,743			45,521
Goodwill		37,700			37,700
Deferred income taxes		59,746			67,309
Insurance deposits		2,353			1,868
Other assets		16,907			19,547
Total assets	$	293,047		$	299,330
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	16,271		$	15,271
Accrued liabilities		60,926			53,358
Deferred revenue		25,056			24,959
Current portion of long-term debt		42			41
Total current liabilities		102,295			93,629
Long-term debt, net of current portion		277,151			280,081
Other long-term liabilities		24,256			24,065
Total liabilities		403,702			397,775
Minority interest		2,309			2,104
Stockholders’ deficit:
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,737,726 shares issued and outstanding at both September 30, 2007 and June 30, 2007		247			247
Additional paid-in capital		154,777			154,777
Treasury stock, 96,246 shares at both September 30, 2007 and June 30, 2007		(1,239	)		(1,239	)
Accumulated other comprehensive income		294			294
Accumulated deficit		(267,043	)		(254,628	)
Total stockholders’ deficit		(112,964	)		(100,549	)
Total liabilities, minority interest and stockholders’ deficit	$	293,047		$	299,330

See accompanying notes

3

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

	Three Months Ended September 30,
	2007			2006
Net revenue	$	119,491		$	114,293
Operating expenses:
Payroll and employee benefits		75,234			71,433
Depreciation and amortization		3,121			2,904
Other operating expenses		27,319			23,692
Auto/general liability insurance expense		3,837			4,012
Loss (gain) on sale of assets		3			(3	)
Total operating expenses		109,514			102,038
Operating income		9,977			12,255
Interest expense		(7,750	)		(7,785	)
Interest income		142			120
Income from continuing operations before income taxes and minority interest		2,369			4,590
Income tax provision		(1,196	)		(2,215	)
Minority interest		(505	)		(773	)
Income from continuing operations		668			1,602
Income (loss) from discontinued operations, net of income taxes		(257	)		85
Net income	$	411		$	1,687
Income (loss) per share:
Basic—
Income from continuing operations	$	0.03		$	0.07
Income (loss) from discontinued operations		(0.01	)		0.00
Net income	$	0.02		$	0.07
Diluted—
Income from continuing operations	$	0.03		$	0.07
Income (loss) from discontinued operations		(0.01	)		0.00
Net income	$	0.02		$	0.07
Average number of common shares outstanding—Basic		24,738			24,510
Average number of common shares outstanding—Diluted		24,988			24,920

See accompanying notes

4

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(unaudited)

(in thousands, except share amounts)

	Number of Shares	Common Stock		Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Accumlated Other Comprehensive Income		Total
Balance at June 30, 2007	24,737,726	$	247	$	154,777	$	(1,239	)	$	(254,628	)	$	294	$	(100,549	)
Adjustment due to adoption of FIN 48 (Note 5)			—		—		—			(12,826	)				(12,826	)
Comprehensive income, net of tax:
Net income	—		—		—		—			411			—		411
Comprehensive income															411
Balance at September 30, 2007	24,737,726	$	247	$	154,777	$	(1,239	)	$	(267,043	)	$	294	$	(112,964	)

See accompanying notes

5

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net income	$	411		$	1,687
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization		3,140			3,000
Accretion of 12.75% Senior Discount Notes		2,080			1,838
Deferred income taxes		566			1,851
Amortization of deferred financing costs		541			418
Loss (gain) on sale of property and equipment		14			(3	)
Earnings of minority shareholder		505			773
Stock based compensation benefit		—			(7	)
Change in assets and liabilities—
Accounts receivable		(4,421	)		(3,295	)
Inventories		(63	)		(430	)
Prepaid expenses and other		459			(3,233	)
Insurance deposits		(485	)		578
Other assets		2,045			959
Accounts payable		988			(2,062	)
Accrued liabilities		1,879			3,197
Deferred revenue		97			924
Other liabilities		191			(453	)
Net cash provided by operating activities		7,947			5,742
Cash flows from investing activities:
Purchases of short-term investments		(5,000	)		(5,000	)
Sales of short-term investments		2,500			8,701
Capital expenditures		(2,313	)		(5,340	)
Proceeds from the sale of property and equipment		3			5
Net cash used in investing activities		(4,810	)		(1,634	)
Cash flows from financing activities:
Repayment of debt		(5,009	)		(3	)
Tax benefit from the exercise of stock options		—			134
Issuance of common stock		—			74
Distributions to minority shareholders		(300	)		—
Net cash (used in) / provided by financing activities		(5,309	)		205
Increase (decrease) in cash and cash equivalents		(2,172	)		4,313
Cash and cash equivalents, beginning of period		6,181			3,041
Cash and cash equivalents, end of period	$	4,009		$	7,354
Supplemental disclosure of non-cash operating activities:
Decrease in accumulated deficit, deferred income taxes and increase in accrued liabilities upon adoption of FIN 48	$	12,826		$	—
Supplemental disclosure of non-cash investing activities:
Property and equipment funded by liabilities	$	12		$	294

See accompanying notes

6

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business

Rural/Metro Corporation, a Delaware corporation, along with its subsidiaries (collectively, the “Company”) is a leading provider of both emergency and non-emergency medical ambulance services. These services are provided under contracts with governmental entities, hospitals, nursing homes and other healthcare facilities and organizations. The Company also provides fire protection and related services on a subscription fee basis to residential and commercial property owners and under long-term contracts with fire districts, industrial sites and airports. These services consist primarily of fire suppression, fire prevention and first responder medical care.

Other Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position and results of operations. The results of operations for the three months ended September 30, 2007 and 2006 are not necessarily indicative of the results of operations for the full fiscal year.

The notes to the accompanying unaudited consolidated financial statements are presented to enhance the understanding of the financial statements and do not necessarily represent complete disclosures required by accounting principles generally accepted in the United States of America. As such, these consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended June 30, 2007, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 14, 2007.

(1) Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards Board (“SFAS”) Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosure about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for the Company in the first quarter of fiscal 2009. The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its consolidated financial statements and related disclosures.

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides companies with the option to measure eligible items, including many financial instruments at fair value at specified election dates. SFAS 159 requires disclosure of unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The cumulative effect of adopting SFAS 159, if any, shall be reported as an adjustment to the opening balance of retained earnings. SFAS 159 is effective for the Company at the beginning of the fiscal 2009 year. The Company has not determined whether it will elect the fair value measurement provisions for its long-term debt obligations, nor has the Company determined the impact of any future election.

7

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2) Stock Based Compensation

At September 30, 2007, the Company had two stock compensation plans, the Amended and Restated 1992 Stock Option Plan (the “1992 Plan”) and the 2000 Non-Qualified Stock Option Plan (the “2000 Plan”). The 1992 Plan, which provided for the issuance of stock options to employees and non-employees, including executive officers and the Board of Directors, expired November 5, 2002. The 2000 Plan, which provides for the issuance of stock options to employees and non-employees, excluding executive officers and the Board of Directors, had 485,664 common shares available for issuance at September 30, 2007.

The Company recognized approximately $7,000 of stock based compensation benefit in the statement of operations for the three months ended September 30, 2006. The Company did not recognize any stock-based compensation expense or benefit in the statement of operations for the three months ended September 30, 2007. At September 30, 2007, there were no remaining unvested awards under any stock compensation plan. Upon an option grant, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and amortized to expense over the vesting period of the award. There were no stock options granted during the three months ended September 30, 2007 or 2006.

(3) Short-term Investments

The Company’s short-term investments consist of taxable auction rate securities totaling $2.5 million at September 30, 2007. The Company had no short-term investments at June 30, 2007. In accordance with SFAS Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” these short-term investments are classified as available-for-sale and recorded at cost, which approximates fair value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 7 to 28 days.

(4) Long-term Debt

The following is a summary of the Company’s outstanding long-term debt (in thousands):

	September 30, 2007			June 30, 2007
Senior Secured Term Loan B due March 2011	$	83,000		$	88,000
9.875% Senior Subordinated Notes due March 2015		125,000			125,000
12.75% Senior Discount Notes due March 2016		69,035			66,954
Other obligations, at varying rates from 8.25% to 14.64%, due through 2013		158			168
Long-term debt		277,193			280,122
Less: Current maturities		(42	)		(41	)
Long-term debt, net of current maturities	$	277,151		$	280,081

The Senior Secured Term Loan B due March 2011 (the “Term Loan B”) bears interest at LIBOR plus 2.25% per annum, through October 10, 2007 based on contractual periods from one to six months in length at the Company’s option. Effective October 11, 2007 the Company entered into “Amendment No. 6” under the Term Loan B and increased the interest rate to LIBOR plus 3.50%. At September 30, 2007, $80.0 million of the outstanding Term Loan B balance was under a LIBOR option six-month contract accruing interest at 7.61% per annum, while the remaining $3.0 million was under a LIBOR option six-month contract accruing interest at 7.60% based on the interest rate contracts in effect at that time. At June 30, 2007, $80.0 million of the outstanding Term Loan B balance was under a LIBOR six-month contract accruing interest at 7.61% per annum, and the remaining $8.0 million outstanding debt balance was under a LIBOR option six-month contract accruing interest at 7.60% based on the interest rate contracts in effect at that time.

8

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The company has capitalized $14.6 million of expenses associated with obtaining its outstanding debt and is amortizing these costs as interest expense over the terms of the respective agreements. Unamortized deferred financing costs were $8.7 million at September 30, 2007 and are included in other assets in the consolidated balance sheet.

During the three months ended September 30, 2007, the Company, through its wholly owned subsidiary, Rural/Metro Operating Company, LLC (“Rural/Metro LLC”), made a $5.0 million unscheduled principal payment on its Term Loan B. There are no prepayment penalties or fees associated with the unscheduled principal payments. In connection with this unscheduled principal payment, which was made on September 28, 2007, the Company wrote-off $0.1 million of deferred financing costs in the three months ended September 30, 2007. Rural/Metro LLC has made inception-to-date unscheduled principal payments totaling $52.0 million, and may, from time to time, make additional unscheduled principal payments at its discretion.

At September 30, 2007, the Company had outstanding letters of credit of $46.4 million, primarily in support of auto/general liability insurance and workers’ compensation insurance programs. The outstanding letters of credit at September 30, 2007 applicable to the 2005 Credit Facility totaled $45.2 million of which $45.0 million was issued under the Letter of Credit Facility. The Company’s $20.0 million Revolving Credit Facility, which was undrawn at September 30, 2007, includes a letter of credit sub-line in the amount of $10.0 million, of which $0.2 million was issued at September 30, 2007.

The senior secured credit facilities (collectively, the “2005 Credit Facility”), the $125.0 million aggregate principal amount 9.875% senior subordinated notes (the “Senior Subordinated Notes”) and the $93.5 million aggregate principal amount at maturity 12.75% senior discount notes due 2016 (the “Senior Discount Notes”) include various financial and non-financial covenants as well as quarterly and annual financial reporting obligations.

Specifically, the 2005 Credit Facility, as amended, requires Rural/Metro Operating Company, LLC (“Rural/Metro LLC”) and its subsidiaries to meet certain financial tests, including a maximum total leverage ratio, a minimum interest expense coverage ratio and a minimum fixed charge coverage ratio. The 2005 Credit Facility also contains covenants which, among other things, limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset sales, acquisitions, mergers, prepayments of other indebtedness, liens and encumbrances, capital expenditures, business activities by the Company, as a holding company, and other matters customarily restricted in such agreements.

The Company was in compliance with all of its covenants under its 2005 Credit Facility at September 30, 2007. Due to the restatement of the financial statements, the Company did not timely file the Annual Report on Form 10-K for the year ended June 30, 2007, as disclosed on Form 12b-25 filed on September 14, 2007. As a result, the Company received a notice of default from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. Effective September 1, 2007, the Company obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of the Annual Report on Form 10-K for the year ended June 30, 2007. In addition, any default under the notes relating to the untimely filing of the Annual Report on Form 10-K for the year ended June 30, 2007, will be cured within the 60-day cure period (expires November 23, 2007) upon the filing of such report with the SEC.

Financial Covenant	Level Specified	Level Achieved for	Levels to be achieved at
	in Agreement	Specified Period	December 31, 2007	March 31, 2008	June 30, 2008
Debt leverage ratio	< 6.00	4.79	< 6.00	< 5.50	< 5.00
Interest expense coverage ratio	> 1.50	2.05	> 1.50	> 1.75	> 1.90
Fixed charge coverage ratio	> 1.00	1.25	> 1.00	> 1.00	> 1.00
Maintenance capital expenditure (1), (2)	N/A	N/A	N/A	N/A	< $27.0 million
New business capital expenditure (2)	N/A	N/A	N/A	N/A	< $4.0 million

(1) Maintenance capital expenditure refers to capital expenditures to maintain operations.

(2) Measured annually at June 30^th.

9

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Condensed Consolidating Financial Information

The Senior Subordinated Notes are unsecured senior subordinated obligations of Rural/Metro LLC and Rural/Metro (Delaware) Inc. (“Rural/Metro Inc”, collectively referred to as the “Senior Subordinated Notes Issuers”) and are fully and unconditionally guaranteed on a joint and several basis by Rural/Metro Corporation (which is referred to singularly as Parent within the schedules presented in this Note 4) and substantially all of the current and future subsidiaries of Rural/Metro LLC, excluding Rural/Metro Inc. (the “Senior Subordinated Note Guarantors”).

The Company does not believe that the separate financial statements and related footnote disclosures concerning the Senior Subordinated Note Guarantors would provide any additional information that would be material to investors making an investment decision. Condensed consolidating financial information for the Parent, the Senior Subordinated Notes Issuers, the Senior Secured Note Guarantors and the Company’s remaining subsidiary (the “Non-Guarantor”) is presented in the following tables. The Non-Guarantor consists of the Company’s joint venture with the City of San Diego, San Diego Medical Services Enterprise, LLC, which is consolidated in accordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”.

10

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2007

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers				Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural/Metro LLC - Consolidated		Eliminations			Rural/Metro Corporation Consolidated
				Rural/Metro LLC		Rural/Metro Inc.
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	—	$	3,221		$	788		$	—		$	4,009	$	—		$	4,009
Short-term investments		—			—		—		2,500			—			—			2,500		—			2,500
Accounts receivable, net		—			—		—		74,776			7,958			—			82,734		—			82,734
Inventories		—			—		—		8,845			—			—			8,845		—			8,845
Deferred income taxes		—			—		—		15,696			—			—			15,696		—			15,696
Prepaid expenses and other		—			3		—		17,811			—			—			17,814		—			17,814
Total current assets		—			3		—		122,849			8,746			—			131,598		—			131,598
Property and equipment, net		—			—		—		44,541			202			—			44,743		—			44,743
Goodwill		—			—		—		37,700			—			—			37,700		—			37,700
Deferred income taxes		—			—		—		59,746			—			—			59,746		—			59,746
Insurance deposits		—			—		—		2,353			—			—			2,353		—			2,353
Other assets		1,658			7,069		—		7,655			525			—			15,249		—			16,907
Due from (to) affiliates (1)		—			89,954		125,000		(86,982	)		(2,972	)		(125,000	)		—		—			—
Due from (to) Parent Company		(54,727	)		54,727		—		—			—			—			54,727		—			—
LLC investment in subsidiaries		—			67,434		—		—			—			(67,434	)		—		—			—
Parent Company investment in LLC		9,140			—		—		—			—			—			—		(9,140	)		—
Total assets	$	(43,929	)	$	219,187	$	125,000	$	187,862		$	6,501		$	(192,434	)	$	346,116	$	(9,140	)	$	293,047
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—	$	—	$	14,948		$	1,323		$	—		$	16,271	$	—		$	16,271
Accrued liabilities		—			2,047		—		58,315			564			—			60,926		—			60,926
Deferred revenue		—			—		—		25,056			—			—			25,056		—			25,056
Current portion of long-term debt		—			—		—		42			—			—			42		—			42
Total current liabilities		—			2,047		—		98,361			1,887			—			102,295		—			102,295
Long-term debt, net of current portion (1)		69,035			208,000		125,000		116			—			(125,000	)		208,116		—			277,151
Other liabilities		—			—		—		24,256			—			—			24,256		—			24,256
Total liabilities		69,035			210,047		125,000		122,733			1,887			(125,000	)		334,667		—			403,702
Minority interest		—			—		—		—			—			2,309			2,309		—			2,309
Stockholders’ equity (deficit):
Common stock		247			—		—		90			—			(90	)		—		—			247
Additional paid-in capital		154,777			—		—		74,770			20			(74,790	)		—		—			154,777
Treasury stock		(1,239	)		—		—		—			—			—			—		—			(1,239	)
Accumulated other comprehensive income		294			—		—		—			—			—			—		—			294
Accumulated deficit		(267,043	)		—		—		(9,731	)		4,594			5,137			—		—			(267,043	)
Member equity		—			9,140		—		—			—			—			9,140		(9,140	)		—
Total stockholders’ equity (deficit)		(112,964	)		9,140		—		65,129			4,614			(69,743	)		9,140		(9,140	)		(112,964	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(43,929	)	$	219,187		$125,000	$	187,862		$	6,501		$	(192,434	)	$	346,116	$	(9,140	)	$	293,047

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations. The Balance Sheet for Rural/Metro Inc. at September 30, 2007 consists of equity and due to affiliates totaling an amount equal to $100.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

11

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2007

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers				Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural/Metro LLC - Consolidated		Eliminations			Rural/Metro Corporation Consolidated
				Rural/Metro LLC		Rural/Metro
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	—	$	5,565		$	616		$	—		$	6,181	$	—		$	6,181
Short-term investments		—			—		—		—			—			—			—		—			—
Accounts receivable, net		—			—		—		70,378			7,935			—			78,313		—			78,313
Inventories		—			—		—		8,782			—			—			8,782		—			8,782
Deferred income taxes		—			—		—		15,836			—			—			15,836		—			15,836
Prepaid expenses and other		—			4		—		18,269			—			—			18,273		—			18,273
Total current assets		—			4		—		118,830			8,551			—			127,385		—			127,385
Property and equipment, net		—			—		—		45,319			202			—			45,521		—			45,521
Goodwill		—			—		—		37,700			—			—			37,700		—			37,700
Deferred income taxes		—			—		—		67,309			—			—			67,309		—			67,309
Insurance deposits		—			—		—		1,868			—			—			1,868		—			1,868
Other assets		1,707			7,561		—		9,754			525			—			17,840		—			19,547
Due from (to) affiliates (1)		—			115,666		125,000		(112,534	)		(3,132	)		(125,000	)		—		—			—
Due from (to) Parent Company		(41,900	)		41,900		—		—			—			—			41,900		—			—
LLC investment in subsidiaries		—			59,588		—		—			—			(59,588	)		—		—			—
Parent Company investment in LLC		6,598			—		—		—			—			—			—		(6,598	)		—
Total assets	$	(33,595	)	$	224,719	$	125,000	$	168,246		$	6,146		$	(184,588	)	$	339,523	$	(6,598	)	$	299,330
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—	$	—	$	13,893		$	1,378		$	—		$	15,271	$	—		$	15,271
Accrued liabilities		—			5,121		—		47,673			564			—			53,358		—			53,358
Deferred revenue		—			—		—		24,959			—			—			24,959		—			24,959
Current portion of long-term debt		—			—		—		41			—			—			41		—			41
Total current liabilities		—			5,121		—		86,566			1,942			—			93,629		—			93,629
Long-term debt, net of current portion (1)		66,954			213,000		125,000		127			—			(125,000	)		213,127		—			280,081
Other liabilities		—			—		—		24,065			—			—			24,065		—			24,065
Total liabilities		66,954			218,121		125,000		110,758			1,942			(125,000	)		330,821		—			397,775
Minority interest		—			—		—		—			—			2,104			2,104		—			2,104
Stockholders’ equity (deficit):
Common stock		247			—		—		90			—			(90	)	��	—		—			247
Additional paid-in capital		154,777			—		—		74,770			20			(74,790	)		—		—			154,777
Treasury stock		(1,239	)		—		—		—			—			—			—		—			(1,239	)
Accumulated other comprehensive income		294			—		—		—			—			—			—		—			294
Accumulated deficit		(254,628	)		—		—		(17,372	)		4,184			13,188			—		—			(254,628	)
Member equity		—			6,598		—		—			—			—			6,598		(6,598	)		—
Total stockholders’ equity (deficit)		(100,549	)		6,598		—		57,488			4,204			(61,692	)		6,598		(6,598	)		(100,549	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(33,595	)	$	224,719	$	125,000	$	168,246		$	6,146		$	(184,588	)	$	339,523	$	(6,598	)	$	299,330

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations. The Balance Sheet for Rural/Metro Inc. at June 30, 2007 consists of equity and due to affiliates totaling an amount equal to $100.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

12

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural/Metro LLC - Consolidated			Eliminations			Rural Metro Corporation Consolidated
				Rural/Metro LLC			Rural/ Metro Inc.
Net revenue	$	—		$	—		$	—	$	115,901		$	10,795		$	(7,205	)	$	119,491		$	—		$	119,491
Operating expenses:
Payroll and employee benefits		—			—			—		75,204			30			—			75,234			—			75,234
Depreciation and amortization		—			—			—		3,122			(1	)		—			3,121			—			3,121
Other operating expenses		—			—			—		24,881			9,643			(7,205	)		27,319			—			27,319
Auto/general liability insurance expense		—			—			—		3,713			124			—			3,837			—			3,837
Loss on sale of assets		—			—			—		3			—			—			3			—			3
Total operating expenses		—			—			—		106,923			9,796			(7,205	)		109,514			—			109,514
Operating income		—			—			—		8,978			999			—			9,977			—			9,977
Equity in earnings of subsidiaries		2,542			8,146			—		—			—			(8,146	)		—			(2,542	)		—
Interest expense		(2,131	)		(5,604	)		—		(15	)		—			—			(5,619	)		—			(7,750	)
Interest income		—			—			—		131			11			—			142			—			142
Income from continuing operations before income taxes and minority interest		411			2,542			—		9,094			1,010			(8,146	)		4,500			(2,542	)		2,369
Income tax provision		—			—			—		(1,196	)		—			—			(1,196	)		—			(1,196	)
Minority interest		—			—			—		—			—			(505	)		(505	)		—			(505	)
Income from continuing operations		411			2,542			—		7,898			1,010			(8,651	)		2,799			(2,542	)		668
Loss from discontinued operations, net of income taxes		—			—			—		(257	)		—			—			(257	)		—			(257	)
Net income	$	411		$	2,542		$	—	$	7,641		$	1,010		$	(8,651	)	$	2,542		$	(2,542	)	$	411

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

13

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non-Guarantor		Eliminations			Rural/Metro LLC - Consolidated			Eliminations			Rural Metro Corporation Consolidated
				Rural/Metro LLC			Rural/Metro Inc.
Net revenue	$	—		$	—		$	—	$	110,352		$	10,527	$	(6,586	)	$	114,293		$	—		$	114,293
Operating expenses:
Payroll and employee benefits		(7	)		—			—		71,418			22		—			71,440			—			71,433
Depreciation and amortization		—			—			—		2,903			1		—			2,904			—			2,904
Other operating expenses		—			—			—		21,430			8,848		(6,586	)		23,692			—			23,692
Auto/general liability insurance expense		—			—			—		3,888			124		—			4,012			—			4,012
Gain on sale of assets		—			—			—		(3	)		—		—			(3	)		—			(3	)
Total operating expenses		(7	)		—			—		99,636			8,995		(6,586	)		102,045			—			102,038
Operating income		7			—			—		10,716			1,532		—			12,248			—			12,255
Equity in earnings of subsidiaries		3,568			9,416			—		—			—		(9,416	)		—			(3,568	)		—
Interest expense		(1,888	)		(5,848	)		—		(49	)		—		—			(5,897	)		—			(7,785	)
Interest income		—			—			—		107			13		—			120			—			120
Income from continuing operations before income taxes and minority interest		1,687			3,568			—		10,774			1,545		(9,416	)		6,471			(3,568	)		4,590
Income tax provision		—			—			—		(2,215	)		—		—			(2,215	)		—			(2,215	)
Minority interest		—			—			—		—			—		(773	)		(773	)		—			(773	)
Income from continuing operations		1,687			3,568			—		8,559			1,545		(10,189	)		3,483			(3,568	)		1,602
Income from discontinued operations, net of income taxes		—			—			—		85			—		—			85			—			85
Net income	$	1,687		$	3,568		$	—	$	8,644		$	1,545	$	(10,189	)	$	3,568		$	(3,568	)	$	1,687

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

14

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non-Guarantor			Eliminations			Rural/Metro LLC - Consolidated			Eliminations			Rural Metro Corporation Consolidated
				Rural/Metro LLC			Rural/Metro Inc.
Cash flows from operating activities:
Net income	$	411		$	2,542		$	—	$	7,641		$	1,010		$	(8,651	)	$	2,542		$	(2,542	)	$	411
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization		—			—			—		3,141			(1	)		—			3,140			—			3,140
Accretion of 12.75% Senior Discount Notes		2,080			—			—		—			—			—			—			—			2,080
Deferred income taxes		—			—			—		566			—			—			566			—			566
Amortization of deferred financing costs		49			492			—		—			—			—			492			—			541
Loss on sale of property and equipment		—			—			—		14			—			—			14			—			14
Earnings of minority shareholder		—			—			—		—			—			505			505			—			505
Changes in assets and liabilities—
Accounts receivable		—			—			—		(4,398	)		(23	)		—			(4,421	)		—			(4,421	)
Inventories		—			—			—		(63	)		—			—			(63	)		—			(63	)
Prepaid expenses and other		—			1			—		458			—			—			459			—			459
Insurance deposits		—			—			—		(485	)		—			—			(485	)		—			(485	)
Other assets		—			—			—		2,045			—			—			2,045			—			2,045
Accounts payable		—			—			—		1,043			(55	)		—			988			—			988
Accrued liabilities		—			(3,074	)		—		4,953			—			—			1,879			—			1,879
Deferred revenue		—			—			—		97			—			—			97			—			97
Other liabilities		—			—			—		191			—			—			191			—			191
Net cash provided by operating activities		2,540			(39	)		—		15,203			931			(8,146	)		7,949			(2,542	)		7,947
Cash flows from investing activities:
Purchases of short-term investments		—			—			—		(5,000	)		—			—			(5,000	)		—			(5,000	)
Sales of short-term investments		—			—			—		2,500			—			—			2,500			—			2,500
Capital expenditures		—			—			—		(2,313	)		—			—			(2,313	)		—			(2,313	)
Proceeds from the sale of property and equipment		—			—			—		3			—			—			3			—			3
Net cash used in investing activities		—			—			—		(4,810	)		—			—			(4,810	)		—			(4,810	)
Cash flows from financing activities:
Repayment of debt		—			—			—		(5,009	)		—			—			(5,009	)		—			(5,009	)
Distributions to minority shareholders		—			—			—		—			(300	)		—			(300	)		—			(300	)
Distributions to Rural/Metro LLC		—			300			—		—			(300	)		—			—			—			—
Due to/from affiliates		(2,540	)		(261	)		—		(7,728	)		(159	)		8,146			(2	)		2,542			—
Net cash used in financing activities		(2,540	)		39			—		(12,737	)		(759	)		8,146			(5,311	)		2,542			(5,309	)
Increase (decrease) in cash and cash equivalents		—			—			—		(2,344	)		172			—			(2,172	)		—			(2,172	)
Cash and cash equivalents, beginning of period		—			—			—		5,565			616			—			6,181			—			6,181
Cash and cash equivalents, end of period	$	—		$	—		$	—	$	3,221		$	788		$	—		$	4,009		$	—		$	4,009

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

15

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non-Guarantor			Eliminations			Rural/Metro LLC - Consolidated			Eliminations			Rural Metro Corporation Consolidated
				Rural/Metro LLC			Rural/Metro Inc.
Cash flows from operating activities:
Net income	$	1,687		$	3,568		$	—	$	8,644		$	1,545		$	(10,189	)	$	3,568		$	(3,568	)	$	1,687
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization		—			—			—		2,999			1			—			3,000			—			3,000
Accretion of 12.75% Senior Discount Notes		1,838			—			—		—			—			—			—			—			1,838
Deferred income taxes		(134	)		—			—		1,985			—			—			1,985			—			1,851
Amortization of deferred financing costs		49			369			—		—			—			—			369			—			418
Gain on sale of property and equipment		—			—			—		(3	)		—			—			(3	)		—			(3	)
Earnings of minority shareholder		—			—			—		—			—			773			773			—			773
Stock based compensation benefit		(7	)		—			—		—			—			—			—			—			(7	)
Changes in assets and liabilities—
Accounts receivable		—			—			—		(2,550	)		(745	)		—			(3,295	)		—			(3,295	)
Inventories		—			—			—		(430	)		—			—			(430	)		—			(430	)
Prepaid expenses and other		—			(25	)		—		(3,204	)		(4	)		—			(3,233	)		—			(3,233	)
Insurance deposits		—			—			—		578			—			—			578			—			578
Other assets		—			—			—		959			—			—			959			—			959
Accounts payable		—			—			—		(1,817	)		(245	)		—			(2,062	)		—			(2,062	)
Accrued liabilities		—			(3,004	)		—		6,085			116			—			3,197			—			3,197
Deferred revenue		—			—			—		924			—			—			924			—			924
Other liabilities		—			—			—		(453	)		—			—			(453	)		—			(453	)
Net cash provided by operating activities		3,433			908			—		13,717			668			(9,416	)		5,877			(3,568	)		5,742
Cash flows from investing activities:
Purchases of short-term investments		—			—			—		(5,000	)		—			—			(5,000	)		—			(5,000	)
Sales of short-term investments		—			—			—		8,701			—			—			8,701			—			8,701
Capital expenditures		—			—			—		(5,340	)		—			—			(5,340	)		—			(5,340	)
Proceeds from the sale of property and equipment		—			—			—		5			—			—			5			—			5
Net cash used in investing activities		—			—			—		(1,634	)		—			—			(1,634	)		—			(1,634	)
Cash flows from financing activities:
Repayment of debt		—			—			—		(3	)		—			—			(3	)		—			(3	)
Tax benefit from the exercise of stock options		134			—			—		—			—			—			—			—			134
Issuance of common stock		74			—			—		—			—			—			—			—			74
Due to/from affiliates		(3,641	)		(908	)		—		(8,329	)		(106	)		9,416			73			3,568			—
Net cash used in financing activities		(3,433	)		(908	)		—		(8,332	)		(106	)		9,416			70			3,568			205
Increase in cash and cash equivalents		—			—			—		3,751			562			—			4,313			—			4,313
Cash and cash equivalents, beginning of period		—			—			—		1,891			1,150			—			3,041			—			3,041
Cash and cash equivalents, end of period	$	—		$	—		$	—	$	5,642		$	1,712		$	—		$	7,354		$	—		$	7,354

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

16

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(5) Income Taxes

The following table shows the components of the income tax (provision) benefit (in thousands):

	Three Months Ended September 30,
	2007			2006
Current income tax provision	$	(410	)	$	(282	)
Deferred income tax provision		(566	)		(1,985	)
Total income tax provision	$	(976	)	$	(2,267	)
Continuing operations provision	$	(1,196	)	$	(2,215	)
Discontinued operations benefit (provision)		220			(52	)
Total income tax provision	$	(976	)	$	(2,267	)

The effective tax rate for the three months ended September 30, 2007 for continuing operations was 50.5%, which differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to the Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. The Company received income tax refunds of $53,000 and made income tax payments of $0.2 million for the three months ended September 30, 2007.

The effective tax rate for the three months ended September 30, 2006 for continuing operations was 48.3% which differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to the Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. The Company received income tax refunds of $8,000 and made income tax payments of $3,200 for the three months ended September 30, 2006.

In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company adopted the provisions of FIN 48 as of July 1, 2007. The adoption of FIN 48 resulted in a $12.8 million cumulative effect adjustment to retained earnings. As of the date of adoption, the Company’s unrecognized tax benefits totaled approximately $34.1 million, $30.4 million of which would favorably impact our effective tax rate if subsequently recognized. As of September 30, 2007, we had unrecognized tax benefits totaling approximately $34.1 million, $30.4 million of which would favorably impact our effective tax rate if subsequently recognized.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties as of July 1, 2007 and September 30, 2007 were approximately $1.1 million and $1.2 million, respectively. Approximately $0.1 million of interest and penalties recorded for the three months ended September 30, 2007 relate to prior periods. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

The Company and its subsidiaries are subject to the following significant taxing jurisdictions: U.S. federal, Arizona, California, Florida, Indiana, New York, Ohio and Tennessee. The Company has had net operating losses in various years for Federal purposes and for many states. The statute of limitations for a particular tax year for examination by the Internal Revenue Service is generally three years subsequent to the filing of the associated tax return. However, the Internal Revenue Service can adjust net operating loss carryovers up to three years subsequent to the last year in which the loss carryover is finally used. Accordingly, there are multiple years open to examination. The statute of limitations is generally three to four years for many of the states where the Company operates. The Company is currently not under income tax examination in any tax jurisdictions.

17

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

There has not been any change in the total amount of our unrecognized tax benefits since July 1, 2007, and the Company does not anticipate a significant change in the total amount of unrecognized tax benefits during the next twelve months.

(6) Earnings Per Share

Income from continuing operations per share assuming dilution is computed by dividing income from continuing operations by the weighted-average number of shares outstanding. Income from continuing operations per share assuming dilution is computed based on the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options.

A reconciliation of the weighted average number of shares outstanding utilized in the basic and diluted income per share computations for the three months ended September 30, 2007 and 2006 is as follows (in thousands, except per share amounts):

	Three Months Ended September 30,
	2007		2006
Income from continuing operations	$	668	$	1,602
Average number of shares outstanding—Basic		24,738		24,510
Add: Incremental shares for dilutive effect of stock options		250		410
Average number of shares outstanding—Diluted		24,988		24,920
Income from continuing operations per share—Basic	$	0.02	$	0.07
Income from continuing operations per share—Diluted	$	0.02	$	0.07

For the three months ended September 30, 2007 and 2006, 0.5 million and 0.6 million, respectively, of shares issuable upon exercise of outstanding stock options with exercise prices above the average market prices of the Company’s common stock during the respective periods have been excluded from the calculation of diluted income per share.

(7) Segment Reporting

The Company has four regional reporting segments that correspond with the manner in which the associated operations are managed and evaluated by its chief operating decision maker. Although some of the Company’s operations do not align with the segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	States
Mid-Atlantic	New York, Northern Ohio, Pennsylvania
South	Alabama, California (fire), Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, Florida, New Jersey (fire), Southern Ohio, Tennessee, Wisconsin
Southwest	Arizona (ambulance and fire), New Mexico, Oregon (fire)
West	California (ambulance), Central Florida, Colorado, Oregon (ambulance), Nebraska, South Dakota, Utah, Washington

Each reporting segment provides ambulance and related services while the Company’s fire and other services are predominately in the South and Southwest Segments. During the first quarter of fiscal 2008, the Company determined that certain characteristics of its Georgia operations were more similar to the characteristics of operations residing in the Company’s South segment. Accordingly, the Company reorganized its operating segments and Georgia, formerly included in the Mid-Atlantic segment is now included in the South segment. As a result of this change, segment information for 2006 has been reclassified to conform with the 2007.

18

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The accounting policies used in the preparation of the Company’s consolidated financial statements have also been followed in the preparation of the accompanying financial information for each reporting segment. For management purposes, the Company’s measure of segment profitability is defined as income from continuing operations before depreciation and amortization, interest, income taxes and minority interest. Additionally, corporate overhead allocations have been included within segment profits. Segment results presented below reflect continuing operations only. The prior period segment information has been restated to reflect the Georgia reclassification described above.

The following table summarizes segment information for the three months ended September 30, 2007 and 2006 (in thousands):

	Mid-Atlantic		South		Southwest		West		Total
Three months ended September 30, 2007
Net revenues from external customers:
Ambulance services	$	20,614	$	22,432	$	32,067	$	25,705	$	100,818
Other services (1)		972		6,103		11,199		399		18,673
Total net revenue	$	21,586	$	28,535	$	43,266	$	26,104	$	119,491
Segment profit from continuing operations	$	4,076	$	3,193	$	4,183	$	1,646	$	13,098
Three months ended September 30, 2006
Net revenues from continuing operations:
Ambulance services	$	20,845	$	19,292	$	30,526	$	26,037	$	96,700
Other services (1)		1,023		5,657		10,645		268		17,593
Total net revenue	$	21,868	$	24,949	$	41,171	$	26,305	$	114,293
Segment profit from continuing operations	$	4,589	$	2,815	$	4,102	$	3,653	$	15,159

(1) Other revenue consists of revenue generated from fire protection services; including master contract fire and subscription fire services, airport fire and rescue, home health care services, dispatch contracts, billing contracts and other miscellaneous forms of revenue.

The following is a reconciliation of segment profit to income from continuing operations before income taxes and minority interest (in thousands):

	Three Months Ended September 30,
	2007			2006
Segment profit	$	13,098		$	15,159
Depreciation and amortization		(3,121	)		(2,904	)
Interest expense		(7,750	)		(7,785	)
Interest income		142			120
Income (loss) from continuing operations before income taxes and minority interest	$	2,369		$	4,590

Segment assets consist solely of accounts receivable since they are the only assets regularly reviewed by the Company’s chief operating decision maker for the purpose of assessing segment performance. The following table summarizes segment asset information (in thousands):

	September 30, 2007		June 30, 2007
Mid-Atlantic	$	11,547	$	11,659
South		18,825		16,543
Southwest		29,398		27,338
West		22,964		22,773
Total segment assets	$	82,734	$	78,313

19

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table represents a reconciliation of segment assets to total assets (in thousands):

	September 30, 2007		June 30, 2007
Segment assets	$	82,734	$	78,313
Cash and cash equivalents		4,009		6,181
Short-term investments		2,500		—
Inventories		8,845		8,782
Prepaid expenses and other		17,814		18,273
Goodwill		37,700		37,700
Deferred income taxes		75,442		83,145
Property and equipment, net		44,743		45,521
Insurance deposits		2,353		1,868
Other assets		16,907		19,547
Total assets	$	293,047	$	299,330

20

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(8) Discontinued Operations

During fiscal 2008, the Company made the decision to exit two ambulance transportation markets and a fire response market. As a result, the financial results of these service areas for the three months ended September 30, 2007 and 2006 are included in income (loss) from discontinued operations.

Income (loss) from discontinued operations excludes the allocation of certain shared services costs such as human resources, financial services, risk management and legal services, among others which are expected to continue. These ongoing services and related costs will be redirected to support new markets or for the expansion of existing service areas. Net revenue and income (loss) from discontinued operations, net of income taxes, is shown by segment in the tables below (in thousands):

	Three Months Ended September 30,
	2007			2006
Net revenue:
Mid-Atlantic	$	—		$	—
South		312			879
Southwest		(2	)		1,585
West		—			—
Net revenue from discontinued operations	$	310		$	2,464
	Three Months Ended September 30,
	2007			2006
Income (loss):
Mid-Atlantic	$	—		$	—
South		(108	)		62
Southwest		(149	)		28
West		—			(5	)
Income (loss) from discontinued operations, net of income taxes	$	(257	)	$	85

Loss from discontinued operations for the three months ended September 30, 2007 is presented net of income tax benefit of $220,000 while income from discontinued operations for the three months ended September 30, 2006 is presented net of income tax expense of $52,000.

21

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(9) Defined Benefit Plan

The Company provides a defined benefit pension plan covering eligible employees of one of its subsidiaries. This benefit is limited to employees covered by collective bargaining agreements. Eligibility is achieved upon the completion of one year of service, with full vesting achieved 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 which is based upon a flat dollar amount.

The following table presents the components of net periodic benefit cost for the three months ended September 30, 2007 and 2006 (in thousands):

	Three Months Ended September 30,
	2007			2006
Service cost	$	433		$	369
Interest cost		52			23
Expected return on plan assets		(112	)		(59	)
Amortization of gain		—			(2	)
Net periodic pension benefit cost	$	373		$	331

The following table presents the assumptions used in the determination of net periodic benefit cost:

	2007		2006
Discount rate	6.26	%	6.48	%
Rate of increase in compensation levels	4.00	%	4.00	%
Expected long-term rate of return on assets	7.50	%	7.50	%

The Company contributed approximately $0.7 million and $0.5 million during the three months ended September 30, 2007 and 2006, respectively. The Company’s fiscal 2008 contributions are anticipated to approximate $2.6 million.

(10) Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a party to, or otherwise involved in, lawsuits, claims, proceedings, investigations and other legal matters that have arisen in the ordinary course of business. The Company cannot predict with certainty the ultimate outcome of any of these lawsuits, claims, proceedings, investigations and other legal matters which it is a party to, or otherwise involved in, due to, among other things, the inherent uncertainties of litigation, government investigations and proceedings and legal matters in general. The Company is also subject to requests and subpoenas for information in independent investigations. An unfavorable outcome in any of the lawsuits pending against the Company or in a government investigation or proceeding could result in substantial potential liabilities and have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. Further, these proceedings, and the Company’s actions in response to these proceedings, could result in substantial potential liabilities, additional defense and other costs, increase the Company’s indemnification obligations, divert management’s attention, and/or adversely affect the Company’s ability to execute its business and financial strategies.

The U.S. government conducted an investigation into alleged discounts made in violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas. Specifically, the U.S. government alleged that certain of the Company’s contracts with medical facilities in effect in Texas prior to 2002 contained discounts in violation of the federal Anti-Kickback Statute. The Company negotiated a settlement with the U.S. government pursuant to which the Company has agreed to pay $2.5 million, plus interest at a rate of 4.63% per annum on such amount beginning on June 5, 2006, with such amount payable over seven months beginning April 23, 2007. In consideration for such payment, the Company obtained a release from the U.S. government of all claims related to such alleged conduct in Texas prior to 2002. In connection with the settlement of the alleged conduct, the Company entered into a Corporate Integrity Agreement (“CIA”), which is effective for a period of five years, beginning April 18, 2007. Pursuant to the CIA, the Company is required to maintain a compliance program that includes, among other things:

• The appointment of a compliance officer and committee;

• Training of employees nationwide;

22

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

• Enhancing procedures relating to certain of the Company’s contracting processes, including tracking contractual arrangements;

• Review by an independent review organization; and

• Reporting of certain reportable events.

Certain of these requirements are currently a part of the Company’s ongoing compliance program. Although this matter has been settled, there can be no assurances that other investigations or legal action related to these matters will not be pursued against the Company in other jurisdictions or for different time frames.

The Company is cooperating with an investigation by the U.S. government regarding the Company’s operations in the State of Ohio in connection with allegations of certain billing inaccuracies. Specifically, the government alleges that certain services performed in the years 1997 to 2001 did not meet Medicare medical necessity and reimbursement requirements. The government has examined sample records for each of the years stated above. The Company does not agree with the allegations and believes that there are errors in the sampling methodology performed by the government. Although the Company continues to disagree with the government’s allegations, the Company is engaged in settlement negotiations with the government and has made a preliminary offer of $1.3 million in exchange for a full release relating to the government’s allegations. Although there can be no assurances that a settlement agreement will be reached, any such settlement agreement would likely require the Company to make a substantial payment to the government and may require the Company to enter into a Corporate Integrity Agreement. If a settlement is not reached, the government has indicated that it will pursue further civil action. At this time, it is not possible to predict the ultimate conclusion of this investigation.

Regulatory Compliance

The Company is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity is ongoing with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. The Company is from time to time subject to investigations relating to Medicare and Medicaid laws pertaining to its industry. The Company cooperates fully with the government agencies that conduct these investigations. See “Legal Proceedings” above. Violations of these laws and regulations could result in exclusion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. In connection with the CIA, the Company is in the process of enhancing its compliance program as discussed above. Under the existing compliance program, the Company initiates its own investigations and conducts audits to examine compliance with various policies and regulations. Internal investigations or audits may result in significant repayment obligations for patient services previously billed. As previously discussed, the Company is subject to Medicare reviews and audits from time to time. Currently, the Company is appealing determinations made by a Medicare intermediary that has taken a position that certain claims were not medically necessary. As a result of such determination, the Medicare intermediary exercised its administrative right and subsequently offset these alleged overpayments with payments due to us for the reimbursement of current claims. The Company is vigorously appealing these determinations and does not feel that there is a probability of loss and, therefore, has not established a reserve for any amount relating to this matter. The Company believes that it is substantially in compliance with fraud and abuse statutes and their applicable governmental interpretation.

Management believes that reserves established for specific contingencies of $1.8 million and $2.9 million as of September 30, 2007 and June 30, 2007, respectively, are adequate based on information currently available. The specific contingencies at September 30, 2007 include $0.3 million for the Texas matter discussed above and $1.3 million for the Ohio matter discussed above, The specific contingencies at June 30, 2007 primarily include $1.4 million for the Texas matter discussed above and $1.3 million for the Ohio matter discussed above. During the first quarter of fiscal 2008 and during the fourth quarter of fiscal 2007, the Company made payments of $1.0 million and $1.1 million, respectively, to the US Government in partial satisfaction of the Texas matter.

(11) Subsequent Events

2005 Credit Facility Amendment and Waiver

On October 11, 2007, the Company obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of its Annual Report on Form 10-K for the year ended June 30, 2007. In addition, we amended the 2005 Credit Facility to modify certain financial covenant requirements contained in the Credit Agreement, including total leverage ratio, interest expense coverage ratio and fixed charge coverage ratio. In addition, our margin over LIBOR increased from 2.25% to 3.50% for the term of the loan. In connection with the amendment, we paid $1.0 million in lender and administrative fees during the second quarter of fiscal 2008. Of this amount, $0.8 million will be capitalized and amortized to interest expense over the remaining term of the 2005 Credit Facility.

23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The statements, estimates, projections, guidance or outlook contained in this Quarterly Report on Form 10-Q including but not limited to this section containing Management’s Discussion and Analysis of Financial Condition and Results of Operation, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever we refer to such words or phrases as “believes”, “anticipates”, “expects”, “plans”, “seeks”, “intends”, “will likely result”, “estimates”, “projects” or similar expressions are intended to identify such forward-looking statements. We may also make forward looking statements in our earnings releases, earnings calls and other investor communications. We caution readers that such forward-looking statements, including those relating to the outcome of our ongoing efforts to remediate deficiencies in our disclosure controls and procedures and internal control over financial reporting, our future business prospects, uncompensated care, working capital, accounts receivable collection, liquidity, cash flow, EBITDA, capital expenditures, insurance coverage and claim reserves, capital needs, future operating results and future compliance with covenants in our debt facilities or instruments, wherever they appear in this Quarterly Report or in other statements attributable to us, are necessarily estimates reflecting the best judgment of our senior management about future results or events and, as such, involve a number of risks and uncertainties that could cause actual results or events to differ materially from those suggested by our forward-looking statements, including the risks set forth in full in Item 1A of Part I of the Company’s Annual Report on Form 10-K filed, November 14, 2007 with the Commission and in Item 1A of Part II and elsewhere in this Quarterly Report.

Any or all forward-looking statements made in this Quarterly Report (and in any other public filings or statements we might make) may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Accordingly, except to the extent required by applicable law, we undertake no duty to update the forward-looking statements made in this Quarterly Report.

Rural/Metro Corporation is strictly a holding company. All services, operations and management functions are provided through its subsidiaries and affiliated entities. All references to “we,” “our,” “us,” or “Rural/Metro” refer to Rural/Metro Corporation and its predecessors, operating divisions, direct and indirect subsidiaries and affiliates. The website for Rural/Metro Corporation is located atwww.ruralmetro.com. Information contained on the website, including any external information which is referenced or “linked” on our website, is not a part of this Quarterly Report.

This Quarterly Report should be read in conjunction with our audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K filed with the SEC on November 14, 2007.

Management’s Overview

Positive fundamental drivers within our industry remain strong and continue to benefit us. We continue to experience an increasing demand for our services evidenced by steady growth in net revenue and transport volume. Consolidated net revenue for the first quarter fiscal year 2008 increased $5.2 million (4.5%) over fiscal year 2007. New contract revenues accounted for $0.6 million of this net revenue growth. In addition, we renewed three key 911 emergency response contracts during the quarter.

We continue to trend positively with respect to our ongoing efforts to reduce uncompensated care and made significant strides in several key metrics, including APC and days sales outstanding, in addition to increasing ambulance subsidies to help offset uncompensated care related to uninsured patients.

Executive Summary

We provide ambulance services, which consist primarily of emergency and non-emergency medical services, to approximately 400 communities in 23 states within the United States. We provide these services under contracts with governmental entities, hospitals, nursing homes, other healthcare facilities and organizations. As of September 30, 2007, we had approximately 95 exclusive contracts to provide 911 emergency medical ambulance services and approximately 870 contracts to provide non-emergency medical ambulance and wheelchair services. For the three months ended September 30, 2007, approximately 44% of our ambulance transports were generated from emergency 911 ambulance services. Non-emergency ambulance services, including critical care transfers, wheelchair transports and other interfacility transports, comprised 56% of our ambulance transports for the same period. Combined the ambulance services generated 84% of net revenue for the three months ended September 30, 2007. The balance of net revenue for the three months ended was generated from private fire protection services, airport fire and rescue, home healthcare services, and other services.

24

Key Factors and Metrics We Use to Evaluate Our Operations

The key factors we use to evaluate our operations focus on the numbers of ambulance transports we take, the amount we expect to collect per transports and the cost we incur to provide these services.

The following is a summary of certain key operating statistics (EBITDA and adjusted EBITDA in thousands):

	Three Months Ended September 30,
	2007		2006
Net Medical Transport APC (1)	$	348	$	343
DSO (2)		64		66
EBITDA (3)	$	12,135	$	14,619
Adjusted EBITDA (3)	$	12,149	$	15,742
Medical Transports (4)		267,915		261,347
Wheelchair Transports (5)		18,696		21,120

(1) Net Medical Transport APC is defined as gross medical ambulance transport revenue less provisions for contractual allowances applicable to Medicare, Medicaid and other third-party payers and uncompensated care divided by medical transports from continuing operations.

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

(3) See discussion of EBITDA and adjusted EBITDA along with a reconciliation of adjusted EBITDA to net cash provided by operating activities at “Liquidity and Capital Resources – EBITDA and Adjusted EBITDA”.

(4) Defined as emergency and non-emergency medical patient transports from continuing operations.

(5) Defined as non-emergency, non-medical patient transports from continuing operations.

Factors Affecting Operating Results

Change in Net New Contracts

Our operating results are affected directly by the number of net new contracts we have in a period, reflecting the effects of both new contracts and contract expirations. We regularly bid for new contracts, frequently in a formal competitive bidding process that often requires written responses to a Request for Proposal, or RFP, and in any fiscal period, certain of our contracts will expire. We may elect not to seek extension or renewal of a contact, if we determine that we cannot do so on favorable terms. With respect to expiring contracts we would like to renew, we may be required to seek renewal through an RFP, and we may not be successful in retaining any such contracts, or retaining them on terms that are as favorable as present contact terms.

Ability to Effect Rate Increases

Our operating results are affected directly by the number of self-pay ambulance transport services we provide and associated lower collection rates experienced within this payer group. To offset higher costs of uncompensated care we may experience with the self-pay payer mix we submit requests to increase commercial insurance rates to the state and local government agencies that regulate the rates we can charge for ambulance services. Our ability to negotiate rate increases on a timely basis to offset increases in uncompensated care may impact our operating performance.

25

Uncompensated Care

When we contract with municipal, county or other governing authorities as an exclusive provider of 911 emergency ambulance services, we are required to provide services to their citizens regardless of the ability or willingness of patients to pay. While we made every attempt to negotiate subsidies to support the level of medical service we provide, not all authorities will agree to provide such subsidies. As a result, we incur write-offs for uncompensated care in the normal course of providing ambulance services.

The following table shows the source of our uncompensated care write-offs as a percentage of total uncompensated care write-off’s:

	Three Months Ended September 30,
	2007		2006
Commercial Insurance	20	%	19	%
Co-Pay/Deductibles	7	%	11	%
Medicare / Medicaid Denials	11	%	14	%
Self-Pay	62	%	56	%
Total	100	%	100	%

The majority (62)% of our uncompensated care write-off’s are generated from self-pay accounts. The balance of our uncompensated care write-offs are derived from; (1) commercial insurance (20%); (2) Medicare or Medicaid denials (11%), and; (3) co-pay or deductibles (7%). These components are described in detail below;

Commercial Insurance: Certain commercial healthcare insurance programs do not feature a benefit for non-emergency ambulance services. In the event commercially insured patients are transported and their insurance companies subsequently inform us the transports were not covered services, the unpaid balances become self-pay accounts.

Co-pays/deductibles: Co-pay and deductible amounts under Medicare and commercial insurance programs are the responsibility of the patient. Medicare co-pay and deductible levels have remained consistent when compared to the prior year; however, changes in employer-provided healthcare insurance coverage levels may result in higher co-pays and deductibles to the employee under commercial insurance programs. These co-pay and deductible amounts become self-pay accounts.

Medicare/Medicaid Denials: We make every effort to determine medical necessity prior to transporting a patient; however, there are times when Medicare, Medicaid or a commercial insurance provider may, on a retrospective review, deem the transport not medically necessary and deny reimbursement. In these cases, the unpaid balances become self-pay accounts.

In terms of transport volume, the self-pay patients we transport who are uninsured or otherwise have no ability to pay for our services have increased as a percent of our transport mix in the first three months of fiscal 2008 to 11.4% as compared to 11.1% in the first three months of fiscal 2007. We believe this increase is aligned with overall U.S. healthcare insurance trends.

26

Other factors that may, positively or negatively, impact the overall dollars associated with uncompensated care include: (1) rate increases and (2) changes in transport volumes among the payer groups.

1. On a periodic basis, we evaluate our cost structure within each area we serve and, as appropriate, request rate increases. Ambulance rate increases generate additional revenue only from certain commercial insurance programs and self-pay patients, due to the fixed rates, co-pay amounts and deductibles of payers such as Medicare, Medicaid and certain commercial insurance. Rate increases applied to patients who are self-pay patients can compound an already challenging collection process. Increasing the dollars per transport on this payer group may in turn result in an increase in the uncompensated care.

2. From quarter to quarter the number of patients we transport within each payer group can vary. This shift in payers, ‘payer mix’ shift, may increase or decrease the levels of uncompensated care. For instance, if we experience a shift from the Medicare payer group to the commercial insurance payer group we might expect to see a decrease in our uncompensated care write-offs due to a higher historical collection pattern associated with the commercial insurance payers.

Work Force Management

Our business strategy focuses on optimizing the deployment of our work force in order to meet contracted response times and otherwise maintain high levels of quality care and customer service. A key measure is our ability to efficiently and effectively manage labor resources and enhance operating results. Several factors may influence our labor management efforts, including our ability to maximize our mix of emergency and non-emergency ambulance business, significant wait times associated with emergency rooms that delay redeployment and market-specific shortages of qualified paramedics and emergency medical technicians which affect temporary wages. We also may experience increases in overtime and training wages due to growth in transport volume related to new contracts, expansion in existing markets and seasonal transport demand patterns.

New Accounting Standards

SFAS 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosure about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for us in the first quarter of fiscal 2009. We are currently evaluating the impact, if any, the adoption of SFAS 157 will have on our consolidated financial statements and related disclosures.

SFAS 159

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides companies with the option to measure eligible items, including many financial instruments at fair value at specified election dates. SFAS 159 requires disclosure of unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The cumulative effect of adopting SFAS 159, if any, shall be reported as an adjustment to the opening balance of retained earnings. SFAS 159 is effective for the Company at the beginning of the fiscal 2009 year. The Company has not determined whether it will elect the fair value measurement provisions for its long-term debt obligations, nor has the Company determined the impact of any future election.

27

Results of Operations

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Three Months Ended September 30, 2007 and 2006

(in thousands, except per share amounts)

	2007			% of Net Revenue		2006			% of Net Revenue		$ Change			% Change
Net revenue	$	119,491		100.0	%	$	114,293		100.0	%	$	5,198		4.5	%
Operating expenses:
Payroll and employee benefits		75,234		63.0	%		71,433		62.5	%		3,801		5.3	%
Depreciation and amortization		3,121		2.6	%		2,904		2.5	%		217		7.5	%
Other operating expenses		27,319		22.9	%		23,692		20.7	%		3,627		15.3	%
Auto/general liability insurance expense		3,837		3.2	%		4,012		3.5	%		(175	)	(4.4	)%
Loss (gain) on sale of assets		3		0.0	%		(3	)	(0.0	)%		6		#
Total operating expenses		109,514		91.7	%		102,038		89.3	%		7,476		7.3	%
Operating income		9,977		8.3	%		12,255		10.7	%		(2,278	)	(18.6	)%
Interest expense		(7,750	)	(6.5	)%		(7,785	)	(6.8	)%		35		0.4	%
Interest income		142		0.1	%		120		0.1	%		22		18.3	%
Income from continuing operations before income taxes and minority interest		2,369		2.0	%		4,590		4.0	%		(2,221	)	(48.4	)%
Income tax provision		(1,196	)	(1.0	)%		(2,215	)	(1.9	)%		1,019		46.0	%
Minority interest		(505	)	(0.4	)%		(773	)	(0.7	)%		268		34.7	%
Income from continuing operations		668		0.6	%		1,602		1.4	%		(934	)	(58.3	)%
Income (loss) from discontinued operations, net of income taxes		(257	)	(0.2	)%		85		0.1	%		(342	)	#
Net income	$	411		0.3	%	$	1,687		1.5	%	$	(1,276	)	(75.6	)%
Income (loss) per share:
Basic—
Income from continuing operations	$	0.03				$	0.07				$	(0.04	)
Income (loss) from discontinued operations		(0.01	)				0.00					(0.01	)
Net income	$	0.02				$	0.07				$	(0.05	)
Diluted—
Income from continuing operations	$	0.03				$	0.07				$	(0.04	)
Income (loss) from discontinued operations		(0.01	)				0.00					(0.01	)
Net income	$	0.02				$	0.07				$	(0.05	)
Average number of common shares outstanding—Basic		24,738					24,510					228
Average number of common shares outstanding—Diluted		24,988					24,920					68
#—Variances over 100% not displayed.

Our results for the three months ended September 30, 2007 reflect an increase in net revenue of $5.2 million, or 4.5% compared to the three months ended September 30, 2006. The $1.3 million decrease in net income is attributable to a decrease of $1.0 million in income from continuing operations and a $0.3 million increase in losses from discontinued operations.

28

Net Revenue

The following table shows a comparison of consolidated net revenue by business (in thousands):

	Three Months Ended September 30,
	2007		2006		$ Change		% Change
Ambulance services	$	100,818	$	96,700	$	4,118	4.3	%
Other services		18,673		17,593		1,080	6.1	%
Total net revenue	$	119,491	$	114,293	$	5,198	4.5	%

Ambulance Services

The $4.1 million increase in ambulance services revenue was driven by a $1.8 million increase in same service area transport growth, $0.6 million from new contracts, a $0.9 million increase in subsidies, and a $0.8 million increase in net medical transport APC.

Below we provide two tables with quarterly comparative transport data. The first table summarizes medical transport volume into same service area and new contracts, while the second table summarizes total transport volume into emergency, non-emergency and wheelchair.

	Three Months Ended September 30,
	2007	2006	Transport Change	% Change
Same service area medical transports	266,094	261,347	4,747	1.8	%
New contract medical transports	1,821	N/A	1,821	#
Medical transports from continuing operations	267,915	261,347	6,568	2.5	%
#—Variances over 100% not displayed

Medical transportation volume increased 2.5% for the three months ended September 30, 2007. This increase was a result of same service area transport growth of 4,747 transports and new contract transport growth of 1,821, which is due to our new contracts in Missouri and Washington.

	Three Months Ended September 30,
	2007	2006	Transport Change		% Change
Emergency medical transports	126,224	118,403	7,821		6.6	%
Non-emergency medical transports	141,691	142,944	(1,253	)	(0.9	)%
Total medical transports	267,915	261,347	6,568		2.5	%
Wheelchair transports	18,696	21,120	(2,424	)	(11.5	)%
Total transports from continuing operations	286,611	282,467	4,144		1.5	%

We have experienced our most significant increase in transports from the emergency 911 sector.

29

Contractual Allowances and Uncompensated Care

Contractual allowances applicable to Medicare, Medicaid and other third-party payers related to continuing operations, which are reflected as a reduction of gross medical ambulance revenue, totaled $72.6 million and $65.1 million for the three months ended September 30, 2007 and 2006, respectively. The increase of $7.5 million is primarily a result of rate increases and changes in payer mix in certain markets. Uncompensated care as a percentage of gross medical ambulance revenue was 15.0% and 14.1% for the three months ended September 30, 2007 and 2006, respectively. An increase in transport volume associated with emergency response services coupled with higher write-offs due to denials for medical necessity, non-covered services, co-pays and deductibles have resulted in a rise in uncompensated care over the same period in the prior year.

Both contractual allowances and uncompensated care are reflected as a reduction of gross medical ambulance revenue. A reconciliation of gross medical ambulance revenue to net medical ambulance revenue is included in the table below (in thousands):

	Three Months Ended September 30,
	2007			% of Gross Revenue		2006			% of Gross Revenue		$ Change			% Change
Gross Revenue	$	204,159		100.0	%	$	188,266		100.0	%	$	15,893		8.4	%
Contractual Discounts		(72,632	)	(35.6	)%		(65,092	)	(34.6	)%		(7,540	)	(11.6	)%
Uncompensated care		(30,709	)	(15.0	)%		(26,474	)	(14.1	)%		(4,235	)	(16.0	)%
Net Medical Transportation Revenue	$	100,818		49.4	%	$	96,700		51.3	%	$	4,118		4.3	%

Net Medical Transport APC

Net medical transports APC for the three months ended September 30, 2007 was $348 compared to $343 for the three months ended September 30, 2006. The 1.5% increase reflects four drivers: increased transport rates offset by a concentration of transport growth within the emergency response sector, changes in the number of basic life support versus advance life support transports provided and a change in the levels of uncompensated care.

Other Services

The $1.1 million increase in other services revenue is in part due to a $0.9 million, or 24.3%, increase in master contract fire fees associated with our industrial and airport contracts, including the Sarasota, Florida airport contract which we entered into October 2006. Fire subscription revenue also increased $0.4 million, or 3.9%, of which $0.2 million was related to higher subscription rates and $0.2 million was related to an increase in the number of subscribers. These increases were offset by a $0.5 million decrease in forestry and other non-subscription fire fees.

30

Operating Expenses

Payroll and Employee Benefits

Payroll and employee benefits for the three months ended September 30, 2007 was $75.2 million or 63.0% of net revenue, an increase of $3.8 million from $71.4 million, or 62.5% of net revenue, for the same period in the prior year. The increase included $0.6 million under the Company’s management incentive bonus plan accrual with the balance of the increase attributable to increased transport volume.

Depreciation and Amortization

The increase in depreciation and amortization is primarily due to additional capital expenditures during the quarter.

Other Operating Expenses

Other operating expenses for the three months ended September 30, 2007 were $27.3 million, or 22.9% of net revenue, an increase of $3.6 million from $23.7 million, or 20.7% of net revenue, for the same period in the prior year. The increase included a $2.1 million increase in professional fees; including $0.8 million related to adoption of FIN 48 for tax purposes, $0.7 million in legal, audit and SOX 404 fees as a result of the financial restatement, with the balance due to fees surrounding contract renewals, responses to contract proposals and union negotiations. In addition, we recognized a $0.8 million increase in vehicle maintenance and a $0.5 million increase in property lease expense with the balance attributable to an increase in operating supplies and fuel expense as a result of the higher volume of transports.

Auto/General Liability Insurance Expenses

Auto/general liability insurance expense for the three months ended September 30, 2007 were $3.8 million, or 3.2% of net revenue, a decrease of $0.2 million from $4.0 million, or 3.5% of net revenue, for the same period in the prior quarter. The $0.2 million decrease in insurance expense is due to lower claims reserve accruals under the auto liability program.

Interest Expense

The increase in interest expense was primarily due to the continued non-cash accretion of our Senior Discount Notes offset by lower interest expense on a lower Term B loan balance.

Income Tax Provision

Our income tax provision consists primarily of deferred income tax expense, as we utilize net operating loss carryforwards to reduce federal and state taxes currently payable and the associated deferred tax benefits are realized. As a result, minimal current cash payments are required.

During the three months ended September 30, 2007, we recorded a $1.2 million income tax provision related to continuing operations, including a deferred income tax provision of $0.7 million, resulting in an effective tax rate of 50.5%. This rate differs from the federal statutory rate of 35.0% primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes. Additionally, our effective tax rate includes a reduction related to income included in pretax income that is attributable to the minority interest in our joint venture with the City of San Diego. The effective tax rate for the three months ended September 30, 2007 differs from the effective tax rate for the year ended June 30, 2007 primarily as a result of lower pre-tax income for the year ended June 30, 2007.

We also recorded $0.2 million in income tax benefit related to discontinued operations during the three months ended September 30, 2007. The Company received income tax refunds of $53,000 and made income tax payments of $0.2 million for the three months ended September 30, 2007.

During the three months ended September 30, 2006, we recorded a $2.2 million income tax provision, including a deferred income tax provision of $1.9 million resulting in an effective tax rate of 48.3%. This rate differs from the federal statutory rate of 35% primarily as a result of the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes.

We also recorded $0.1 million in income tax provision related to discontinued operations during the three months ended September 30, 2006. The Company received income tax refunds of $8,000 and made income tax payments of $3,200 for the three months ended September 30, 2006.

31

Minority Interest

Minority interest relates to the City of San Diego’s portion (50%) of the San Diego Medical Services Enterprise, LLC fiscal year-to-date net income.

Discontinued Operations

During fiscal 2008, the Company made the decision to exit two ambulance transportation markets and a fire response market and, as a result, the financial results of these service areas for the three months ended September 30, 2007 and 2006 are included in income (loss) from discontinued operations.

Loss from discontinued operations for the three months ended September 30, 2007 was $257,000 and includes an income tax benefit of $220,000. Loss from discontinued operations before the impact of the income tax benefit was $477,000. Income from discontinued operations for the three months ended September 30, 2006 was $85,000 and includes an income tax provision of $52,000. Income from discontinued operations before the impact of the income tax provision was $137,000.

32

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006—Segments

Overview

We have four regional reporting segments that correspond with the manner in which our operations are managed and evaluated by our Chief Executive Officer. Although some of our operations do not align with the Segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	Operations
Mid-Atlantic	New York, Ohio, Pennsylvania
South	Alabama, California (fire), Florida (fire), Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, New Jersey (fire), Ohio, Tennessee, Wisconsin
Southwest	Arizona (ambulance and fire), New Mexico, Oregon (fire)
West	California (ambulance), Florida (ambulance), Colorado, Oregon (ambulance), Nebraska, South Dakota, Utah, Washington

Each reporting segment provides ambulance services while our other services are predominantly in the South and Southwest Segments.

The accounting policies used in the preparation of our consolidated financial statements have also been followed in the preparation of the accompanying financial information for each reporting segment. For management purposes, segment profitability is defined as income from continuing operations before depreciation and amortization, interest, income taxes and minority interest. Additionally, corporate overhead allocations have been included within segment profits. Segment results presented below reflect continuing operations only.

The key drivers that impact net ambulance revenues include transport volume, rates charged for such services, mix of payers, the acuity of the patients we transport, the mix of activity between emergency and non-emergency medical ambulance services, our ability to negotiate government subsidies as well as other competitive and market factors. The main drivers of other revenue are fire subscription rates, number of subscribers, and master fire contracts.. These drivers can vary significantly from market-to-market and can change over time.

33

Mid-Atlantic

The following table presents financial results and key operating statistics for the Mid-Atlantic operations (in thousands, except medical transports, wheelchair transports, net medical transportation APC and DSO):

	Three Months Ended September 30,						$ Change			% Change
	2007			2006
Net revenue
Ambulance services	$	20,614		$	20,845		$	(231	)	(1.1	)%
Other services		972			1,023			(51	)	(5.0	)%
Total net revenue	$	21,586		$	21,868		$	(282	)	(1.3	)%
Segment profit	$	4,076		$	4,589		$	(513	)	(11.2	)%
Segment profit margin		18.9	%		21.0	%
Medical transports		61,258			64,574			(3,316	)	(5.1	)%
Wheelchair transports		4,974			5,913			(939	)	(15.9	)%
Net Medical Transport APC	$	323		$	309		$	14		4.5	%
DSO		52			57			(5	)	(8.8	)%

Revenue

Net revenue for the three months ended September 30, 2007 was $21.6 million, a decrease of $0.3 million, or 1.3% from $21.9 million for the same period in the prior year. The decrease in net revenue was due primarily to $0.8 million increase in net medical transport APC, offset by $1.1 million decrease in same service area transport growth. The decrease in same service area medical transports of 3,316 (5.1%) primarily reflects the continued trend we see in a decreasing population base within our New York and Pennsylvania markets, including Buffalo, Rochester, Syracuse and Youngstown. In addition, we continue to experience a high level of competition for non-emergency business within our Columbus, Ohio market. The decrease in wheelchair transports also reflects the high level of competition within our Columbus, Ohio market.

Payroll and employee benefits

Payroll and employee benefits for the three months ended September 30, 2007 were $11.7 million, or 54% of net revenue, compared to $11.9 million, or 54% of net revenue, for the same period in the prior year.

Operating expense

Operating expenses, including auto/general liability expenses, for the three months ended September 30, 3007 were $4.2 million, or 19% of net revenue, compared to $4.1 million, or 19% of net revenue, consistent with the same period in the prior year.

In addition, corporate overhead allocations increased resulting from increased costs surrounding both the financial restatement and new FIN 48 disclosure requirements.

34

South

The following table presents financial results and key operating statistics for the South operations (in thousands, except medical transports, wheelchair transports, net medical transportation APC, fire subscriptions and DSO):

	Three Months Ended September 30,						$ Change			% Change
	2007			2006
Net revenue
Ambulance services	$	22,432		$	19,292		$	3,140		16.3	%
Other services		6,103			5,657			446		7.9	%
Total net revenue	$	28,535		$	24,949		$	3,586		14.4	%
Segment profit	$	3,193		$	2,815		$	378		13.4	%
Segment profit margin		11.2	%		11.3	%
Medical transports		70,310			65,451			4,859		7.4	%
Wheelchair transports		4,327			3,633			694		19.1	%
Net Medical Transport APC	$	280		$	259		$	21		8.1	%
Fire subscriptions at period end		34,164			34,554			(390	)	(1.1	)%
DSO		54			73			(19	)	(26.0	)%

Revenue

Net revenue for the three months ended September 30, 2007 was $28.5 million, an increase of $3.6 million, or 14.4% from $24.9 million for the same period in the prior year. The increase in net revenue was due primarily to a $0.6 million increase in new contract revenue growth, a $1.1 million increase in net medical transport APC, and a $1.0 million increase in same service area transport growth. The increase in medical transports of 4,859 (7.4%) was primarily due to growth in our Tennessee and Indiana markets. The increase in wheelchair transports is a function of the broad range of services provided to our non-emergency medical ambulance customers in our Indiana and Georgia markets. In addition ambulance subsidies increased $0.5 million primarily related to our 911 contracts in Tennessee. The slight decrease in the number of fire subscriptions reflects bundling subscription arrangements under home owner association contracts instead of contracting directly with individual homeowners. Master contract fire fees have increased $0.4 million over prior year as a result of the Sarasota, Florida airport fire contract entered into October 2006.

Payroll and employee benefits

Payroll and employee benefits for the three months ended September 30, 2007 were $17.7 million, or 62% of net revenue, compared to $15.9 million, or 64% of net revenue, for the same period in the prior year. The decrease on a percentage basis reflects a higher utilization of the labor base spread over more non-emergency ambulance services and lower overtime expenses as a result of fewer staffing shortages.

Operating expense

Operating expenses, including auto/general liability expenses, for the three months ended September 30, 3007 were $5.5 million, or 19% of net revenue, compared to $4.7 million, or 19% of net revenue, for the same period in the prior year. This increase is primarily due to increased vehicle maintenance and fuel costs associated with higher transport volumes.

In addition, corporate overhead allocations increased resulting from increased costs surrounding both the financial restatement and new FIN 48 disclosure requirements.

35

Southwest

The following table presents financial results and key operating statistics for the Southwest operations (in thousands, except medical transports, wheelchair transports, net medical transportation APC, fire subscriptions and DSO):

	Three Months Ended September 30,
	2007			2006			$ Change			% Change
Net revenue
Ambulance services	$	32,067		$	30,526		$	1,541		5.0	%
Other services		11,199			10,645			554		5.2	%
Total net revenue	$	43,266		$	41,171		$	2,095		5.1	%
Segment profit	$	4,183		$	4,102		$	81		2.0	%
Segment profit margin		9.7	%		10.0	%
Medical transports		61,637			59,229			2,408		4.1	%
Wheelchair transports		1,814			3,365			(1,551	)	(46.1	)%
Net Medical Transport APC	$	508		$	506		$	2		0.4	%
Fire subscriptions at period end		90,384			87,842			2,542		2.9	%
DSO		59			58			1		1.7	%

Revenue

Net revenue for the three months ended September 30, 2007 was $43.3 million, an increase of $2.1 million, or 5.1% from $41.2 million for the same period in the prior year. The increase in net revenue was due primarily to a $1.2 million increase in same service area transport growth, a $0.3 million increase in ambulance subsidies related to our 911 ambulance contracts in Arizona accounting for the increase in net medical transport APC. The net increase in medical transports of 2,408 (4.1%) was due to growth in both the Maricopa and Southern Arizona markets. The decrease in wheelchair transports is entirely a result of continued call screening efforts to identify insurance coverage in advance related to prescheduled non-medically necessary transports. Other services revenue increased primarily due to master contract fire fees of $0.5 million over prior year reflecting contractually built-in annual rate increases in addition to the transition of a subscription based contract to a master fire contract in Arizona.

Payroll and employee benefits

Payroll and employee benefits for the three months ended September 30, 2007 were $26.3 million, or 61% of net revenue, compared to $25.5 million, or 62% of net revenue, for the same period in the prior year. The decrease on a percentage basis reflects a higher utilization of the labor base spread over more non-emergency ambulance services offset by a $0.3 million increase in billing office staffing.

Operating expense

Operating expenses, including auto/general liability expenses, for the three months ended September 30, 3007 were $9.6 million, or 22% of net revenue, compared to $9.2 million, or 22% of net revenue, for the same period in the prior year. This increase is in part due to higher property lease expenses.

In addition, corporate overhead allocations increased resulting from increased costs surrounding both the financial restatement and new FIN 48 disclosure requirements.

36

West

The following table presents financial results and key operating statistics for the West operations (in thousands, except wheelchair transports, alternative transports, net medical transportation APC and DSO):

	Three Months Ended September 30,
	2007			2006			$ Change			% Change
Net revenue
Ambulance services	$	25,705		$	26,037		$	(332	)	(1.3	)%
Other services		399			268			131		48.9	%
Total net revenue	$	26,104		$	26,305		$	(201	)	(0.8	)%
Segment profit	$	1,646		$	3,653		$	(2,007	)	(54.9	)%
Segment profit margin		6.3	%		13.9	%
Medical transports		74,710			72,093			2,617		3.6	%
Wheelchair transports		7,581			8,209			(628	)	(7.7	)%
Net Medical Transport APC	$	299		$	316		$	(17	)	(5.4	)%
DSO		94			80			14		17.5	%

Revenue

Net revenue for the three months ended September 30, 2007 was $26.1 million, a decrease of $0.2 million, or 0.8% from $26.3 million for the same period in the prior year. The decrease in net revenue was due primarily to $1.3 million decrease in net medical transport APC offset by a $0.9 million increase in same service area transport growth and a $0.1 million increase in new contract revenue growth. The segment continues to experience pressure related to uncompensated care due to the growing number of transports provided to uninsured patients.The net increase in medical transports of 2,617 (3.6%) was due to growth in the San Diego, Pacific Northwest and Nebraska markets offset by a decline in our Colorado markets as a result of the University of Colorado hospital system consolidating its campuses and reducing the volume of non-emergency transports. The decrease in wheelchair transports also reflects the reduced volume in the Colorado markets.

Payroll and employee benefits

Payroll and employee benefits for the three months ended September 30, 2007 were $14.9 million, or 57% of net revenue, compared to $13.9 million, or 53% of net revenue, for the same period in the prior year. The increase is primarily attributable to an increase in headcount as a result of hiring paramedics in the San Diego operation that were historically independent contractors and thus reflected in other operating expenses.

Operating expense

Operating expenses, including auto/general liability expenses, for the three months ended September 30, 3007 were $8.1 million, or 31% of net revenue, compared to $7.6 million, or 29% of net revenue, for the same period in the prior year. This increase is due to increased vehicle maintenance and fuel costs associated with higher transport.

In addition, corporate overhead allocations increased resulting from increased costs surrounding both the financial restatement and new FIN 48 disclosure requirements.

37

Critical Accounting Estimates and Policies

Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, general liability and workers’ compensation claim reserves and deferred tax asset recoverability. We base our estimates on historical experience and various assumptions we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following accounting policies as critical to understanding our results of operations. The discussion below is not intended to represent a comprehensive list of our accounting policies.

Revenue Recognition

Ambulance services revenue is recognized when services are provided and are recorded net of contractual allowances applicable to Medicare, Medicaid and other third-party payers and net of estimates for uncompensated care. The collectibility of these fees is analyzed using historical collection experience within each service area. Using collection data resident in our billing system, we estimate the percentage of gross ambulance fees that will not be collected and record provisions for both contractual allowances and uncompensated care. The portion of the provision allocated to contractual allowances is based on historical write-offs relating to such contractual allowances as a percentage of the related gross revenue recognized for each service area. The ratio is then applied to current period gross ambulance fees to determine the portion of the provision that will be recorded as a reduction in revenue. The remaining amount of the provision is classified as uncompensated care. If the historical data used to calculate these estimates does not properly reflect the ultimate collectibility of the current revenue stream, revenue could be overstated or understated. Contractual allowances applicable to Medicare, Medicaid and other third-party payers related to continuing operations, which are reflected as a reduction of gross ambulance revenue, totaled $72.6 million and $ 65.1 million for the three months ended September 30, 2007 and 2006, respectively.

Uncompensated care can be affected by a variety of factors, including the number of patients we transport that do not pay us for the medical services we provide, a sustained disruption in collections, and the quality of our billing documentation and procedures. The estimate for uncompensated care that is applied to gross ambulance revenue is calculated as the difference between the total expected collection percentage less contractual discounts described above. If historical data used to calculate these estimates do not properly reflect the ultimate collectibility of the current revenue stream, the estimate for uncompensated care may be overstated or understated. The estimate for uncompensated care on gross ambulance revenue from continuing operations totaled $30.7 million and $26.5 million for the three months ended September 30, 2007 and 2006, respectively.

During the quarter ended December 31, 2006, we changed our accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients. This change in accounting policy was applied retrospectively in accordance with SFAS 154, “Accounting Changes and Error Corrections”. We now reflect revenue net of estimated uncompensated care, and this Quarterly Report reflects such change. Previously, we recorded revenue at full established rates and recorded a provision for estimated amounts not expected to be realized as an operating expense.

Insurance Claim Reserves

In the ordinary course of our business, we are subject to accident, injury and professional liability claims. Additionally, certain of our operational contracts, as well as laws in certain of the areas where we operate, require that specified amounts of insurance coverage be maintained. In order to minimize the risk of exposure and comply with such legal and contractual requirements, we carry a broad range of insurance policies, including comprehensive general liability, automobile, property damage, professional, workers’ compensation and other lines of coverage. We typically renew each of these policies annually and purchase limits of coverage at levels management believes are appropriate, taking into account historical and projected claim trends, reasonable protection of our assets and operations and the economic conditions in the insurance market. Depending upon the specific line of coverage, the total limits of insurance maintained may be achieved through a combination of primary policies, excess policies and self-insurance.

38

We retain certain levels of exposure with respect to our general liability and workers’ compensation programs and purchase coverage from third party insurers for exposures in excess of those levels. In addition to expensing premiums and other costs relating to excess coverage, we establish reserves for claims, both reported and incurred but not reported, on a gross basis using currently available information as well as our historical claims experience. We also recognize a receivable from our insurers for amounts expected to be recovered in excess of our retention. We periodically evaluate the financial capacity of our insurers to assess the recoverability of the related receivables.

We engage third-party administrators (“TPAs”) to manage claims resulting from our general liability and workers’ compensation programs. The TPAs establish initial loss reserve estimates at the time a claim is reported and then monitor the development of the claim over time to confirm that such estimates continue to be appropriate. Management periodically reviews the claim reserves established by the TPAs and engages independent actuaries to assist with the evaluation of the adequacy of its reserves on a semi-annual basis. We adjust our claim reserves with an associated charge or credit to expense as new information on the underlying claim is obtained.

Reserves related to workers’ compensation claims totaled $12.4 million and $11.0 million at September 30, 2007 and June 30, 2007, respectively. Reserves related to general liability claims totaled $29.8 million and $30.6 million at September 30, 2007 and June 30, 2007, respectively.

Property and Equipment

We exercise judgment with regard to property and equipment in the following areas: (1) determining whether an expenditure is eligible for capitalization or if it should be expensed as incurred, (2) estimating the useful life and determining the depreciation method of a capitalized asset, and (3) if events or changes in circumstances warrant an assessment, determining if and to what extent a tangible long-lived asset had been impaired. The accuracy of our judgments impacts the amount of depreciation expense we recognize, the amount of our gain or loss on the disposal of these assets, whether or not an asset is impaired and, if an asset is impaired, the amount of the loss related to the impaired asset is recognized.

Our judgments about useful lives as well as the existence and degree of asset impairments could be affected by future events, such as discontinued operations, obsolescence, new regulations and new taxes, and other economic factors. Historically, there have been no events of changes in circumstances that have resulted in an impairment loss and our other estimates as they relate to property and equipment have not resulted in significant changes. We don’t anticipate that our current estimates are reasonably likely to change in the future.

Expenditures associated with the repair or maintenance of a capital asset are expensed as incurred. Expenditures that are expected to provide future benefit to the company or that extend the useful life of an existing asset are capitalized. The useful lives that we assign to property and equipment represent the estimated number of years that the property and equipment is expected to contribute to the revenue generating process based on our current operating strategy. We believe that the useful lives of our property and equipment expire evenly over time. Accordingly, we depreciate our property and equipment on a straight-line basis over their useful lives.

Goodwill Impairment

Our goodwill balances are reviewed for impairment annually (and interim periods if events or changes in circumstances indicate that the related asset may be impaired) using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. We perform our annual impairment test on June 30.

39

Income Tax Liabilities

We are subject to federal income taxes and state income taxes in the jurisdictions in which we operate. We exercise judgment with regard to income taxes in the following areas: (1) interpreting whether expenses are deductible in accordance with federal income tax and state income tax codes, (2) estimating annual effective federal and state income tax rates and (3) assessing whether deferred tax assets are, more likely than not, expected to be realized. The accuracy of these judgments impacts the amount of income tax expense we recognize each period.

As a matter of law, we are subject to examination by federal and state taxing authorities. We have estimated and provided for income taxes in accordance with settlements reached with the Internal Revenue Service in prior audits. Although we believe that the amounts reflected in our tax returns substantially comply with the applicable federal and state tax regulations, both the IRS and the various state taxing authorities can and have taken positions contrary to ours based on their interpretation of the law. A tax position that is challenged by a taxing authority could result in an adjustment to our income tax liabilities and related tax provision.

Effective July 1, 2007, we began to measure and record tax contingency accruals in accordance with FASB Financial Interpretation Number 48 (FIN 48), “Accounting for Uncertainty in Income Tax—an Interpretation of FASB Statement No. 109.” FIN 48 prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return. Only positions meeting the “more likely than not” recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. Prior to July 1, 2007, we recorded accruals for tax contingencies and related interested when it was probable that a liability had been incurred and the amount of the contingency could be reasonably estimated based on specific events such as an audit or inquiry by a taxing authority.

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record valuation allowances to reduce net deferred tax assets to the amount considered more likely than not to be realized. Changes in estimates of future taxable income can materially change the amount of such valuation allowances.

40

Liquidity and Capital Resources

Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements and to fund working capital, capital expenditures and business development efforts will depend on our ability to generate cash from operating activities which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory and other conditions, some of which may be beyond our control.

We have available to us, upon compliance with certain conditions, a $20 million revolving credit facility, less any letters of credit outstanding under the $10 million sub-line within the revolving credit facility. There were no amounts outstanding under the revolving credit facility and there was $0.2 million of outstanding letters of credit issued under the sub-line at September 30, 2007.

Cash Flow

Throughout the year, we experience significant periodic outflows of cash for debt service, capital expenditures, workers compensation and general liability insurance premium deposits, 401(k) matching contributions and management bonuses. These outflows include $6.2 million in semi-annual interest payments on our Senior Subordinated Notes payable on September 15 and March 15.

In addition to the Senior Subordinated Notes interest payment discussed above, during the three months ended September 30, 2007 and 2006 we also made $1.7 million and $2.1 million, respectively, in interest payments associated with our Term Loan B. Additionally, during the three months ended September 30, 2007 and 2006, we made payments totaling $2.3 million and $5.3 million, respectively, for capital expenditures and made defined benefit pension plan payments of $0.7 million and $0.5 million, respectively.

The table below summarizes cash flow information for the three months ended September 30, 2007 and 2006 (in thousands):

	Three Months Ended September 30,
	2007			2006
Net cash provided by operating activities	$	7,947		$	5,742
Net cash used in investing activities		(4,810	)		(1,634	)
Net cash used in financing activities		(5,309	)		205

Operating Activities

Net cash provided by operating activities totaled $7.9 million and $5.7 million for the three months ended September 30, 2007 and 2006, respectively. The $2.2 million increase in net cash provided by operating activities was due to a $4.5 million increase in cash inflows attributable to changes in net operating assets partially offset by a $1.0 million decrease in non-cash charges and a $1.3 million decrease in net income. The increase in cash outflows attributable to changes in net operating assets is primarily due to an increase in accounts payable and a decrease in prepaid expenses. The decrease in non-cash items is primarily attributable to a decrease in deferred income taxes offset by increased depreciation and amortization.

We had working capital of $29.3 million at September 30, 2007, including cash, cash equivalents and short-term investments of $6.5 million, compared to working capital of $33.8 million, including cash, cash equivalents and short-term investments of $6.2 million, at June 30, 2007. The decrease in working capital as of September 30, 2007 is primarily related to increased accrued liabilities and accounts payable, offset by an increase in accounts receivable and a decrease in deferred income taxes.

41

Investing Activities

Net cash used in investing activities includes the purchase and sale of short-term investments, capital expenditures and proceeds from the sale of property and equipment. We invest excess funds in highly liquid, short-term taxable auction rate securities. We had net purchases of such securities of $2.5 million during the three months ended September 30, 2007 and net sales of $3.7 million during the three months ended September 30, 2006. We had capital expenditures totaling $2.3 million and $5.3 million for the three months ended September 30, 2007 and 2006, respectively. Of the $3.0 million decrease, approximately $1.2 million related to the purchase of three fire trucks for the Arizona fire market during the first quarter of fiscal 2007.

Financing Activities

Financing activities include the tax benefits from the exercise of stock options, proceeds from the issuance of common stock, repayment of debt and minority shareholder distributions. The reduction in current year stock option exercises contributed to a $0.1 million decrease in cash provided by the issuance of common stock in addition to a $0.1 million decrease in the tax benefit realized from the exercise of such options. During the three months ended September 30, 2007, we made a $5.0 million unscheduled principal payment on our Term Loan B and a $0.3 million distribution to the City of San Diego, the minority shareholder in our medical services joint venture.

Debt Covenants

The 2005 Credit Facility, Senior Subordinated Notes and Senior Discount Notes include various financial and non-financial covenants applicable to the Company’s wholly-owned subsidiary, Rural/Metro Operating Company, LLC as well as quarterly and annual financial reporting obligations.

Specifically, the 2005 Credit Facility, as amended, requires Rural/Metro Operating Company, LLC and its subsidiaries to meet certain financial tests, including a maximum total leverage ratio, a minimum interest expense coverage ratio and a minimum fixed charge coverage ratio. The 2005 Credit Facility also contains covenants which, among other things, limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset sales, acquisitions, mergers, prepayments of other indebtedness, liens and encumbrances, capital expenditures, business activities by the Company, as a holding company, and other matters customarily restricted in such agreements.

We were in compliance with all of our covenants, as amended, under our 2005 Credit Facility at September 30, 2007 as shown below.

Financial Covenant	Level Specified in Agreement	Level Achieved for Specified Period	Levels to be achieved at
			December 31, 2007	March 31, 2008	June 30, 2008
Debt leverage ratio	<6.00	4.79	<6.00	<5.50	< 5.00
Interest expense coverage ratio	>1.50	2.05	>1.50	>1.75	> 1.90
Fixed charge coverage ratio	>1.00	1.25	>1.00	>1.00	> 1.00
Maintenance capital expenditure (1), (2)	N/A	N/A	N/A	N/A	< $27.0 million
New business capital expenditure (2)	N/A	N/A	N/A	N/A	< $4.0 million

(1) Capital expended in the normal course of operating in existing markets.

(2) Measured annually at June 30^th.

42

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are key indicators that management uses to evaluate our operating performance. While EBITDA and adjusted EBITDA are not intended to replace any presentation included in our consolidated financial statements under generally accepted accounting principles (“GAAP”) and should not be considered an alternative to operating performance or an alternative to cash flow as a measure of liquidity, we believe this measure is useful to investors in assessing our ability to meet our future debt service, capital expenditure and working capital requirements. This calculation may differ in method of calculation from similarly titled measures used by other companies.

The following table sets forth our EBITDA and adjusted EBITDA for the three months ended September 30, 2007 and 2006, as well as a reconciliation to income from continuing operations, the most directly comparable financial measure under GAAP (in thousands):

	Three Months Ended September 30,
	2007			2006
Income from continuing operations	$	668		$	1,602
Add back:
Depreciation and amortization		3,121			2,904
Interest expense on borrowings		5,129			5,529
Amortization of deferred financing costs		541			418
Accretion of 12.75% Senior Discount Notes		2,080			1,838
Interest income		(142	)		(120	)
Income tax provision		1,196			2,215
EBITDA from continuing operations	$	12,593		$	14,386
EBITDA from discontinued operations		(458	)		233
Total EBITDA	$	12,135		$	14,619
The items listed below have not been included as adjustments in the above calculation of EBITDA:
Stock-based compensation benefit		—			(7	)
(Gain) loss on sale of property and equipment		14			(3	)
Executive severance		—			1,133
Adjusted EBITDA from all operations	$	12,149		$	15,742
Increase (decrease):
Items added back to arrive at EBITDA from continuing operations		(11,925	)		(12,784	)
Items added back to arrive at EBITDA from discontinued operations:
Income tax benefit (provision) on discontinued operations		220			(52	)
Depreciation and amortization on discontinued operations		(19	)		(96	)
Items added back to arrive at Adjusted EBITDA		(14	)		(1,123	)
Depreciation and amortization		3,140			3,000
Accretion of 12.75% Senior Discount Notes		2,080			1,838
Deferred income taxes		566			1,851
Amortization of deferred financing costs		541			418
Earnings of minority shareholder		505			773
(Gain) loss on sale of property and equipment		14			(3	)
Stock based compensation benefit		—			(7	)
Changes in operating assets and liabilities		690			(3,815	)
Net cash provided by operating activities	$	7,947		$	5,742

(1) Consolidated EBITDA decreased in the three months ended September 30, 2007 by $2.5 million from $14.6 million for the three months ended September 30, 2006. The decrease was due primarily to a decrease in operating income before depreciation and amortization of $2.1 million.

43

Subsequent Events

2005 Credit Facility Waiver

On October 11, 2007, the Company obtained an amendment and waiver (“Amendment No. 6”) under the 2005 Credit Facility for any defaults relating to the restatement and untimely filing of its Annual Report on Form 10-K for the year ended June 30, 2007. See Note 4 to the consolidated financial statements. In addition, the amendment modified certain financial covenant requirements, including total leverage ratio, interest expense coverage ratio and fixed coverage ratio and increased the applicable margin over LIBOR from 2.25% to 3.50% for the term of the loan.

Contract Activity

We renewed several contracts during the quarter ended September 30, 2007, including the following:

• Three-year contract to continue providing exclusive emergency ambulance services in Peoria, Arizona;

• Five-year contract to continue providing exclusive emergency ambulance services in Aurora, Colorado; and

• Five-year contract to continue providing exclusive emergency ambulance services in Shelby County, Tennessee.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

Our primary exposure to market risk consists of changes in interest rates on our borrowing activities. Under our 2005 Credit Facility, amounts outstanding under Term Loan B bear interest at LIBOR plus 2.25%, through October 10, 2007 with an increase to LIBOR plus 3.50% effective October 11, 2007 with Amendment No. 6 to the Credit Facility. Also under our 2005 Credit Facility, amounts drawn under our Revolving Credit Facility bear interest at LIBOR plus 3.25% through October 10, 2007 with an increase to LIBOR plus 3.50% effective October 11, 2007 with Amendment No. 6 under the Credit Facility. Based on current amounts outstanding under Term Loan B at September 30, 2007, a 1% increase in the LIBOR rate would increase our interest expense on an annual basis by approximately $0.8 million. The remainder of our debt is primarily at fixed interest rates. We monitor the risk associated with interest rate changes and may enter into hedging transactions, such as interest rate swap agreements, to mitigate the related exposure. In addition, we are exposed to the risk of interest rate changes on our short-term investment activities. We had $2.5 million invested in auction rate securities at September 30, 2007.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report (September 30, 2007). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure control and procedures were not effective as of September 30, 2007, because of the material weaknesses described below:

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses in internal control over financial reporting as of June 30, 2007, which continued to exist at September 30, 2007:

The Company did not maintain effective controls over its period-end financial reporting process, including the preparation and review of interim and annual consolidated financial statements and disclosures. Specifically, controls were not operating effectively over the processes related to (i) timely resolution of reconciling items and review of account reconciliations over balance sheet accounts, (ii) accumulating and reviewing all required supporting information to ensure the completeness and accuracy of the consolidated financial statements and disclosures and (iii) timeliness of the financial reporting process. As previously reported, this material weakness resulted in restatements of the Company’s fiscal 2006 and 2005 annual and interim financial statements and resulted in adjustments, including audit adjustments, to the Company’s fiscal 2007 annual and interim financial statements. Additionally, this material weakness could result in misstatements of any of the Company’s financial statement accounts and disclosures that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

44

The period-end financial reporting process material weakness described above contributed to the material weaknesses described below:

• The Company did not maintain effective controls over the accuracy of its subscription revenue and deferred revenue. Specifically, the Company’s internal controls are not adequately designed to ensure the accurate calculation of subscription revenue and deferred revenue on a straight-line basis based on the day and the month of the beginning of the contractual period. As previously reported, this deficiency resulted in the restatement of the Company’s interim and annual consolidated financial statements. Additionally, this material weakness could result in misstatements of the Company’s subscription revenue and deferred revenue accounts that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

• The Company did not maintain effective controls over the completeness and accuracy of its accruals and reserves for loss contingencies and related operating expenses. Specifically, the Company’s internal controls are not operating effectively to ensure that loss contingencies are accurately and completely recorded on a timely basis. As previously reported, this material weakness resulted in adjustments to the Company’s fiscal 2007 consolidated financial statements. Additionally, this material weakness could result in misstatements of the Company’s accrual and reserve accounts and related operating expenses that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented of detected on a timely basis.

Management’s Plan for Remediation of Material Weaknesses in Internal Control Over Financial Reporting

In an effort to remediate the material weaknesses described above, the Company is undertaking the following remediation procedures:

• Period-End Financial Reporting—Management continues to review and improve on its processes surrounding the timely resolution of reconciling items and account reconciliations. Additionally, management has scheduled a review of the financial statement close process and is currently working on the implementation of new reporting software. Management currently expects that this material weakness will be remediated by June 30, 2008.

• Subscription Revenue – The Company is reviewing alternatives for automating the calculation of revenue recognition and deferred revenue liability amounts surrounding its fire and ambulance subscription business. Automating these calculations will provide for the proper level of precision in the calculation of period revenue as well as the proper timing of recognition. Until the Company determines the feasibility of, and implements these automated controls, an analysis using transactional data from the billing system will be performed each quarter in order to ensure that revenue recognized and deferred revenue balances are materially correct. Management currently expects that this material weakness will be remediated by June 30, 2008.

• Accruals and Reserves – Management continues to emphasize to senior management, the importance of direct and timely communication of significant information across the organization that could impact the timely, accurate and complete recording of accruals and reserves for loss contingencies. The Company is also enhancing its quarterly procedures surrounding the identification of significant accounting matters. Management currently expects that this material weakness will be remediated by June 30, 2008.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)), other than those noted above, that occurred during the three month period ended September 30, 2007 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

45

Part II. Other Information.

Item 1. Legal Proceedings

The information contained in Footnote 10 to the Consolidated Financial Statements is hereby incorporated by referenced into this Part II—Item 1 of this Quarterly Report.

Item 1A. Risk Factors

You should carefully consider the risks and uncertainties described below, in addition to the information set forth elsewhere in this report, when evaluating our business, industry and capital structure. Additional risks and uncertainties not presently known or that we may currently believe to be immaterial may also materially and adversely affect us. Any of the following risks and uncertainties could materially and adversely affect our business, financial condition or results of operations.

Risk Factors Related to Our Business

Our results of operations and growth could be adversely affected if we lose existing contracts or fail to renew existing contracts on favorable terms.

A significant portion of our growth historically has resulted from increases in the number of emergency and non-emergency transports we make under our existing contracts with municipalities, counties and fire districts to provide 911 and other services. Substantially all of our net revenue for fiscal year 2007 was generated under existing contracts. Our contracts generally range from three to five years in length. Most of our contracts are terminable by either party upon notice of as little as 30 days. Further, certain of our contracts expire during each fiscal period, and we may further be required to seek renewal of certain of these contracts through a formal bidding process that often requires written responses to a Request for Proposal (“RFP”). Even if any of our contracts are renewed, a renewal contract may contain terms that are not as favorable to us as the terms of our current contract. We cannot assure you that we will be successful in retaining or renewing our existing contracts or that the loss or renewal terms of contracts would not have a material adverse effect on us. There is also no assurance that we will continue to experience growth in the number of transports under our existing contracts.

We are subject to decreases in our revenue as a result of changes in payer mix.

We are subject to risks related to changes in the mix of insured versus uninsured patients that receive our medical services. If our mix of uninsured patients to insured patients increases, we may be adversely affected since we have greater difficulty recovering our full fees for services rendered to uninsured patients. Our credit risk related to services provided to uninsured individuals is exacerbated because communities are required to provide 911 emergency response services regardless of their ability to pay. We also believe uninsured patients are more likely to dial 911 to seek care for minor conditions because they frequently do not have a primary care physician with whom to consult. An increase in individuals utilizing our services that do not have an ability to pay could materially impact our business.

We are in a highly competitive industry; if we do not compete effectively, we could lose business or fail to grow.

The market for providing ambulance services to counties, municipalities, fire districts and hospitals and other healthcare providers is highly competitive. We compete to provide ambulance services with governmental entities, hospitals, local and volunteer and private providers, including national providers such as American Medical Response. In many communities, our primary competitor in providing ambulance service is the local fire department, which in many cases has traditionally acted as first responder during emergencies and has been able to expand its scope of services to include emergency ambulance transports. In order to compete successfully, we must make continuing investments in our fleet, facilities and operating systems.

Some of our current competitors and certain potential competitors may have access to greater capital and other resources than we do. Counties, municipalities, fire districts and healthcare providers that currently contract for ambulance services could choose to provide ambulance services directly in the future. We may experience increased competition from fire departments in providing emergency medical transportation service. We cannot assure you that we will be able to compete successfully to provide our medical transportation services.

We may not accurately assess the costs we will incur under new contracts, which could result in our entering into contracts which are less profitable than we anticipate.

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. If we fail to accurately assess these factors, we may not realize adequate profit margins or otherwise meet our financial and strategic objectives. Increasing pressure 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 the renewal of existing contracts) even 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 predict costs accurately or to negotiate an adequate profit margin could have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, we may not be able 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.

46

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 non-emergency ambulance services. In addition, in some service areas in which we are the exclusive provider of services, the municipality or fire district sets the rates for emergency ambulance services pursuant to a master contract and otherwise establishes the rates for non-emergency ambulance services. In areas where our rates are regulated, there is no assurance we will receive ambulance service rate increases on a timely basis to offset increases in the cost to perform our services, or at all. If we are not able to obtain timely rate increases it could have a material adverse effect on our revenues, profits and cash flows.

If we fail to implement our business strategy, our financial performance and our growth could be materially and adversely affected.

Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions or increased operating costs or expenses. In addition, to the extent we have misjudged the nature and extent of industry trends or our competition, we may have difficulty in achieving our strategic objectives. Any failure to implement our business strategy successfully may adversely affect our business, financial condition and profitability. Our long-term growth may also be adversely affected. Even if we are able to implement some or all of the initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all.

Our business depends on numerous complex information systems, and any failure to successfully maintain these systems or implement new systems could materially harm our operations.

We depend on complex, integrated information systems and standardized procedures for operational and financial information and billing operations. We may not have the necessary resources to maintain existing information systems or implement new systems where necessary to handle our volume and changing needs. Furthermore, we may experience unanticipated delays, complications and expenses in implementing, integrating and operating our systems. Any interruptions in operations during periods of implementation would adversely affect our ability to properly allocate resources and process billing information in a timely manner, which could result in customer dissatisfaction and delayed cash flow. We also use the development and implementation of sophisticated and specialized technology to differentiate our services from our competitors and improve our profitability. The failure to implement and maintain operational, financial and billing information systems successfully could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our profit margins.

We could be subject to certain lawsuits.

We could be a party to, or otherwise involved in, lawsuits, claims, proceedings and other legal matters concerning vehicle collisions and personal injuries, patient care incidents and employee job-related injuries. Some of these lawsuits could involve large claim amounts and substantial defense costs. We cannot predict with certainty the ultimate outcome of any lawsuit, claim, proceeding or other legal matter 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 lawsuit, including those described above, could have a material adverse effect on our business, financial condition, profitability and cash flows.

The reserves we establish with respect to our losses covered under our insurance programs are subject to inherent uncertainties, and we could be required to increase our reserves, which would adversely affect our results of operations.

In connection with our insurance programs, we establish reserves for losses and related expenses which represent our expectations of the ultimate resolution and administration costs of losses we have incurred in respect of our liability risks. Our reserves are based on estimates involving actuarial and statistical projections, at a given point in time. However, insurance reserves inherently are subject to

47

uncertainty. Our reserves are based on historical claims, demographic factors, industry trends, severity and exposure factors and other actuarial assumptions calculated by an independent actuary firm. The independent actuary firm performs studies of projected ultimate losses on an annual basis and provides quarterly updates to those projections. We use these actuarial estimates to determine appropriate reserves. Our reserves could be significantly affected if current and future occurrences differ from historical claim trends and expectations. While we monitor claims closely when we estimate reserves, the complexity of the claims and the wide range of potential outcomes may hamper timely adjustments to the assumptions we use in these estimates. Actual losses and related expenses may deviate, individually and in the aggregate, from the reserve estimates reflected in our financial statements. If we determine that our estimated reserves are inadequate, we will be required to increase reserves at the time of the determination which would result in a reduction in our net income in the period in which the deficiency is determined.

Insurance coverage for some of our losses may be inadequate and may be subject to the credit risk of commercial insurance companies.

We obtain insurance coverage from third party insurers to supplement our self insurance program and to cover periods prior to our implementation of the program. To the extent we hold policies to cover certain claims, but either did not obtain sufficient insurance limits, or did not buy an extended reporting period policy, where applicable, or the issuing insurance company is no longer viable, we may be responsible for losses attributable to such claims. While we believe our commercial insurance company providers currently are creditworthy, there can be no assurance that such insurance companies will remain so in the future.If our insurers do not make payments in respect of claims, we may be required to do so, which could have a material adverse effect on our financial condition, results of operations and cash flow.

Servicing our self insurance programs will require a significant amount of cash. We may be unable to generate sufficient cash flow to service our self insurance obligations.

Our self insurance program may require a significant amount of cash in connection with the resolution of losses that we experience. Our business may not generate sufficient cash flow from operating activities to fund losses that we are responsible for under our self insurance program. Our ability to make payments will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower net revenues generally will reduce our cash flow. While we believe our cash flow will be adequate to fund such losses in connection with the self insurance program, there can be no assurance that we will have adequate cash in the future. If we are unable to fund such losses, it could result in a material adverse effect on our financial condition, results of operations and cash flow.

Material weaknesses or deficiencies in our internal control over financial reporting could result in our inability to provide reliable financial reports, harm stockholder and business confidence on our financial reporting, our ability to obtain financing and other aspects of our business.

As of June 30, 2007, we concluded that we had material weaknesses in our internal control related to our period-end financial reporting process, including the preparation and review of interim and annual consolidated financial statements and disclosures; which contributed to material weaknesses in our controls over the accuracy of subscription revenue and deferred revenue, and the completeness and accuracy of our accruals and reserves for loss contingencies and related operating expenses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, management’s assessment as of September 30, 2007 concluded that our internal control over financial reporting was ineffective. We believe that we will remedy the identified material weaknesses in our internal controls and procedures, but there can be no assurance that our corrections will be sufficient or fully effective, or that we will not discover additional material weaknesses in our internal controls and procedures in the future. Due to its inherent limitations, even effective internal control over financial reporting can provide only reasonable assurance with respect financial statement preparation and presentations. These limitations may not prevent or detect all misstatements or fraud, regardless of their effectiveness. See Item 4. “Controls and Procedures” located in Part I of this report for further discussion regarding the Company’s disclosure controls and procedures and internal controls.

Because we have concluded that our internal control over financial reporting is not effective and because our independent registered public accountants issued an adverse opinion on the effectiveness of our internal controls over financial reporting, and to the extent we identify future weaknesses or deficiencies, there could be material misstatements in our financial statements and we could fail to meet our financial reporting obligations. As a result, our ability to obtain additional financing, or obtain additional financing on favorable terms, could be materially and adversely affected which, in turn, could materially and adversely affect our business, our financial condition and the market value of our securities. In addition, perceptions of us could also be adversely affected among customers, lenders, investors, securities analysts and others. These current material weaknesses or any future weaknesses or deficiencies could also hurt confidence in our business and consolidated financial statements and our ability to do business with these groups.

48

We are subject to the risks of government actions, shareholder lawsuits and other legal proceedings related to the restatement of our prior financial results.

It is possible that there may be governmental actions, shareholder lawsuits and other legal proceedings brought against us in connection with the restatement of our prior financial results. These proceedings may require us to expend significant management time and incur significant accounting, legal and other expenses, and may divert attention and resources from the operation of our business. These expenditures and diversions, as well as the adverse resolution of any specific lawsuit, could have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain effective internal controls may cause us to delay filing our periodic reports with the SEC, affect our NASDAQ listing, and adversely affect our stock price.

The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report of management on internal control over financial reporting in their annual reports on Form 10-K that contain an assessment by management of the effectiveness of the Company’s internal control over financial reporting. In addition, our independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the internal control over financial reporting. The Company has in prior periods identified certain material weaknesses in its internal control over financial reporting. Although we review and assess our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, we cannot be certain our remediation efforts will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future or will be sufficient to address and eliminate the material weaknesses identified. Our inability to remedy the identified material weaknesses or any additional deficiencies or material weaknesses that may be identified in the future could, among other things, cause us to fail to file our periodic reports with the SEC in a timely manner or require it to incur additional costs or to divert management resources. If our periodic reports are not filed with the SEC in a timely manner, investors in our securities do not have the information required by SEC rules regarding our business and financial condition with which to make decisions regarding investment in our securities. Additionally, NASDAQ, the exchange on which our common stock is listed, may institute proceedings to delist our common stock due to the untimely filing of the reports with the SEC. We also will not be eligible to use a “short form” registration statement on Form S-3 to make equity or debt offerings for a period of 12 months after the time we become current in our filings. These restrictions could adversely affect our ability to raise capital, as well as our business, financial condition and results of operations, as well as result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact our stock price.

Many of our employees are represented by labor unions and any unfavorable labor agreements or work stoppage could adversely affect our business, financial conditions, results of operations and reputation.

Approximately 38% of our employees are represented by 17 collective bargaining agreements. Ten of these collective bargaining agreements, representing approximately 1,750 employees, are subject to renegotiation in fiscal 2008. Although we believe our relations with our employees are good, we cannot assure you that we will be able to negotiate a satisfactory renewal of these collective bargaining agreements or that our employee relations will remain stable. If we are unable to negotiate a timely renewal of one or more agreements, the employees covered by the agreement may enter into a strike or other work stoppage. Such a stoppage could have a material adverse effect on business, financial conditions, results of operations and reputation.

The fire protection services business is a highly competitive industry; if we do not compete effectively, we may lose revenue.

The market for providing fire protection services of residential and commercial properties is primarily municipal fire departments, tax-supported fire districts and volunteer fire departments. 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. To our knowledge there is no other national private fire protection company offering services to residential and commercial property owners.

49

The market for providing fire protection services to airports and industrial sites is highly competitive. We compete to provide our airport and industrial fire protection services with municipal fire departments and private providers such as Wackenhut Services, Inc.

We depend on our senior management and may not be able to retain those employees or recruit additional qualified personnel, which could adversely affect our business.

We depend on our senior management. The loss of services of any of the members of our senior management could adversely affect our business until a suitable replacement can be found. If we were required to find a suitable replacement for one of our senior managers, there could be a limited number of persons with the requisite skill to serve in the position, and we cannot assure you that we will be able to identify or employ such qualified personnel on acceptable terms.

Risks Related to the Healthcare Industry

We conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations.

The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services, our contractual relationships with our customers, our marketing activities and other aspects of our operations. Failure to comply with these laws can result in civil and criminal penalties such as fines, damages and exclusion from the Medicare and Medicaid programs. 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 the 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.

Our customers are also subject to ethical guidelines and operational standards of professional and trade associations and private accreditation agencies. Compliance with these guidelines and standards is often required by our contracts with our customers or to maintain our reputation.

The laws, regulations and standards governing the provision of healthcare services may change significantly in the future. We cannot assure you that any new or changed healthcare laws, regulations or standards would not materially and adversely affect our business. We also cannot assure you that a review of our business by judicial, law enforcement, regulatory or accreditation authorities would not result in a determination that could adversely affect our operations.

We are subject to comprehensive and complex laws and rules that govern the manner in which we bill and are paid for our services by third party payers, and the failure to comply with these rules, or allegations that we have failed to do so, can result in civil or criminal sanctions, including exclusion from federal and state healthcare programs.

Like most healthcare providers, the majority of our services are paid for by private or governmental third party payers, such as insurance companies, Medicare and Medicaid. These third party payers typically have differing and complex billing and documentation requirements that we must meet in order to receive payment for our services. Reimbursement to us is typically conditioned on our providing the correct procedure and diagnostic codes and properly documenting the services themselves, including the level of service provided, the medical necessity for the services and the identity of the practitioner who provided the service.

We must also comply with numerous other laws applicable to our documentation and the claims we submit for payment, including but not limited to (1) “coordination of benefits” rules that dictate which payer we must bill first when a patient has potential coverage from multiple payers; (2) requirements that we obtain the signature of the patient or patient representative, when possible, or document why we are unable to do so, prior to submitting a claim; (3) requirements that we make repayment to any payer which pays us more than the amount to which we were entitled; (4) requirements that we bill a hospital or nursing home, rather that Medicare, for certain ambulance transports provided to Medicare patients of such facilities; (5) requirements that our electronic claims for payment be submitted using certain standardized transaction codes and formats; and (6) laws requiring us to handle all health and financial information of our patients in a manner that complies with specified security and privacy standards.

Governmental and private third party payers and other enforcement agencies carefully audit and monitor our compliance with these and other applicable rules, and in some cases in the past have found that we were not in compliance. We have received in the past, and expect to receive in the future, repayment demands from third party payers based on allegations that our

50

services were not medically necessary, were billed at an improper level, or otherwise violated applicable billing requirements. Our failure to comply with the billing and other rules applicable to us could result in non-payment for services rendered or refunds of amounts previously paid for such services. In addition, non-compliance with these rules may cause us to incur civil and criminal penalties, including fines, imprisonment and exclusion from government healthcare programs such as Medicare and Medicaid, under a number of state and federal laws. These laws include the federal False Claims Act, the Health Insurance Portability and Accountability Act of 1996, the federal Anti-Kickback Statute, The Balanced Budget Act of 1997 and other provisions of federal, state and local law.

In addition, from time to time we self-identify practices that may have resulted in Medicare or Medicaid overpayments or other regulatory issues. For example, we have previously identified situations in which we may have inadvertently utilized incorrect billing codes for some of the services we have billed to government programs such as Medicare or Medicaid. In such cases, if appropriate, it is our practice to disclose the issue to the affected government programs and to refund any resulting overpayments. Although the government usually accepts such disclosures and repayments without taking further enforcement action, it is possible that such disclosures or repayments will result in allegations by the government that we have violated the False Claims Act or other laws, leading to investigations and possibly civil or criminal enforcement actions.

If our operations are found to be in violation of these or any of the other laws which govern our activities, any resulting penalties damages, fines or other sanctions could adversely affect our ability to operate our business and our financial results.

Our contracts with healthcare facilities and marketing practices are subject to the federal Anti-Kickback Statute, and we recently entered into a settlement for alleged violations of that statute.

We are subject to the federal Anti-Kickback Statute, which prohibits the knowing and willful offer, payment, solicitation or receipt of any form of “remuneration” in return for, or to induce, the referral of business or ordering of services paid for by Medicare or other federal programs. “Remuneration” potentially includes discounts and in-kind goods or services, as well as cash. Certain federal courts have held that the Anti-Kickback Statute can be violated if “one purpose” of a payment is to induce referrals. Violations of the Anti-Kickback Statute can result in imprisonment, civil or criminal fines or exclusion from Medicare and other governmental programs.

In 1999, the Office of Inspector General (“OIG”) of the Department of Health and Human Services (the “DHHS”) issued an Advisory Opinion indicating that discounts provided to health facilities on the transports for which they are financially responsible potentially violate the Anti-Kickback Statute when the ambulance company also receives referrals of Medicare and other government-funded transports from the facility. The OIG has clarified that not all discounts violate the Anti-Kickback Statute, but that the statute may be violated if part of the purpose of the discount is to induce the referral of the transports paid for by Medicare or other federal programs, and the discount does not meet certain “safe harbor” conditions. In the Advisory Opinion and subsequent pronouncements, the OIG has provided guidance to ambulance companies to help them avoid unlawful discounts.

Like other ambulance companies, we have provided discounts to our healthcare facility customers (nursing homes and hospitals) in certain circumstances. We have attempted to comply with applicable law when such discounts are provided. However, the government has alleged in the past that certain of our hospital and nursing home contracts contained discounts in violation of the federal Anti-Kickback Statute.

There can be no assurance that investigations or legal action related to our contracting practices will not be pursued against us. If we are found to have violated the Anti-Kickback Statute, we may be subject to civil or criminal penalties, including exclusion from the Medicare or Medicaid programs, or may be required to enter into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements require substantial payments to the government in exchange for the government to release its claims, and may also require us to enter into a Corporate Integrity Agreement (“CIA”).

In addition to our contracts with healthcare facilities, other marketing practices or transactions entered into by us may implicate the Anti-Kickback Statute. Although we have attempted to structure our past and current marketing initiatives and business relationships to comply with the Anti-Kickback Statute, we cannot assure you that the OIG of the DHHS or other authorities will not find that our marketing practices and relationships violate the statute.

If we fail to comply with the terms of our settlement agreements with the government, we could be subject to additional litigation or other governmental actions which could be harmful to our business.

In the last three years, we have entered into two settlement agreements with the United States government. In October 2005, one of our subsidiaries, Sioux Falls Ambulance, Inc., entered into a settlement agreement to resolve allegations related to

51

billing and documentation practices. As part of the settlement Sioux Falls Ambulance entered into with the government, we entered into a CIA, which is still in effect, and a settlement payment of $0.5 million. Pursuant to this CIA, we are required to establish and maintain a compliance program with respect to the Sioux Falls operation which includes, among other elements, the appointment of a compliance officer and committee, review by an independent review organization, and reporting of overpayments and other “reportable events.”

In April 2007, we entered into a settlement agreement to resolve allegations that certain subsidiaries of Rural/Metro within the State of Texas provided discounts to healthcare facilities in Texas in periods prior to 2002 in violation of the federal Anti-Kickback Statute. In connection with the April 2007 settlement for Rural/Metro Corporation, we agreed to pay the government $2.5 million and we entered into a CIA which requires us to maintain a national compliance program which includes the appointment of a compliance officer and committee, the training of employees, safeguards involving our contracting process nationwide (including tracking of contractual arrangements in certain specified states) and review by an independent organization, and reporting of certain events.

We cannot assure you that the CIAs or the compliance programs we have initiated have prevented, or will prevent, any repetition of the conduct or allegations that were the subject of these settlement agreements, or that the government will not raise similar allegations in other jurisdictions or for other periods of time. If such allegations are raised, or if we fail to comply with the terms of the CIAs, we may be subject to fines and other contractual and regulatory remedies specified in the CIAs or by applicable laws, including exclusion from the Medicare program and other federal and state healthcare programs. Such actions could have a material adverse effect on the conduct of our business, our financial condition or our results of operations.

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 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 of our Medicare plans.

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. Our failure to do so could result in a material adverse effect on our business, financial condition, results of operations or cash flows.

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 effects 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.

We may not be able to successfully recruit and retain paramedics and EMT professionals with the qualifications and attributes desired by us and our customers.

Our ability to recruit and retain paramedics and EMT professionals significantly affects our business. Due to the geographical and demographic diversity of the communities in which we serve, medical personnel shortages in some of our market areas can make the recruiting, and retention of full-time personnel more difficult and costly. Moreover, we compete with other entities, both municipal and private, to recruit and retain qualified paramedics and EMTs to deliver our ambulance services. Failure to retain or replace our medical personnel or to attract new personnel, or the additional cost of doing so may have an adverse effect on our business, financial condition and results of operations.

52

Risks Related to Our Capital Structure

Our substantial indebtedness could adversely affect our financial condition and our ability to operate our business

We have a substantial amount of debt. In addition, subject to restrictions in the indenture governing our notes and the credit agreement governing our senior secured credit facility, we may incur additional debt.

Our substantial debt could have important consequences to you, including the following:

• It may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt;

• Our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;

• We must use a significant portion of our cash flow for payments on our debt, which may reduce the funds available to reinvest in the company;

• We are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited; and

• Our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt.

Furthermore, the borrowings under our senior secured credit facility bear interest at variable rates. If these rates were to increase significantly, our debt service costs would increase and could have a potential material affect on our cash flows.

Servicing our debt will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.

Our business may not generate sufficient cash flow from operating activities. Our ability to make payments on and to refinance our debt and to fund planned capital expenditures will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower net revenues generally will reduce our cash flow.

If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We cannot assure you that we could effect any of these actions on a timely basis, on commercially reasonable terms or at all, or that these actions would be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from effecting any of these alternatives.

Restrictive covenants in our senior secured credit facility and the indenture governing our senior subordinated notes and senior discount notes may restrict our ability to pursue our business strategies.

Our 2005 Credit Facility and the indentures governing our senior subordinated notes and senior discount notes limit our ability, among other things, to:

• Incur additional debt or issue certain preferred stock;

• Pay dividends or make distributions to our stockholders;

• Repurchase or redeem our capital;

• Make investments;

• Incur liens;

• Make capital expenditures;

• Enter into transactions with our stockholders and affiliates;

• Sell certain assets;

• Acquire the assets of, or merge or consolidate with, other companies; and

• Incur restrictions on the ability of our subsidiaries to make distributions or transfer assets to us.

53

The restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities.

In addition, the credit agreement governing our 2005 Credit Facility requires us to meet certain financing ratios and restricts our ability to make capital expenditures or prepay certain other debt. We may not be able to maintain these ratios and have had, and in the future may need, to seek waivers or amendments relating to these ratios. Our 2005 Credit Facility and indentures also require us to provide financial statements and related reports within certain timeframes.

Our ability to comply with these covenants may be affected by events beyond our control, and any material deviations from our forecasts could require us to seek waivers or amendments of covenants, alternative sources of financing or reductions in expenditures. In the past, we have had to obtain waivers under our 2005 Credit Facility for the untimely filing of our financial statements with the SEC and certain defaults arising out of our conclusion that previously filed financial statements should no longer be relied upon. We cannot assure you that any waivers, amendments or alternative financings could be obtained, or, if obtained, would be on terms acceptable to us.

If a breach of any covenant or restriction contained in our financing agreements results in an event of default, those lenders could discontinue lending, accelerate the related debt (which would accelerate other debt) and declare all borrowings outstanding thereunder to be due and payable. In addition, the lenders could terminate any commitments they had made to supply us with additional funds. In the event of a default on our debt, we may not have or be able to obtain sufficient funds to make any accelerated debt payments, which could result in a reorganization of the Company.

The right to receive payments on the senior subordinated notes and guarantees of those notes is unsecured and subordinated to our senior debt, and this could result in situations where there are not sufficient funds available to make payment on the senior subordinated notes.

The senior subordinated notes are subordinated in right of payment to all senior debt of Rural/Metro LLC, including indebtedness under the 2005 Credit Facility. Payment on the guarantee of each guarantor of the senior subordinated notes is subordinated in right of payment to that guarantor’s senior debt, including its guarantee of Rural/Metro LLC’s obligations under the 2005 Credit Facility. The holders of senior debt will be entitled to be paid in full in cash before any payment may be made on the senior subordinated notes or the guarantees thereof, as the case may be. Rural/Metro LLC or a guarantor, as the case may be, may not have sufficient funds to pay all its creditors, and holders of the senior subordinated notes may receive less, ratably, than the holders of senior debt, including the lenders under the 2005 Credit Facility, and due to the turnover provisions in the indenture governing the senior subordinated notes less, ratably, than the holders of unsubordinated obligations, including trade payables.

The senior subordinated notes are effectively subordinated to claims of Rural/Metro LLC’s secured creditors and the guarantees of each guarantor are effectively subordinated to the claims of the existing and future secured creditors of that guarantor to the extent of the value of the property securing such debt. Rural/Metro LLC’s obligations under the 2005 Credit Facility will be secured by liens on all or substantially all of their, our and Rural/Metro LLC’s and its subsidiaries’ assets. At September 30, 2007, Rural/Metro LLC had $83.0 million aggregate principal amount of secured debt outstanding and the capacity to borrow an additional $20.0 million under the 2005 Credit Facility and to have up to $45.0 million in letters of credit issued, all of which (if drawn, in the case of letters of credit) would be secured senior debt and effectively senior to the senior subordinated notes in right of payment to the extent of the value of the assets securing such debt, as well as by virtue of its ranking.

Rural/Metro Corporation is the sole obligor of the senior discount notes, and our subsidiaries do not guarantee our obligations under the senior discount notes or have any obligation with respect to the senior discount notes; consequently, the senior discount notes are structurally subordinated to the debt and liabilities of our subsidiaries.

The senior discount notes are structurally subordinated to all debt and liabilities (including trade payables) of our subsidiaries. Holders of our senior discount notes will participate with all other holders of our indebtedness in the assets remaining after our subsidiaries have paid all their debts and liabilities. Our subsidiaries may not have sufficient funds to make payments to us, and holders of senior discount notes may receive less, ratably, than the holders of debt of our subsidiaries and other liabilities. Accordingly, if our subsidiaries have their debt accelerated, we may not be able to repay our indebtedness under the senior discount notes. The indenture governing the senior discount notes contains a waiver by the trustee and holders of the senior discount notes of any rights to make a claim for substantive consolidation of us with any of our subsidiaries in any bankruptcy or similar proceeding. As of September 30, 2007, (i) on an unconsolidated basis, we had $69.0 million of senior indebtedness, consisting of the senior discount notes, but excluding the guarantee of borrowings under the 2005 Credit Facility and under the indenture for the senior subordinated notes and (ii) Rural/Metro LLC had $208.2 million of indebtedness, consisting of $83.0 million of borrowings under the 2005 Credit Facility, $125.0 million aggregate principal amount of the senior subordinated notes and $0.2 million of other debt. In addition, as of September 30, 2007, an additional $20.0 million would have been available for borrowing under the revolving credit portion of the 2005 Credit Facility.

54

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 2005 Credit Facility 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 for each outstanding share of common stock. 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. Consequently, our Shareholder Rights Plan could make it difficult for a third party to acquire us, even if doing so would benefit security holders. Certain anti-takeover provisions under Delaware law to which we are subject and certain provisions of our charter could also make it more difficult for a third party to acquire us. The anti-takeover effects of these provisions and those of our Shareholder Rights Plan could depress our stock price and may result in the entrenchment of existing management, regardless of their performance.

Item 5. Other Information

Bylaw Amendments

Effective November 9, 2007, the Board of Directors of the Company approved amendments to the Company’s bylaws. Sections 6.01, 6.03 and 6.06 of the bylaws were amended to facilitate compliance with NASDAQ Rule 4350(l) requiring that the Company’s Common Stock be eligible for a Direct Registration Program no later than January 1, 2008. Sections 3.04, 3.07, 4.01 and 4.02 were amended to confirm the utilization of electronic transmissions for notice (and waivers of notice) of meetings of the Board and its committees, and for written consent actions in lieu of meetings. The foregoing description is qualified in its entirety by reference to the text of the amended and restated bylaws, which is attached hereto as Exhibit 3.1.

2000 Non-Qualified Stock Option Plan Amendment

The Company’s 2000 Non-Qualified Stock Option Plan (the “2000 Plan”) was adopted by the Company’s Board of Directors in August 2000, and provides for the granting of options to acquire common stock of the Company.

The Company may grant options under the 2000 Plan only to persons who at the time of grant are either regular employees of the Company (excluding Directors and Officers of the Company, as defined in the 2000 Plan) or persons who provide consulting or other services as independent contractors to the Company. The Company did not grant options under the 2000 Plan during fiscal 2007.

When originally adopted, the 2000 Plan did not require approval by the Company’s stockholders and was not approved by the Company’s stockholders. In November 2007, the Compensation Committee amended the 2000 Plan to provide that no future option grants will be made pursuant to the 2000 Plan unless the Company’s stockholders approve an amendment to the 2000 Plan to permit future option grants.

55

Item 6. Exhibits

Exhibits
3.1	Third Amended and Restated Bylaws of the Registrant.*
10.1	Amendment No. 6 and Waiver No. 2 dated October 11, 2007 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company, LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; 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.(1)
10.2	First Amendment to the Rural/Metro Corporation 2000 Non-Qualified Stock Option Plan, dated November 9, 2007.*
31.1	Certification pursuant to Rule 13a—14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2	Certification pursuant to Rule 13a—14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes—Oxley Act of 2002+
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes—Oxley Act of 2002+

* Filed herewith.

+ Furnished but not filed.

(1) Incorporated by reference to the registrant’s Form 8-K filed with the Commission on October 17, 2007.

56

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RURAL/METRO CORPORATION
Dated: November 14, 2007	By:	/s/ JACK E. BRUCKER
		Jack E. Brucker,
		President & Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ KRISTINE BEIAN PONCZAK
		Kristine Beian Ponczak,
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)
	By:	/s/ GREGORY A. BARBER
		Gregory A. Barber,
		Vice President and Controller
		(Principal Accounting Officer)

Exhibit Index

3.1	Third Amended and Restated Bylaws of the Registrant.*
10.1	Amendment No. 6 and Waiver No. 2 dated October 11, 2007 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company, LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; 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.(1)
10.2	First Amendment to the Rural/Metro Corporation 2000 Non-Qualified Stock Option Plan, dated November 9, 2007.*
31.1	Certification pursuant to Rule 13a—14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2	Certification pursuant to Rule 13a—14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes—Oxley Act of 2002+
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes—Oxley Act of 2002+

* Filed herewith.

+ Furnished but not filed.

(1) Incorporated by reference to the registrant’s Form 8-K filed with the Commission on October 17, 2007.