<PAGE>   1

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1999

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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                         COMMISSION FILE NUMBER 0-22056

                            RURAL/METRO CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
                        DELAWARE                                                 86-0746929
<S>                                                       <C>
             (STATE OR OTHER JURISDICTION OF                                  (I.R.S. EMPLOYER
             INCORPORATION OR ORGANIZATION)                                  IDENTIFICATION NO.)
</TABLE>

            8401 EAST INDIAN SCHOOL ROAD, SCOTTSDALE, ARIZONA 85251
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (480) 994-3886

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                        PREFERRED STOCK PURCHASE RIGHTS
                                (TITLE OF CLASS)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     AS OF SEPTEMBER 22, 1999, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NON-AFFILIATES OF THE REGISTRANT, COMPUTED BY REFERENCE TO THE AVERAGE
SALES PRICE OF SUCH STOCK AS OF SUCH DATE ON THE NASDAQ NATIONAL MARKET, WAS
$91,137,077. SHARES OF COMMON STOCK HELD BY EACH OFFICER AND DIRECTOR AND BY
EACH PERSON WHO OWNED 5% OR MORE OF THE OUTSTANDING COMMON STOCK HAVE BEEN
EXCLUDED IN THAT SUCH PERSONS MAY BE DEEMED TO BE AFFILIATES. THIS DETERMINATION
OF AFFILIATE STATUS IS NOT NECESSARILY CONCLUSIVE.

     As of September 22, 1999, there were 14,577,468 shares of the registrant's
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's definitive Proxy Statement for the
registrant's 1999 Annual Meeting of Stockholders are incorporated by reference
in Part III hereof.

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<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<S>                                                           <C>
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT
  RESULTS...................................................    2
PART I
  ITEM 1.    BUSINESS.......................................    3
  ITEM 2.    PROPERTIES.....................................   30
  ITEM 3.    LEGAL PROCEEDINGS..............................   31
  ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
             HOLDERS........................................   31
PART II
  ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
             RELATED STOCKHOLDER MATTERS....................   32
  ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA...........   32
  ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF
             OPERATIONS.....................................   34
  ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
            MARKET RISK.....................................   43
  ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....   43
  ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ON ACCOUNTING AND FINANCIAL DISCLOSURE.........   78
PART III
  ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE
             REGISTRANT.....................................   78
  ITEM 11.   EXECUTIVE COMPENSATION.........................   78
  ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT.................................   78
  ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED
             TRANSACTIONS...................................   78
PART IV
  ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
             REPORTS ON FORM 8-K............................   79
SIGNATURES..................................................   83
</TABLE>

                                        1
<PAGE>   3

         FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS

     Forward Looking Statements.  Statements in this Report that are not
historical facts are hereby identified as "forward looking statements" as that
term is used under the securities laws. We caution readers that such "forward
looking statements," including those relating to our future business prospects,
the value of our common stock, revenue, working capital, accounts receivable
collection, liquidity, cash flow, and capital needs, wherever they appear in
this Report or in other statements attributable to us, are necessarily estimates
reflecting the best judgment of our senior management and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those suggested by the "forward looking statements." You should consider
such "forward looking statements" in light of various important factors,
including those set forth below and others set forth from time to time in our
reports and registration statements filed with the Securities and Exchange
Commission.

     These "forward looking statements" are found at various places throughout
this Report. Additionally, the discussions herein under the captions
"Business -- Strategy", "Business -- Management Systems", "Business -- Billings
and Collections", "Business -- Governmental Regulation",
"Business -- Reimbursement", "Legal Proceedings", and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are susceptible
to the risks and uncertainties discussed below and under the caption
"Business -- Special Considerations." Moreover, we may from time to time make
"forward looking statements" about matters described herein or other matters
concerning us. We disclaim any intent or obligation to update "forward looking
statements."

     Factors That May Affect Future Results.  The health care industry in
general and the ambulance industry in particular are in a state of significant
change. This makes us susceptible to various factors that may affect future
results such as the following: no assurance of successful integration and
operation of acquired service providers; growth strategy and difficulty in
maintaining growth; risks of leverage; revenue mix; dependence on certain
business relationships; risks related to intangible assets; dependence on
government and third-party payors; risks related to fee-for-service contracts;
possible adverse changes in reimbursement rates; impact of rate structures;
possible negative effects of prospective health care reform; high utilization of
services by customers under capitated service arrangements; competitive market
forces; fluctuation in quarterly results; volatility of stock price; dependence
on key personnel; and anti-takeover effect of certain of our charter provisions.

     For a more detailed discussion of these factors and their potential impact
on future results, see the applicable discussions herein.

     All references to "we," "our," "us," or "Rural/Metro" refer to Rural/Metro
Corporation, and its predecessors, operating divisions, and subsidiaries. Our
Web site is located at http://www.ruralmetro.com.

                                        2
<PAGE>   4

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

     We are a leading provider of health and safety services, which include
"911" emergency ambulance and general medical transport services, fire
protection services, and other safety and health care related services, to
municipal, residential, commercial, and industrial customers. We believe that we
are the only multi-state provider of both ambulance and fire protection services
in the United States and that we rank as one of the largest private-sector
providers of ambulance and fire protection services in the world. We currently
serve over 450 communities in 26 states, the District of Columbia, Canada, and
Latin America. Ambulance services and fire protection services accounted for
approximately 83% and 9%, respectively, of our revenue for the fiscal year ended
June 30, 1999, and 81% and 10%, respectively, of our revenue for the fiscal year
ended June 30, 1998.

     Founded in 1948, we have been instrumental in the development of protocols
and policies applicable to the emergency services industry. We have grown
significantly since the late 1970s both through internal growth and through
acquisitions. To manage this growth, we invested in the development of
management and operational systems that have resulted in productivity gains and
increased profitability. We believe our business competencies in communications
and logistics management position us to continue our growth internally as well
as through business alliances, acquisitions, and joint ventures and enable us to
operate successfully in both large and small communities. We completed 19
acquisitions in fiscal 1997, 11 acquisitions in fiscal 1998, and five
acquisitions in fiscal 1999. We also entered into a joint venture in the greater
Baltimore, Maryland and District of Columbia area and a public/private alliance
in the San Diego, California area during fiscal 1998.

     For a discussion of certain risks associated with our business, including
potential limitations on the future growth of our business, see "Special
Considerations" contained in Item 1 of this Report and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7 of this
Report.

INDUSTRY OVERVIEW

     Based on generally available industry data, it is estimated that annual
expenditures for ambulance services in the United States are between $4 billion
and $7 billion. Public-sector entities, private companies, hospitals, and
volunteer organizations provide ambulance services. Public-sector entities often
serve as the first responder to requests for such emergency ambulance services
and often provide emergency ambulance transport. When the public sector serves
as first responder, private companies often serve as the second responder and
support the first responder as needed. The private sector provides the majority
of general transport services. It is estimated that the ambulance service
industry includes more than 10,000 providers of service, 2,000 or more of which
are private and approximately 1,000 of which are hospital-owned. Most commercial
providers are small companies serving one or a limited number of markets.
Several multi-state providers, including us, have emerged through the
acquisition and consolidation of smaller ambulance service providers in recent
years.

     The growth in ambulance service expenditures in the United States has
resulted from both an increase in the number of transports and an increase in
the average expenditures per transport. The growth and aging of the population,
the greater use of outpatient care facilities and home care in response to
health care cost containment efforts, and increased patient travel between
specialized treatment health care facilities have increased the demand for
emergency medical services and general transport services. The increased
availability of "911" emergency service, the impact of educational programs on
its use, and the practice of some members of the population of utilizing a
hospital's emergency room as the source of their primary medical care also have
increased the number of ambulance transports. Industry considerations require
ambulance service providers to acquire more sophisticated emergency medical,
dispatch, and communications equipment, hire more highly trained personnel, and
develop more sophisticated dispatch and management systems to satisfy the faster
response time and higher quality of medical care assurance criteria required by

                                        3
<PAGE>   5

municipalities and fire districts for emergency ambulance services. Average
expenditures per ambulance transport have increased as a result of the
additional costs to meet these requirements. These requirements, combined with
the fragmented nature of the industry, have contributed to consolidation within
the industry. Service providers that do not have the financial or management
resources to meet the requirements for higher levels of service are candidates
for acquisition.

     Market reform continues to reshape the health care delivery system, with a
shift from fee-for-service relationships to managed care organizations. Managed
care organizations are focusing on cost containment measures while seeking to
provide the most appropriate level of service at the most appropriate treatment
facility. While ambulances typically transport patients to the nearest treatment
facility or to the facility designated by the applicable medical protocol,
managed care organizations are attempting to manage hospital utilization by
working with ambulance service providers to ensure transport of patients to
affiliated facilities and avoid unnecessary inter-facility transports. For
non-life threatening medical emergencies, managed care providers are beginning
to explore programs that encourage plan members to call the provider. Under this
program, a nurse answers the call, analyzes the medical situation, and
determines the best course of action and mode of transport. In an emergency
situation, an advanced life support ambulance will generally be dispatched. In
certain cases, patients could receive the required treatment level with a less
costly basic life support ambulance or other transportation alternative. In
Latin America, the current business model also encompasses mobile health care
utilizing call centers, telephone triage, urgent and primary care clinics, and
house calls by doctors and nurses. To manage such a system, the managed care
organization must contract with an ambulance service provider that has the mix
of vehicles and geographic scope to cover the entire region served by the
managed care provider and that can provide call center services.

     We believe the trend toward managed care benefits larger ambulance service
providers, which can service a larger portion of a managed care organization's
needs. This allows the managed care provider to reduce its number of suppliers,
cutting administrative costs and allowing it to negotiate more favorable rates.

     Based on our experience, we believe that our ambulance and fire protection
services are complementary. Municipal fire departments, tax-supported fire
districts, and volunteer fire departments constitute the principal providers of
fire protection services in the United States. In most of the communities served
by municipal fire departments and tax-supported fire districts, the fire
department is the first to respond to a call for emergency medical services.
Approximately 27,000 volunteer fire departments, covering approximately 40% of
the United States population, operate throughout the United States. Volunteer
fire departments range from departments consisting entirely of volunteer
personnel to departments that utilize one or more paid personnel located at each
station supplemented by volunteers who proceed directly to the fire scene. In
addition to providing fire protection services to municipalities and
tax-supported fire districts, the private sector also provides fire protection
services to industrial complexes, including airports, large industrial and
petrochemical plants, power plants, and other large self-contained facilities.

STRATEGY

     Our strategy is to leverage our experience and competencies in
communications and logistics management to enhance our position as a leading
provider of health and safety services in the United States and in other
countries. Key elements of this strategy include the origination of new
contracts with health care providers and municipalities, the acquisition of
ambulance service providers, and development of strategic alliances. Having
established a regional presence in many geographic locations, we currently are
focusing on increased marketing efforts to serve the health and safety needs of
the public and private sector, including services for health care providers,
expansion of fire protection and community safety services, integration of
health and safety operations, public/private partnering, and outsourcing of
other health and safety related services. We seek to improve productivity,
expand service offerings to customers, and attract new customers through
business alliances, joint ventures, or other cooperative business arrangements,
both domestically and internationally.

                                        4
<PAGE>   6

\ Expansion of Services to Meet the Evolving Needs of the Public Sector and
  Health Care Providers

     We plan to expand our general transport services through marketing efforts
to hospitals, health maintenance organizations, and other health care providers
and our emergency ambulance services through the pursuit of new contracts and
alliances with municipalities and fire districts. Based on our public/private
alliance with San Diego Fire & Life Safety Services and our ambulance service
contract in Aurora, Colorado, we believe that, in certain circumstances,
contracting and partnering may provide a cost-effective approach to expanding
into certain service areas. We will continue to seek to enter into
public/private alliances and municipal contracts to compete for new business. We
intend to respond to the needs of health care and managed care providers by
delivering high-quality, efficient, cost-effective services and by transporting
patients to the most appropriate treatment facility, particularly in those
geographic areas in which we have been able to achieve market leadership. We
believe that our communications and logistics skills will allow us to offer
services that will improve the responsiveness and cost-effectiveness of health
care services in a managed care environment. We expect to pursue alliances with
health care providers through the establishment of service contracts, through
the development of business relationships, and through strategic acquisitions of
health care and safety-related providers, which would provide opportunities for
us to integrate our services with such other service providers.

     In Latin America our business model encompasses mobile health care
utilizing call centers, telephone triage, and house calls by doctors and nurses.
We intend to expand this business model in Latin America by marketing these
services directly to individuals and large employers.

     In Canada, we contract with the Ontario Ministry of Health to provide
ambulance services in certain service areas in Ontario. The Province of Ontario
is currently privatizing its ambulance services. New service contracts will be
awarded by the local levels of government through a bid process. We will
continue to evaluate these contract opportunities as they arise.

  Expansion and Integration of Health and Safety Services

     We plan to continue our efforts to offer our community safety services by
providing fire protection and other safety-related services. We emphasize the
benefits of our services in terms of lower per capita fire service costs,
reduced insurance rates, and lower loss of life and property resulting from our
experience, fire prevention initiatives, management and operational systems, and
utilization of full-time fire fighters and part-time reservists. We respond to
the economic pressures on the public sector to reduce taxes and expenditures for
emergency services, including fire protection and other safety-related services,
by establishing public/private alliances with fire districts and municipalities.
We are also pursuing opportunities to provide fire protection and safety
services to large industrial complexes, including airports, industrial and
petrochemical plants, power plants, and other large self-contained facilities.
We currently offer other safety-related services on a very limited basis,
including our security monitoring and personal emergency response systems. We
plan to continue to leverage our communications and logistics skills to develop
and offer safety-related services. We also intend to leverage our sophisticated
systems and substantial experience with third-party payors to provide fire
districts and municipalities with business services, such as billings and
collections services.

     Because emergency medical response represents a significant portion of fire
response activity within many fire departments, we believe that our ambulance
and fire protection services operations are complementary. Building upon our
successful delivery of integrated ambulance and fire services under our
contracts with the City of Scottsdale and with Knox County, Tennessee and
through our public/private alliance with San Diego Fire & Life Safety Services,
we plan to continue the integration of our fire and ambulance services in
certain of our service areas and to pursue opportunities to provide integrated
services in new service areas. We believe that our integration of health and
safety services can provide operating economies, coordination of the delivery of
services, efficiencies in the use of personnel and equipment, and enhanced
levels of service, especially in lower-utilization communities.

                                        5
<PAGE>   7

  Acquisition of Ambulance Service Providers

     We seek acquisitions that enable us to establish new service areas both
domestically and internationally and acquisitions that enable us to expand our
operations within our existing service areas. We believe that the fragmented
nature of the industry, combined with the lack of capital and limited management
systems that characterize many providers, provides us with the opportunity to
acquire additional ambulance service providers, including hospital-owned
providers, that would benefit from our management and operational systems,
resulting in productivity gains and enhanced levels of service.

     We consider a number of factors in evaluating a proposed acquisition
candidate, including the quality of its management and medical personnel, its
historical operating results and future earnings potential, the size and
anticipated growth of its market, its relative position within that market, the
competition to be encountered in such market, and the impact of the candidate's
operations on our earnings. We continue to build our regional operations to
better position us to serve the developing managed care customer base. Our
ability to complete acquisitions depends upon the availability of cash from
operations or additional debt or equity financing, our capitalization, and the
market price of our common stock. A continuation of the depressed market price
of our common stock as of the date of this Report has resulted and may continue
to result in a slower pace of acquisitions in the future. See "Special
Considerations -- We have significant indebtedness," "-- We face risks
associated with rapid growth, integration, and acquisitions," and "-- The market
price of our common stock may be volatile" contained in Item 1 of this Report.

  Productivity Improvement and Enhancement

     We utilize our management and operational systems to enhance productivity
and profitability in our existing operations and in acquired operations and to
enhance our opportunities with joint venture and business alliance partners. The
standardization of certain functions and the centralization of certain key
management and operating systems development permit us to achieve economies of
scale at both the regional and corporate levels. We believe that establishing
market leadership in our various service areas enables us to more efficiently
utilize our equipment and personnel, to better serve large regional health care
providers, and to more effectively market our services and improve our
productivity. See "Special Considerations -- We face risks associated with rapid
growth, integration, and acquisitions" contained in Item 1 of this Report.

  Entrance into International Markets

     We plan to expand our presence in international health and safety and other
related services markets. To date, we have pursued opportunities in Canada and
Latin America, but we are assessing other areas. We intend to capitalize on the
growth opportunities created by the privatization of health and safety services
in markets such as Argentina and Ontario, Canada, and the expansion of health
insurance companies and health maintenance organizations into Latin America. We
believe select Latin America markets, including the nations of the MERCOSUR,
represent a growth opportunity and provide a model for a capitated health care
environment encompassing both ambulance transport and mobile health care
utilizing call centers, telephone triage, and house calls by doctors and nurses.
We evaluate opportunities to enter into international markets through
acquisitions or alliances based on factors such as the economic and political
climate, our ability to establish a strong strategic local relationship and a
solid corporate infrastructure of systems and management talent, the potential
to increase operating margins and returns on capital, and the opportunity to
offer value-added services that broaden our participation in the health care
market. In addition, we seek opportunities to provide fire protection and safety
services to industrial complexes, including airports and other large self-
contained facilities. See "Special Considerations -- We face risks associated
with rapid growth, integration, and acquisitions," and "-- We face additional
risks associated with our international operations" contained in Item 1 of this
Report.

                                        6
<PAGE>   8

CURRENT SERVICE AREAS

     We provide our services in over 450 communities in the following 26 states
and the District of Columbia, Canada, and Latin America:

<TABLE>
<S>                        <C>                        <C>
Alabama                    Kentucky                   Pennsylvania
Arizona                    Louisiana                  South Carolina
Arkansas                   Maryland                   South Dakota
California                 Mississippi                Tennessee
Colorado                   Nebraska                   Texas
Florida                    New Jersey                 Virginia
Georgia                    New York                   Washington
Indiana                    Ohio                       Wisconsin
Iowa                       Oregon
</TABLE>

     We provide ambulance services in these states, the District of Columbia,
and Canada primarily under the names Rural/Metro Ambulance and Rural/Metro
Medical Services and in certain areas of Arizona under the name Southwest
Ambulance. In Latin America, we provide urgent home medical care and ambulance
transport services under the name Emergencias Cardio Coronarias ("ECCO") and
provide urgent and primary care services in clinics under the name GEA. We may
operate under other names depending upon local statutes or contractual
agreements. We generally provide our ambulance services pursuant to a contract
or certificate of necessity on an exclusive or nonexclusive basis. We provide
"911" emergency ambulance services primarily pursuant to contracts or as a
result of providing fire protection services.

     In certain service areas, we are the only provider of both emergency
ambulance and general transport services. In other service areas, we compete for
general transport services. In all service areas, we respond to "911" emergency
calls if requested by a municipality or fire district, even in the absence of a
contract.

     We provide fire protection services under the name Rural/Metro Fire
Department in eight states and in Latin America.

AMBULANCE TRANSPORT SERVICES AND URGENT HOME MEDICAL CARE

  Emergency Medical Services

     We generally provide emergency medical ambulance services pursuant to
contracts with counties, fire districts, and municipalities. These contracts
typically appoint us as the exclusive provider of "911" emergency ambulance
services in designated service areas and require us to respond to every "911"
emergency medical call in those areas. We respond to virtually all "911" calls
with advanced life support ("ALS") ambulance units. We staff our ALS ambulance
units with two paramedics or one paramedic and an emergency medical technician
("EMT") and equip these units with ALS equipment (such as cardiac monitors,
defibrillators, and oxygen delivery systems) as well as pharmaceuticals and
medical supplies.

     Upon arrival at an emergency, the ALS crew members deploy portable life
support equipment, ascertain the patient's medical condition and, if required,
begin life support techniques and procedures that may include airway intubation,
cardiac monitoring, defibrillation of cardiac arrhythmias, and the
administration of medications and intravenous solutions. The crew also may
perform basic life support ("BLS") services, which include basic airway
management, hemorrhage control, stabilization of fractures, emergency
childbirth, and basic vehicle extrication. As soon as medically appropriate, the
patient is placed on a portable gurney and carried into the ambulance. While a
paramedic monitors and treats the patient, the other crew member drives the
ambulance to a hospital designated either by the patient or the applicable
medical protocol. En route, the ALS crew alerts the hospital regarding the
patient's medical condition, and if necessary, the attending paramedic seeks
advice from a hospital emergency room physician as to treatment. Upon arrival at
the hospital, the patient generally is taken to the emergency room.

                                        7
<PAGE>   9

  General Medical Transport Services

     We also provide ambulance services to patients requiring either advanced or
basic levels of medical supervision during transfer to and from residences and
health care facilities. These services may be provided when a home-bound patient
requires examination or treatment at a health care facility or when a hospital
inpatient requires tests or treatments (such as MRI testing, CAT scans,
dialysis, or chemotherapy treatment) available at another facility. We utilize
ALS or BLS ambulance units to provide general ambulance services depending on
the patient's needs and the proximity of available units. We staff our BLS
ambulance units with two EMTs and equip these units with medical supplies and
equipment necessary to administer first aid and basic medical treatment.

     We also provide critical care transport services to medically unstable
patients (such as cardiac patients and neonatal patients) who require critical
care while being transported between health care facilities. Critical care
services differ from ALS services in that the ambulance may be equipped with
additional medical equipment and may be staffed by a medical specialist provided
by us or by a health care facility to attend to a patient's special medical
needs.

     In addition to ambulance services, we provide non-medical transportation
for the handicapped and certain non-ambulatory persons in some service areas.
Such transportation generally takes place between residences or nursing homes
and hospitals or other health care facilities. In providing this service, we
utilize vans that contain hydraulic wheelchair lifts or ramps operated by
drivers who generally are trained in cardiopulmonary resuscitation ("CPR").

     We provide ambulance services, critical care transports, and nonmedical
transportation services pursuant to contracts with governmental agencies, health
care facilities, or at the request of a patient. Such services may be scheduled
in advance or provided on an as needed basis. Contracts with managed care
organizations provide for reimbursement on a per transport basis or on a
capitated basis under which we receive a fixed fee per person per month. We
currently have a contract to provide non-emergency ambulance transportation for
Aetna Health Plan of Ohio's 550,000 managed care plan members on a
fee-for-service basis. The contract may evolve into a capitated format after the
service utilization patterns are firmly established.

  Urgent Home Medical Care and Urgent and Primary Care in Clinics

     In Argentina, we have approximately 800,000 individual and business
customers that prepay monthly for urgent home medical care and ambulance
services under a capitated service arrangement. Personnel conduct telephone
triage and prioritize the dispatch of services to subscribers. Mobile services
may include the dispatch of physicians to the patient in an ambulance for
serious life threatening situations, or more frequently, in the physician's car,
thus covering a wider scope of service than the traditional U.S. ambulance
service model. In Cordoba, Argentina, we also have approximately 80,000
individual and business customers that pay monthly for urgent and primary care
services in three clinics under a capitated service arrangement.

  Medical Personnel and Quality Assurance

     Paramedics and EMTs must be state certified in order to transport patients
and to perform emergency care services. Certification as an EMT requires
completion of a minimum of 164 hours of training in a program designated by the
United States Department of Transportation and supervised by state authorities.
EMTs also may complete advanced training courses to become certified to provide
certain additional emergency care services, such as administration of
intravenous fluids and advanced airway management. In addition to completion of
the EMT training program, the certification as a paramedic requires the
completion of more than 800 hours of training in advanced patient care
assessment, pharmacology, cardiology, and clinical and field skills. Many of the
paramedics currently employed by us served as EMTs for us prior to their
certification as paramedics.

     Local physician advisory boards develop medical protocols to be followed by
paramedics and EMTs in a service area. In addition, instructions are conveyed on
a case-by-case basis through direct communications between the ambulance crew
and hospital emergency room physicians during the administration of advanced

                                        8
<PAGE>   10

life support procedures. Both paramedics and EMTs must complete continuing
education programs and, in some cases, state supervised refresher training
examinations to maintain their certifications. Certification and continuing
education requirements for paramedics and EMTs vary among states and counties.

     We maintain a commitment to provide high quality pre-hospital emergency
medical care. In each location in which we provide services, a medical director,
who usually is a physician associated with a hospital we serve, monitors
adherence to medical protocol and conducts periodic audits of the care provided.
In addition, we hold retrospective care audits with our employees to evaluate
compliance with medical and performance standards.

     We were one of the first ambulance service providers to obtain
accreditation for many of our larger ambulance operations from the Commission on
Accreditation of Ambulance Services, a joint program between the American
Ambulance Association and the American College of Emergency Physicians. The
process is voluntary and evaluates numerous qualitative factors in the delivery
of services. We believe municipalities and managed care providers will consider
accreditation as one of the criteria in awarding contracts in the future.

FIRE PROTECTION SERVICES

     Fire protection services consist primarily of fire prevention and fire
suppression. Other fire protection related activities include hazardous material
containment, underwater search and recovery, mountain and confined space rescue,
and public education. We provide various levels of fire protection services,
ranging from fire stations that are fully staffed 24 hours per day to reserve
stations. We generally provide our services to municipalities and other
governmental bodies pursuant to master contracts and to residences, commercial
establishments, and industrial complexes pursuant to subscription fee and other
fee-for-service arrangements. Federal and state governments contract with us
from time to time to suppress forest fires or wildfires on government lands.

     We have placed fire prevention and education in the forefront of our fire
protection services and have developed a comprehensive program to prevent and
minimize fires rather than emphasizing a standing army to respond to fires that
occur. We believe that effective fire protection requires the intensive training
of personnel, the effective utilization of fire equipment, the establishment of
effective communication centers for the receipt of emergency calls and the
dispatch of equipment and personnel, the establishment and enforcement of strict
fire codes, and community educational efforts. We believe that we provide fire
protection services at a cost significantly lower than the national average as a
result of our emphasis on fire prevention, our advanced systems, and our use of
a combination of full-time fire fighters and part-time reservists. Based upon
generally available industry data, we believe that fire loss per capita in the
areas we service has been substantially less than the national average.

  Fire Protection Personnel

     Our ability to provide our fire protection services at relatively low costs
results from our efficient use of personnel in addition to our fire prevention
efforts. Typically, personnel costs represent more than two-thirds of the cost
of providing fire protection services. We have been able to reduce our labor
costs through a system that utilizes full-time firefighters complemented by paid
part-time reservists as well as a modified every other day shift schedule. By
using trained reservists on an as needed basis, we have the ability to
supplement full-time fire fighters on a cost-effective basis. Reservists
comprise approximately 40% of our fire protection work force.

     All full-time and reservist firefighters undergo extensive training, which
exceeds the standards recommended by the National Fire Protection Association
("NFPA"), and must qualify for state certification before being eligible for
full-time employment by us. Since approximately 70% to 80% of our fire response
activity consists of emergency medical response, all of our firefighters are
trained EMTs and an increasing number of our firefighters are paramedics.
Ongoing training includes instruction in new fire service tactics and fire
fighting techniques as well as continual physical conditioning.

                                        9
<PAGE>   11

  Fire Response

     An alarm typically results in the dispatch of one or more engine companies
(each of which consists of an engine and two to four firefighters, including a
captain), a fire chief, and such other equipment as circumstances warrant. The
amount of equipment and personnel depends upon the type, location, and severity
of the incident. We utilize our dispatch capabilities to reposition equipment
and firefighters to maximize the availability and use of resources in a
cost-effective manner.

  Fire Prevention

     We believe that fire prevention programs result in both lower fire loss and
significant overall cost savings. Our fire prevention programs include advice
and recommendations for and the encouragement of various fire prevention
methods, including fire code design, building design to inhibit the spread of
fire, the design of automatic fire suppression sprinklers, fire detector and
smoke detector installations, the design of monitoring and alarm systems, the
placement and inspection of fire hydrants, fire code inspection and enforcement,
and the determination of fire cause and origin in arson suspected fires. In
addition, our personnel perform community education programs designed to reduce
the risk of fire and increase our community profile.

     We believe that our long standing public/private relationship with the City
of Scottsdale provides an example of an effective, cost-efficient fire
protection program. The Scottsdale program emphasizes our philosophy of fire
prevention. With our cooperation and assistance, the City of Scottsdale has
designed comprehensive fire prevention measures, including fire codes,
inspections, and sprinkler and smoke detector ordinances. We believe that as a
result of strict fire codes, the enactment of a sprinkler ordinance, and the
effectiveness of the services we provide, Scottsdale's per capita cost for fire
protection is 46% lower than the national average and that its per capita fire
loss is approximately one-third of the national average.

INDUSTRIAL FIRE PROTECTION SERVICES

     We provide fire protection services to large industrial complexes, such as
airports, large industrial and petrochemical plants, power plants, and other
self-contained facilities. We have contracts ranging up to five years in
duration and expiring at various dates up to September 2002 to provide
crash/rescue firefighting and hazardous materials response services at locations
in several states and at three airports in Bolivia. We intend to pursue similar
contracts domestically and internationally.

FIRE TRAINING SERVICES AND PROTECTION SERVICES

     We have instituted industrial fire training services and protection
services and provide sophisticated training for industrial, professional, and
specialized firefighters using live burn training to simulate realistic
firefighting situations. The training permits fire brigade and emergency
response teams to meet increased federal training requirements, the Occupational
Safety and Health Act ("OSHA") requirements, and other regulatory requirements
for work place safety and on-site response teams.

     We anticipate that our training services to industrial, petrochemical, and
other large private concerns will enhance our ability to enter into contractual
relationships to provide fire protection, security, and other safety-related
services to these concerns and permit the complexes to replace their fire
brigades with professional firefighters and emergency response teams. These
activities have not resulted in significant revenue to date. The combination of
fire protection services with security services in large industrial complexes
has the potential to provide for greater efficiency and utilization in the
delivery of such services and to result in reduced cost to the industrial
complexes for such services.

     We utilize our communications centers for home security, home fire alarm
monitoring, and personal emergency response systems monitoring to complement the
emergency services we offer. We believe protection services can be integrated
with fire protection and ambulance services for optimal efficiency and maximum
cost effectiveness.

                                       10
<PAGE>   12

MANAGEMENT SYSTEMS

     We utilize sophisticated management systems, which we believe enhance the
productivity and profitability of our existing operations and enable us to
enhance the productivity and profitability of acquired operations. These systems
permit us to achieve economies of scale at the local operational level through
the proper utilization of personnel and equipment and at the corporate level
through centralized systems for billings, collections, purchasing, accounting,
cash management, human resources and risk management.

     We have developed measurement systems that permit management to monitor the
performance level of each operation on a continual basis. Our centralized
management and information systems permit managers to direct their attention
primarily to operations. The systems include centralized billings and
collections procedures that provide for more efficient tracking and collection
of accounts receivable. Centralized purchasing permits us to achieve discounts
in the purchase of equipment and supplies through a company-developed catalogue
from which managers select items needed for their operations.

     We believe our investment in management systems and our effective use of
these systems represent key components in our success. Our financial reporting
system facilitates our successful integration of acquired companies. We place a
high priority on evaluating the management and reporting systems of acquired
operations and subsequently integrating or transitioning these systems to
improve operating efficiencies. Upon completion of an acquisition, we establish
critical success factors, including number of transports, ratio of transports to
calls, resource utilization and pricing statistics, which are monitored daily.
We focus on converting acquired businesses onto our technology to promote
consistent and timely reporting, taking over cash management functions, and
integrating acquired businesses into our LAN/WAN communications infrastructure.
We are committed to an ongoing enhancement of our systems to provide productive,
timely information and effective controls and believe that our management
systems have the capability to support sustained long-term growth. For
additional information regarding our ability to successfully integrate acquired
companies into our existing management systems, see "Special
Considerations -- We face risks associated with rapid growth, integration, and
acquisitions" contained in Item 1 of this Report.

HUMAN RESOURCES

     We strive to maximize operational autonomy of our managers. Managers
receive extensive training in the use of management systems, customer service,
and supervisory practices. Our human resources division is involved in the
training and integration of managers from acquired operations. Our centralized
human resources division increases our ability to assign the most appropriate
personnel for a position within any given operation and to reassign personnel as
necessary to meet operational needs. The human resources department participates
in training, career development, and succession planning of employees and
assesses our personnel needs.

DISPATCH AND COMMUNICATIONS

     We use system status plans and flexible deployment systems to position our
ambulances within a designated service area because effective fleet deployment
represents a key factor in reducing response time and increasing efficient use
of resources. In certain service areas with a large volume of calls, we analyze
data on traffic patterns, demographics, usage frequency, and similar factors
with the aid of computers to help us determine optimal ambulance deployment and
selection. The center that controls the deployment and dispatch of ambulances in
response to calls for ambulance service may be owned and operated either by the
applicable county or municipality or by us. Each control center utilizes
computer hardware and software and sophisticated communications equipment and
maintains responsibility for fleet deployment and utilization 24 hours a day,
seven days a week.

     Depending on the emergency medical dispatch system used in a designated
service area, the public authority that receives "911" emergency medical calls
either dispatches our ambulances directly from the public control center or
communicates information regarding the location and type of medical emergency to
our control center, which in turn dispatches ambulances to the scene. In most
service areas, our control center receives the calls from the police after the
police have determined the call is for emergency medical services. When we
receive the "911" call, we dispatch one or more ambulances directly from our
control center while the call taker communicates with the caller. All call
takers and dispatchers are trained EMTs with additional
                                       11
<PAGE>   13

training that enables them to instruct a caller about applicable pre-arrival
emergency medical procedures, if necessary. In our larger control centers, a
computer assists the dispatcher by analyzing a number of factors, such as time
of day, ambulance location, and historical traffic patterns, in order to
recommend optimal ambulance selection. In all cases, a dispatcher selects and
dispatches the ambulance. While the ambulance is en route to the scene, the
ambulance receives information concerning the patient's condition prior to the
ambulance's arrival at the scene.

     Our communication systems allow the ambulance crew to communicate directly
with the destination hospital to alert hospital medical personnel of the arrival
of the patient and the patient's condition and to receive instructions directly
from emergency room personnel on specific pre-hospital medical treatment. These
systems also facilitate close and direct coordination with other emergency
service providers, such as the appropriate police and fire departments, that
also may be responding to a call.

     Deployment and dispatch also represent important factors in providing
non-emergency ambulance services. We implement system status plans for these
services designed to assure appropriate response times to non-emergency calls.
We are working to develop a demand management system that integrates medical
protocols with our logistics and "911" based communications expertise. In our
Argentina operations, we combine telephone triage, medical transport services,
and urgent home medical care services in order to improve the responsiveness and
cost-effectiveness of health care delivery in a managed care system. Each call
center staff is supervised by physicians and uses medical protocols to analyze
and triage the medical situation and determine the best mode of care.

     We utilize communication centers in our community fire protection
activities for the receipt of fire alarms and the dispatch of equipment and
personnel that are the same as or similar to those maintained for our ambulance
services. Response time represents an important criteria in the effectiveness of
fire suppression. Depending upon the area served, our response time from the
receipt of a call to the arrival on the scene generally varies from four to
fifteen minutes. Response times depend on the level of protection sought by our
customers in terms of fire station spacing, the size of the service area
covered, and the amount of equipment and personnel dedicated to fire protection.

BILLINGS AND COLLECTIONS

     We currently maintain 15 domestic regional billing and payment processing
centers and a centralized collection system at our headquarters in Arizona.
Invoices are generated at the regional level, and the account is processed by
the centralized collection system only if payment is not received in a timely
manner. Customer service is directed from each of the regional centers.
Depending on size and geography, we integrate acquired businesses into existing
regional billing and payment centers or create a stand-alone billing and payment
center. Substantially all of our revenue is billed and collected through our
integrated billing and collection system, except for our operations in Columbus,
Ohio; Rochester, New York; and the Metro New York City/ New Jersey area. We plan
to integrate our operations in Columbus into our integrated billing and
collection system during the first half of fiscal 2000. We will continue to
review the benefits and timing of integrating the remaining two non-integrated
billing centers.

     We derive a substantial portion of our ambulance fee collections from
reimbursement by third-party payors, including payments under Medicare,
Medicaid, and private insurance programs, typically invoicing and collecting
payments directly to and from those third-party payors. We also collect payments
directly from patients, including payments under deductible and co-insurance
provisions and otherwise. We derived domestic net ambulance fee collections from
the following:

<TABLE>
<CAPTION>
                                                          1997    1998    1999
                                                          ----    ----    ----
<S>                                                       <C>     <C>     <C>
Medicare................................................   26%     29%     24%
Medicaid................................................   10%     11%     10%
Private insurers........................................   38%     39%     41%
Patients................................................   26%     21%     25%
                                                          ---     ---     ---
                                                          100%    100%    100%
                                                          ===     ===     ===
</TABLE>

                                       12
<PAGE>   14

     Companies in the ambulance service industry maintain high provisions for
doubtful accounts relative to companies in other industries. Collection of
complete and accurate patient billing information during an emergency service
call is sometimes difficult, and incomplete information hinders post-service
collection efforts. In addition, it is not possible for us to evaluate the
creditworthiness of patients requiring emergency transport services. Our
allowance for doubtful accounts generally is higher with respect to revenue
derived directly from patients than for revenue derived from third-party payors
and generally is higher for transports resulting from "911" emergency calls than
for general transport requests. See "Special Considerations -- We depend on
reimbursements by third-party payors and individuals," and "-- Proposed rules
may adversely affect our reimbursement rates of coverage" contained in Item 1 of
this Report.

     We have substantial experience in processing claims to third-party payors
and employ a collection staff specifically trained in third-party coverage and
reimbursement procedures. Our integrated billing and collection system uses
specialized proprietary software systems to specifically tailor the submission
of claims to Medicare, Medicaid, and certain other third-party payors and has
the capability to electronically submit claims to the extent third-party payors'
systems permit. Our integrated billing and collection system provides for
accurate tracking of accounts receivable and status pending payment, which
facilitates the effective utilization of personnel resources to resolve workload
distribution and problem invoices. When billing individuals rather than
third-party payors, we use an automated dialer that preselects and dials
accounts based on their status within the billing and collection cycle, which
optimizes the efficiency of the collection staff. We believe the integration of
acquired businesses into our integrated billing and collection system
standardizes and improves the efficiency of billings and collections.

     We have leveraged our systems and experience in processing third-party
payor claims to provide billing and collection services to fire departments and
municipalities in Phoenix, Dallas, and San Diego. We intend to seek
opportunities to enter into similar contracts in other communities.

     State licensing requirements as well as contracts with counties,
municipalities, and health care facilities typically require us to provide
ambulance services without regard to a patient's insurance coverage or ability
to pay. As a result, we often do not receive compensation for services provided
to patients who are not covered by Medicare, Medicaid, or private insurance. The
anticipated level of uncompensated care and allowance for uncollectible accounts
may be considered in determining our subsidy and permitted rates under contracts
with a county or municipality.

MARKETING AND SALES

     Counties, fire districts, and municipalities generally award contracts to
provide "911" emergency services either through requests for competitive
proposals or bidding processes. In some instances in which we are the existing
provider, the county or municipality may elect to renegotiate our existing
contract rather than re-bid the contract. We believe that counties, fire
districts, and municipalities consider the quality of care, historical response
time performance, and total cost, both to the municipality or county and to the
public, to be among the most important factors in awarding contracts. In
addition, we will continue to seek to enter into public/private alliances to
compete for new business. Our alliance with San Diego Fire & Life Safety
Services allowed the entities to bid for and win a five-year contract to provide
"911" and ambulance services throughout the City of San Diego.

     We market our non-emergency ambulance services to hospitals, health
maintenance organizations, convalescent homes, and other health care facilities
that require a stable and reliable source of medical transportation for their
patients. We believe that our status as a "911" provider in a designated service
area increases our visibility and enhances our marketing efforts for
non-emergency services in that area. Contracts for non-emergency services
usually are based on criteria (such as quality of care, customer service,
response time, and cost) similar to those in contracts for emergency services.
We further believe that our strategy of building regional operations will better
position us to serve the developing managed care market.

                                       13
<PAGE>   15

     We market our fire protection services to subscribers in rural and suburban
areas, volunteer fire departments, tax-supported fire districts, newly developed
communities, and industrial complexes, including airports, large industrial and
petrochemical plants, power plants, and other large self-contained facilities.
Subscription fees are collected annually in advance. In the event that we
provide service for a nonsubscriber, we directly bill the property owner for the
cost of services rendered. We also provide fire protection services to newly
developed communities where the subscription fee may be included in the
homeowner's association assessment.

CONTRACTS

     We enter into contracts with counties, municipalities, and fire districts
to provide "911" emergency ambulance services in designated service areas. These
contracts typically specify maximum fees that we may charge and set forth
required criteria, such as response times, staffing levels, types of vehicles
and equipment, quality assurance, and insurance coverage. Counties,
municipalities, and fire districts also may require us to provide a performance
bond or other assurances of financial responsibility. The amount of the subsidy,
if any, that we receive from a county, municipality, or fire district, and the
rates that we may charge for services under a contract for emergency ambulance
services, depend in large part on the nature of the services rendered and
performance requirements.

     The four largest ambulance contracts accounted for 13% of total revenue
during fiscal 1997, 9% of total revenue during fiscal 1998, and 8% of total
revenue during fiscal 1999. The largest of these contracts was Orange County,
Florida, which accounted for 5% of total revenue during fiscal 1997, 4% of total
revenue during fiscal 1998, and 3% of total revenue during fiscal 1999. Rates
charged under the Orange County contract are agreed upon between us and the
County. We do not receive any subsidy from the county under this contract. The
Orange County contract was first entered into in 1962 by a provider acquired by
us in 1984. Although we expect that this contract will be renewed, we may not
retain this contract on terms as favorable, if at all.

     We provide fire protection services pursuant to master contracts or on a
subscription basis. Master contracts provide for negotiated rates with
governmental entities. Certain contracts are performance-based and require us to
meet certain dispatch and response times in a certain percentage of responses.
These contracts also set maximum thresholds for variances from the performance
criteria. These contracts establish the level of service required and may
encompass fire prevention and education activities as well as fire suppression.
Other contracts are level-of-effort based and require us to provide a certain
number of personnel for a certain time period for a particular function, such as
fire prevention or fire suppression. The largest of these contracts accounted
for 3% of total revenue during fiscal 1997, 2% of total revenue for the fiscal
1998, and 2% of total revenue during fiscal 1999.

     We provide fire protection services on a subscription basis in areas where
no governmental entity has assumed the financial responsibility for providing
fire protection. We derived approximately 50% of our fire protection service
revenue from subscriptions for fiscal 1997, 49% for fiscal 1998, and 48% for
fiscal 1999. We experienced renewal rates of approximately 88% during the prior
three fiscal years. Fire subscription rates are not currently regulated by any
government agency in our service areas.

     Our contracts generally extend for terms of two to five years, with several
contracts having terms of up to 10 years. We attempt to renegotiate contracts in
advance of the expiration date and generally have been successful in these
renegotiations. We monitor our performance under each contract. From time to
time, we may decide that certain contracts are no longer favorable and may seek
to modify or terminate these contracts. At June 30, 1999, we had approximately
130 contracts with counties, fire districts, and municipalities for ambulance
services and for fire protection services. The following table sets forth
certain information regarding our five primary contracts at June 30, 1999 with
counties, fire districts, and municipalities for ambulance services and for fire
protection services.

                                       14
<PAGE>   16

<TABLE>
<CAPTION>
                                                           EXPIRATION
                                         TERM IN YEARS        DATE        TYPE OF SERVICE(1)
                                         -------------    ------------    ------------------
<S>                                      <C>              <C>             <C>
Ambulance
  Orange County, Florida(2)............        2          October 1999    911/General
  Rochester, New York(3)...............        4          October 2000    911
  Knox County, Tennessee(4)............        4             June 2002    911
  Aurora, Colorado(5)..................        5             July 2003    911
Integrated Fire and Ambulance
  Scottsdale, Arizona(6)...............        5             July 2001    911
</TABLE>

---------------
     (1) Type of service for ambulance contracts indicates whether "911"
         emergency or general ambulance services or both are provided pursuant
         to the contract.

     (2) The contract was first entered into in 1962 by a provider that was
         acquired by us in July 1984.

     (3) The contract was first entered into in 1988 by a provider that was
         acquired by us in May 1994.

     (4) The contract was first entered into in July 1985 by us.

     (5) The contract was first entered into in July 1998 by us.

     (6) The contract was first entered into in 1952 by us. The contract has two
         five-year renewal options exercisable by the City of Scottsdale.

     We also enter into contracts with hospitals, nursing homes, and other
health care facilities to provide non-emergency and critical care ambulance
services. These contracts typically designate us as the first ambulance service
provider contacted to provide non-emergency ambulance services to those
facilities and permit us to charge a base fee, mileage reimbursement, and
additional fees for the use of particular medical equipment and supplies. We
provide a discount in rates charged to facilities that assume the responsibility
for payment of the charges to the persons receiving services. At June 30, 1999,
we had approximately 1,100 contracts with hospitals, nursing homes and other
health care facilities. No significant contracts, individually or collectively,
were obtained or lost during the year ended June 30, 1999. See "Special
Considerations -- We depend on certain business relationships" contained in Item
1 of this Report.

     On August 1, 1999, we began operation of our contract in Fort Worth, Texas
and 12 surrounding communities. We are the sole provider of "911" emergency and
non-emergency ambulance services pursuant to our contract with the Fort Worth
Area Metropolitan Ambulance Authority. The contract provides for our services to
be paid on a monthly basis. We believe our costs of collection under this
contract will be substantially less than those historically incurred by us.

COMPETITION

     The ambulance service industry is highly competitive. The principal
participants include governmental entities (including fire districts), other
national ambulance service providers, large regional ambulance service
providers, hospitals, and numerous local and volunteer private providers.
Counties, municipalities, fire districts, hospitals, or health care
organizations that presently contract for ambulance services may choose to
provide ambulance services directly in the future. We are experiencing increased
competition from fire departments in providing emergency ambulance service.
However, we believe that the general transport services market currently is not
attractive to fire departments. Some of our current competitors and certain
potential competitors have greater capital and other resources than we do.
Ambulance and general transport service providers compete primarily on the basis
of quality of service, performance, and cost. We believe that counties, fire
districts, and municipalities consider quality of care, historical response time
performance, and cost to be among the most important factors in awarding a
contract, although other factors, such as customer service, financial stability,
and personnel policies and practices, also may be considered. Although
commercial providers often compete intensely for business within a particular
community, it is generally difficult to displace a provider that has a history
of satisfying the quality of care and response time performance criteria
established within the service area. Moreover, significant start-up costs
together with the long-term nature of the contracts under which services are
provided and the relationships many providers have within their

                                       15
<PAGE>   17

communities create barriers to providers seeking to enter new markets other than
through acquisition. We believe that our status as a "911" provider in a service
area increases our visibility and stature and enhances our ability to compete
for non-emergency services within that area. Because smaller ambulance providers
do not have the infrastructure to provide "911" services, we believe we can
compete favorably with such competitors for general transport services
contracts.

     Fire protection services for residential and commercial properties are
provided primarily by tax-supported fire districts, municipal fire departments,
and volunteer departments. Private providers represent a small portion of the
total fire protection market and generally provide fire protection services
where a tax-supported fire district or municipality has decided to contract for
the provision of fire protection services or has not assumed financial
responsibility for fire protection. Fire districts or municipalities may not
continue to contract for fire protection services. In areas where no
governmental entity has assumed financial responsibility for providing fire
protection, we provide fire protection services on a subscription basis.
Municipalities may annex a subscription area or that area may be converted to a
fire district that provides service directly rather than through a master
contract. See "Special Considerations -- We are in a highly competitive
industry" contained in Item 1 of this Report.

GOVERNMENTAL REGULATION

     Our business is subject to governmental regulation at the federal, state,
local, and foreign levels. At the federal level, we are subject to regulations
under OSHA designed to protect our employees. The federal government also
recommends standards for ambulance design and construction, medical training
curriculum, and designation of appropriate trauma facilities. Various state
agencies may modify these standards.

     Each state in which we operate regulates various aspects of its ambulance
and fire business. State requirements govern the licensing or certification of
ambulance service providers, training and certification of medical personnel,
the scope of services that may be provided by medical personnel, staffing
requirements, medical control, medical procedures, communication systems,
vehicles, and equipment. Our contracts in our current service areas typically
prescribe maximum rates that we may charge for services. The process of
determining rates includes cost reviews, analyses of levels of reimbursement
from all sources, and determination of reasonable profits. Rate setting agencies
may set rates to compensate service providers by requiring paying customers to
subsidize those who do not or cannot pay. Regulations applicable to ambulance
services may vary widely from state to state.

     Applicable federal, state, local, and foreign laws and regulations are
subject to change. We believe that we currently are in substantial compliance
with applicable regulatory requirements. These regulatory requirements, however,
may require us in the future to increase our capital and operating expenditures
in order to maintain current operations or initiate new operations. See "Special
Considerations -- Proposed rules may adversely affect our reimbursement rates of
coverage," "-- Certain state and local governments regulate rate structures and
limit rates of return," "-- Numerous governmental entities regulate our
business," and "-- Health care reforms and cost containment may affect our
business" contained in Item 1 of this Report.

REIMBURSEMENT

     We must comply with various requirements in connection with our
participation in Medicare and Medicaid. Medicare is a federal health insurance
program for the elderly and for chronically disabled individuals, which pays for
ambulance services when medically necessary. Medicare uses a charge-based
reimbursement system for ambulance services and reimburses 80% of charges
determined to be reasonable by Medicare, subject to the limits fixed for the
particular geographic area. The patient is responsible for paying co-pays,
deductibles and the remaining balance, if we do not accept assignment, and
Medicare requires us to expend reasonable efforts to collect the balance. In
determining reasonable charges, Medicare considers and applies the lowest of
various charge factors, including the actual charge, the customary charge, the
prevailing charge in the same locality, the amount of reimbursement for
comparable services, or the inflation-indexed charge limit.

                                       16
<PAGE>   18

     Medicaid is a combined federal-state program for medical assistance to
impoverished individuals who are aged, blind, or disabled or members of families
with dependent children. Medicaid programs or a state equivalent exist in all
states in which we operate. Although Medicaid programs differ in certain
respects from state to state, all are subject to federal requirements. State
Medicaid agencies have the authority to set levels of reimbursement within
federal guidelines. We receive only the reimbursement permitted by Medicaid and
are not permitted to collect from the patient any difference between our
customary charge and the amount reimbursed.

     Like other Medicare and Medicaid providers, we are subject to governmental
audits of its Medicare and Medicaid reimbursement claims. We have not
experienced significant losses as a result of any such audit.

     Government funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
determinations by intermediaries and governmental funding restrictions, all of
which could materially increase or decrease program reimbursements for ambulance
services. In recent years, Congress has consistently attempted to curb federal
spending on such programs. During June 1997, the Health Care Financing
Administration ("HCFA") issued proposed rules that would revise Medicare policy
on the coverage of ambulance services. Reimbursement is currently permitted if,
based on an assessment of the patient's condition, it is determined that ALS
service is medically necessary or if ALS response is required under "911"
contracts or state or local law. The new proposal would reimburse at ALS rates
only if ALS services were medically necessary. The proposed HCFA rules would
also require, among other things, that a physician's certification be obtained
prior to furnishing non-emergency ambulance service to patients, that certain
ambulance staffing requirements be maintained, that certain equipment be present
in each ambulance, and that certain additional information and documentation be
provided in order to qualify for reimbursement under the Medicare program. The
proposed rules have not been finalized. If implemented, these rules could result
in contract renegotiations or other action by us to offset any negative impact
of the proposed change in reimbursement policies and could have a material
adverse effect.

     During August 1997, President Clinton signed the "Balanced Budget Act of
1997", or BBA. The BBA provides for certain changes to the Medicare
reimbursement system, including the development and implementation of a
prospective fee schedule by January 2000 for ambulance services provided to
Medicare beneficiaries. The BBA mandates that this fee schedule be developed
through a negotiated rulemaking process between HCFA and ambulance service
providers and must consider the following: (i) data from industry and other
organizations involved in the delivery of ambulance services; (ii) mechanisms to
control increases in expenditures for ambulance services; (iii) appropriate
regional and operational differences; (iv) adjustments to payment rates to
account for inflation and other relevant factors; and (v) the phase-in of
payment rates under the fee schedule in an efficient and fair manner. Charges
for ambulance services provided during calendar years 1998 and 1999 will be
increased by the Consumer Price Index less one percentage point.

     The BBA requires that, beginning January 1, 2000, ambulance service
providers accept assignment of payment directly from Medicare and accept such
amount, along with the co-pay and deductible paid by the patient, as payment in
full. The BBA also applies the Skilled Nursing Facility Prospective Payment
System ("SNFPPS") to a limited number of ambulance trips to and from nursing
homes. The application of SNFPPS could require us to negotiate new contracts or
arrangements with skilled nursing facilities to provide ambulance services.

     The BBA also stipulates that individual states may now elect not to provide
payment for cost-sharing for coinsurance, or copayments, for dual-qualified
(Medicare and Medicaid) beneficiaries.

     In January 1999, HCFA announced its intention to form a negotiated
rule-making committee to create a new fee schedule for Medicare reimbursement of
ambulance services. The committee convened in February 1999. In August 1999,
HCFA announced that the implementation of the prospective fee schedule as well
as the mandatory acceptance of assignment will be postponed to January 2001.
HCFA also announced rules that became effective in February 1999, which require,
among other things, that a physician's certification be obtained for certain
ambulance transports. We have implemented a program to comply with these new
rules.

                                       17
<PAGE>   19

     We could take certain actions to partially mitigate any adverse effect of
these changes. These actions could include renegotiation of rates and contract
subsidies provided in our "911" ambulance service contracts and changes in
staffing of ambulance crews based upon the negotiation for longer response times
under ambulance service contracts to reduce operating costs.

     We face risks and uncertainties regarding the proposed HCFA rules or other
proposals involving various aspects of Medicare reimbursements including the
following:

     - the proposed HCFA rules, or other proposals involving various aspects of
       Medicare reimbursements may not be adopted or implemented;

     - we are uncertain regarding the effect on us of any such adoption and
       implementation;

     - we are uncertain of the impact of a prospective fee schedule; and

     - future funding levels for Medicare and Medicaid programs may not be
       comparable to present levels.

Changes in the reimbursement policies, or other government action, could
adversely affect our business, financial condition, cash flows, and results of
operations.

INSURANCE

     We carry a broad range of automobile and general liability, comprehensive
property damage, malpractice, workers' compensation, and other insurance
coverages that we consider adequate for the protection of our assets and
operations, subject to certain self insurance retentions up to $250,000. We
operate in some states that adhere to legal standards that hold emergency
service providers to a gross negligence standard in the delivery of emergency
medical care, thereby subjecting them to less exposure for tort judgments. We
are subject to accident claims as a result of the normal operation of our fleet
of ambulances and fire vehicles. The coverage limits of our policies may not be
adequate or such insurance may not continue to be available on commercially
reasonable terms. A successful claim against us in excess of our insurance
coverage could have a material adverse effect on our business, financial
condition, cash flows, and results of operations. Claims against us, regardless
of their merit or outcome, also may have an adverse effect on our reputation and
business. We have undertaken to minimize our exposure through our risk
management program.

EMPLOYEES

     At September 22, 1999, we employed approximately 8,100 full-time and 3,950
part-time employees, including approximately 7,400 involved in ambulance
services, 500 in fire protection services, 550 in integrated ambulance and fire
protection services, 1,050 in urgent home medical and clinical care services,
and 2,550 in management, administrative, clerical, and billing activities. Of
these employees, 3,050 are paramedics and 4,400 are EMTs. We are a party to
collective bargaining agreements relating to our Rochester, New York, Gadsden,
Alabama and Arlington, Texas operations and to certain of our ambulance services
employees in Arizona. We are currently negotiating collective bargaining
agreements in other service areas. We consider our relations with employees to
be good.

                                       18
<PAGE>   20

EXECUTIVE OFFICERS AND KEY EMPLOYEES

<TABLE>
<CAPTION>
              NAME                 AGE                            POSITION
              ----                 ---                            --------
<S>                                <C>   <C>
John B. Furman...................  55    President, Chief Executive Officer, and Director
Robert E. Ramsey.................  53    Executive Vice President and Director
Jack E. Brucker..................  47    Senior Vice President and Chief Operating Officer
William R. Crowell...............  40    Senior Vice President -- Finance and Acquisitions
Mark E. Liebner..................  47    Senior Vice President -- Chief Financial Officer &
                                         Treasurer
Catherine R. Eden................  50    Vice President -- Public Affairs and Marketing
Robert B. Hillier................  50    Vice President -- Human Resources
Dean P. Hoffman..................  39    Vice President -- Financial Services
Susan J. Outland.................  48    Vice President -- Technology Support Services
David J. Samuels.................  43    Vice President -- Healthcare Services
Michel A. Sucher, M.D. ..........  52    Vice President -- Medical Affairs
Louis G. Jekel...................  58    Secretary and Director
</TABLE>

     JOHN B. FURMAN has served as our President and Chief Executive Officer
since August 1998 and has been a member of our Board of Directors since November
1998. Prior to joining our company, Mr. Furman was a Senior Member and Chairman
of the business law and financial services group of O'Connor, Cavanagh,
Anderson, Killingsworth & Beshears, a Professional Association, a Phoenix,
Arizona-based law firm, which he joined in December 1983. As a member of that
firm, Mr. Furman served as our primary outside counsel for more than 10 years,
representing us in substantially all of our acquisitions and capital market
activities. From April 1978 to December 1983, he was Associate General Counsel
for Waste Management, Inc.

     ROBERT E. RAMSEY has served as our Executive Vice President since August
1998. He served as Senior Vice President from June 1997 until August 1998 and as
a member of our Board of Directors since June 1997. Prior to that, Mr. Ramsey
served as President and Chief Executive Officer of The Southwest Ambulance
Companies, which he founded in 1982. The Southwest Ambulance Companies were
purchased by us in June 1997.

     JACK E. BRUCKER has served as our Senior Vice President and Chief Operating
Officer since December 1997. Mr. Brucker founded and served as President of
Pacific Holdings, a strategic consulting firm, from July 1989 until December
1997. Mr. Brucker served as President of Pacific Precision Metals, a consumer
products company, from September 1987 until June 1989.

     WILLIAM R. CROWELL has served as our Senior Vice President -- Finance and
Acquisitions since July 1997 after having served as our Vice
President -- Financial Services since January 1993. Mr. Crowell is a certified
public accountant.

     MARK E. LIEBNER has served as our Senior Vice President since August 1994
and as our Chief Financial Officer since October 1991. From October 1991 to
August 1994, Mr. Liebner served as our Vice President.

     CATHERINE R. EDEN has served as our Vice President -- Public Affairs and
Marketing since December 1998. From June 1997 to December 1998, Ms. Eden served
as the Faculty Chair of the Public Administration Department at Rio Salado
College. From September 1996 to June 1997 she was a public affairs consultant in
private practice. From December 1994 to September 1996, she served as Assistant
Director at Health Partners of Arizona and from January 1990 to December 1994
she served as Legislative Representative in the Arizona House of Representatives
and served as faculty of Rio Salado Community College and of the College of
Public Programs at Arizona State University.

     ROBERT B. HILLIER has served as our Vice President -- Human Resources since
October 1997. Mr. Hillier served as Account Manager and Human Resources
Consultant of Watson Wyatt Worldwide from January 1995 to October 1997. From
November 1992 to December 1994, he contracted with Bank of America to organize
Caliber Bank of Arizona and later served as Director of Human Resources of
Caliber Bank of Arizona.

                                       19
<PAGE>   21

     DEAN P. HOFFMAN has served as our Vice President -- Financial Services
since July 1997 after having served as our Director of Finance from June 1994 to
June 1997. Mr. Hoffman is a certified public accountant.

     SUSAN J. OUTLAND has served as our Vice President -- Technology Support
Services and Chief Technology Officer since February 1999. From January 1997 to
February 1999, Ms. Outland was a Regional Vice President of Business Information
Technology, a software implementation consulting company. From January 1993 to
January 1997, Ms. Outland served as MIS Director for Napa County, California.

     DAVID J. SAMUELS has served as our Vice President -- Healthcare Services
since January 1999. Prior to joining our company, Mr. Samuels served as Chief
Executive Officer of Samaritan Air Evac from March 1992 through January 1999.

     MICHEL A. SUCHER, M.D., has served as our Vice President -- Medical Affairs
since January 1995. He served as our National Medical Director from 1984 to
1995. From 1974 to 1995, Dr. Sucher engaged in the private practice of emergency
medicine and held several positions at Scottsdale Healthcare, including the most
recent position as President of the Medical Staff. Dr. Sucher is board certified
by the American Board of Emergency Medicine and is a member of the American
College of Emergency Physicians.

     LOUIS G. JEKEL has served as our Secretary and as a member of our Board of
Directors since 1968 and has served as Vice-Chairman since August 1998. Mr.
Jekel directs our Wildland Fire Protection Operations with the State of Arizona
and the federal government. Mr. Jekel is a partner in the law firm of Jekel &
Howard, Scottsdale, Arizona.

                                       20
<PAGE>   22

                             SPECIAL CONSIDERATIONS

     The following factors, in addition to those discussed elsewhere in this
Report, should be carefully considered in evaluating us and our business.

WE HAVE SIGNIFICANT INDEBTEDNESS.

     We have significant indebtedness. As of June 30, 1999, we owed lenders 1.4
times our total stockholders' equity, based on $274.3 million of consolidated
indebtedness and $196.8 million of stockholders' equity. In March 1998, we sold
$150 million of 7 7/8% senior notes due in 2008. At the same time as this debt
offering, we renegotiated our then existing $200 million bank revolving credit
facility to create a parity loan with the senior notes and to extend the
maturity of the credit facility to March 2003. We used the proceeds from the
senior notes to repay the then current outstanding bank revolving credit
facility.

     The senior notes were issued under an agreement among us, certain of our
subsidiaries as guarantors, and the First National Bank of Chicago as trustee.
The agreement permits us to incur additional debt under certain conditions, and
we expect to incur such additional debt by obtaining advances on the bank
revolving credit facility. Our ability to repay the senior notes and other debt
depends on our future operating performance, which is affected by governmental
regulations, the state of the economy, financial factors, and other factors,
certain of which are beyond our control. We cannot provide assurance that we
will generate sufficient funds to enable us to make our periodic debt payments.

     Our leverage and related covenants could materially and adversely affect
our competitive position and our ability to withstand adverse economic
conditions. Furthermore, our debt and related covenants could make it more
difficult for us to make material acquisitions, obtain future financing, or take
advantage of business opportunities that may arise. If we are unable to service
our debt, we will be required to pursue alternative means of repayment, which
could include restructuring or refinancing some or all of our debt, raising
additional equity, or selling all or a portion of our tangible and/or intangible
assets. We cannot provide assurance that we could implement any of these
strategies on satisfactory terms.

     The amount of our debt could also have important consequences, including
the following:

     - impairing our ability to obtain additional financing in the future for
       operating expenses, acquisitions, or general corporate purposes,

     - dedicating our cash flow from operations to making periodic principal and
       interest payments on debt, instead of using these funds for operations,

     - requiring constant monitoring of our financial condition to ensure that
       we comply with all of the required debt covenants,

     - limiting our ability to incur additional debt, create other liens, pay
       dividends, or sell assets, and

     - making us vulnerable to industry changes, including new laws and changing
       economic conditions.

                                       21
<PAGE>   23

LENDERS IMPOSE RESTRICTIVE COVENANTS ON US.

     As stated above, the agreement governing the terms of the senior notes
contains certain covenants limiting our ability to

<TABLE>
<S>                                        <C>

- incur certain additional debt            - create certain liens
- pay dividends                            - issue guarantees
- redeem capital stock                     - enter into transactions with affiliates
- make certain investments                 - sell assets
- issue capital stock of subsidiaries      - complete certain mergers and
                                             consolidations.
</TABLE>

     A breach of any of these covenants could result in an event of default
under the agreement for the senior notes. In addition, the revolving credit
facility contains other more restrictive covenants and requires us to satisfy
certain financial tests, including a total debt leverage ratio, a total debt to
total capitalization ratio, and a fixed charge ratio. Our ability to satisfy
those tests can be affected by events both within and beyond our control, and we
cannot provide assurance that we will be able to meet these tests. Our breach of
any of these covenants could cause a default under the revolving credit facility
or the agreement for the senior notes, resulting in possible difficulties with
customers, personnel, or others.

WE OPERATE THROUGH OUR SUBSIDIARIES.

     We are a holding company and conduct substantially all of our operations
through our subsidiaries. In order for us to make our periodic debt payments, we
must have access to the cash flow of our subsidiaries, whether through loans,
dividends, distributions, or otherwise. Our ability to make our debt payments
could be subject to legal, contractual, and other restrictions that could hinder
or prevent us from gaining access to this cash flow. Each subsidiary is a
separate and distinct legal entity from us and, unless it is acting as a
guarantor of the senior notes, has no obligation, contingent or otherwise, to
pay any amounts due in respect of the senior notes or to make any amounts
available for payment. The holders of any debt of our subsidiaries will be
entitled to payment from the assets of such subsidiaries prior to the holders of
any of our general, unsecured obligations, including the senior notes and the
guarantees of certain of our subsidiaries. As of June 30, 1999, our subsidiaries
had $11.1 million of debt.

WE DEPEND ON CERTAIN BUSINESS RELATIONSHIPS.

     We depend to a great extent on certain contracts with municipalities or
fire districts to provide "911" emergency ambulance services and fire protection
services. Our five largest contracts accounted for approximately 12% of total
revenue for the fiscal year ended June 30, 1998 and 11% of total revenue for the
fiscal year ended June 30, 1999. One of these contracts accounted for
approximately 4% of total revenue for the fiscal year ended June 30, 1998 and 3%
of total revenue for the fiscal year ended June 30, 1999. The loss or
cancellation of any one or more of these contracts could have a material adverse
effect on our business, financial condition, cash flow, and results of
operations. We cannot provide assurance that we will be successful in retaining
our existing contracts or in obtaining new contracts for emergency ambulance
services or for fire protection services.

     Our contracts with municipalities and fire districts and with managed care
organizations and health care providers are short term or open-ended or for
periods ranging from two years to five years. During such periods, we may
determine that a contract is no longer favorable and may seek to modify or
terminate the contract. When making such a determination, we could consider
factors, such as weaker than expected transport volume, geographical issues
adversely affecting response times, and delays in implementing technology
upgrades. We face certain risks in attempting to terminate unfavorable contracts
prior to their expiration because of the possibility of forfeiting performance
bonds and the potential adverse political and public relations consequences. Our
inability to terminate or amend unfavorable contracts could have a material
adverse effect on our business, financial condition, cash flows, and results of
operations. We also face

                                       22
<PAGE>   24

the risk that areas in which we provide fire protection services through
subscription arrangements with residents and businesses will be converted to
tax-supported fire districts or annexed by municipalities.

NEW CONTRACTS REQUIRE SIGNIFICANT INVESTMENTS IN CAPITAL AND RESOURCES THAT WE
MAY NOT RECOVER.

     We face risks and uncertainties associated with origination of contracts to
provide emergency ambulance services or fire protection services in new
geographic regions. Entering new markets to provide services where we have never
provided services requires us to expend a significant amount of capital to begin
operations, and to employ sufficient personnel to service the contract. We may
not recover our capital investments in these areas in the event of the loss or
cancellation of one or more of these contracts. The loss or cancellation of any
one or more of these contracts may have a material adverse effect on our
business.

WE FACE RISKS ASSOCIATED WITH RAPID GROWTH, INTEGRATION, AND ACQUISITIONS.

     In order for our strategy with respect to ambulance services to succeed, we
must integrate and successfully operate the ambulance service providers that we
acquire. The process of integrating management, operations, facilities, and
accounting and billing and collection systems and other information systems
requires continued investment of time and resources and can involve
difficulties, which could have a material adverse effect on our business,
financial condition, cash flows, and results of operations. Unforeseen
liabilities and other issues also could arise in connection with the operation
of businesses that we acquire. Our acquisition agreements contain purchase price
adjustments, rights of set-off, and other remedies in the event that certain
unforeseen liabilities or issues arise in connection with an acquisition.
However, these purchase price adjustments, rights of set-off, and other remedies
may not be sufficient to compensate us in the event that any liabilities or
other issues arise.

     We seek strategic acquisition opportunities in the regular course of our
business. We cannot provide assurance that we will be able to identify
additional suitable companies to acquire, that we will be able to complete these
acquisitions, or that we will be able to integrate any such acquired companies
successfully into our operations. Consolidation in the ambulance industry has
resulted in fewer acquisition candidates. Acquiring companies involves numerous
short-term and long-term risks, including the following:

     - diversion of management's attention,

     - failure to retain key personnel of the acquired company,

     - adverse consequences to cash flow until accounts receivable of the
       acquired company are fully integrated,

     - incompatibility of acquired systems,

     - loss of net revenue of the acquired company,

     - possible regulatory issues of the acquired company,

     - subjecting our company to regulatory reviews regarding compliance with
       Medicare or Medicaid fraud and abuse statutes covering periods prior to
       our acquisition of those companies or integration of those companies into
       our billing and collection system,

     - compliance with laws and regulations of new jurisdictions, and

     - facing competitors with greater knowledge of local markets.

     We expect to use primarily cash and our common stock to acquire companies
in the future. Our acquisition program could be adversely affected if we do not
generate sufficient cash for future acquisitions from existing operations or
through additional debt or equity financings. We cannot provide assurance that
our operations will generate sufficient cash for acquisitions or that any
additional financings will be available if and when needed or on terms
acceptable to us.

     The market price of our common stock impacts our ability to complete
acquisitions. The market price of our common stock may affect our willingness to
use our common stock to acquire other companies and the
                                       23
<PAGE>   25

willingness of potential acquired companies or their owners to accept our common
stock. In addition, the market price performance of our common stock may make
raising funds more difficult and costly. As a result of a decline in the market
price of our common stock in the fourth quarter of fiscal 1998, the pace of
acquisitions utilizing our common stock has declined. Continued weakness in the
market price of our common stock could adversely affect our ability or
willingness to make additional acquisitions. Declines in the market price of our
common stock could cause previously acquired companies to seek adjustments to
purchase prices or other remedies to offset the decline in value.

WE DEPEND ON REIMBURSEMENTS BY THIRD-PARTY PAYORS AND INDIVIDUALS.

     We receive a substantial portion of our payments for ambulance services
from third-party payors (including Medicare, Medicaid, and private insurers). We
received approximately 79% of our ambulance fee collections from such
third-party payors during fiscal 1998, including 29% from Medicare. In fiscal
1999, we received approximately 75% of ambulance fee collections from these
third parties, including 24% from Medicare.

     The reimbursement process is complex and involves lengthy delays. From time
to time, we experience such delays. Third-party payors are continuing their
efforts to control expenditures for health care, including proposals to revise
reimbursement policies. We recognize revenue when we provide ambulance services;
however, there can be lengthy delays before we receive payment. In addition,
third-party payors may disallow, in whole or in part, requests for reimbursement
based on assertions that certain amounts are not reimbursable or additional
supporting documentation is necessary. Retroactive adjustments can change
amounts realized from third-party payors. We are subject to governmental audits
of our Medicare and Medicaid reimbursement claims and can be required to repay
these agencies if a finding is made that we were incorrectly reimbursed. Delays
and uncertainties in the reimbursement process adversely affect the level of
accounts receivable, increase the overall costs of collection, and may adversely
affect our working capital and cause us to incur additional borrowing costs.

     We also face the continuing risk of nonreimbursement to the extent that
uninsured individuals require emergency ambulance service in service areas where
an adequate subsidy is not provided. Amounts not covered by third-party payors
are the obligations of individual patients. We continually review the mix of
activity between emergency and general medical transport in view of the
reimbursement environment.

     We establish an allowance for doubtful accounts based on credit risk
applicable to certain types of payors, historical trends, and other relevant
information. We review our allowance for doubtful accounts on an ongoing basis
and may increase or decrease such allowances from time to time, including in
those instances when we determine that the level of effort and cost of
collection of certain accounts receivable is unacceptable.

     Our gross accounts receivable as of June 30, 1998 and June 30, 1999, were
$224.2 million and $228.8 million, respectively. Our accounts receivable, net of
the allowance for doubtful accounts, were $154.6 million and $185.5 million as
of June 30, 1998 and 1999, respectively. The allowance for doubtful accounts at
June 30, 1998 includes a $17.9 million additional provision for doubtful
accounts recorded in the fourth quarter of fiscal 1998. Gross accounts
receivable are effected by revenue growth, delays in payments from certain
third-party payors in certain service areas, general industry trends of
third-party payors taking more time to reimburse claims and other factors,
offset by the effect of writeoffs.

     The risks associated with third-party payors and uninsured individuals and
our failure to monitor and manage accounts receivable successfully could have a
material adverse effect on our business, financial condition, cash flows, and
results of operations. We cannot provide assurance that our collection policies
and allowances for doubtful accounts receivable will be adequate.

PROPOSED RULES MAY ADVERSELY AFFECT OUR REIMBURSEMENT RATES OF COVERAGE.

     During June 1997, the Health Care Financing Administration issued proposed
rules that would revise Medicare policy on the coverage of ambulance services.
These proposed rules have been subject to public comment and, despite the
passage of new laws addressing changes to the reimbursement of ambulance

                                       24
<PAGE>   26

services by Medicare (as discussed below), have not yet been withdrawn. The
proposed rules have not been finalized.

     In addition, the "Balanced Budget Act of 1997" became law in August 1997.
This new law in part provides for the development, negotiation, and
implementation of prospective fee schedule for Medicare reimbursement of
ambulance services by January 2000. The new law also reduces the annual rate
adjustment for Medicare reimbursements from the Consumer Price Index, or CPI, to
CPI less one percentage point.

     The new law requires that, beginning January 1, 2000, ambulance service
providers accept assignment whereby we receive payment directly from Medicare
and accept such amount, along with the co-pay and deductible paid by the
patient, as payment in full. The new law also applies the Skilled Nursing
Facility Prospective Payment System to a limited number of ambulance trips to
and from nursing homes. This application could require us to negotiate new
contracts or arrangements with skilled nursing facilities to provide ambulance
services. The new law also stipulates that individual states may now elect not
to provide payment for cost-sharing for coinsurance, or copayments, for
dual-qualified (Medicare and Medicaid) beneficiaries.

     In January 1999, HCFA announced its intention to form a negotiated
rule-making committee to create a new fee schedule for Medicare reimbursement of
ambulance services. The committee convened in February 1999. In August 1999,
HCFA announced that the implementation of the prospective fee schedule as well
as the mandatory acceptance of assignment will be postponed to January 2001.
HCFA also announced rules that became effective in February 1999, which require,
among other things, that a physician's certification be obtained for certain
ambulance transports. We have implemented a program to comply with these new
rules.

     If the proposed rules were to be finalized prior to the negotiation of a
prospective fee schedule as stipulated in the new law, and we were unable to
mitigate the effect of the new rules, our business, financial condition, cash
flows, and results of operations could be adversely affected. The final outcome
of the proposed rules and the effect of the prospective fee schedule is
uncertain. However, changes in reimbursement policies, or other government
action, together with the financial instability of private third-party payors
and budget pressures on payor sources could influence the timing and,
potentially, the ultimate receipt of payments and reimbursements. A reduction in
coverage or reimbursement rates by third-party payors, or an increase in our
cost structure relative to the rate of increase in the CPI, could have a
material adverse effect on our business, financial condition, cash flows, and
results of operations.

CERTAIN STATE AND LOCAL GOVERNMENTS REGULATE RATE STRUCTURES AND LIMIT RATES OF
RETURN.

     State or local government regulations or administrative policies regulate
rate structures in most states in which we conduct ambulance operations. In
certain 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 establishes the rates for general ambulance
services that we are permitted to charge. Rates in most service areas are set at
the same amounts for emergency and general ambulance services. The state of
Arizona establishes a rate of return on sales we are permitted to earn in
determining the ambulance service rates we may charge in that state. Ambulance
services revenue generated in Arizona accounted for approximately 13% of total
revenue for fiscal 1998 and 12% of total revenue for fiscal 1999. We cannot
provide assurance that we will be able to receive ambulance service rate
increases on a timely basis where rates are regulated or to establish or
maintain satisfactory rate structures where rates are not regulated.

     Municipalities and fire districts negotiate the payments to be made to us
for fire protection services pursuant to master contracts. These master
contracts are based on a budget and on level of effort or performance criteria
desired by the municipalities and fire districts. We could be unsuccessful in
negotiating or maintaining profitable contracts with municipalities and fire
districts.

CLAIMS AGAINST US COULD EXCEED OUR INSURANCE COVERAGE.

     We are subject to accident claims as a result of the normal operation of
our fleet of ambulances and fire vehicles. The coverage limits of our policies
may not be adequate or such insurance may not continue to be

                                       25
<PAGE>   27

available on commercially reasonable terms. A successful claim against us in
excess of our insurance coverage could have a material adverse effect on our
business, financial condition, cash flows, and results of operations. Claims
against us, regardless of their merit or outcome, also may have an adverse
effect on our reputation and business.

WE FACE ADDITIONAL RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

     We plan to expand our presence in international health and safety and other
related services markets. Although we currently maintain operations in Canada
and in Latin America, we may not be successful in expanding our international
operations. As we expand our international operations, in addition to other
business risks discussed herein, we increasingly will be subject to various
risks associated with international operations, including the following:

     - management of a multi-national organization

     - fluctuations in currency exchange rates

     - compliance with local laws and other regulatory requirements and changes
       in such laws and requirements

     - restrictions on the repatriation of funds

     - inflationary conditions

     - employment and severance issues

     - political and economic instability, including economic recessions

     - war or other hostilities

     - expropriation or nationalization of assets

     - overlap of tax structures and imposition of new taxes

     - renegotiation or nullification of contracts.

The inability to effectively manage these and other risks could have a material
adverse effect on our business, financial condition, cash flows, and results of
operations.

     Internationally, certain of our customers receive services under capitated
service arrangements. As a result, during periods of high utilization as a
result of severe weather conditions, particularly as experienced in Argentina
during the winter of 1999, our operations experience greater utilization of
services under these capitated service arrangements. During these periods, our
operations incur increased expenses without a corresponding increase in revenue.

     Our revenue from international operations is denominated primarily in the
currencies of the countries in which we operate. A decrease in the value of such
foreign currencies relative to the U.S. dollar could result in losses from
currency exchange rate fluctuations. As we continue to expand our international
operations, exposures to gains and losses on foreign currency transactions may
increase. We do not currently engage in foreign currency hedging transactions.
In the future, we may seek to limit such exposure by entering into
forward-foreign exchange contracts or engaging in similar hedging strategies.
Any currency exchange strategy may be unsuccessful in avoiding exchange-related
losses, and the failure to manage currency risks effectively may have a material
adverse effect on our business, financial condition, cash flows, and results of
operations. In addition, revenue we earn in foreign countries may be subject to
taxation by more than one jurisdiction, thereby adversely affecting our
earnings.

     In Canada, we contract with the Ontario Ministry of Health to provide
ambulance services in certain service areas in Ontario. The Province of Ontario
is currently privatizing its ambulance services. New service contracts will be
awarded by the local levels of government through a bid process. We will
continue to evaluate these contract opportunities as they arise, and bid on
those contracts where we believe it will be profitable. We

                                       26
<PAGE>   28

may not be successful in obtaining new contracts nor maintaining our current
service areas, which could have a material adverse effect on our business.

NUMEROUS GOVERNMENTAL ENTITIES REGULATE OUR BUSINESS.

     Numerous federal, state, local, and foreign laws and regulations govern
various aspects of the business of ambulance service providers, covering matters
such as licensing, rates, employee certification, environmental matters, and
other factors. Certificates of necessity may be required from state or local
governments to operate ambulance services in a designated service area. Master
contracts from governmental authorities are subject to risks of cancellation or
unenforceability as a result of budgetary and other factors and may subject us
to certain liabilities or restrictions that traditionally have applied only to
governmental bodies. Federal, state, local, or foreign governments could

     - change existing laws or regulations,

     - adopt new laws or regulations that increase our cost of doing business,

     - lower reimbursement levels, or

     - otherwise adversely affect our business, financial condition, cash flows,
       and results of operations.

     We and businesses acquired by us could encounter difficulty in complying
with all applicable laws and regulations.

HEALTH CARE REFORMS AND COST CONTAINMENT MAY AFFECT OUR BUSINESS.

     Numerous legislative proposals have been considered that would result in
major reforms in the U.S. health care system. We cannot predict which, if any,
health care reforms may be proposed or enacted or the effect that any such
legislation would have on our business. In addition, managed care providers are
attempting to contain health care costs through the use of outpatient services
and specialized treatment facilities. Changing industry practices could have an
adverse effect on our business, financial condition, cash flows, accounts
receivable realization, and results of operations.

WE ARE IN A HIGHLY COMPETITIVE INDUSTRY.

     The ambulance service industry is highly competitive. Ambulance and general
transport service providers compete primarily on the basis of quality of
service, performance, and cost. In order to compete successfully, we must make
continuing investments in our fleet, facilities, and operating systems. We
believe that counties, fire districts, and municipalities consider the following
factors in awarding a contract:

     - quality of medical care

     - historical response time performance

     - customer service

     - financial stability

     - personnel policies and practices.

     We currently compete with the following entities to provide ambulance
services:

     - governmental entities (including fire districts)

     - hospitals

     - other national ambulance service providers

     - large regional ambulance service providers

     - local and volunteer private providers.

                                       27
<PAGE>   29

     Municipalities, fire districts, and health care organizations that
currently contract for ambulance services could choose to provide ambulance
services directly in the future. We are experiencing increased competition from
fire departments in providing emergency ambulance service. Some of our current
competitors and certain potential competitors have or have access to greater
capital and other resources than us.

     Tax-supported fire districts, municipal fire departments, and volunteer
fire departments represent the principal providers of fire protection services
for residential and commercial properties. Private providers represent only a
small portion of the total fire protection market and generally provide services
where a tax-supported municipality or fire district has decided to contract for
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. We cannot provide
assurance that

     - we will be able to obtain additional fire protection business on a
       contractual or subscription basis;

     - fire districts or municipalities will not choose to provide fire
       protection services directly in the future; or

     - areas in which we provide services through subscriptions will not be
       converted to tax-supported fire districts or annexed by municipalities.

WE DEPEND ON OUR MANAGEMENT AND OTHER KEY PERSONNEL.

     Our success depends upon our ability to recruit and retain key personnel.
We could experience difficulty in retaining our current key personnel or in
attracting and retaining necessary additional key personnel. Low unemployment in
certain market areas currently makes the recruiting, training, and retention of
full-time and part-time personnel more difficult and costly, including the cost
of overtime wages.

     Our internal growth and our expansion into new geographic areas, including
international markets, will require additional expertise, such as marketing and
operational management. These growth and expansion activities will further
increase the demand on our resources and require the addition of new personnel
and the development of additional expertise by existing personnel. We have
entered into employment agreements with certain of our executive officers and
certain other key personnel.

OUR CURRENT STOCKHOLDERS CAN EXERCISE CONTROL OVER OUR COMPANY.

     As of September 22, 1999, our directors, executive officers, and their
affiliates beneficially own approximately 15% of the outstanding shares of our
common stock. Our Employee Stock Ownership Plan holds approximately 6% of the
outstanding shares of our common stock. Accordingly, these persons, acting as a
group, could significantly influence the election of our directors and the
outcome of matters requiring approval by our stockholders.

IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

     Certain provisions of our certificate of incorporation and Delaware law
could make it more difficult for a third party to acquire control of our
company, even if a change in control might be beneficial to stockholders. This
could discourage potential takeover attempts and could adversely affect the
market price of our common stock.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

     The market price of our common stock has been volatile since our initial
public offering in July 1993. The period was initially marked by generally
rising stock prices, favorable industry conditions, and improved operating
results by us. We experienced a significant decline in our stock price in the
fourth quarter of fiscal 1998 as a result of various factors, including the
following:

     - less favorable industry trends,

     - an increase in our provision for doubtful accounts,

                                       28
<PAGE>   30

     - an increase in our operating expenses,

     - general stock market conditions, and

     - the previously identified risk factors.

     The trading price of our common stock has not increased since the 1998
fourth quarter decline. The trading price of our common stock in the future
could be subject to various factors, including the following:

     - wide fluctuations in response to quarterly variations in our operating
       results and others in our industry,

     - actual or anticipated announcements concerning us or our competitors,
       including government regulations and reimbursement changes,

     - the announcement and implementation of health care reform proposals,

     - changes in analysts' estimates of our financial performance,

     - general conditions in the health care industry,

     - general economic and financial conditions,

     - the inability of us to make any acquisitions, and

     - other events or factors.

     In addition, the stock market has experienced extreme price and volume
fluctuations, which have affected the market prices for many companies involved
in health care and related industries and which often have been unrelated to the
operating performance of such companies. These broad market fluctuations and
other factors could adversely affect the market price of our common stock. The
market price and volatility of our common stock could increase the risk of
litigation, including from owners of companies previously acquired by us.

SHARES ELIGIBLE FOR SALE IN THE PUBLIC MARKETS AND RIGHTS TO ACQUIRE SHARES OF
COMMON STOCK CAN IMPACT THE MARKET PRICE OF OUR COMMON STOCK.

     Sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As of September 22, 1999, there were
14,577,468 shares of common stock outstanding, 10,869,292 shares of which were
freely transferable without restriction under the securities laws, unless held
by an "affiliate" of us, as that term is defined under the securities laws. We
also have outstanding 144,129 restricted shares, as that term is defined under
Rule 144 under the securities laws, that are eligible for sale in the public
market, subject to compliance with the holding period, volume limitations, and
other requirements of Rule 144. In addition, we have registered 6,700,000 shares
of common stock for issuance in connection with acquisitions (of which 3,564,047
shares have been issued), which are generally freely tradeable after their
issuance under Rule 145 of the securities laws, unless held by an affiliate of
the acquired company, in which case such shares will be subject to the volume
and manner of sale restrictions under Rule 144.

     We have registered up to 6,000,000 shares of common stock for issuance
pursuant to our stock option plans. As of September 22, 1999, approximately
800,000 stock options had been exercised and options to purchase approximately
3,600,000 shares were outstanding. Shares issued after the effective date of
such registration statement upon the exercise of stock options issued under our
stock option plans generally will be eligible for sale in the public market,
except that affiliates of us will continue to be subject to volume limitations.
We also have the authority to issue additional shares of common stock and shares
of one or more series of preferred stock. The issuance of such shares could
dilute earnings per share, and the sale of such shares could depress the market
price of our common stock.

WE FACE ISSUES ASSOCIATED WITH YEAR 2000 COMPLIANCE.

     We have implemented a Year 2000 compliance program, utilizing both internal
and external resources, to ensure that our principal medical equipment,
ambulance and fire dispatch systems, and computer systems and

                                       29
<PAGE>   31

applications will function properly beyond 1999. Our assessment of this
equipment and systems, both internally developed and purchased from third-party
vendors, is complete. Included in this assessment is a formal communication
program with our significant vendors to determine the extent to which we are
vulnerable to those vendors who fail to remediate their own Year 2000
non-compliance.

     We are highly dependent on vendor remediation and testing of vendor
systems. The results of the assessments have indicated that our principal
medical equipment, ambulance and fire dispatch systems, and computer systems and
applications are either Year 2000 compliant, can be upgraded, or in the case of
certain ambulance and fire dispatch systems, will be replaced in order to obtain
compliance. We continue to upgrade and replace non-compliant equipment and
systems and expect to complete such activities prior to January 1, 2000. We will
continue to monitor new medical equipment, ambulance and fire dispatch systems,
and computer systems and applications that we add in our operations for Year
2000 compliance. If our medical equipment, ambulance and fire dispatch systems,
and computer systems and applications are not Year 2000 compliant, we may not be
able to respond to requests for ambulance and fire protection services in a
timely manner. This situation could adversely affect our operations and we may
incur unanticipated expenses to remedy any problems not addressed by these
compliance efforts.

     We are dependent upon vendors who provide services such as electrical
power, water, fuel for vehicles and other necessary commodities. We also depend
upon the ability of telephone systems to be Year 2000 compliant in order for us
to receive incoming calls for service to our ambulance and fire dispatch
systems. The failure of telephone service providers to adequately provide
service could impact our ability to dispatch and respond to requests for
ambulance and fire protection services in a timely manner. The failure of
third-party payors, such as private insurers, managed care providers, health
care organizations, preferred provider organizations, and federal and state
government agencies that administer Medicare and/or Medicaid, to adequately
address their Year 2000 issues could impact their ability to reimburse us for
services provided. The failure of any of these systems could adversely affect
our business, financial condition, cash flows and results of operations. We do
not control these systems and are dependent upon the service providers and
third-party payors to remediate any Year 2000 non-compliance related to their
own systems.

     To date, we have not completed our contingency plans in the event that our
principal medical equipment, ambulance and fire dispatch systems, computer
systems and applications, telephone systems, systems of third-party payors, or
any other components of our business operations fail to operate in compliance
with the Year 2000 date change. We expect to develop contingency plans by
October 1999.

     The cost of our Year 2000 compliance program has not had and is not
expected to have a material impact on our results of operations, financial
condition or liquidity. There can be no assurance, however, that we will not
experience material adverse consequences in the event that our Year 2000
compliance program is not successful or that our vendors or third-party payors
are not able to resolve their Year 2000 compliance issues in a timely manner.

ITEM 2.  PROPERTIES

FACILITIES AND EQUIPMENT

     We lease our principal executive offices in Scottsdale, Arizona. We lease
administrative facilities and other facilities used principally for ambulance
and fire apparatus basing, garaging and maintenance in those areas in which we
provides ambulance and fire protection services. We also own nine administrative
facilities and 20 other facilities within our service areas. Aggregate rental
expense was approximately $10.2 million during fiscal 1998, and approximately
$12.8 million during fiscal 1999. At September 22, 1999, our fleet included
1,567 owned and 389 leased ambulances, 112 owned and 26 leased fire vehicles and
294 owned and 25 leased other vehicles. We use a combination of in-house and
outsourced maintenance services to maintain our fleet, depending on the size of
the market and the availability of quality outside maintenance services.

                                       30
<PAGE>   32

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, we are subject to litigation arising in the ordinary
course of business. Our insurance coverage may not be adequate to cover all
liabilities arising out of such claims. We are not engaged in any legal
proceedings in the ordinary course of business that are expected to have a
material adverse effect on our financial condition or results of operations.

     We, Warren S. Rustand, our former Chairman of the Board and Chief Executive
Officer, James H. Bolin, our Vice Chairman of the Board, and Robert E. Ramsey,
Jr., our Executive Vice President and Director, have been named as defendants in
two purported class action lawsuits: Haskell v. Rural/Metro Corporation, et.
al., Civil Action No. C-328448 filed on August 25, 1998 in Pima County, Arizona
Superior Court and Ruble v. Rural/Metro Corporation, et al., CIV 98-413-TUC-JMR
filed on September 2, 1998 in United States District Court for the District of
Arizona. The two lawsuits, which contain virtually identical allegations, were
brought on behalf of a class of persons who purchased our publicly traded
securities including its common stock between April 28, 1997 and June 11, 1998.
Haskell v. Rural/Metro seeks unspecified damages under the Arizona Securities
Act, the Arizona Consumer Fraud Act, and under Arizona common law fraud, and
also seeks punitive damages, a constructive trust, and other injunctive relief.
Ruble v. Rural/ Metro seeks unspecified damages under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. The complaints in both actions allege
that between April 28, 1997 and June 11, 1998 the defendants issued certain
false and misleading statements regarding certain aspects of our financial
status and that these statements allegedly caused our common stock to be traded
at artificially inflated prices. The complaints also allege that Mr. Bolin and
Mr. Ramsey sold stock during this period allegedly taking advantage of inside
information that the stock prices were artificially inflated. On May 25, 1999
the Arizona state court granted our request for a stay of the Haskell action
until the Ruble action is finally resolved. We and the individual defendants
have moved to dismiss the Ruble action. This motion is currently pending. We
intend to defend the actions vigorously. We are unable to predict the ultimate
outcome of this litigation. If the lawsuits were ultimately determined adversely
to us, it could have a material effect on our results of operations and
financial condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                       31
<PAGE>   33

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     Our common stock has been traded on the Nasdaq National Market under the
symbol RURL since our initial public offering on July 16, 1993. The following
table sets forth the high and low sale prices of the common stock for the fiscal
quarters indicated as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                             ------    ------
<S>                                                          <C>       <C>
YEAR ENDED JUNE 30, 1998
  First quarter............................................  $31.50    $25.88
  Second quarter...........................................   37.50     29.88
  Third quarter............................................   35.50     28.31
  Fourth quarter...........................................   34.00     10.75
YEAR ENDED JUNE 30, 1999
  First quarter............................................  $13.50    $6.125
  Second quarter...........................................   12.50     6.125
  Third quarter............................................   12.00      7.75
  Fourth quarter...........................................   10.63      7.00
YEAR ENDED JUNE 30, 2000
  First quarter (through September 22, 1999)...............  $10.00    $ 7.00
</TABLE>

     On September 22, 1999, the closing sale price of our common stock was $7.13
per share. On September 22, 1999, there were approximately 963 holders of record
of our common stock.

DIVIDEND POLICY

     We have never paid any cash dividends on our common stock. We currently
plan to retain earnings to finance the growth of our business rather than to pay
cash dividends. Payments of any cash dividends in the future will depend on the
financial condition, results of operations and capital requirements of us as
well as other factors deemed relevant by our board of directors. Our senior
subordinated notes, term notes and revolving credit facility contain
restrictions on our ability to pay cash dividends, and future borrowings may
contain similar restrictions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" contained in Item 7 of this Report.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data for the fiscal years
ended June 30, 1999, 1998, 1997, 1996 and 1995 is derived from our consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants. The selected consolidated financial data provided below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and notes appearing elsewhere in this Report.

                                       32
<PAGE>   34

<TABLE>
<CAPTION>
                                                        YEARS ENDED JUNE 30,
                                      --------------------------------------------------------
                                        1999        1998        1997        1996        1995
                                      --------    --------    --------    --------    --------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>         <C>         <C>         <C>         <C>
STATEMENT OF INCOME DATA
Revenue
  Ambulance services................  $467,632    $387,041    $257,488    $197,201    $127,461
  Fire protection services..........    50,490      45,971      42,163      38,770      32,274
  Other.............................    43,244      42,546      20,154      14,292      11,848
                                      --------    --------    --------    --------    --------
          Total revenue.............   561,366     475,558     319,805     250,263     171,583
Operating expense
  Payroll and employee benefits.....   297,341     254,806     170,833     135,464      90,843
  Provision for doubtful accounts...    81,227      81,178      43,424      31,036      22,263
  Depreciation......................    24,222      19,213      12,136       9,778       6,654
  Amortization of intangibles.......     9,166       7,780       4,660       3,569       2,074
  Other operating expenses..........    98,739      80,216      54,922      45,752      33,809
  Loss contract/restructuring
     charge.........................     2,500       5,000       6,026          --          --
                                      --------    --------    --------    --------    --------
Operating income....................    48,171      27,365      27,804      24,664      15,940
  Interest expense, net.............    21,406      14,082       5,720       5,108       3,059
  Other.............................        70        (199)         --          --          --
                                      --------    --------    --------    --------    --------
Income before provision for income
  taxes and extraordinary item......    26,695      13,482      22,084      19,556      12,881
Provision for income taxes..........   (11,231)     (5,977)     (9,364)     (8,044)     (5,288)
                                      --------    --------    --------    --------    --------
Income before extraordinary item....    15,464       7,505      12,720      11,512       7,593
Extraordinary item..................        --          --          --          --        (693)
                                      --------    --------    --------    --------    --------
Net income..........................  $ 15,464    $  7,505    $ 12,720    $ 11,512    $  6,900
                                      ========    ========    ========    ========    ========
Basic earnings per share(1)
  Income before extraordinary
     item...........................  $   1.07    $    .55    $   1.10    $   1.20    $    .96
  Extraordinary item................        --          --          --          --        (.09)
                                      --------    --------    --------    --------    --------
          Net income................  $   1.07    $    .55    $   1.10    $   1.20    $    .87
                                      ========    ========    ========    ========    ========
Diluted earnings per share(1)
  Income before extraordinary
     item...........................  $   1.06    $    .54    $   1.04    $   1.14    $    .92
  Extraordinary item................        --          --          --          --         .08
                                      --------    --------    --------    --------    --------
          Net income................  $   1.06    $    .54    $   1.04    $   1.14    $    .84
                                      ========    ========    ========    ========    ========
Weighted average number of shares
  outstanding(1)
  Basic.............................    14,447      13,529      11,585       9,570       7,924
  Diluted...........................    14,638      14,002      12,271      10,075       8,249
</TABLE>

                                       33
<PAGE>   35

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                      --------------------------------------------------------
                                        1999        1998        1997        1996        1995
                                      --------    --------    --------    --------    --------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA
  Working capital...................  $140,929    $110,529    $ 94,766    $ 55,402    $ 26,358
  Total assets......................   579,907     535,452     364,066     230,114     159,430
  Current portion of long-term
     debt...........................     5,765       8,565       9,814       6,610       8,377
  Long-term debt, net of current
     portion(2).....................   268,560     243,831     144,643      60,731      53,282
  Stockholders' equity..............   196,839     177,773     159,808     119,966      65,648
</TABLE>

---------------
(1) Earnings per share for all periods presented has been restated in accordance
    with Statement of Financial Accounting Standards No. 128, "Earnings Per
    Share".

(2) Includes balances outstanding under our revolving credit facility of
    $113,500,000 at June 30, 1999, $86,000,000 at June 30, 1998, $134,000,000 at
    June 30, 1997, $49,500,000 at June 30, 1996 and $34,900,000 at June 30,
    1995.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
our selected consolidated financial data and our consolidated financial
statements and notes appearing elsewhere in this Report.

INTRODUCTION

     We derive our revenue primarily from fees charged for ambulance and fire
protection services. We provide ambulance services in response to emergency
medical calls ("911" emergency ambulance services) and non-emergency transport
services (general transport services) to patients on both a fee-for-service
basis and nonrefundable subscription fee basis. Per transport revenue depends on
various factors, including the mix of rates between existing markets and new
markets and the mix of activity between "911" emergency ambulance services and
general medical transport services as well as other competitive factors. Fire
protection services are provided either under contracts with municipalities,
fire districts or other agencies or on a nonrefundable subscription fee basis to
individual homeowners or commercial property owners.

     Domestic ambulance service fees are recorded net of Medicare, Medicaid and
other reimbursement limitations and are recognized when services are provided.
Payments received from third-party payors represent a substantial portion of our
ambulance service fee receipts. We derived approximately 79% of our net
ambulance fee collections during 1998 and 75% of our net ambulance fee
collections during 1999 from such third party payors. We establish an allowance
for doubtful accounts based on credit risks applicable to certain types of
payors, historical trends and other relevant information. Provision for doubtful
accounts is made for the expected difference between ambulance services fees
charged and amounts actually collected. Our provision for doubtful accounts
generally is higher with respect to collections to be derived directly from
patients than for collections to be derived from third-party payors and
generally is higher for "911" emergency ambulance services than for general
ambulance transport services.

     Because of the nature of our ambulance services, it is necessary to respond
to a number of calls, primarily "911" emergency ambulance service calls, which
may not result in transports. Results of operations are discussed below on the
basis of actual transports since transports are more directly related to
revenue. Expenses associated with calls that do not result in transports are
included in operating expenses. The percentage of calls not resulting in
transports varies substantially depending upon the mix of general transport and
"911" emergency ambulance service calls in markets and is generally higher in
service areas in which the calls are primarily "911" emergency ambulance service
calls. Rates in our markets take into account the anticipated number of calls
that may not result in transports. We do not separately account for expenses
associated with calls that do not result in transports. Revenue generated under
our capitated service arrangements in Argentina and contractual agreements in
Canada is included in ambulance services revenue.

                                       34
<PAGE>   36

     Revenue generated under fire protection service contracts is recognized
over the life of the contract. Subscription fees received in advance are
deferred and recognized over the term of the subscription agreement, which is
generally one year.

     Other revenue primarily consists of fees associated with alternative
transportation, dispatch, fleet, billing, urgent and primary care services in
clinics, and home health care services and is recognized when the services are
provided.

     Other operating expenses consist primarily of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.

     Our net income for the year ended June 30, 1999 was $15.5 million or $1.06
per share (diluted). This compares to net income of $7.5 million or $.54 per
share (diluted) for the year ended June 30, 1998, and $12.7 million or $1.04 per
share (diluted) for the year ended June 30, 1997. During fiscal 1999, we
completed the acquisition of a company that provides urgent and primary care
services in three clinics in Cordoba, Argentina and of two companies that
provide urgent home medical attention and ambulance transport services in
Argentina. We also purchased the assets of an ambulance service provider
operating in Pennsylvania and an ambulance service provider operating in
Georgia. Our net income for the year ended June 30, 1999 was negatively impacted
by higher costs of collections associated with our domestic ambulance service
accounts receivable and by reduced operating margins of our Argentine operations
in the fourth quarter. These operating margins were reduced due to a substantial
increase in service utilization under our capitated service arrangements and due
to the impact of the economic recession in Argentina combined with significant
increases in service taxes on all medical services.

RESULTS OF OPERATIONS

     The following table sets forth the years ended June 30, 1999, 1998 and
1997, certain items from our consolidated financial statements expressed as a
percentage of total revenue:

<TABLE>
<CAPTION>
                                                               YEARS ENDED JUNE 30,
                                                              -----------------------
                                                              1999     1998     1997
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Revenue
  Ambulance services........................................   83.3%    81.4%    80.5%
  Fire protection services..................................    9.0      9.7     13.2
  Other.....................................................    7.7      8.9      6.3
                                                              -----    -----    -----
          Total revenue.....................................  100.0    100.0    100.0
Operating expenses
  Payroll and employee benefits.............................   53.0     53.6     53.4
  Provision for doubtful accounts...........................   14.5     17.1     13.6
  Depreciation..............................................    4.3      4.0      3.8
  Amortization of intangibles...............................    1.6      1.6      1.5
  Other operating expenses..................................   17.6     16.9     17.1
  Loss contract/restructuring charge........................    0.4      1.0      1.9
                                                              -----    -----    -----
Operating income............................................    8.6      5.8      8.7
  Interest expense, net.....................................    3.8      3.0      1.8
                                                              -----    -----    -----
Income before income taxes..................................    4.8      2.8      6.9
  Provision for income taxes................................    2.0      1.2      2.9
                                                              -----    -----    -----
Net income..................................................    2.8%     1.6%     4.0%
                                                              =====    =====    =====
</TABLE>

                                       35
<PAGE>   37

  Year Ended June 30, 1998 Compared to Year Ended June 30, 1999

     Revenue

     Total revenue increased $85.8 million, or 18.0%, from $475.6 million for
the year ended June 30, 1998 to $561.4 million for the year ended June 30, 1999.
Ambulance services revenue increased $80.6 million, or 20.8%, from $387.0
million for the year ended June 30, 1998 to $467.6 million for the year ended
June 30, 1999, primarily the result of the acquisition of four ambulance service
providers in fiscal 1999 as well as a full year of activity from the eleven
acquisitions completed in fiscal 1998. Domestic ambulance services revenue in
areas served by our company in both fiscal 1999 and 1998 increased by 5.3%. Fire
protection services revenue increased by $4.5 million, or 9.8%, from $46.0
million for the year ended June 30, 1998 to $50.5 million for the year ended
June 30, 1999. Other revenue increased by $0.7 million, or 1.6%, from $42.5
million for the year ended June 30, 1998 to $43.2 million for the year ended
June 30, 1999.

     Total domestic ambulance transports increased by approximately 73,000, or
6.0%, from 1,215,000 for the year ended June 30, 1998 to 1,288,000 for the year
ended June 30, 1999. The acquisition of two domestic ambulance service companies
during fiscal 1999, as well as a full year of transport activity from the
acquisitions completed in fiscal 1998, accounted for these additional
transports. Domestic ambulance transports in areas serviced by our company in
both fiscal 1999 and 1998 decreased by 6.0%, due to our concerted effort to
reduce the number of non-emergency transports in certain areas and improve the
quality of our revenue. The effect on revenue caused by the reduction in
transports was more than offset by transports generated through new contracting
activity as well as increases in average patient charges in other areas.

     Fire protection services revenue increased due to rate increases for fire
protection services and greater utilization of our services under
fee-for-service arrangements. The increase also resulted from revenue generated
from new fire protection contracts awarded to us through competitive bidding.

     Operating Expenses

     Payroll and employee benefit expenses increased $42.5 million, or 16.7%,
from $254.8 million for the year ended June 30, 1998 to $297.3 million for the
year ended June 30, 1999. This increase was primarily due to the acquisition of
four ambulance service companies during fiscal 1999 as well as a full year of
activity from the acquisitions completed in fiscal 1998 and higher average labor
costs in certain service areas. We expect these higher average labor costs to
continue in the future, including the increased costs associated with accounts
receivable collection and with Health Care Financing Administration (HCFA)
compliance. Payroll and employee benefit expenses decreased slightly from 53.6%
of total revenue during the year ended June 30, 1998 to 53.0% of total revenue
during the year ended June 30, 1999.

     Provision for doubtful accounts was $81.2 million for the year ended June
30, 1998 and for the year ended June 30, 1999. Provision for doubtful accounts
decreased from 17.1% of total revenue for the year ended June 30, 1998 to 14.5%
of total revenue for the year ended June 30, 1999, and decreased from 22.3% of
domestic ambulance service revenue for the year ended June 30, 1998 to 19.5% of
domestic ambulance service revenue for the year ended June 30, 1999. In
comparison, provision for doubtful accounts was 13.6% of total revenue and 16.9%
of domestic ambulance service revenue for the year ended June 30, 1997.
Comparison of the provision for doubtful accounts for the year ended June 30,
1999 to the year ended June 30, 1998, is skewed by the effect of a $17.9 million
additional provision for doubtful accounts that was recorded in the fourth
quarter of fiscal 1998. In view of the continuing difficult reimbursement
environment and the potential for future write-offs of accounts receivable to
continue to be higher than pre-fiscal 1998 levels, we continued to add to the
provision for doubtful accounts during the fiscal year ended June 30, 1999. Net
accounts receivable on non-integrated collection systems currently represent
11.1% of total net accounts receivable at June 30, 1999. We plan to integrate
our operations in Columbus, Ohio into our integrated billing and collection
system during the first half of fiscal 2000. We will continue to review the
benefits and timing of integrating the remaining two non-integrated billing
centers.

     Depreciation increased $5.0 million, or 26.0%, from $19.2 million for the
year ended June 30, 1998 to $24.2 million for the year ended June 30, 1999,
primarily due to increased property and equipment from recent

                                       36
<PAGE>   38

acquisition activity. Depreciation increased from 4.0% of total revenue for the
year ended June 30, 1998 to 4.3% of total revenue for the year ended June 30,
1999.

     Amortization of intangibles increased by $1.4 million, or 17.9%, from $7.8
million for the year ended June 30, 1998 to $9.2 million for the year ended June
30, 1999. This increase was the result of increased intangible assets resulting
from recent acquisition activity. Amortization of intangibles was 1.6% of total
revenue for both of the years ended June 30, 1998 and 1999.

     Other operating expenses increased $18.5 million, or 23.1%, from $80.2
million for the year ended June 30, 1998 to $98.7 million for the year ended
June 30, 1999, primarily as a result of increased expenses associated with the
operation of the four ambulance service companies acquired during fiscal 1999
and the eleven ambulance service companies acquired during fiscal 1998. Other
operating expenses increased from 16.9% of total revenue for the year ended June
30, 1998 to 17.6% of total revenue for the year ended June 30, 1999.

     During the year ended June 30, 1999, we recorded a non-recurring pre-tax
charge of $2.5 million for severance payments related to certain members of
senior management who have left our company. We expect these severance payments
will be completed during fiscal 2001.

     During the year ended June 30, 1998, we recorded a non-recurring pre-tax
charge of $5.0 million primarily for severance payments. This charge related to
our reduction of certain administrative personnel at corporate headquarters and
regional offices. These severance payments were substantially completed during
fiscal 1999.

     Interest expense increased by $7.3 million, or 51.8%, from $14.1 million
for the year ended June 30, 1998 to $21.4 million for the year ended June 30,
1999. This increase was caused by higher debt balances and higher interest rates
than historically incurred, primarily because of the issuance of $150.0 million
of 7 7/8% Senior Notes due 2008 that occurred near the end of the third quarter
of fiscal 1998.

     Our effective tax rate decreased from 45.0% for the year ended June 30,
1998 to 42.0% for the year ended June 30, 1999, primarily the result of the
effect of nondeductible goodwill amortization applied against reduced earnings
in the year ended June 30, 1998 compared to earnings in the year ended June 30,
1999.

  Year Ended June 30, 1997 Compared to Year Ended June 30, 1998

     Revenue

     Total revenue increased $155.8 million, or 48.7%, from $319.8 million for
the year ended June 30, 1997 to $475.6 million for the year ended June 30, 1998.
Approximately $118.2 million of this increase resulted from the acquisition of
ambulance service providers during fiscal 1998. Fire protection services revenue
increased by $3.8 million, and other revenue increased by $22.3 million.

     Total ambulance transports increased by approximately 300,000, or 32.8%,
from 915,000 for the year ended June 30, 1997 to 1,215,000 for the year ended
June 30, 1998. The acquisition of eleven ambulance service companies during
fiscal 1998 accounted for these additional transports.

     Fire protection services revenue increased due to rate increases for fire
protection services and greater utilization of our services under
fee-for-service arrangements. The increase also resulted from revenue generated
from new fire protection contracts awarded to us through competitive bidding.

     Other revenue increased primarily from the fees received for billing,
dispatch, and other services pursuant to our agreement with San Diego Fire and
Life Safety Services.

     Operating Expenses

     Payroll and employee benefit expenses increased $84.0 million, or 49.2%,
from $170.8 million for the year ended June 30, 1997 to $254.8 million for the
year ended June 30, 1998. This increase was primarily due to the acquisition of
eleven ambulance service companies during fiscal 1998. Payroll and employee
benefit expenses increased from 53.4% of total revenue during the year ended
June 30, 1997 to 53.6% of total revenue during

                                       37
<PAGE>   39

the year ended June 30, 1998 primarily due to the low unemployment in certain of
our service areas, which made the recruitment, training and retention of full
and part-time personnel more difficult and costly.

     Provision for doubtful accounts increased $37.8 million, or 86.9%, from
$43.4 million for the year ended June 30, 1997 to $81.2 million for the year
ended June 30, 1998. Provision for doubtful accounts increased from 13.6% of
total revenue for the year ended June 30, 1997 to 17.1% of total revenue for the
year ended June 30, 1998 and increased from 16.9% of domestic ambulance service
revenue for the year ended June 30, 1997 to 22.3% of domestic ambulance service
revenue for the year ended June 30, 1998. The increase in the provision for
doubtful accounts resulted from increased revenue from both acquisitions and
internal growth and, for the reasons described below, an additional provision
for doubtful accounts of $17.9 million recorded in the fourth quarter. As
identified in our third quarter fiscal 1998 Form 10-Q, we began experiencing
delays in payments from certain third party payors and a general industry trend
toward a lengthening payment cycle. During the third and fourth quarters of
fiscal 1998, we assessed the impact this more difficult medical reimbursement
environment was having on the timing and collectability of our accounts
receivable. At the conclusion of management's assessment process and considering
the results of recent collection efforts as well as other factors, in the fourth
quarter management determined that these adverse changes had increased the level
of effort and reasonable cost associated with obtaining reimbursement and
collection of certain accounts receivable to such an extent that an additional
provision for doubtful accounts of $17.9 million was recorded. In addition,
management believes that future write-offs of accounts receivable will exceed
historical levels, thus necessitating a higher provision for doubtful accounts
and greater levels of expenditures to collect the accounts receivable. This more
difficult reimbursement environment has further complicated the process of
integrating new billing offices into our regional billing centers and has
affected our billing and collection procedures. Net accounts receivable on
non-integrated collection systems represented 13.8% of total net accounts
receivable at June 30, 1998.

     Depreciation increased $7.1 million, or 58.3%, from $12.1 million for the
year ended June 30, 1997 to $19.2 million for the year ended June 30, 1998,
primarily due to increased property and equipment from recent acquisition
activity. Depreciation increased from 3.8% of total revenue for the year ended
June 30, 1997 to 4.0% of total revenue for the year ended June 30, 1998.

     Amortization of intangibles increased by $3.1 million, or 67%, from $4.7
million for the year ended June 30, 1997 to $7.8 million for the year ended June
30, 1998. This increase was the result of increased intangible assets resulting
from recent acquisition activity. Amortization of intangibles increased from
1.5% of total revenue for the year ended June 30, 1997 to 1.6% for the year
ended June 30, 1998.

     Other operating expenses increased $25.3 million, or 46.1%, from $54.9
million for the year ended June 30, 1997 to $80.2 million for the year ended
June 30, 1998, primarily as a result of increased expenses associated with the
operation of the eleven ambulance service companies acquired during fiscal 1998.
Other operating expenses decreased from 17.1% of total revenue for the year
ended June 30, 1997 to 16.9% of total revenue for the year ended June 30, 1998
as a result of operational efficiencies realized through the integration of
these acquired companies.

     During the year ended June 30, 1998, we recorded a non-recurring pre-tax
charge of $5.0 million primarily for severance payments. This charge relates to
the reduction of certain administrative personnel at our corporate headquarters
and regional offices. We expect these severance payments will be substantially
completed during fiscal 1999.

     Interest expense increased by $8.4 million, or 146.2%, from $5.7 million
for the year ended June 30, 1997 to $14.1 million for the year ended June 30,
1998. This increase was caused by higher debt balances and higher interest rates
than historically incurred, primarily because of the issuance of $150.0 million
of 7 7/8% Senior Notes due 2008 that occurred near the end of the third quarter
of fiscal 1998.

     Our effective tax rate increased from 42.4% for the year ended June 30,
1997 to 45.0% for the year ended June 30, 1998, primarily the result of the
effect of nondeductible goodwill amortization applied against earnings that had
been reduced by the additional provision for doubtful accounts and accrual for
severance payments.

                                       38
<PAGE>   40

SEASONALITY AND QUARTERLY RESULTS

     The following table reflects certain selected unaudited quarterly operating
results for each quarter of fiscal 1999 and 1998. The operating results of any
quarter are not necessarily indicative of results of any future period.

<TABLE>
<CAPTION>
                              SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,
                                1997        1997       1998     1998(1)     1998(2)      1998       1999       1999
                              ---------   --------   --------   --------   ---------   --------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                           <C>         <C>        <C>        <C>        <C>         <C>        <C>        <C>
Revenue:
  Ambulance service.........   $77,598    $89,769    $107,279   $112,395   $116,265    $115,759   $119,751   $115,857
  Fire protection...........    11,212     11,351      11,547     11,861     12,643      12,591     12,372     12,884
  Other revenue.............     8,963     10,222      10,957     12,404      9,887      11,239     10,810     11,308
                               -------    -------    --------   --------   --------    --------   --------   --------
  Total revenue.............    97,773    111,342     129,783    136,660    138,795     139,589    142,933    140,049
  Operating income (loss)...    10,346     12,199      14,283     (9,463)    10,507      13,381     13,742     10,541
  Net income (loss).........     4,658      5,424       6,372     (8,949)     3,062       4,639      4,711      3,052
Diluted earnings (loss) per
  share.....................   $  0.35    $  0.38    $   0.45   $  (0.64)  $   0.21    $   0.32   $   0.32   $   0.21
                               =======    =======    ========   ========   ========    ========   ========   ========
</TABLE>

---------------
(1) In the fourth quarter of the year ended June 30, 1998, we recorded a pre-tax
    charge of $5.0 million related to severance payments and an additional
    provision for doubtful accounts of $17.9 million.

(2) In the first quarter of the year ended June 30, 1999, we recorded a pre-tax
    charge of $2.5 million related to severance payments.

     We have historically experienced, and expect to continue to experience,
seasonality in quarterly operating results. This seasonality has resulted from a
number of factors, including relatively higher second and third fiscal quarter
demand for transport services in our Arizona and Florida regions resulting from
the greater winter populations in those regions. Also, our Argentine operations
experience greater utilization of services by customers under capitated service
arrangements in the fourth quarter, as compared to the other three quarters, as
South America enters into its winter season.

     Public health conditions affect our operations differently in different
regions. For example, greater utilization of services by customers under
capitated service arrangements decrease our operating income. The same
conditions domestically, where we operate under fee-for-service arrangements,
result in a greater number of transports, increasing our operating income.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, we have financed our cash requirements principally through
cash flow from operating activities, term and revolving indebtedness, capital
equipment lease financing, issuance of senior notes, the sale of common stock
through an initial public offering in July 1993 and subsequent public stock
offerings in May 1994 and April 1996, and the exercise of stock options.

     At June 30, 1999, we had working capital of $140.9 million, including cash
of $7.2 million, compared to working capital of $110.5 million, including cash
of $6.5 million, at June 30, 1998. During the fiscal year ended June 30, 1999,
our cash flow provided by operations was $21.8 million resulting primarily from
net income of $15.5 million plus non-cash expenses of depreciation and
amortization of $33.3 million and provision for doubtful accounts of $81.2
million and an increase in deferred income taxes of $3.7 million offset by an
increase in accounts receivable of $112.0 million. Cash flow provided by
operations was $12.6 million for the fiscal year ended June 30, 1998.

     Cash provided by financing activities was $21.5 million for the year ended
June 30, 1999, primarily because of the increased borrowings on our revolving
credit facility.

     Cash used in investing activities was $42.2 million for the year ended June
30, 1999 primarily because of cash paid for businesses acquired, capital
expenditures and increases in other assets.

                                       39
<PAGE>   41

     Our gross accounts receivable as of June 30, 1999 and June 30, 1998 were
$228.9 million and $224.2 million, respectively. Our accounts receivable, net of
the allowance for doubtful accounts, were $185.5 million and $154.6 million as
of such dates, respectively. The allowance for doubtful accounts at June 30,
1998 included a $17.9 million additional provision for doubtful accounts
recorded in the fourth quarter of fiscal year 1998. We believe that the increase
in gross accounts receivable is due to many factors including recent revenue
growth, delays in payments from certain third-party payors, particularly in
certain of our regional billing centers, and a general industry trend toward a
lengthening payment cycle of accounts receivable due from third-party payors.
Delays in receiving payments also contributed to an increase in the age of our
accounts receivable.

     During the fiscal year ended June 30, 1998, we increased the amount of our
revolving credit facility from $175.0 million to $200.0 million. The revolving
credit facility was also amended by extending the maturity date to March 16,
2003 and converting it to an unsecured credit facility that is unconditionally
guaranteed on a joint and several basis by substantially all of our domestic
wholly-owned current and future subsidiaries. The revolving credit facility is
priced at prime rate, Federal Funds Rate plus 0.5%, or a LIBOR-based rate. The
LIBOR-based rates range from LIBOR plus 0.875% to LIBOR plus 1.75%. At June 30,
1999 the interest rate was 6.7% on the revolving credit facility. Interest rates
and availability under the revolving credit facility depend upon our company
meeting certain financial covenants, including total debt leverage ratios, total
debt to capitalization ratios and fixed charge ratios. Approximately $113.5
million was outstanding on the revolving credit facility at June 30, 1999.
Availability on the facility was $51.7 million at June 30, 1999.

     In November 1998, we entered into an interest rate swap agreement that
originally expired in November 2003 with a provision for the lending party to
terminate the agreement in November 2000. The interest rate swap agreement
effectively converted $50.0 million of variable rate borrowings to fixed rate
borrowings. We paid a fixed rate of 4.72% and received a LIBOR-based floating
rate. The weighted average floating rate for the year ended June 30, 1999 was
5.2%. As a result of this swap agreement interest expense was reduced by
approximately $106,000 during the year ended June 30, 1999. In June 1999, we
terminated the interest rate swap agreement and received a termination fee of
$604,000. Such amount will be amortized as a reduction of interest expense on a
straight-line basis through November 2000.

     In February 1998, we entered into a $5.0 million capital equipment lease
line of credit. The lease line of credit matures at varying dates through July
2003. The lease line of credit is priced at the higher of LIBOR plus 1.7% or the
commercial paper rate plus 1.7%. At June 30, 1999 the interest rate was 6.6% on
the lease line of credit. Approximately $2.0 million was outstanding on this
line of credit at June 30, 1999.

     In March 1998 we issued $150.0 million of 7 7/8% Senior Notes due 2008 (the
Notes) effected under Rule 144A under the Securities Act of 1933, as amended
("Securities Act"). Interest under the Notes is payable semi-annually on
September 15 and March 15, and the Notes are not callable until March 2003
subject to the terms of the Indenture. We incurred expenses related to the
offering of approximately $5.3 million and will amortize these costs over the
life of the Notes. We recorded a $258,000 discount on the Notes and will
amortize this discount over the life of the Notes. Unamortized discount at June
30, 1999 was $225,000 and this amount is recorded as an offset to long-term debt
in the consolidated financial statements. In April 1998, we filed a registration
statement under the Securities Act relating to an exchange offer for the Notes.
The registration became effective on May 14, 1998. The Notes are general
unsecured obligations of our company and are unconditionally guaranteed on a
joint and several basis by substantially all of our domestic wholly-owned
current and future subsidiaries. See Note 4 of notes to our consolidated
financial statements. The Notes contain certain covenants that, among other
things, limit our ability to incur certain indebtedness, sell assets, or enter
into certain mergers or consolidations.

     During the fiscal year ended June 30, 1999, we purchased all of the issued
and outstanding stock of a company that provides urgent and primary care
services in three clinics in Argentina and of two companies that provide urgent
home medical attention and ambulance transport services in Argentina. We also
purchased the assets of an ambulance service provider operating in Pennsylvania
and an ambulance service provider in Georgia. The combined purchase price of the
operations was $20.7 million. We paid cash of $12.7

                                       40
<PAGE>   42

million, issued notes payable to sellers of $0.9 million and assumed $7.1
million of liabilities. We funded the cash portion of the acquisitions primarily
from our revolving credit facility.

     During the fiscal year ended June 30, 1999, we made investments in
companies offering ambulance services, ambulance billing services and
alternative transportation services. We contributed cash, accounts receivable
and fixed assets totaling $1.9 million at June 30, 1999 to these businesses.
These investments have been recorded using the cost method of accounting.

     We expect that existing working capital, together with cash flow from
operations and additional borrowing capacity, will be sufficient to meet our
operating and capital needs for existing operations for the twelve months
subsequent to June 30, 1999. Our business growth occurs primarily through new
business contracts and acquisitions. We intend to finance any contracts or
acquisitions that we consummate through the use of cash from operations, credit
facilities, seller notes payable and the issuance of common stock. In addition,
we may seek to raise additional capital through public or private debt or equity
financings. The availability of these capital sources will depend upon
prevailing market conditions, interest rates, our financial condition and the
market price of our common stock.

     The market price of our common stock impacts our ability to complete
acquisitions. We may be unwilling to utilize, or potential acquired companies or
their owners may be unwilling to accept, our common stock in connection with
acquisitions. In addition, the market price performance of our common stock may
make raising funds more difficult and costly. As a result of the decline in the
market price of our common stock in the fourth quarter of fiscal 1998 and the
failure of our stock price to increase since that time, the pace of acquisitions
utilizing our common stock has declined. Continued weakness in the market price
of our common stock could adversely affect our ability or willingness to make
additional acquisitions. Declines in the market price of our common stock could
cause previously acquired companies to seek adjustments to purchase prices or
other remedies to offset the decline in value.

MEDICARE REIMBURSEMENT

     In January 1999, HCFA announced its intention to form a negotiated
rule-making committee to create a new fee schedule for Medicare reimbursement of
ambulance services. The committee convened in February 1999. In August 1999,
HCFA announced that the implementation of the new fee schedule as well as the
mandatory acceptance of Medicare assignment will be postponed to January 2001.
HCFA also announced rules which became effective in February 1999. These rules
require, among other things, that a physician's certification be obtained for
certain ambulance transports. We have implemented a program to comply with the
new rules.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

     Our results of operations for the periods discussed have not been affected
significantly by inflation or foreign currency fluctuations. Our revenue from
international operations is denominated primarily in the currency of the country
in which it is operating. At June 30, 1999 our balance sheet reflects a $465,000
cumulative equity adjustment (decrease) from foreign currency translation, which
resulted from the weakening of the currencies of Canada and Brazil and the
effect it had on our investments in our Canadian operations and our investment
in certain property and equipment that we have deployed in Brazil. Although we
have not incurred any material exchange gains or losses to date, there can be no
assurance that fluctuations in the currency exchange rates in the future will
not have an adverse effect on our business, financial condition, cash flows and
results of operations. We do not currently engage in foreign currency hedging
transactions. However, as we continue to expand our international operations,
exposure to gains and losses on foreign currency transactions may increase. We
may choose to limit such exposure by entering into forward exchange contracts or
engaging in similar hedging strategies. See "Special Considerations -- We face
risks associated with international operations and foreign currency
fluctuations".

                                       41
<PAGE>   43

YEAR 2000 COMPLIANCE

     We have implemented a Year 2000 compliance program, utilizing both internal
and external resources, to ensure that our principal medical equipment,
ambulance and fire dispatch systems, and computer systems and applications will
function properly beyond 1999. Our assessment of this equipment and systems,
both internally developed and purchased from third-party vendors, is complete.
Included in this assessment is a formal communication program with our
significant vendors to determine the extent to which we are vulnerable to those
vendors who fail to remediate their own Year 2000 non-compliance.

     We are highly dependent on vendor remediation and testing of vendor
systems. The results of the assessments have indicated that our principal
medical equipment, ambulance and fire dispatch systems, and computer systems and
applications are either Year 2000 compliant, can be upgraded, or in the case of
certain ambulance and fire dispatch systems, will be replaced in order to obtain
compliance. We continue to upgrade and replace non-compliant equipment and
systems and expect to complete such activities prior to January 1, 2000. We will
continue to monitor new medical equipment, ambulance and fire dispatch systems,
and computer systems and applications that we add in our operations for Year
2000 compliance. If our medical equipment, ambulance and fire dispatch systems,
and computer systems and applications are not Year 2000 compliant, we may not be
able to respond to requests for ambulance and fire protection services in a
timely manner. This situation could adversely affect our operations and we may
incur unanticipated expenses to remedy any problems not addressed by these
compliance efforts.

     We are dependent upon vendors who provide services such as electrical
power, water, fuel for vehicles and other necessary commodities. We also depend
upon the ability of telephone systems to be Year 2000 compliant in order for us
to receive incoming calls for service to our ambulance and fire dispatch
systems. The failure of telephone service providers to adequately provide
service could impact our ability to dispatch and respond to requests for
ambulance and fire protection services in a timely manner. The failure of
third-party payors, such as private insurers, managed care providers, health
care organizations, preferred provider organizations, and federal and state
government agencies that administer Medicare and/or Medicaid, to adequately
address their Year 2000 issues could impact their ability to reimburse us for
services provided. The failure of any of these systems could adversely affect
our business, financial condition, cash flows and results of operations. We do
not control these systems and are dependent upon the service providers and
third-party payors to remediate any Year 2000 non-compliance related to their
own systems.

     To date, we have not completed our contingency plans in the event that our
principal medical equipment, ambulance and fire dispatch systems, computer
systems and applications, telephone systems, systems of third-party payors, or
any other components of our business operations fail to operate in compliance
with the Year 2000 date change. We expect to develop contingency plans by
October 1999.

     The cost of our Year 2000 compliance program has not had and is not
expected to have a material impact on our results of operations, financial
condition or liquidity. There can be no assurance, however, that we will not
experience material adverse consequences in the event that our Year 2000
compliance program is not successful or that our vendors or third-party payors
are not able to resolve their Year 2000 compliance issues in a timely manner.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     We have entered into interest rate swap agreements to limit the effect of
increases in the interest rates on floating rate debt. The swap agreements are
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without the exchange of the underlying notional
amounts. The notional amounts of interest rate agreements are used to measure
interest to be paid or received and do not represent the amount of exposure to
credit loss. The net cash amounts paid or received on the agreements are accrued
and recognized as an adjustment to interest expense.

     In November 1998, we entered into an interest rate swap agreement that
originally expired in November 2003 with a provision for the lending party to
terminate the agreement in November 2000. The interest rate swap agreement
effectively converted $50.0 million of variable rate borrowings to fixed rate
borrowings. We

                                       42
<PAGE>   44

paid a fixed rate of 4.72% and received a LIBOR-based floating rate. The
weighted average floating rate for the year ended June 30, 1999 was 5.2%. As a
result of this swap agreement interest expense was reduced by approximately
$106,000 during the year ended June 30, 1999. In June 1999, we terminated the
interest rate swap agreement and received a termination fee of $604,000. Such
amount will be amortized as a reduction of interest expense on a straight-line
basis through November 2000.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements as of June 30, 1999 and for each of
the fiscal years in the three-year period ended June 30, 1999, together with
related notes and the report of Arthur Andersen LLP are set forth on the
following pages.

                                       43
<PAGE>   45

                              REPORT OF MANAGEMENT

     The management of Rural/Metro Corporation is responsible for the integrity
and reliability of the financial information presented in this Annual Report,
including our financial statements. These financial statements have been
prepared in accordance with generally accepted accounting principles and
include, where necessary, informed estimates and judgments by management.

     We maintain systems of accounting and internal controls designed to provide
reasonable assurance that assets are properly accounted for, as well as to
ensure that the financial records are reliable for preparing financial
statements. The systems are augmented by qualified personnel and are reviewed on
a periodic basis.

     We maintain high standards when selecting, training and developing
personnel, to ensure that management's objective of maintaining strong,
effective internal accounting controls and unbiased, uniform reporting standards
are attained. We believe our policies and procedures provide reasonable
assurance that operations are conducted in conformity with law and with our
commitment to a high standard of business integrity and conduct.

     Our independent public accountants, Arthur Andersen LLP, conduct annual
audits of our financial statements in accordance with generally accepted
auditing standards which include the review of internal controls for the purpose
of establishing their audit scope, and issue an opinion on the fairness of such
financial statements.

     Our board of directors pursues its responsibility for the quality of our
financial reporting primarily through its audit committee which is composed of
three outside directors. This committee meets periodically with management and
the independent public accountants to review the manner in which they are
performing their responsibilities and to discuss audit, internal accounting
control and financial reporting matters. The independent public accountants
periodically meet alone with this committee and have full and free access to
this committee at any time.

                                          /s/ JOHN B. FURMAN

                                          --------------------------------------
                                          John B. Furman
                                          President and Chief Executive Officer

                                          /s/ MARK E. LIEBNER

                                          --------------------------------------
                                          Mark E. Liebner
                                          Senior Vice President, Chief Financial
                                          Officer

                                       44
<PAGE>   46

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Rural/Metro Corporation:

     We have audited the accompanying consolidated balance sheets of RURAL/METRO
CORPORATION (a Delaware corporation) and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of income, changes in
stockholders' equity, cash flows, and comprehensive income for each of the three
years in the period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rural/Metro Corporation and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.

     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and supplementary data is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

                                          ARTHUR ANDERSEN LLP

Phoenix, Arizona,
  August 23, 1999.

                                       45
<PAGE>   47

                            RURAL/METRO CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                1999         1998
                                                              ---------    ---------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
ASSETS
CURRENT ASSETS
  Cash......................................................  $  7,180     $  6,511
  Accounts receivable, net of allowance for doubtful
     accounts of $43,392 and $69,552, respectively (Note
     1).....................................................   185,454      154,603
  Inventories...............................................    16,371       13,128
  Prepaid expenses and other................................    13,630       16,402
                                                              --------     --------
          Total current assets..............................   222,635      190,644
PROPERTY AND EQUIPMENT, net (Notes 1, 3 and 4)..............    95,032       92,545
INTANGIBLE ASSETS, net (Notes 1 and 2)......................   240,360      235,456
OTHER ASSETS................................................    21,880       16,807
                                                              --------     --------
                                                              $579,907     $535,452
                                                              ========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable..........................................  $ 17,782     $ 13,435
  Accrued liabilities (Note 1)..............................    58,159       58,115
  Current portion of long-term debt (Notes 3, 4 and 5)......     5,765        8,565
                                                              --------     --------
          Total current liabilities.........................    81,706       80,115
LONG-TERM DEBT, net of current portion (Notes 3, 4 and 5)...   268,560      243,831
NON-REFUNDABLE SUBSCRIPTION INCOME..........................    14,909       13,682
DEFERRED INCOME TAXES (Note 10).............................     9,438        9,573
OTHER LIABILITIES...........................................       205        2,298
                                                              --------     --------
          Total liabilities.................................   374,818      349,499
                                                              --------     --------
COMMITMENTS AND CONTINGENCIES (Note 6)
MINORITY INTEREST...........................................     8,250        8,180
                                                              --------     --------
STOCKHOLDERS' EQUITY (Notes 2, 7 and 8)
  Preferred stock, $.01 par value, 2,000,000 shares
     authorized, none issued at June 30, 1999 and 1998......        --           --
  Common stock, $.01 par value, 23,000,000 shares
     authorized, 14,530,312 and 14,099,483 shares
     outstanding at June 30, 1999 and 1998, respectively....       148          144
  Additional paid-in capital................................   137,792      134,078
  Retained earnings.........................................    60,603       45,139
  Deferred compensation.....................................        --         (349)
  Cumulative translation adjustment.........................      (465)          --
  Treasury stock, at cost, 149,456 shares at June 30 1999
     and 1998...............................................    (1,239)      (1,239)
                                                              --------     --------
          Total stockholders' equity........................   196,839      177,773
                                                              --------     --------
                                                              $579,907     $535,452
                                                              ========     ========
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.
                                       46
<PAGE>   48

                            RURAL/METRO CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME
                FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                1999           1998           1997
                                                             -----------    -----------    -----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                          <C>            <C>            <C>
REVENUE
  Ambulance services.......................................   $467,632       $387,041       $257,488
  Fire protection services.................................     50,490         45,971         42,163
  Other....................................................     43,244         42,546         20,154
                                                              --------       --------       --------
          Total revenue....................................    561,366        475,558        319,805
                                                              --------       --------       --------
OPERATING EXPENSES
  Payroll and employee benefits............................    297,341        254,806        170,833
  Provision for doubtful accounts..........................     81,227         81,178         43,424
  Depreciation.............................................     24,222         19,213         12,136
  Amortization of intangibles..............................      9,166          7,780          4,660
  Other operating expenses.................................     98,739         80,216         54,922
  Loss contract/restructuring charge (Note 1)..............      2,500          5,000          6,026
                                                              --------       --------       --------
          Total expenses...................................    513,195        448,193        292,001
                                                              --------       --------       --------
OPERATING INCOME...........................................     48,171         27,365         27,804
  Interest expense, net (Note 4 and 5).....................     21,406         14,082          5,720
  Other....................................................         70           (199)            --
                                                              --------       --------       --------
INCOME BEFORE PROVISION FOR INCOME TAXES...................     26,695         13,482         22,084
PROVISION FOR INCOME TAXES (Note 10).......................     11,231          5,977          9,364
                                                              --------       --------       --------
NET INCOME.................................................   $ 15,464       $  7,505       $ 12,720
                                                              ========       ========       ========
BASIC EARNINGS PER SHARE...................................   $   1.07       $   0.55       $   1.10
                                                              ========       ========       ========
DILUTED EARNINGS PER SHARE.................................   $   1.06       $   0.54       $   1.04
                                                              ========       ========       ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- BASIC.....     14,447         13,529         11,585
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- DILUTED...     14,638         14,002         12,271
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       47
<PAGE>   49

                            RURAL/METRO CORPORATION

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                   ADDITIONAL                             CUMULATIVE
                              PREFERRED   COMMON    PAID-IN     RETAINED     DEFERRED     TRANSLATION   TREASURY
                                STOCK     STOCK     CAPITAL     EARNINGS   COMPENSATION   ADJUSTMENT     STOCK      TOTAL
                              ---------   ------   ----------   --------   ------------   -----------   --------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                           <C>         <C>      <C>          <C>        <C>            <C>           <C>        <C>
BALANCE, June 30, 1996......     $--       $113     $ 92,359    $30,181      $(1,448)        $  --      $(1,239)   $119,966
  Issuance of 361,970 shares
    of common stock for
    pooling-of-interests
    (Note 2)................      --          4           --     (2,567)          --            --           --      (2,563)
                                 ---       ----     --------    -------      -------         -----      -------    --------
BALANCE, June 30, 1996 as
  restated for effect of
  pooling-of-interests......      --        117       92,359     27,614       (1,448)           --       (1,239)    117,403
  Issuance of 1,315,441
    shares of common
    stock...................      --         13       24,129         --           --            --           --      24,142
  Tax benefit related to the
    exercise of nonqualified
    stock options and
    vesting of stock
    grants..................      --         --        4,867         --           --            --           --       4,867
  Amortization of deferred
    compensation............      --         --           --         --          676            --           --         676
  Net income................      --         --           --     12,720           --            --           --      12,720
                                 ---       ----     --------    -------      -------         -----      -------    --------
BALANCE, June 30, 1997......      --        130      121,355     40,334         (772)           --       (1,239)    159,808
  Issuance of 803,565 shares
    of common stock for
    pooling-of-interests
    (Note 2)................      --          8          946     (2,700)          --            --           --      (1,746)
                                 ---       ----     --------    -------      -------         -----      -------    --------
BALANCE, June 30, 1997 as
  restated for effect of
  pooling-of-interests......      --        138      122,301     37,634         (772)           --       (1,239)    158,062
  Issuance of 525,771 shares
    of common stock.........      --          6       10,765         --         (135)           --           --      10,636
  Tax benefit related to the
    exercise of nonqualified
    stock options and
    vesting of stock
    grants..................      --         --        1,012         --           --            --           --       1,012
  Amortization of deferred
    compensation............      --         --           --         --          558            --           --         558
  Net income................      --         --           --      7,505           --            --           --       7,505
                                 ---       ----     --------    -------      -------         -----      -------    --------
BALANCE, June 30, 1998......      --        144      134,078     45,139         (349)           --       (1,239)    177,773
  Issuance of 430,829 shares
    of common stock.........      --          4        3,706         --           --            --           --       3,710
  Tax benefit related to the
    exercise of nonqualified
    stock options and
    vesting of stock
    grants..................      --         --            8         --           --            --           --           8
  Amortization of deferred
    compensation............      --         --           --         --          349            --           --         349
  Cumulative translation
    adjustment..............      --         --           --         --           --          (465)          --        (465)
  Net income................      --         --           --     15,464           --            --           --      15,464
                                 ---       ----     --------    -------      -------         -----      -------    --------
BALANCE, June 30, 1999......     $--       $148     $137,792    $60,603      $    --         $(465)     $(1,239)   $196,839
                                 ===       ====     ========    =======      =======         =====      =======    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       48
<PAGE>   50

                            RURAL/METRO CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                1999         1998         1997
                                                              ---------    ---------    --------
                                                                        (IN THOUSANDS)
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................  $  15,464    $   7,505    $ 12,720
  Adjustments to reconcile net income to net cash provided
    by (used in) operating activities --
    Depreciation and amortization...........................     33,388       26,993      16,796
    Amortization of deferred compensation...................         80          558         676
    Amortization of gain on sale of real estate.............       (103)        (103)       (103)
    Provision for doubtful accounts.........................     81,227       81,178      43,424
    Undistributed earnings (loss) of minority shareholder...         70         (199)         --
    Amortization of discount on senior notes................         26            7          --
  Change in assets and liabilities, net of effect of
    businesses acquired --
    Increase in accounts receivable.........................   (112,030)    (116,481)    (75,352)
    Increase in inventories.................................     (3,244)      (4,260)     (2,651)
    (Increase) decrease in prepaid expenses and other.......      2,335       (2,285)     (1,867)
    Increase (decrease) in accounts payable.................      2,692        1,167      (1,255)
    Increase (decrease) in accrued liabilities and other
     liabilities............................................     (3,030)      23,120         487
    Increase in nonrefundable subscription income...........      1,227          305         124
    Increase (decrease) in deferred income taxes............      3,702       (4,934)        806
                                                              ---------    ---------    --------
      Net cash provided by (used in) operating activities...     21,804       12,571      (6,195)
                                                              ---------    ---------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of senior notes....................         --      145,805          --
  Borrowings (repayments) on revolving credit facility,
    net.....................................................     27,500      (50,000)     86,000
  Repayment of debt and capital lease obligations...........     (7,794)     (31,887)    (21,328)
  Borrowings under capital lease obligations................         --        2,701          --
  Issuance of common stock..................................      1,785        1,665       5,443
                                                              ---------    ---------    --------
      Net cash provided by financing activities.............     21,491       68,284      70,115
                                                              ---------    ---------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Cash paid for businesses acquired (Note 2)................    (12,665)     (36,848)    (35,512)
  Capital expenditures......................................    (23,939)     (31,043)    (23,872)
  Increase in other assets..................................     (5,557)      (9,851)     (2,526)
                                                              ---------    ---------    --------
      Net cash used in investing activities.................    (42,161)     (77,742)    (61,910)
                                                              ---------    ---------    --------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE.....................       (465)          --          --
                                                              ---------    ---------    --------
INCREASE IN CASH............................................        669        3,113       2,010
CASH, beginning of year.....................................      6,511        3,398       1,388
                                                              ---------    ---------    --------
CASH, end of year...........................................  $   7,180    $   6,511    $  3,398
                                                              =========    =========    ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
  Fair market value of stock issued to employee benefit
    plan....................................................  $   1,933    $      --    $     --
                                                              =========    =========    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       49
<PAGE>   51

                            RURAL/METRO CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
               FOR THE YEARS ENDED JUNE 30, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                               1999       1998      1997
                                                              -------    ------    -------
                                                                     (IN THOUSANDS)
<S>                                                           <C>        <C>       <C>
NET INCOME..................................................  $15,464    $7,505    $12,720
     Foreign currency translation adjustments...............     (465)       --         --
                                                              -------    ------    -------
COMPREHENSIVE INCOME........................................  $14,999    $7,505    $12,720
                                                              =======    ======    =======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       50
<PAGE>   52

                            RURAL/METRO CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND OPERATIONS

     Rural/Metro Corporation, a Delaware corporation, and its subsidiaries
(collectively, the Company) is a provider of health and safety services, which
include "911" emergency ambulance and general medical transport services, fire
protection services, and other safety and health care related services, to
municipal, residential, commercial, and industrial customers in 26 states, the
District of Columbia, Canada, and Latin America. In the United States, the
Company provides "911" emergency and general transport ambulance services to
patients on both a fee-for-service basis and a non-refundable subscription fee
basis. In Latin America, the Company provides urgent home medical care,
ambulance services, and urgent and primary care services in clinics under
capitated service arrangements. Fire protection services are provided either
under contracts with municipalities, fire districts, or other agencies, or on a
non-refundable subscription fee basis to individual homeowners or commercial
property owners.

     The Company depends on certain contracts with municipalities or fire
districts to provide "911" emergency ambulance services and fire protection
services. The five largest contracts accounted for 11%, 12% and 18% of total
revenue for the fiscal years ended June 30, 1999, 1998 and 1997, respectively,
with the largest of the five contracts accounting for 3%, 4% and 5%,
respectively, of total revenue for the same periods. These contracts are subject
to requests for proposals, competitive bid processes or renegotiation upon
expiration and may be subject to termination for failure to meet performance
criteria.

PRINCIPLES OF CONSOLIDATION

     The financial statements include the accounts of Rural/Metro Corporation
and its greater than 50% owned subsidiaries. Investments in affiliates, in which
the Company owns 20% to 50%, are carried on the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with the current
year presentation.

REVENUE RECOGNITION

     Ambulance service fees are recorded net of Medicare, Medicaid and other
reimbursement limitations and recognized when services are provided. During the
years ended June 30, 1999, 1998 and 1997, the Company derived approximately 24%,
29% and 26%, respectively, of its net ambulance fee collections from Medicare
and 10%, 11% and 10%, respectively, from Medicaid. The reimbursement process is
complex and involves lengthy delays. Third-party payors are continuing their
efforts to control expenditures for health care, including proposals to revise
reimbursement policies. Although the Company recognizes revenue when the
services are provided, there can be lengthy delays before payment is received.
In addition, third-party payors may disallow, in whole or in part, requests for
reimbursement based on assertions that certain amounts are not reimbursable or
additional supporting documentation is necessary. Retroactive adjustments can
change amounts realized from third-party payors. Delays and uncertainties in the
reimbursement process adversely affect the Company's level of accounts
receivable and may adversely affect the Company's working capital. The Company
establishes an allowance for doubtful accounts based on credit risk applicable
to certain types of payors, historical trends, and other relevant information.
Provision for doubtful accounts is recorded for the expected difference between
net ambulance service fees and amounts actually collected. The continuing
efforts of third-party payors to control expenditures for health care could
affect the revenue, cash flows, accounts receivable realization, and
profitability of the Company.

     During August 1997, President Clinton signed the "Balanced Budget Act of
1997" (the BBA). The BBA provides for certain changes to the Medicare
reimbursement system. These changes include, among other things, the creation of
a Medicare Payment Advisory Commission to review payment policies and health
care delivery, and make recommendations to Congress concerning such payment
policies.

                                       51
<PAGE>   53
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In addition, the BBA provides for the development and implementation of a
prospective fee schedule, by January 2000, for ambulance services. The BBA
mandates that this fee schedule be developed through a negotiated rulemaking
process and must consider the following: (i) data from industry and other
organizations involved in the delivery of ambulance services, (ii) mechanisms to
control increases in expenditures for ambulance services, (iii) appropriate
regional and operational differences, (iv) adjustments to payment rates to
account for inflation and other relevant factors, and (v) the phase-in of
payment rates under the fee schedule in an efficient and fair manner. Charges
for ambulance services provided during calendar years 1998 and 1999 will be
increased by the Consumer Price Index less one percentage point.

     The BBA requires that, beginning January 1, 2000, ambulance service
providers accept assignment whereby the Company receives payment directly from
Medicare and accepts such amount, along with the co-pay and deductible paid by
the patient, as payment in full. The BBA also applies the Skilled Nursing
Facility Prospective Payment System (SNFPPS) to a limited number of ambulance
trips to and from nursing homes. The application of SNFPPS could require the
Company to negotiate new contracts or arrangements with skilled nursing
facilities to provide ambulance services.

     The BBA also stipulates that individual states may now elect to no longer
provide payment for cost-sharing for coinsurance, or copayments, for
dual-qualified (Medicare and Medicaid) beneficiaries.

     In January 1999, HCFA announced its intention to form a negotiated
rule-making committee to create a new fee schedule for Medicare reimbursement of
ambulance services. The committee convened in February 1999. In August 1999,
HCFA announced that the implementation of the prospective fee schedule as well
as the mandatory acceptance of assignment will be postponed to January 2001.
HCFA also announced rules that became effective in February 1999, which require,
among other things, that a physician's certification be obtained for certain
ambulance transports. The Company has implemented a program to comply with these
new rules.

     The Company could take certain actions to partially mitigate any adverse
effect of these changes. These actions could include renegotiation of rates and
contract subsidies provided in the Company's "911" ambulance service contracts
and changes in staffing of ambulance crews based upon the negotiation for longer
response times under ambulance service contracts to reduce operating costs.

     Due to the uncertainty associated with the negotiation and subsequent
outcome of the prospective fee schedule and other aspects of the BBA, the
Company is unable to predict the ultimate impact of the BBA. However, future
impact of the BBA, together with the financial instability of private
third-party payors, budget pressures on payor sources, and cost shifting by
government, could influence the timing and, potentially, the ultimate receipt of
reimbursements.

     Revenue generated under fire protection service contracts is recognized
over the life of the contract. Subscription fees received in advance are
deferred and recognized over the term of the subscription agreement, generally
one year.

     Other revenue is comprised primarily of fees associated with alternative
transportation, dispatch, fleet, billing, urgent and primary care services in
clinics, and home health care services and is recognized when the services are
provided.

EARNINGS PER SHARE

     In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." The statement modifies the calculation of primary and fully diluted
earnings per share (EPS) as previously required and replaces them with basic and

                                       52
<PAGE>   54
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

diluted EPS. SFAS No. 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997 and as a result, EPS data
presented for the year ended June 30, 1997 has been restated in the consolidated
financial statements.

     A reconciliation of the numerators and denominators (weighted average
number of shares outstanding) of the basic and diluted EPS computations for the
years ended June 30, 1999, 1998 and 1997 is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
                                        1999                                      1998                        1997
                       ---------------------------------------   ---------------------------------------   -----------
                         INCOME         SHARES       PER SHARE     INCOME         SHARES       PER SHARE     INCOME
                       (NUMERATOR)   (DENOMINATOR)    AMOUNT     (NUMERATOR)   (DENOMINATOR)    AMOUNT     (NUMERATOR)
                       -----------   -------------   ---------   -----------   -------------   ---------   -----------
<S>                    <C>           <C>             <C>         <C>           <C>             <C>         <C>
Basic EPS............    $15,464        14,447         $1.07       $7,505         13,529         $0.55       $12,720
                                                       =====                                     =====
Effect of stock
  options............                      191                         --            473                          --
                         -------        ------                     ------         ------                     -------
Diluted EPS..........    $15,464        14,638         $1.06       $7,505         14,002         $0.54       $12,720
                         =======        ======         =====       ======         ======         =====       =======

<CAPTION>
                                 1997
                       -------------------------
                          SHARES       PER SHARE
                       (DENOMINATOR)    AMOUNT
                       -------------   ---------
<S>                    <C>             <C>
Basic EPS............     11,585         $1.10
                                         =====
Effect of stock
  options............        686
                          ------
Diluted EPS..........     12,271         $1.04
                          ======         =====
</TABLE>

FOREIGN CURRENCY TRANSLATION

     Financial information relating to the Company's foreign subsidiaries is
reported in accordance with SFAS No. 52, "Foreign Currency Translation." The
financial statements of non-U.S. subsidiaries are measured using the local
currency as the functional currency. Assets and liabilities of these non-U.S.
subsidiaries are translated at exchange rates in effect as of the end of each
balance sheet date, and related revenues and expenses are translated at average
exchange rates in effect during the period. The gains or losses resulting from
such translation are included in stockholders' equity.

INVENTORIES

     Inventories, consisting of ambulance and fire supplies, are stated at the
lower of cost, on a first-in, first-out basis, or market.

PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost, net of accumulated depreciation,
and is depreciated over the estimated useful lives using the straight-line
method. Equipment and vehicles are depreciated over three to ten years and
buildings are depreciated over 15 to 30 years. Property and equipment held under
capital leases are stated at the present value of minimum lease payments, net of
accumulated amortization. These assets are amortized over the lesser of the
lease term or the estimated useful life of the underlying assets using the
straight-line method. Major additions and improvements are capitalized;
maintenance and repairs which do not improve or significantly extend the life of
assets are expensed as incurred.

INTANGIBLE ASSETS

     Intangible assets include costs in excess of the fair value of net assets
of businesses acquired of $239,243,000 and $234,205,000 and covenants not to
compete of $1,117,000 and $1,251,000 at June 30, 1999 and 1998, respectively.
Costs in excess of the fair value of net assets acquired are amortized over 25
to 35 years using the straight-line method. Covenants not to compete are
amortized using the straight-line method over the term of the related
agreements, generally three to five years. Accumulated amortization of these
intangible assets was $25,713,000 and $17,065,000 at June 30, 1999 and 1998,
respectively.

                                       53
<PAGE>   55
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LONG-LIVED ASSETS

     The Company periodically evaluates the carrying value of long-lived assets
in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Under SFAS No. 121,
long-lived assets and certain identifiable intangible assets to be held and used
in operations are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be fully recoverable. An
impairment loss is recognized if the sum of the expected long-term undiscounted
cash flows is less than the carrying amount of the long-lived assets being
evaluated.

ACCRUED LIABILITIES

     Included in accrued liabilities is $14,780,000 and $16,427,000 for
salaries, wages and related payroll expenses and $2,657,000 and $2,823,000 for
accrued insurance premiums at June 30, 1999 and 1998, respectively.

LOSS CONTRACT/RESTRUCTURING CHARGE

     During the year ended June 30, 1999, the Company recorded a pre-tax charge
of $2.5 million for severance payments related to certain members of senior
management who have left the company. During the year ended June 30, 1998, the
Company recorded a pre-tax charge of $5.0 million related to severance payments.
The $5.0 million charge relates to the cost of terminating approximately 300
administrative employees throughout the Company. During the year ended June 30,
1997 the Company recorded a pre-tax charge of $6.0 million. Included in this
amount was an allowance of $3.2 million related to an unprofitable ambulance
service contract of which the entire amount was utilized during the years ended
June 30, 1998 and 1997. Also included was a pre-tax restructuring charge of $2.8
million relating to the integration of ambulance company acquisitions. The
charge consisted primarily of severance costs and other costs related to the
elimination of redundant functions. The severance costs related to the cost of
terminating approximately 100 administrative employees throughout the Company,
all of which had been terminated as of June 30, 1998. As of June 30, 1999 and
June 30, 1998, the balance of the allowance for restructuring costs and
severance payments was $1.3 million and $5.4 million, respectively. The
allowance is included in accrued liabilities in the accompanying consolidated
balance sheets.

CONCENTRATIONS OF CREDIT RISK

     Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company places its cash with federally-insured institutions and
limits the amount of credit exposure to any one institution. Concentrations of
credit risk with respect to accounts receivable are limited due to the large
number of customers comprising the Company's credit base and the geographical
dispersion of the customers.

USE OF ESTIMATES

     In the preparation of financial statements in conformity with generally
accepted accounting principles, management of the Company has made estimates and
assumptions that affect the reported amounts of assets and liabilities,
particularly accounts receivable and its effect on revenue, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies.
Considerable judgment is required in interpreting market

                                       54
<PAGE>   56
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

data to develop the estimates of fair value. Accordingly, the estimates may not
be indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions or valuation methodologies
could have a material effect on the estimated fair value assumptions. The
carrying values of cash, accounts receivable, accounts payable, accrued
liabilities, and other liabilities approximate fair value due to the short-term
maturities of these instruments. The revolving line of credit approximates fair
value as it bears interest at a rate indexed to LIBOR. The senior notes, notes
payable, and capital lease obligations approximate fair value as rates on these
instruments, in the aggregate, approximate market rates currently available for
instruments with similar terms and remaining maturities.

CHANGE IN ACCOUNTING PRINCIPLE

     In accordance with Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities," the Company will be required to change its accounting
principle regarding organization costs. In the first quarter of fiscal 2000 the
Company will expense previously capitalized organization costs. The impact of
this change is currently unknown and will be presented separately as a
cumulative effect of a change in accounting principle in the Company's
consolidated statement of income for the three months ended September 30, 1999.

(2) BUSINESS DEVELOPMENT ACTIVITIES

ACQUISITIONS

     The Company acquired the operations of five companies during the year ended
June 30, 1999 and the operations of eleven companies during the year ended June
30, 1998. All five of the acquisitions completed during the year ended June 30,
1999 were accounted for as purchases in accordance with Accounting Principles
Board (APB) Opinion No. 16 and, accordingly, the purchased assets and assumed
liabilities were recorded at their estimated fair values at each respective
acquisition date. Eight of the acquisitions completed during the year ended June
30, 1998 were accounted for as purchases in accordance with APB No. 16 and three
of the acquisitions were accounted for as poolings-of-interest in accordance
with APB No. 16. Adjustments, if any, to the purchase price allocations are not
expected to have a material impact on the accompanying consolidated financial
statements.

     The aggregate purchase price of the operations accounted for as purchases
in each year ended June 30 consisted of the following:

<TABLE>
<CAPTION>
                                                            1999       1998
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Cash.....................................................  $12,665    $36,848
Common stock.............................................       --      8,971
Notes payable to sellers.................................      872      6,470
Assumption of liabilities................................    7,104     24,833
                                                           -------    -------
          Total..........................................  $20,641    $77,122
                                                           =======    =======
</TABLE>

     The Company issued 334,532 shares of its common stock in connection with
acquisitions accounted for as purchases in the year ended June 30, 1998.

                                       55
<PAGE>   57
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fair value of the assets purchased has been allocated as follows (in
thousands):

<TABLE>
<CAPTION>
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Property and equipment...................................  $17,511    $ 4,381
Intangible assets........................................    2,770     66,469
Other assets.............................................      360      6,272
                                                           -------    -------
          Total..........................................  $20,641    $77,122
                                                           =======    =======
</TABLE>

     The Company issued 803,565 shares of its common stock in connection with
the poolings-of-interest transactions completed during the year ended June 30,
1998.

JOINT VENTURE

     During the fiscal year ended June 30, 1998, the Company entered into a
joint venture to provide non-emergency ambulance service and medical
transportation in Maryland, Washington D.C. and northern Virginia. The Company
is the majority shareholder, therefore, the results of operations and the assets
and liabilities of the joint venture are consolidated and included in the
accompanying consolidated financial statements. Minority interest is recorded
for the results of operations and the equity interest attributable to the
minority joint venture partner. The minority joint venture partner contributed
to the joint venture all of the issued and outstanding stock of two ambulance
service companies. The Company contributed to the joint venture a commitment to
fund $8.0 million for additional acquisitions in the greater Baltimore, Maryland
and Washington D.C. area. As of June 30, 1998, the Company had completely
fulfilled the $8.0 million commitment. The joint venture agreement allows the
minority joint venture partner to exercise an option to repurchase one share of
stock of the joint venture, thereby increasing the minority joint venture
partner's interest to 50%. Should such option be exercised, the Company would no
longer be able to consolidate the joint venture into its consolidated financial
statements and the equity method of accounting would be applied.

     The following consolidated pro forma financial information was prepared
assuming that each acquisition completed during the fiscal years ended June 30,
1999 and 1998 and the joint venture had occurred as of the beginning of each
fiscal year. This pro forma information does not necessarily reflect the results
of operations that would have occurred had the acquisitions and joint venture
taken place at the beginning of each fiscal year and is not necessarily
indicative of results that may be obtained in the future (unaudited):

<TABLE>
<CAPTION>
                                                            1999           1998
                                                         -----------    -----------
                                                         (IN THOUSANDS, EXCEPT PER
                                                               SHARE AMOUNTS)
<S>                                                      <C>            <C>
Revenue................................................   $565,435       $545,137
Net income.............................................   $ 15,126       $  9,328
Earnings per share -- basic............................   $   1.05       $   0.66
Earnings per share -- diluted..........................   $   1.03       $   0.64
</TABLE>

PUBLIC/PRIVATE ALLIANCE

     During the year ended June 30, 1998, the Company entered into a
public/private alliance with San Diego Fire and Life Safety Services to provide
all emergency and non-emergency transport services for the City of San Diego. As
part of the alliance, a limited liability corporation (the LLC) was created with
a 50/50 ownership between the Company and the City of San Diego. A wholly-owned
subsidiary of the Company contracts with the LLC to provide operational and
administrative support. Revenue generated under this contract totaled $6.5
million and $6.0 million for the years ended June 30, 1999 and 1998,
respectively. Such revenue is included in other revenue in the accompanying
consolidated financial statements. San Diego Fire and Life Safety Services also
contracts with the LLC to provide emergency response and transportation

                                       56
<PAGE>   58
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

services. The Company accounts for the activities of the LLC using the equity
method. At June 30, 1999 and 1998, the Company's investment in the LLC was
$1,598,000 and $737,000, respectively and such amounts are included in other
assets in the accompanying consolidated financial statements. The Company's
share of the undistributed earnings of the LLC was $861,000 and $727,000 for the
years ended June 30, 1999 and 1998, respectively. The Company's share of such
undistributed earnings is included in other revenue in the accompanying
consolidated financial statements.

OTHER INVESTMENTS

     During the year ended June 30, 1999, the Company made investments in
companies offering ambulance services, ambulance billing services, and
alternative transportation services. The Company contributed cash, accounts
receivable, and fixed assets totaling $1.9 million at June 30, 1999 to these
businesses. These investments have been recorded using the cost method of
accounting and are included in other assets in the accompanying consolidated
financial statements.

(3) PROPERTY AND EQUIPMENT

     Property and equipment, including equipment held under capital leases,
consisted of the following:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Equipment..............................................  $ 58,317    $ 49,900
Vehicles...............................................    87,359      76,783
Land and buildings.....................................    19,819      19,469
Leasehold improvements.................................     8,735       6,367
                                                         --------    --------
                                                          174,230     152,519
Less: Accumulated depreciation.........................   (79,198)    (59,974)
                                                         --------    --------
                                                         $ 95,032    $ 92,545
                                                         ========    ========
</TABLE>

     The Company acquired equipment of $2,701,000 under capital lease and other
financing agreements during the year ended June 30, 1998. No equipment was
acquired under capital lease or other financing agreements during the years
ended June 30, 1999 and 1997.

     The Company held vehicles and equipment with a historical cost of
$19,889,000 and $19,894,000 at June 30, 1999 and 1998, respectively, under
capital lease agreements. Accumulated depreciation on these assets totaled
$12,404,000 and $9,741,000 June 30, 1999 and 1998, respectively.

                                       57
<PAGE>   59
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) CREDIT AGREEMENTS AND BORROWINGS

     Notes payable and capital lease obligations consisted of the following:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
7 7/8% senior notes due 2008...........................  $149,775    $149,750
Revolving credit facility..............................   113,500      86,000
Capital lease obligations and other notes payable,
  collateralized by property and equipment, at varying
  rates, from 6.89% to 21.01%, due through 2003........     7,802      12,113
Unsecured promissory notes payable from acquisitions at
  varying rates, from 6.0% to 9.0%, due through
  2006.................................................     3,248       4,533
                                                         --------    --------
                                                          274,325     252,396
Less: Current maturities...............................    (5,765)     (8,565)
                                                         --------    --------
                                                         $268,560    $243,831
                                                         ========    ========
</TABLE>

7 7/8% SENIOR NOTES DUE 2008

     In March 1998, the Company issued $150.0 million of 7 7/8% Senior Notes due
2008 (the Notes) effected under Rule 144A under the Securities Act of 1933 as
amended (Securities Act). The net proceeds of the offering, sold through private
placement transactions, was used to repay certain indebtedness. Interest under
the Notes is payable semi-annually on September 15, and March 15, and the Notes
are not callable until March 2003 subject to the terms of the Note Agreement.
The Company incurred expenses related to the offering of approximately $5.3
million and will amortize these costs over the life of the Notes. The Company
recorded a $258,000 discount on the Notes and will amortize this discount over
the life of the Notes. Unamortized discount at June 30, 1999 and 1998 was
$225,000 and $250,000, respectively, and these amounts are recorded as an offset
to long-term debt in the accompanying consolidated financial statements. In
April 1998, the Company filed a registration statement under the Securities Act
relating to an exchange offer for the Notes, which became effective on May 14,
1998. The Notes are general unsecured obligations of the Company and are
unconditionally guaranteed on a joint and several basis by substantially all of
the Company's domestic wholly-owned current and future subsidiaries. The Notes
contain certain covenants which, among other things, limit the Company's ability
to incur certain indebtedness, sell assets, or enter into certain mergers or
consolidations.

     The financial statements presented below include the separate and combined
financial position, results of operations and cash flows for the years ended
June 30, 1999 and 1998 of Rural/Metro Corporation (Parent) and the guarantor
subsidiaries (Guarantors) and the subsidiaries which are not guarantors
(Non-guarantors). Consolidating financial statements for the year ended June 30,
1997 have not been presented as such presentation is considered to be
insignificant since most of the Non-guarantors did not exist during that period.
The Company has not presented separate financial statements and related
disclosures for each of the guarantor subsidiaries because management believes
such information is inconsequential to the note holders.

                                       58
<PAGE>   60
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            RURAL/METRO CORPORATION

                          CONSOLIDATING BALANCE SHEET
                                 JUNE 30, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              PARENT    GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                             --------   ----------   --------------   -----------   ------------
<S>                                          <C>        <C>          <C>              <C>           <C>
ASSETS
CURRENT ASSETS
  Cash.....................................  $     --   $   5,379       $  1,801       $      --      $  7,180
  Accounts receivable, net.................        --     164,700         20,754              --       185,454
  Inventories..............................        --      15,238          1,133              --        16,371
  Prepaid expenses and other...............       531      11,648          1,451              --        13,630
                                             --------   ---------       --------       ---------      --------
          Total current assets.............       531     196,965         25,139              --       222,635
PROPERTY AND EQUIPMENT, net................        --      84,448         10,584              --        95,032
INTANGIBLE ASSETS, net.....................        --     159,159         81,201              --       240,360
DUE FROM/(TO) AFFILIATES...................   302,491    (245,964)       (56,527)             --            --
OTHER ASSETS...............................     4,169      15,237          2,474              --        21,880
INVESTMENT IN SUBSIDIARIES.................   156,690          --             --        (156,690)           --
                                             --------   ---------       --------       ---------      --------
                                             $463,881   $ 209,845       $ 62,871       $(156,690)     $579,907
                                             ========   =========       ========       =========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable.........................  $     --   $  11,101       $  6,681       $      --      $ 17,782
  Accrued liabilities......................     3,767      42,431         11,961              --        58,159
  Current portion of long-term debt........        --       4,157          1,608              --         5,765
                                             --------   ---------       --------       ---------      --------
          Total current liabilities........     3,767      57,689         20,250              --        81,706
LONG-TERM DEBT, net of current portion.....   263,275       4,384            901              --       268,560
NON-REFUNDABLE SUBSCRIPTION INCOME.........        --      14,890             19              --        14,909
DEFERRED INCOME TAXES......................        --       8,473            965              --         9,438
OTHER LIABILITIES..........................        --         205             --              --           205
                                             --------   ---------       --------       ---------      --------
          Total liabilities................   267,042      85,641         22,135              --       374,818
                                             --------   ---------       --------       ---------      --------
MINORITY INTEREST..........................        --          --             --           8,250         8,250
STOCKHOLDERS' EQUITY
  Common stock.............................       148          82             17             (99)          148
  Additional paid-in capital...............   137,792      54,622         34,942         (89,564)      137,792
  Retained earnings........................    60,603      69,500          6,242         (75,742)       60,603
  Cumulative translation adjustment........      (465)         --           (465)            465          (465)
  Treasury stock...........................    (1,239)         --             --              --        (1,239)
                                             --------   ---------       --------       ---------      --------
          Total stockholders' equity.......   196,839     124,204         40,736        (164,940)      196,839
                                             --------   ---------       --------       ---------      --------
                                             $463,881   $ 209,845       $ 62,871       $(156,690)     $579,907
                                             ========   =========       ========       =========      ========
</TABLE>

                                       59
<PAGE>   61
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            RURAL/METRO CORPORATION

                          CONSOLIDATING BALANCE SHEET
                                 JUNE 30, 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT    GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                            --------   ----------   --------------   -----------   ------------
<S>                                         <C>        <C>          <C>              <C>           <C>
ASSETS
CURRENT ASSETS
  Cash....................................  $     --   $    2,917      $  3,594       $      --      $  6,511
  Accounts receivable, net................        --      139,673        14,930              --       154,603
  Inventories.............................        --       12,149           979              --        13,128
  Prepaid expenses and other..............       531       14,717         1,154              --        16,402
                                            --------   ----------      --------       ---------      --------
          Total current assets............       531      169,456        20,657              --       190,644
PROPERTY AND EQUIPMENT, net...............        --       87,132         5,413              --        92,545
INTANGIBLE ASSETS, net....................        --      167,630        67,826              --       235,456
DUE FROM/(TO) AFFILIATES..................   286,420     (244,979)      (41,441)             --            --
OTHER ASSETS..............................     4,654       11,160           993              --        16,807
INVESTMENT IN SUBSIDIARIES................   125,726           --            --        (125,726)           --
                                            --------   ----------      --------       ---------      --------
                                            $417,331   $  190,399      $ 53,448       $(125,726)     $535,452
                                            ========   ==========      ========       =========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable........................  $     --   $    8,828      $  4,607       $      --      $ 13,435
  Accrued liabilities.....................     3,808       40,572        13,735              --        58,115
  Current portion of long-term debt.......        --        7,939           626              --         8,565
                                            --------   ----------      --------       ---------      --------
          Total current liabilities.......     3,808       57,339        18,968              --        80,115
LONG-TERM DEBT, net of current portion....   235,750        7,100           981              --       243,831
NON-REFUNDABLE SUBSCRIPTION INCOME........        --       13,604            78              --        13,682
DEFERRED INCOME TAXES.....................        --        9,335           238              --         9,573
OTHER LIABILITIES.........................        --        1,439           859              --         2,298
                                            --------   ----------      --------       ---------      --------
          Total liabilities...............   239,558       88,817        21,124              --       349,499
                                            --------   ----------      --------       ---------      --------
MINORITY INTEREST.........................        --           --            --           8,180         8,180
STOCKHOLDERS' EQUITY
  Common stock............................       144           82            17             (99)          144
  Additional paid-in capital..............   134,078       54,622        30,513         (85,135)      134,078
  Retained earnings.......................    45,139       46,878         1,794         (48,672)       45,139
  Deferred compensation...................      (349)          --            --              --          (349)
  Treasury stock..........................    (1,239)          --            --              --        (1,239)
                                            --------   ----------      --------       ---------      --------
          Total stockholders' equity......   177,773      101,582        32,324        (133,906)      177,773
                                            --------   ----------      --------       ---------      --------
                                            $417,331   $  190,399      $ 53,448       $(125,726)     $535,452
                                            ========   ==========      ========       =========      ========
</TABLE>

                                       60
<PAGE>   62
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            RURAL/METRO CORPORATION

                       CONSOLIDATING STATEMENT OF INCOME
                        FOR THE YEAR ENDED JUNE 30, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                         PARENT    GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                        --------   ----------   --------------   -----------   ------------
<S>                                     <C>        <C>          <C>              <C>           <C>
REVENUE
  Ambulance services..................  $     --    $379,653       $87,979        $     --       $467,632
  Fire protection services............        --      49,397         1,093              --         50,490
  Other...............................        --      38,813         4,431              --         43,244
                                        --------    --------       -------        --------       --------
          Total revenue...............        --     467,863        93,503              --        561,366
                                        --------    --------       -------        --------       --------
OPERATING EXPENSES
  Payroll and employee benefits.......        --     240,341        57,000              --        297,341
  Provision for doubtful accounts.....        --      75,743         5,484              --         81,227
  Depreciation........................        --      22,230         1,992              --         24,222
  Amortization of intangibles.........       214       6,601         2,351              --          9,166
  Other operating expenses............        --      81,633        17,106              --         98,739
  Restructuring charge................        --       2,500            --              --          2,500
                                        --------    --------       -------        --------       --------
          Total expenses..............       214     429,048        83,933              --        513,195
                                        --------    --------       -------        --------       --------
OPERATING INCOME (LOSS)...............      (214)     38,815         9,570              --         48,171
  Interest expense, net...............    19,675        (139)        1,870              --         21,406
  Other...............................        --          --            --              70             70
                                        --------    --------       -------        --------       --------
INCOME (LOSS) BEFORE PROVISION
  (BENEFIT) FOR INCOME TAXES..........   (19,889)     38,954         7,700             (70)        26,695
PROVISION (BENEFIT) FOR INCOME
  TAXES...............................    (8,353)     16,332         3,252              --         11,231
                                        --------    --------       -------        --------       --------
                                         (11,536)     22,622         4,448             (70)        15,464
INCOME FROM WHOLLY-OWNED
  SUBSIDIARIES........................    27,000          --            --         (27,000)            --
                                        --------    --------       -------        --------       --------
NET INCOME............................  $ 15,464    $ 22,622       $ 4,448        $(27,070)      $ 15,464
                                        ========    ========       =======        ========       ========
Other comprehensive income(loss), net
  of tax
  Foreign currency translation
     adjustments......................        --          --          (465)             --           (465)
  Comprehensive income (loss) from
     wholly-owned subsidiaries........      (465)         --            --             465             --
                                        --------    --------       -------        --------       --------
COMPREHENSIVE INCOME..................  $ 14,999    $ 22,622       $ 3,983        $(26,605)      $ 14,999
                                        ========    ========       =======        ========       ========
</TABLE>

                                       61
<PAGE>   63
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            RURAL/METRO CORPORATION

                       CONSOLIDATING STATEMENT OF INCOME
                        FOR THE YEAR ENDED JUNE 30, 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                         PARENT    GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                        --------   ----------   --------------   -----------   ------------
<S>                                     <C>        <C>          <C>              <C>           <C>
REVENUE
  Ambulance services..................  $     --    $341,668       $45,373        $     --       $387,041
  Fire protection services............        --      44,985           986              --         45,971
  Other...............................        --      42,184           362              --         42,546
                                        --------    --------       -------        --------       --------
          Total revenue...............        --     428,837        46,721              --        475,558
                                        --------    --------       -------        --------       --------
OPERATING EXPENSES
  Payroll and employee benefits.......        --     225,102        29,704              --        254,806
  Provision for doubtful accounts.....        --      76,872         4,306              --         81,178
  Depreciation........................        --      18,329           884              --         19,213
  Amortization of intangibles.........       124       6,690           966              --          7,780
  Other operating expenses............        --      70,804         9,412              --         80,216
  Restructuring charge................        --       5,000            --              --          5,000
                                        --------    --------       -------        --------       --------
          Total expenses..............       124     402,797        45,272              --        448,193
                                        --------    --------       -------        --------       --------
OPERATING INCOME (LOSS)...............      (124)     26,040         1,449              --         27,365
  Interest expense, net...............     5,630       7,900           552              --         14,082
  Other...............................        --          --            --            (199)          (199)
                                        --------    --------       -------        --------       --------
INCOME (LOSS) BEFORE PROVISION
  (BENEFIT) FOR INCOME TAXES..........    (5,754)     18,140           897             199         13,482
PROVISION (BENEFIT) FOR INCOME
  TAXES...............................    (2,589)      8,146           420              --          5,977
                                        --------    --------       -------        --------       --------
                                          (3,165)      9,994           477             199          7,505
INCOME FROM WHOLLY-OWNED
  SUBSIDIARIES........................    10,670          --            --         (10,670)            --
                                        --------    --------       -------        --------       --------
NET INCOME............................  $  7,505    $  9,994       $   477        $(10,471)      $  7,505
                                        ========    ========       =======        ========       ========
COMPREHENSIVE INCOME..................  $  7,505    $  9,994       $   477        $(10,471)      $  7,505
                                        ========    ========       =======        ========       ========
</TABLE>

                                       62
<PAGE>   64
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            RURAL/METRO CORPORATION

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      PARENT    GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                                     --------   ----------   --------------   -----------   ------------
<S>                                                  <C>        <C>          <C>              <C>           <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net income.......................................  $ 15,464    $ 22,622       $  4,448       $(27,070)     $  15,464
  Adjustments to reconcile net income to cash
    provided by (used in) operations --
  Depreciation and amortization....................       214      28,831          4,343             --         33,388
  Amortization of deferred compensation............        80          --             --             --             80
  Amortization of gain on sale of real estate......        --        (103)            --             --           (103)
  Provision for doubtful accounts..................        --      75,743          5,484             --         81,227
  Undistributed earnings of minority shareholder...        --          --             --             70             70
  Amortization of discount on Senior Notes.........        26          --             --             --             26
  Change in assets and liabilities, net of effect
    of businesses acquired --
    Increase in accounts receivable................        --    (100,770)       (11,260)            --       (112,030)
    Increase in inventories........................        --      (3,089)          (155)            --         (3,244)
    Decrease in prepaid expenses and other.........        --       1,328          1,007             --          2,335
    (Increase) decrease in due to/from
      affiliates...................................   (45,103)       (948)        15,087         30,964             --
    Increase in accounts payable...................        --       2,273            419             --          2,692
    Increase (decrease) in accrued liabilities and
      other liabilities............................       228       2,509         (5,767)            --         (3,030)
    Increase (decrease) in non-refundable
      subscription income..........................        --       1,286            (59)            --          1,227
    Increase in deferred income taxes..............        --       3,198            504             --          3,702
                                                     --------    --------       --------       --------      ---------
      Net cash provided by (used in) operating
         activities................................   (29,091)     32,880         14,051          3,964         21,804
                                                     --------    --------       --------       --------      ---------
CASH FLOW FROM FINANCING ACTIVITIES
  Borrowings on revolving credit facility, net.....    27,500          --             --             --         27,500
  Repayment of debt and capital lease
    obligations....................................        --      (6,573)        (1,221)            --         (7,794)
  Issuance of common stock.........................     1,785          --          4,429         (4,429)         1,785
                                                     --------    --------       --------       --------      ---------
      Net cash provided by (used in) financing
         activities................................    29,285      (6,573)         3,208         (4,429)        21,491
                                                     --------    --------       --------       --------      ---------
CASH FLOW FROM INVESTING ACTIVITIES
  Cash paid for businesses acquired................        --        (445)       (12,220)            --        (12,665)
  Capital expenditures.............................        --     (19,537)        (4,402)            --        (23,939)
  Increase in other assets.........................       271      (3,863)        (1,965)            --         (5,557)
                                                     --------    --------       --------       --------      ---------
      Net cash used in investing activities........       271     (23,845)       (18,587)            --        (42,161)
                                                     --------    --------       --------       --------      ---------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE............      (465)         --           (465)           465           (465)
                                                     --------    --------       --------       --------      ---------
INCREASE (DECREASE) IN CASH........................        --       2,462         (1,793)            --            669
CASH, beginning of year............................        --       2,917          3,594             --          6,511
                                                     --------    --------       --------       --------      ---------
CASH, end of year..................................  $     --    $  5,379       $  1,801       $     --      $   7,180
                                                     ========    ========       ========       ========      =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
  ACTIVITIES
  Fair market value of stock issued to employee
    benefit plan...................................  $  1,933    $     --       $     --       $     --      $   1,933
                                                     ========    ========       ========       ========      =========
</TABLE>

                                       63
<PAGE>   65
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            RURAL/METRO CORPORATION

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    PARENT     GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                                   ---------   ----------   --------------   -----------   ------------
<S>                                                <C>         <C>          <C>              <C>           <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net income.....................................  $   7,505   $   9,994       $    477       $(10,471)     $   7,505
  Adjustments to reconcile net income to cash
    provided by (used in) operations --
  Depreciation and amortization..................        131      25,012          1,850             --         26,993
  Amortization of deferred compensation..........        558          --             --             --            558
  Amortization of gain on sale of real estate....         --        (103)            --             --           (103)
  Provision for doubtful accounts................         --      76,872          4,306             --         81,178
  Undistributed earnings/(loss) of minority
    shareholder..................................         --          --             --           (199)          (199)
  Amortization of discount on senior notes.......          7          --             --             --              7
  Change in assets and liabilities, net of effect
    of businesses acquired --
    Increase in accounts receivable..............         --    (104,836)       (11,645)            --       (116,481)
    Increase in inventories......................         --      (3,722)          (538)            --         (4,260)
    (Increase) decrease in prepaid expenses and
      other......................................     (1,371)     (2,923)         2,009             --         (2,285)
    (Increase) decrease in due to/from
      affiliates.................................   (244,101)    186,613         46,818         10,670             --
    Increase (decrease) in accounts payable......         --       1,696           (529)            --          1,167
    Increase (decrease) in accrued liabilities
      and other..................................      3,801      19,898           (579)            --         23,120
    Increase in non-refundable subscription
      income.....................................         --         288             17             --            305
    Increase (decrease) in deferred income
      taxes......................................         --      (4,935)             1             --         (4,934)
                                                   ---------   ---------       --------       --------      ---------
      Net cash provided by (used in) operating
         activities..............................   (233,470)    203,854         42,187             --         12,571
                                                   ---------   ---------       --------       --------      ---------
CASH FLOW FROM FINANCING ACTIVITIES
  Proceeds from issuance of senior notes.........    145,805          --             --             --        145,805
  Borrowings (repayments) on revolving credit
    facility, net................................     86,000    (136,000)            --             --        (50,000)
  Repayment of debt and capital lease
    obligations..................................         --     (25,389)        (6,498)            --        (31,887)
  Borrowings of debt.............................         --       2,701             --             --          2,701
  Issuance of common stock.......................      1,665          --             --             --          1,665
                                                   ---------   ---------       --------       --------      ---------
      Net cash provided by (used in) financing
         activities..............................    233,470    (158,688)        (6,498)            --         68,284
                                                   ---------   ---------       --------       --------      ---------
CASH FLOW FROM INVESTING ACTIVITIES
  Cash paid for businesses acquired..............         --      (6,644)       (30,204)            --        (36,848)
  Capital expenditures...........................         --     (29,767)        (1,276)            --        (31,043)
  Increase in other assets.......................         --      (8,858)          (993)            --         (9,851)
                                                   ---------   ---------       --------       --------      ---------
      Net cash used in investing activities......         --     (45,269)       (32,473)            --        (77,742)
                                                   ---------   ---------       --------       --------      ---------
INCREASE (DECREASE) IN CASH......................         --        (103)         3,216             --          3,113
CASH, beginning of year..........................         --       3,020            378             --          3,398
                                                   ---------   ---------       --------       --------      ---------
CASH, end of year................................  $      --   $   2,917       $  3,594       $     --      $   6,511
                                                   =========   =========       ========       ========      =========
</TABLE>

                                       64
<PAGE>   66
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVOLVING CREDIT FACILITY

     The Company has a fully underwritten credit agreement for a revolving
credit facility. The amount of the facility was increased from $125.0 million to
$175.0 million during the fiscal year ended June 30, 1997 and increased to
$200.0 million during the fiscal year ended June 30, 1998. The revolving credit
facility was also amended by extending the maturity date to March 16, 2003 and
converting it to an unsecured credit facility. The revolving credit facility is
priced at prime rate, Federal Funds Rate plus 0.5% or a LIBOR-based rate. The
LIBOR-based rates range from LIBOR plus 0.875% to LIBOR plus 1.75%. Interest
rates and availability under the revolving credit facility are dependent upon
the Company meeting certain financial covenants including total debt leverage
ratios, total debt to capitalization ratios and fixed charge ratios.
Approximately $113.5 million was outstanding on the revolving credit facility at
June 30, 1999. Availability on the facility was $51.7 million at June 30, 1999.

     At June 30, 1999, the revolving credit facility was priced at LIBOR plus
1.625%. The weighted average interest rate on the revolving credit facility was
6.66% and 7.31% at June 30, 1999 and 1998, respectively.

DEBT MATURITIES

     Aggregate debt maturities for each of the years ending June 30 are as
follows:

<TABLE>
<CAPTION>
                                                    NOTES PAYABLE    CAPITAL LEASES
                                                    -------------    --------------
                                                            (IN THOUSANDS)
<S>                                                 <C>              <C>
2000..............................................    $  2,737       $    3,475
2001..............................................         896            1,703
2002..............................................         790            1,018
2003..............................................     113,684              609
2004..............................................         144               --
Thereafter........................................     150,116               --
                                                      --------       ----------
                                                      $268,367            6,805
                                                      ========
Less: Amounts representing interest...............                         (847)
                                                                     ----------
                                                                     $    5,958
                                                                     ==========
</TABLE>

     The Company incurred interest expense of $21,498,000, $14,259,000 and
$5,739,000 and paid interest of $21,669,000, $11,519,000 and $6,223,000 in the
years ended June 30, 1999, 1998 and 1997, respectively.

     The Company had outstanding letters of credit totaling $2,055,000 and
$2,355,000 at June 30, 1999 and 1998, respectively.

(5) FINANCIAL INSTRUMENTS

     The Company has entered into interest rate swap agreements to limit the
effect of increases in interest rates on floating rate debt. The swap agreements
are contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without the exchange of the underlying notional
amounts. The notional amounts of interest rate agreements are used to measure
interest to be paid or received and do not represent the amount of exposure to
credit loss. The net cash amounts paid or received on the agreements are accrued
and recognized as an adjustment to interest expense.

     In November 1998, the Company entered into an interest rate swap agreement
that originally expired in November 2003 with a provision for the lending party
to terminate the agreement in November 2000. The interest rate swap agreement
effectively converted $50.0 million of variable rate borrowings to fixed rate
borrowings. The Company paid a fixed rate of 4.72% and received a LIBOR-based
floating rate. The weighted

                                       65
<PAGE>   67
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

average floating rate for the year ended June 30, 1999 was 5.2%. As a result of
this swap agreement interest expense was reduced during the year ended June 30,
1999 by approximately $106,000. In June 1999, the Company terminated the
interest rate swap agreement and received a termination fee of $604,000. Such
amount will be amortized as a reduction of interest expense on a straight-line
basis through November 2000.

(6) COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

     The Company leases various facilities and equipment under non-cancelable
operating lease agreements. Rental expense charged to operations under these
leases was $12,769,000, $10,193,000 and $6,625,000 for the years ended June 30,
1999, 1998 and 1997, respectively.

     Minimum rental commitments under non-cancelable operating leases for each
of the years ending June 30 are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $7,090
2001........................................................   5,920
2002........................................................   4,594
2003........................................................   3,868
2004........................................................   3,469
Thereafter..................................................   6,517
</TABLE>

LEGAL PROCEEDINGS

     The Company is a party to various lawsuits arising in the ordinary course
of business. Management believes, based upon discussions with legal counsel,
that losses, if any, will be substantially covered under insurance policies and
will not have a material adverse effect on the consolidated financial
statements.

     On August 25, 1998 and September 2, 1998, the Company was named as a
defendant in two purported class action lawsuits. One lawsuit was filed in the
Pima County Arizona Superior Court and the other was filed in the United States
District Court for the District of Arizona. The two lawsuits contain virtually
identical allegations and are brought on behalf of a class of those who
purchased the Company's publicly traded securities including its common stock
between April 28, 1997 and June 11, 1998. Both complaints allege that between
April 28, 1997 and June 11, 1998 the Company issued certain false and misleading
statements regarding certain aspects of the financial status of the Company and
that these statements allegedly caused the Company's common stock to be traded
at an artificially inflated price. On May 25, 1999, the Arizona state court
granted the defendants' request for a stay of the state action until the federal
action is finally resolved. The defendants have moved to dismiss the federal
action. This motion is currently pending. The Company intends to vigorously
defend the complaints. The Company is unable to predict the ultimate outcome of
this litigation. If the lawsuits were ultimately determined adversely to the
Company, it could have a material effect on the Company's results of operations
and financial condition.

OTHER DISPUTES

     In 1994, the Company entered into a Management Agreement with another
Corporation (Corporation) to manage the operations of one of the Company's
subsidiaries that does not provide ambulance or fire protection services. The
Company also entered into an Option Agreement whereby the Corporation had the
option to purchase the assets of this subsidiary and the Company had the option
to sell the assets of this subsidiary. A dispute has arisen regarding the terms
of the Option Agreement. Although the final outcome of this dispute is unknown
at this time, the Company may incur a loss on its investment in this subsidiary
upon

                                       66
<PAGE>   68
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

final resolution of this matter. Any loss, however, is not expected to have a
material impact on the Company's financial condition and results of operations.

OPTION AGREEMENT

     During the year ended June 30, 1999, the Company entered into an option
agreement whereby the Company may elect to be issued a debenture in the
principal amount of $25.0 million by a company providing ambulance and other
services in certain areas of Brazil. The Company may elect to terminate this
option agreement upon 30-day written notice.

     Under the related debenture agreement, the initial draw on the debenture
may be an amount up to $5.0 million and may not occur prior to the third quarter
of fiscal 2000. Subsequent disbursements under the debenture agreement are made
at the sole discretion of the Company. Upon initial disbursement, the Company
will receive 25% of the profits of the Brazilian company, reduced by certain
specified amounts, on an annual basis. The percentage of profit participation
may increase over time to 50% upon additional distributions under the debenture
agreement. The Company, at its sole discretion, also has the option to convert
the debenture into equity of the Brazilian company.

HEALTHCARE COMPLIANCE

     The healthcare industry 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. Recently,
government activity has increased with respect to investigations and allegations
concerning possible violations of fraud and abuse statutes and regulations by
healthcare providers. Violations of these laws and regulations could result in
expulsion from government healthcare programs together with the imposition of
significant fines and penalties, as well as significant repayments for patient
services previously billed. The Company believes that it is substantially in
compliance with fraud and abuse statutes as well as other applicable government
laws and regulations. Compliance with these and other laws and regulations can
be subject to future government review and interpretation as well as regulatory
actions unknown or unasserted at this time.

     The Company is currently undergoing two investigations by certain
governmental agencies regarding compliance with Medicare fraud and abuse
statutes. The Company is cooperating with the governmental agencies conducting
these investigations and is providing requested information to these
governmental agencies. These reviews are covering periods prior to the Company's
acquisition of these operations and periods after acquisition. Management
believes that the remedies existing under specific purchase agreements and
allowances existing in the consolidated financial statements are sufficient so
that the ultimate outcome of these matters should not have a material adverse
effect on the Company's financial condition.

(7) EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

     The Company established the ESOP in 1979 and made contributions to the ESOP
at the discretion of the Board of Directors. The Board of Directors approved
discretionary contributions of $300,000 for the year ended June 30, 1997. No
discretionary contributions were approved for the years ended June 30, 1999 and
1998. The ESOP held, for the benefit of all participants, approximately 6% as of
June 30, 1999 and 1998, of the outstanding common stock of the Company as of
June 30, 1999 and 1998. The ESOP is administered by the ESOP's Advisory
Committee, consisting of certain officers of the Company.

     In July 1999, the Company's Board of Directors approved an amendment to
"freeze" the ESOP, effective June 30, 1999 with respect to all employees other
than members of collective bargaining agreements that

                                       67
<PAGE>   69
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

include participation in the ESOP. All participants' accounts were fully vested
as of June 30, 1999. The Company does not intend to make any contributions to
the ESOP in the future.

EMPLOYEE STOCK PURCHASE PLAN

     The Company has an Employee Stock Purchase Plan (ESPP) through which
eligible employees may purchase shares of the Company's common stock, at
semi-annual intervals, through periodic payroll deductions. The ESPP is a
qualified employee benefit plan under Section 423 of the Internal Revenue Code.
The Company has reserved 450,000 shares of stock for issuance under the ESPP.
The purchase price per share is the lower of 85% of the closing price of the
stock on the first day or the last day of the offering period or on the nearest
prior day on which trading occurred on the NASDAQ National Market. As of June
30, 1999, 232,660 shares of common stock have been issued under the ESPP.

1992 STOCK OPTION PLAN

     The Company's 1992 Stock Option Plan was adopted in November 1992 and
provides for the granting of options to acquire common stock of the Company,
direct granting of the common stock of the Company (Stock Awards), the granting
of stock appreciation rights (SARs), or the granting of other cash awards (Cash
Awards) (Stock Awards, SARs and Cash Awards are collectively referred to herein
as Awards). At June 30, 1999, the maximum number of shares of common stock
issuable under the 1992 Plan was 6.0 million of which approximately 0.8 million
options had been exercised. Options may be granted as incentive stock options or
non-qualified stock options.

     Options and Awards may be granted only to persons who at the time of grant
are either (i) key personnel (including officers) of the Company or (ii)
consultants and independent contractors who provide valuable services to the
Company. Options that are incentive stock options may be granted only to key
personnel of the Company.

     The 1992 Plan, as amended, provides for the automatic grant of options to
acquire the Company's common stock (the Automatic Grant Program), whereby each
non-employee member of the Board of Directors will be granted an option to
acquire 2,500 shares of common stock annually. Each non-employee member of the
Board of Directors also will receive an annual automatic grant of options to
acquire an additional number of shares equal to 1,000 shares for each $0.05
increase in the Company's earnings per share, subject to a maximum of 5,000
additional options. New non-employee members of the Board of Directors will
receive options to acquire 10,000 shares of common stock on the date of their
first appointment or election to the Board of Directors.

     The expiration date, maximum number of shares purchasable and the other
provisions of the options will be established at the time of grant. Options may
be granted for terms of up to ten years and become exercisable in whole or in
one or more installments at such time as may be determined by the Plan
Administrator upon grant of the options. Options granted to date vest over
periods not exceeding five years. The exercise price of options will be
determined by the Plan Administrator, but may not be less than 100% (110% if the
option is granted to a stockholder who at the date the option is granted owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its subsidiaries) of the fair market value of the
common stock at the date of the grant.

     Awards granted in the form of SARs would entitle the recipient to receive a
payment equal to the appreciation in market value of a stated number of shares
of common stock from the price stated in the award agreement to the market value
of the common stock on the date first exercised or surrendered. The Plan
Administrator may determine such terms, conditions, restrictions and/or
limitations, if any, on any SARs.

     The 1992 Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its common stock,
Awards, or any other type of award. To the extent permitted
                                       68
<PAGE>   70
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

by applicable law, the Company may issue any other options, warrants or awards
other than pursuant to the 1992 Plan without stockholder approval. The 1992 Plan
will remain in force until November 5, 2002.

     The following summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30, 1999
                                                         ---------------------------------------
                                                                                        WEIGHTED
                                                                                        AVERAGE
                                                         NUMBER OF    EXERCISE PRICE    EXERCISE
                                                          SHARES        PER SHARE        PRICE
                                                         ---------    --------------    --------
<S>                                                      <C>          <C>               <C>
Options outstanding at beginning of year...............  3,093,905    $1.25 - $36.00     $26.26
  Granted..............................................  1,004,497    $6.63 - $11.81     $ 7.45
  Canceled.............................................   (513,590)   $7.13 - $35.00     $26.90
  Exercised............................................     (9,642)   $1.25 -  $7.13     $ 6.64
                                                         ---------
Options outstanding at end of year.....................  3,575,170    $1.25 - $36.00     $20.99
                                                         =========
Options exercisable at end of year.....................  2,520,828    $1.25 - $36.00     $21.46
                                                         =========
Options available for grant at end of year.............  1,655,738
                                                         =========
Weighted average fair value per share of options
  granted..............................................                                  $ 2.55
                                                                                         ======
                                                                YEAR ENDED JUNE 30, 1998
                                                         ---------------------------------------
                                                                                        WEIGHTED
                                                                                        AVERAGE
                                                         NUMBER OF    EXERCISE PRICE    EXERCISE
                                                          SHARES        PER SHARE        PRICE
                                                         ---------    --------------    --------
Options outstanding at beginning of year...............  2,301,397    $ 5.60 - $36.00    $24.45
  Granted..............................................  1,031,343    $ 1.25 - $34.50    $29.10
  Canceled.............................................    (89,927)   $16.25 - $36.00    $27.50
  Exercised............................................   (148,908)   $ 1.25 - $29.00    $14.40
                                                         ---------
Options outstanding at end of year.....................  3,093,905    $ 1.25 - $36.00    $26.26
                                                         =========
Options exercisable at end of year.....................  1,875,149    $ 1.25 - $36.00    $25.73
                                                         =========
Options available for grant at end of year.............  2,146,645
                                                         =========
Weighted average fair value per share of options
  granted..............................................                                  $11.04
                                                                                         ======
                                                                YEAR ENDED JUNE 30, 1997
                                                         ---------------------------------------
                                                                                        WEIGHTED
                                                                                        AVERAGE
                                                         NUMBER OF    EXERCISE PRICE    EXERCISE
                                                          SHARES        PER SHARE        PRICE
                                                         ---------    --------------    --------
Options outstanding at beginning of year...............  1,826,375    $ 5.60 - $24.25    $18.37
  Granted..............................................    944,489    $31.25 - $36.00    $32.27
  Canceled.............................................   (137,875)   $ 8.04 - $32.25    $24.48
  Exercised............................................   (331,592)   $ 5.60 - $24.00    $13.97
                                                         ---------
Options outstanding at end of year.....................  2,301,397    $ 5.60 - $36.00    $24.45
                                                         =========
Options exercisable at end of year.....................    899,572    $ 5.60 - $32.25    $21.42
                                                         =========
Options available for grant at end of year.............    478,811
                                                         =========
Weighted average fair value per share of options
  granted..............................................                                  $10.25
                                                                                         ======
</TABLE>

                                       69
<PAGE>   71
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                 ------------------------------------   ----------------------
                                WEIGHTED
                                 AVERAGE     WEIGHTED                 WEIGHTED
                                REMAINING    AVERAGE                  AVERAGE
   RANGE OF        OPTIONS     CONTRACTUAL   EXERCISE     OPTIONS     EXERCISE
EXERCISE PRICES  OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
---------------  -----------   -----------   --------   -----------   --------
<S>              <C>           <C>           <C>        <C>           <C>
$ 1.25 - $ 8.04   1,018,796       8.59        $ 7.16       676,646     $ 7.17
$ 8.25 - $18.75     452,293       5.60         15.70       337,961      16.74
$22.50 - $24.25..    612,625      6.23         23.98       447,964      23.97
$29.00 - $36.00..  1,491,456      7.56         30.82     1,058,257      31.04
                  ---------       ----        ------    ----------     ------
                  3,575,170       7.38        $20.99     2,520,828     $21.46
                  =========       ====        ======    ==========     ======
</TABLE>

ACCOUNTING FOR STOCK-BASED COMPENSATION

     During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which defines a fair value based method of accounting for an
employee stock option or similar equity instruments and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost related to stock options issued to employees under these plans using the
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share, as if the fair value based method of accounting defined in SFAS No. 123
had been applied.

     The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25; therefore, no compensation cost is recognized in the
accompanying financial statements for stock-based employee awards. However, the
Company has computed, for pro forma disclosure purposes, the value of all
options and ESPP shares granted during 1999, 1998, and 1997, using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                               YEAR ENDED JUNE 30,
                                               ---------------------------------------------------
                                                    1999              1998              1997
                                               ---------------   ---------------   ---------------
                                               OPTIONS   ESPP    OPTIONS   ESPP    OPTIONS   ESPP
                                               -------   -----   -------   -----   -------   -----
<S>                                            <C>       <C>     <C>       <C>     <C>       <C>
Risk-free interest rate......................    5.92%    5.43%    5.01%    4.95%    6.23%    5.90%
Expected dividend yield......................    0.00%    0.00%    0.00%    0.00%    0.00%    0.00%
Expected lives in years (after vesting for
  options)...................................    1.33     0.50     1.32     0.50     1.59     0.50
Expected volatility..........................   57.66%   85.20%   46.65%   63.42%   36.50%   43.60%
</TABLE>

     The total value of options and ESPP shares granted was computed to be the
following approximate amounts, which would be amortized on the straight-line
basis over the vesting period (in thousands):

<TABLE>
<CAPTION>
                                                             OPTIONS    ESPP
                                                             -------    ----
<S>                                                          <C>        <C>
For year ended June 30, 1999...............................  $ 2,564    $340
For year ended June 30, 1998...............................  $11,386    $397
For year ended June 30, 1997...............................  $ 9,681    $306
</TABLE>

                                       70
<PAGE>   72
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting, the Company's net income and diluted
earnings per share would have been reported as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30,
                                                     -----------------------------------------
                                                        1999           1998            1997
                                                     ----------      ---------      ----------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                  <C>             <C>            <C>
Net income:
  Historical.......................................   $15,464         $7,505         $12,720
  Pro forma........................................   $11,939         $2,090         $ 8,013
Diluted earnings per share:
  Historical.......................................   $  1.06         $ 0.54         $  1.04
  Pro forma........................................   $  0.82         $ 0.15         $  0.65
</TABLE>

     The effects of applying SFAS 123 for providing pro forma disclosures for
1999, 1998, and 1997 are not likely to be representative of the effects on
reported net income and diluted earnings per share for future years, because
options vest over several years and additional awards are made each year.

401(K) PLAN

     The Company has a contributory retirement plan (the 401(k) Plan) covering
eligible employees who are at least 18 years old. The 401(k) Plan is designed to
provide tax-deferred income to the Company's employees in accordance with the
provisions of Section 401(k) of the Internal Revenue Code.

     The 401(k) Plan provides that each participant may contribute up to 15% of
his or her respective salary, not to exceed the statutory limit. The Company, at
its discretion, may elect to make a matching contribution in the form of cash or
the Company's common stock to each participant's account as determined by the
Board of Directors. Under the terms of the 401(k) Plan, the Company may also
make discretionary profit sharing contributions. Profit sharing contributions
are allocated among participants based on their annual compensation. Each
participant has the right to direct the investment of his or her funds. The
Company made matching contributions to the 401(k) Plan aggregating approximately
$2,206,000 of cash and $1,933,000 of the Company's common stock for the 401(k)
Plan years ended December 31, 1998 and 1997, respectively.

(8) STOCKHOLDERS' EQUITY

SHAREHOLDER RIGHTS PLAN

     In August 1995, the Company's Board of Directors adopted a shareholder
rights plan, which authorized the distribution of one right to purchase one
one-thousandth of a share of $0.01 par value Series A Junior Participating
Preferred Stock (a Right) for each share of common stock of the Company. Rights
will become exercisable following the tenth day (or such later date as may be
determined by the Board of Directors) after a person or group (a) acquires
beneficial ownership of 15% or more of the Company's common stock or (b)
announces a tender or exchange offer, the consummation of which would result in
ownership by a person or group of 15% or more of the Company's common stock.

     Upon exercise, each Right will entitle the holder (other than the party
seeking to acquire control of the Company) to acquire shares of the common stock
of the Company or, in certain circumstances, such acquiring person at a 50%
discount from market value. The Rights may be terminated by the Board of
Directors at any time prior to the date they become exercisable at a price of
$0.01 per Right; thereafter, they may be redeemed for a specified period of time
at $0.01 per Right.

                                       71
<PAGE>   73
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) RELATED PARTY TRANSACTIONS

     The Company incurred legal fees of approximately $113,000, $148,000 and
$139,000 for the years ended June 30, 1999, 1998 and 1997, respectively, with a
law firm in which a member of the Board of Directors is a partner.

     The Company incurred rental expense of $1,895,000, $1,490,000 and $600,000
in each of the years ended June 30, 1999, 1998 and 1997, respectively, related
to leases of fire and ambulance facilities and furniture and equipment with two
directors of the Company and with employees that were previously owners of
businesses acquired by the Company.

     At June 30, 1999 and 1998, the Company had notes payable to employees that
were previously owners of businesses acquired by the Company totaling $138,000
and $770,000, respectively.

     During the year ended June 30, 1999, the Company incurred consulting fees
of $213,000 with two directors of the Company.

(10) INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes are provided for
differences between results of operations for financial reporting purposes and
income tax purposes.

     No provision is made for U.S. income taxes applicable to undistributed
foreign earnings of foreign subsidiaries that are indefinitely reinvested in
foreign operations.

     The sources of income before income taxes were as follows:

<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,
                                                        -----------------------------
                                                         1999       1998       1997
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
United States.........................................  $19,189    $11,791    $22,084
Foreign...............................................    7,506      1,691         --
                                                        -------    -------    -------
Income before income taxes............................  $26,695    $13,482    $22,084
                                                        =======    =======    =======
</TABLE>

     The components of the provision for income taxes were as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED JUNE 30,
                                                          ---------------------------
                                                           1999       1998      1997
                                                          -------    ------    ------
                                                                (IN THOUSANDS)
<S>                                                       <C>        <C>       <C>
Current
  U.S. federal..........................................  $    58    $  790    $2,761
  State.................................................      128        68       618
  Foreign...............................................    1,532       762        --
                                                          -------    ------    ------
          Total current.................................    1,718     1,620     3,379
                                                          -------    ------    ------
Deferred
  U.S. federal..........................................    9,064     4,576     5,985
  Foreign...............................................      449      (219)       --
                                                          -------    ------    ------
          Total deferred................................    9,513     4,357     5,985
                                                          -------    ------    ------
          Total provision...............................  $11,231    $5,977    $9,364
                                                          =======    ======    ======
</TABLE>

                                       72
<PAGE>   74
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred tax assets and liabilities are recorded based on differences
between the financial statement and tax bases of amounts of assets and
liabilities and the tax rates in effect when those differences are expected to
reverse.

     The components of net deferred taxes were as follows:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Deferred tax liabilities
  Amortization and accelerated depreciation............  $(15,730)   $(12,449)
  Accounts receivable valuation........................   (30,820)    (14,801)
  Accounting method changes............................    (1,910)       (962)
  Other................................................      (751)       (637)
                                                         --------    --------
                                                          (49,211)    (28,849)
                                                         --------    --------
Deferred tax assets
  Restructuring charge.................................     2,997       2,140
  Compensation accruals................................       974         781
  Insurance reserves...................................     1,758         986
  Net operating loss benefits..........................     7,898          --
  Alternative minimum tax credit carryforwards.........     1,115          --
  Business tax credits.................................       505          --
  Other................................................        78         569
                                                         --------    --------
                                                           15,325       4,476
                                                         --------    --------
Net deferred tax liability.............................   (33,886)    (24,373)
Less current portion...................................    24,448      14,800
                                                         --------    --------
Net long-term deferred tax liability...................  $ (9,438)   $ (9,573)
                                                         ========    ========
</TABLE>

     For the years ended June 30, 1999, 1998 and 1997 income tax benefits of
$8,000, $1,012,000 and $4,867,000, respectively, were allocated to additional
paid-in capital for tax benefits associated with the exercise of nonqualified
stock options and vesting of stock grants.

     The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The sources
and tax effects of the differences were as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED JUNE 30,
                                                          ---------------------------
                                                           1999       1998      1997
                                                          -------    ------    ------
                                                                (IN THOUSANDS)
<S>                                                       <C>        <C>       <C>
Federal income tax provision at statutory rate........    $ 9,343    $4,719    $7,729
State taxes, net of federal benefit...................        568       293       967
Amortization of nondeductible goodwill................      1,590       900       663
Other, net............................................       (270)       65         5
                                                          -------    ------    ------
Provision for income taxes............................    $11,231    $5,977    $9,364
                                                          =======    ======    ======
</TABLE>

     The Company received income tax refunds (net of income tax payments) of
approximately $2,050,000 and $3,323,000 during the years ended June 30, 1999 and
1998, respectively. Cash payments for income taxes (net of refunds) were
approximately $8,197,000 during the year ended June 30, 1997.

                                       73
<PAGE>   75
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) SEGMENT REPORTING

     The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial statements.
It also established standards for related disclosures about products and
services and geographic areas. Operating segments are defined as components of a
business, for which separate financial information is available, that management
regularly evaluates in deciding how to allocate resources and assess
performance.

     The Company operates in two business segments: Ambulance and Fire and
Other. The Company's reportable segments are strategic business units that offer
different services. They are managed separately based on the fundamental
differences in their operations.

     The Ambulance segment includes emergency medical and general medical
transport ambulance services provided to patients on both a fee-for-service
basis and a non-refundable subscription basis. The Ambulance segment also
includes urgent home medical care and ambulance services provided under
capitated service arrangements in Argentina.

     The Fire and Other segment includes the following services: fire protection
and training, alternative transportation, home health care services, urgent and
primary care in clinics, dispatch, fleet and billing.

     The accounting policies of the operating segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
defines segment profit (loss) as total revenue less total operating expenses and
interest expense associated with the segment. The Company defines segment assets
as net accounts receivable plus net property and equipment associated with the
segment.

     Included in Corporate are general corporate expenses as well as the pre-tax
charge of $2.5 million related to severance payments recorded during the year
ended June 30, 1999, the pretax charge of $5.0 million related to severance
payments recorded during the year ended June 30, 1998 and the pre-tax
restructuring charge of $2.8 million recorded during the year ended June 30,
1997.

     Information by operating segment is set forth below (in thousands):

<TABLE>
<CAPTION>
                                             AMBULANCE   FIRE AND OTHER   CORPORATE    TOTAL
                                             ---------   --------------   ---------   --------
<S>                                          <C>         <C>              <C>         <C>
YEAR ENDED JUNE 30, 1999
  Net revenues from external customers.....  $467,632       $ 93,734      $     --    $561,366
  Depreciation and amortization............    23,851          7,824         1,713      33,388
  Interest expense, net....................    16,088          4,928           390      21,406
  Equity in net income of equity-method
     investees.............................       725             17            --         742
  Segment profit (loss)....................    33,239         11,905       (18,379)     26,765
  Segment assets...........................   253,269         40,693         2,895     296,857
  Capital expenditures.....................    19,467          4,390            82      23,939
  Investment in equity-method investees....  $  1,142       $  1,671      $     --    $  2,813
</TABLE>

                                       74
<PAGE>   76
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                       AMBULANCE    FIRE AND OTHER    CORPORATE     TOTAL
                                       ---------    --------------    ---------    --------
<S>                                    <C>          <C>               <C>          <C>
YEAR ENDED JUNE 30, 1998
  Net revenues from external
     customers.......................  $387,041        $88,517        $     --     $475,558
  Depreciation and amortization......    18,608          6,952           1,433       26,993
  Interest expense, net..............     9,731          4,085             266       14,082
  Equity in net income of
     equity-method investees.........       727             43              --          770
  Segment profit (loss)..............    23,407         12,917         (23,041)      13,283
  Segment assets.....................   218,620         38,311           3,345      260,276
  Capital expenditures...............    22,988          5,638           2,417       31,043
  Investment in equity-method
     investees.......................  $    737        $ 1,160        $     --     $  1,897
</TABLE>

<TABLE>
<CAPTION>
                                       AMBULANCE    FIRE AND OTHER    CORPORATE     TOTAL
                                       ---------    --------------    ---------    --------
<S>                                    <C>          <C>               <C>          <C>
YEAR ENDED JUNE 30, 1997
  Net revenues from external
     customers.......................  $257,488        $62,317        $     --     $319,805
  Depreciation and amortization......    11,921          4,182             693       16,796
  Interest expense, net..............     4,139          1,463             118        5,720
  Equity in net income of
     equity-method investees.........        --             --              --           --
  Segment profit (loss)..............    31,603          7,679         (17,198)      22,084
  Segment assets.....................   153,955         31,046           1,267      186,268
  Capital expenditures...............    19,098          4,488             286       23,872
  Investment in equity-method
     investees.......................  $     --        $    --        $     --     $     --
</TABLE>

     Information concerning principal geographic areas is set forth below for
each year ended June 30 (in thousands):

<TABLE>
<CAPTION>
                                            1999                      1998                      1997
                                   -----------------------   -----------------------   -----------------------
                                   REVENUE    NET PROPERTY   REVENUE    NET PROPERTY   REVENUE    NET PROPERTY
                                   --------   ------------   --------   ------------   --------   ------------
<S>                                <C>        <C>            <C>        <C>            <C>        <C>
United States and Canada.........  $506,817     $87,441      $462,179     $90,003      $319,268     $70,256
Latin America....................    54,549       7,591        13,379       2,542           537         389
                                   --------     -------      --------     -------      --------     -------
         Total...................  $561,366     $95,032      $475,558     $92,545      $319,805     $70,645
                                   ========     =======      ========     =======      ========     =======
</TABLE>

(12) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     Selected quarterly financial data for the years ended June 30, 1999 and
1998 is as follows:

<TABLE>
<CAPTION>
                                                                       1999
                                                                       ----
                                                    FIRST        SECOND      THIRD       FOURTH
                                                  QUARTER(1)    QUARTER     QUARTER     QUARTER
                                                  ----------    --------    --------    --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>           <C>         <C>         <C>
Revenue.........................................   $138,795     $139,589    $142,933    $140,049
Operating income................................     10,507       13,381      13,742      10,541
Net income......................................      3,062        4,639       4,711       3,052
Earnings per share..............................   $    .21     $    .32    $    .32    $    .21
</TABLE>

                                       75
<PAGE>   77
                            RURAL/METRO CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                       1998
                                                                       ----
                                                    FIRST      SECOND      THIRD        FOURTH
                                                   QUARTER    QUARTER     QUARTER     QUARTER(2)
                                                   -------    --------    --------    ----------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                <C>        <C>         <C>         <C>
Revenue..........................................  $97,773    $111,342    $129,783     $136,660
Operating income (loss)..........................   10,346      12,199      14,283       (9,463)
Net income (loss)................................    4,658       5,424       6,372       (8,949)
Earnings (loss) per share........................  $   .35    $    .38    $    .45     $   (.64)
</TABLE>

---------------
(1) In the first quarter of the year ended June 30, 1999, the Company recorded a
    pre-tax charge of $2.5 million related to severance payments.

(2) In the fourth quarter of the year ended June 30, 1998, the Company recorded
    a pre-tax charge of $5.0 million related to severance payments and an
    additional provision for doubtful accounts of $17.9 million.

                                       76
<PAGE>   78

                                  SCHEDULE II

                            RURAL/METRO CORPORATION
                       VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                      -------------------------------
                                                        1999        1998       1997
                                                      ---------    -------    -------
                                                              (IN THOUSANDS)
<S>                                                   <C>          <C>        <C>
Allowance for doubtful accounts:
  Balance at beginning of year......................  $  69,552    $35,814    $26,571
  Provision charged to expense......................     81,227     81,178     43,424
  Write-offs........................................   (107,387)   (47,440)   (34,181)
                                                      ---------    -------    -------
  Balance at end of year............................  $  43,392    $69,552    $35,814
                                                      =========    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                      -------------------------------
                                                        1999        1998       1997
                                                      ---------    -------    -------
                                                              (IN THOUSANDS)
<S>                                                   <C>          <C>        <C>
Loss contract/restructuring allowance:
  Balance at beginning of year......................  $   5,407    $ 4,815    $    --
  Provision.........................................      2,500      5,000      6,026
  Payments/usage....................................     (6,579)    (4,408)    (1,211)
                                                      ---------    -------    -------
  Balance at end of year............................  $   1,328    $ 5,407    $ 4,815
                                                      =========    =======    =======
</TABLE>

                                       77
<PAGE>   79

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by Item 10 is incorporated herein by reference to
the information contained under the headings "Proposal to Elect Directors --
Nominees" as set forth in the Company's definitive proxy statement for its 1999
Annual Meeting of Stockholders. The information required by this Item relating
to executive officers of the Company is included in "Business -- Executive
Officers and Key Employees" contained in Item 1 of this Report.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by Item 11 relating to directors of the Company is
incorporated herein by reference to the information under the heading "Director
Compensation and Other Information" and the information relating to executive
officers of the Company is incorporated herein by reference to the information
under the heading "Executive Compensation" as set forth in the Company's
definitive proxy statement for its 1999 Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 is incorporated herein by reference to
the information under the heading "Security Ownership of Principal Stockholders,
Directors and Officers" as set forth in the Company's definitive proxy statement
for its 1999 Annual Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is incorporated herein by reference to
the information under the heading "Certain Relationships and Related
Transactions" as set forth in the Company's definitive proxy statement for its
1999 Annual Meeting of Stockholders.

                                       78
<PAGE>   80

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) Financial Statements and Schedules

<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
     (i)  Financial Statements
          (1) Report of Management..........................     44
          (2) Report of Independent Public Accountants......     45
          (3) Consolidated Financial Statements Consolidated
              Balance Sheets at June 30, 1999   and 1998....     46
               Consolidated Statements of Income for the
               Years Ended June 30, 1999, 1998   and
               1997.........................................     47
               Consolidated Statements of Changes in
               Stockholders' Equity for the Years Ended
                 June 30, 1999, 1998 and 1997...............     48
               Consolidated Statements of Cash Flows for the
               Years Ended June 30, 1999, 1998   and
               1997.........................................     49
               Consolidated Statements of Comprehensive
               Income for the Years Ended June 30,   1999
               and 1998.....................................     50
               Notes to Consolidated Financial Statements...     51
     (ii) Financial Statement Schedule
          Schedule II Valuation and Qualifying Accounts.....     77
          All other schedules have been omitted on the basis
          of immateriality or because such   schedules are
          not otherwise applicable
</TABLE>

     (b) Reports on Form 8-K:

         Not applicable

     (c) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<S>           <C>
 2            Plan and Agreement of Merger and Reorganization, dated as of
              April 26, 1993(1)
 3.1(a)       Second Restated Certificate of Incorporation of the
              Registrant filed with the Secretary of State of Delaware on
              January 18, 1995(6)
 3.1(b)       Rights Agreement dated as of August 23, 1995 between the
              Registrant and American Securities Transfer, Inc., the
              Rights Agent(7)
 3.2          Amended and Restated Bylaws of the Registrant(1)
 4.1          Specimen Certificate representing shares of Common Stock,
              par value $.01 per share(1)
 4.2          Indenture dated as of March 16, 1998, by and among the
              Company, the subsidiaries acting as Guarantors thereto, and
              the First National Bank of Chicago, as Trustee(12)
 4.3          Form of Global Note (included in Exhibit 4.2)(12)
 4.4          Registration Rights Agreement dated March 11, 1998, by and
              among Bear Stearns & Co. Inc., Salomon Brothers Inc, SBC
              Warburg Dillon Reed Inc., First Union Capital Markets, the
              Company, and certain subsidiaries of the Company, as
              Guarantors(12)
10.3(a)       1989 Employee Stock Option Plan of Registrant, adopted
              August 10, 1989, as amended(1)
10.3(b)       Third Amendment to the 1989 Employee Stock Option Plan of
              Registrant, dated February 4, 1994(2)
</TABLE>

                                       79
<PAGE>   81

<TABLE>
<CAPTION>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<S>           <C>
10.3(c)       Fourth Amendment to 1989 Employee Stock Option Plan, dated
              August 25, 1994(3)
10.4          Form of Stock Option Agreement pursuant to 1989 Employee
              Stock Option Plan of Registrant(1)
10.5          Amended and Restated 1992 Stock Option Plan of Registrant,
              amended through October 15, 1998(15)
10.6          Forms of Stock Option Agreements pursuant to the Amended and
              Restated 1992 Stock Option Plan of Registrant(15)
10.15         Forms of Conditional Stock Grant and Repurchase Agreements
              by and between Registrant and each of its executive officers
              and directors, dated May 14, 1993, November 1, 1994, and
              December 1, 1997(1)
10.16(a)      Form of Employment Agreement by and between Registrant and
              each of the following executive officers: (i) Dean P.
              Hoffman and William R. Crowell, effective July 1, 1997; (ii)
              Jack E. Brucker, effective December 1, 1997; and (iii) Mark
              E. Liebner, effective January 1, 1998(14)
10.16(c)      Form of Change of Control Agreement by and between Mark E.
              Liebner dated March 4, 1998 and William R. Crowell dated May
              12, 1998(14)
10.16(d)      Form of Change of Control Agreement by and between the
              Registrant and the following executive officers: (i) Dean P.
              Hoffman, dated October 28, 1997, and (ii) Jack E. Brucker,
              dated November 24, 1997(14)
10.16(f)      Employment Agreement by and between Registrant and Robert E.
              Ramsey Jr., dated June 30, 1997(9)
10.16(g)      Employment Agreement by and between Registrant and John B.
              Furman effective August 27, 1998(14)
10.16(h)      Form of Change of Control Agreement by and between
              Registrant and John B. Furman, effective August 27, 1998(14)
10.16(i)      Severance Agreement by and between Warren S. Rustand and
              Registrant effective August 24, 1998(14)
10.16(j)      Consulting Agreement by and between James H. Bolin and
              Registrant effective January 1, 1998(14)
10.16(k)      Separation Agreement and Release by and between Registrant
              and Robert T. Edwards effective December 31, 1998(16)
10.17         Form of Indemnity Agreement by and between Registrant and
              each of its officers and directors, dated in April, May,
              August and November 1993, as of October 13, 1994, and as of
              September 25, 1998(1)
10.18(a)      Amended and Restated Employee Stock Ownership Plan and Trust
              of the Registrant, effective July 1, 1997(15)
10.21         Retirement Savings Value Plan 401(k) of Registrant, as
              amended, dated July 1, 1990(1)
10.22         Master Lease Agreement by and between Plazamerica, Inc. and
              the Registrant, dated January 30, 1990(1)
10.36         Employee Stock Purchase Plan, as amended through November
              20, 1997(14)
10.37(a)      Loan and Security Agreement by and among the CIT
              Group/Equipment Financing, Inc. and the Registrant, together
              with its subsidiaries, dated December 28, 1994, and related
              Promissory Note and Guaranty Agreement(3)
10.37(b)      Form of Loan and Security Agreement by and among Registrant
              and CIT Group/Equipment Financing, Inc. first dated February
              25, 1998 and related form of Guaranty and Schedule of
              Indebtedness and Collateral(14)
</TABLE>

                                       80
<PAGE>   82

<TABLE>
<CAPTION>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<S>           <C>
10.41         Stock Purchase Agreement by and among Rural/Metro of New
              York, Inc., and Douglas H. Baker with respect to the stock
              of LaSalle Ambulance, Inc., and The Western New York
              Emergency Medical Services Training Institute, Inc., dated
              January 26, 1995(4)
10.42         Asset Purchase Agreement by and among EMS Ventures of South
              Carolina, Inc., Midlands Ambulance Corp. and Jane L. East,
              dated May 4, 1995(5)
10.45         Amended and Restated Credit Agreement dated as of March 16,
              1998, by and among the Company as borrower, certain of its
              subsidiaries as Guarantors, the lenders referred to therein,
              and First Union National Bank, as agent and as lender, and
              related Form of Amended and Restated Revolving Credit Note,
              Form of Subsidiary Guarantee Agreement, and Form of
              Intercompany Subordination Agreement(13)
10.49         Agreement of Purchase and Sale between Rural/Metro
              Corporation and Robert E. Ramsey, Jr. and Barry Landon, as
              trustee of the Employee Stock Ownership Plan for the benefit
              of the Company's employees, with respect to the stock of SW
              General, Inc., as amended(8)
10.50         Agreement of Purchase and Sale between Rural/Metro
              Corporation and Robert E. Ramsey, Jr. with respect to the
              stock of Southwest Ambulance of Casa Grande, Inc., as
              amended(8)
10.51         Agreement of Purchase and Sale between Rural/Metro
              Corporation and Robert E. Ramsey, Jr., Patrick McGroder,
              Barry Landon and Gary Ramsey, the vendors, with respect to
              the stock of Southwest General Services, Inc., as amended(8)
10.52         Agreement of Purchase and Sale between Rural/Metro
              Corporation and Robert E. Ramsey, Jr., with respect to
              Medical Emergency Devices and Services, Inc., as amended(8)
10.54         Purchase Agreement dated January 16, 1998 and Complementary
              Agreement dated March 26, 1998 between Rural/Metro
              Corporation and Messrs. Horacio Artagaueytia, Jose Mateo
              Campomar, Alberto Fluerquin, Carlos Mezzera, Renato Ribeiro,
              Gervasio Reyes, and Carlos Arturo Delmiro Marfetan with
              respect to the stock of Peimu S.A., Recor S.A., Marlon S.A.,
              and Semercor S.A(11)
21            Subsidiaries of Registrant
23            Consent of Arthur Andersen LLP
27            Financial Data Schedule
</TABLE>

---------------
 (1) Incorporated by reference to the Registration Statement on Form S-1 of the
     Registrant (Registration No. 33-63448) filed May 27, 1993 and declared
     effective July 15, 1993.

 (2) Incorporated by reference to the Registration Statement on Form S-1 of the
     Registrant (Registration No. 33-76458) filed March 15, 1994 and declared
     effective May 5, 1994.

 (3) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about May 12, 1995.

 (4) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about April 7, 1995, as amended by the
     Registrant's Form 8-K/A Current Reports filed on or about May 15, 1995 and
     August 1, 1995.

 (5) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about May 19, 1995.

 (6) Incorporated by reference to the Registrant's Registration Statement on
     Form S-4 (Registration No. 33-88172) filed with the Commission on December
     30, 1994 and declared effective January 19, 1995.

 (7) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about August 28, 1995.

                                       81
<PAGE>   83

 (8) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about July 15, 1997, as amended by the
     Registrant's Form 8-K/A Current Report filed with Commission on or about
     August 12, 1997.

 (9) Incorporated by reference to the Registrant's Form 10-K filed with the
     Commission on or about September 29, 1997.

(10) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about February 17, 1998.

(11) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about April 1, 1998, as amended by the
     Registrant's Form 8-K/A Current Report filed on or about June 5, 1998.

(12) Incorporated by reference to the Registration Statement on Form S-4 of the
     Registrant (Registration No. 333-51455) filed April 30, 1998 and declared
     effective on May 14, 1998.

(13) Incorporated by reference to Amendment No. 1 to the Registration Statement
     on Form S-4 of the Registrant (Registration No. 333-51455) filed May 11,
     1998 and declared effective on May 14, 1998.

(14) Incorporated by reference to the Registrant's Form 10-K filed with the
     Commission on or about September 29, 1998.

(15) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about November 10, 1998.

(16) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about February 11, 1999.

                                       82
<PAGE>   84

                                   SIGNATURES

     Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          RURAL/METRO CORPORATION

                                          By: /s/ DEAN P. HOFFMAN

                                            ------------------------------------
                                            Dean P. Hoffman
                                            Vice President, Financial Services

September 27, 1999

     Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                   TITLE                      DATE
                     ---------                                   -----                      ----
<S>                                                  <C>                             <C>
/s/ JOHN B. FURMAN                                   President, Chief Executive      September 27, 1999
---------------------------------------------------  Officer, and Director
John B. Furman                                       (Principal Executive Officer)

/s/ ROBERT E. RAMSEY                                 Executive Vice President and    September 27, 1999
---------------------------------------------------  Director
Robert E. Ramsey

/s/ MARK E. LIEBNER                                  Senior Vice President, Chief    September 27, 1999
---------------------------------------------------  Financial Officer and
Mark E. Liebner                                      Treasurer (Principal Financial
                                                     Officer)

/s/ DEAN P. HOFFMAN                                  Vice President, Financial       September 27, 1999
---------------------------------------------------  Services (Principal Accounting
Dean P. Hoffman                                      Officer)

/s/ COR J. CLEMENT                                   Chairman of the Board of        September 27, 1999
---------------------------------------------------  Directors
Cor J. Clement

/s/ JAMES H. BOLIN                                   Vice Chairman of the Board of   September 27, 1999
---------------------------------------------------  Directors
James H. Bolin

/s/ LOUIS G. JEKEL                                   Vice Chairman of the Board of   September 27, 1999
---------------------------------------------------  Directors
Louis G. Jekel

/s/ MARY ANNE CARPENTER                              Director                        September 27, 1999
---------------------------------------------------
Mary Anne Carpenter

/s/ WILLIAM C. TURNER                                Director                        September 27, 1999
---------------------------------------------------
William C. Turner
</TABLE>

                                       83
<PAGE>   85

<TABLE>
<CAPTION>
                     SIGNATURE                                   TITLE                      DATE
                     ---------                                   -----                      ----
<S>                                                  <C>                             <C>
/s/ HENRY G. WALKER                                  Director                        September 27, 1999
---------------------------------------------------
Henry G. Walker

/s/ LOUIS A. WITZEMAN                                Director                        September 27, 1999
---------------------------------------------------
Louis A. Witzeman
</TABLE>

                                       84
<PAGE>   86

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<C>          <S>                                                           <C>
    2        Plan and Agreement of Merger and Reorganization, dated as of
             April 26, 1993(1)...........................................
    3.1(a)   Second Restated Certificate of Incorporation of the
             Registrant filed with the Secretary of State of Delaware on
             January 18, 1995(6).........................................
    3.1(b)   Rights Agreement dated as of August 23, 1995 between the
             Registrant and American Securities Transfer, Inc., the
             Rights Agent(7).............................................
    3.2      Amended and Restated Bylaws of the Registrant(1)............
    4.1      Specimen Certificate representing shares of Common Stock,
             par value $.01 per share(1).................................
    4.2      Indenture dated as of March 16, 1998, by and among the
             Company, the subsidiaries acting as Guarantors thereto, and
             the First National Bank of Chicago, as Trustee(12)..........
    4.3      Form of Global Note (included in Exhibit 4.2)(12)...........
    4.4      Registration Rights Agreement dated March 11, 1998, by and
             among Bear Stearns & Co. Inc., Salomon Brothers Inc, SBC
             Warburg Dillon Reed Inc., First Union Capital Markets, the
             Company, and certain subsidiaries of the Company, as
             Guarantors(12)..............................................
   10.3(a)   1989 Employee Stock Option Plan of Registrant, adopted
             August 10, 1989, as amended(1)..............................
   10.3(b)   Third Amendment to the 1989 Employee Stock Option Plan of
             Registrant, dated February 4, 1994(2).......................
   10.3(c)   Fourth Amendment to 1989 Employee Stock Option Plan, dated
             August 25, 1994(3)..........................................
   10.4      Form of Stock Option Agreement pursuant to 1989 Employee
             Stock Option Plan of Registrant(1)..........................
   10.5      Amended and Restated 1992 Stock Option Plan of Registrant,
             amended through October 15, 1998(15)........................
   10.6      Forms of Stock Option Agreements pursuant to the Amended and
             Restated 1992 Stock Option Plan of Registrant(15)...........
   10.15     Forms of Conditional Stock Grant and Repurchase Agreements
             by and between Registrant and each of its executive officers
             and directors, dated May 14, 1993, November 1, 1994, and
             December 1, 1997(1).........................................
   10.16(a)  Form of Employment Agreement by and between Registrant and
             each of the following executive officers: (i) Dean P.
             Hoffman and William R. Crowell, effective July 1, 1997; (ii)
             Jack E. Brucker, effective December 1, 1997; and (iii) Mark
             E. Liebner, effective January 1, 1998 (14)..................
   10.16(c)  Form of Change of Control Agreement by and between Mark E.
             Liebner dated March 4, 1998 and William R. Crowell dated May
             12, 1998(14)................................................
   10.16(d)  Form of Change of Control Agreement by and between the
             Registrant and the following executive officers: (i) Dean P.
             Hoffman, dated October 28, 1997, and (ii) Jack E. Brucker,
             dated November 24, 1997(14).................................
   10.16(f)  Employment Agreement by and between Registrant and Robert E.
             Ramsey Jr., dated June 30, 1997(9)..........................
   10.16(g)  Employment Agreement by and between Registrant and John B.
             Furman effective August 27, 1998(14)........................
</TABLE>
<PAGE>   87

<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<C>          <S>                                                           <C>
   10.16(h)  Form of Change of Control Agreement by and between
             Registrant and John B. Furman, effective August 27,
             1998(14)....................................................

   10.16(i)  Severance Agreement by and between Warren S. Rustand and
             Registrant effective August 24, 1998(14)....................

   10.16(j)  Consulting Agreement by and between James H. Bolin and
             Registrant effective January 1, 1998(14)....................

   10.16(k)  Separation Agreement and Release by and between Registrant
             and Robert T. Edwards effective December 31, 1998(16).......

   10.17     Form of Indemnity Agreement by and between Registrant and
             each of its officers and directors, dated in April, May,
             August and November 1993, as of October 13, 1994, and as of
             September 25, 1998(1).......................................

   10.18(a)  Amended and Restated Employee Stock Ownership Plan and Trust
             of the Registrant, effective July 1, 1997(15)...............

   10.21     Retirement Savings Value Plan 401(k) of Registrant, as
             amended, dated July 1, 1990(1)..............................

   10.22     Master Lease Agreement by and between Plazamerica, Inc. and
             the Registrant, dated January 30, 1990(1)...................

   10.36     Employee Stock Purchase Plan, as amended through November
             20, 1997(14)................................................

   10.37(a)  Loan and Security Agreement by and among the CIT
             Group/Equipment Financing, Inc. and the Registrant, together
             with its subsidiaries, dated December 28, 1994, and related
             Promissory Note and Guaranty Agreement(3)...................

   10.37(b)  Form of Loan and Security Agreement by and among Registrant
             and CIT Group/Equipment Financing, Inc. first dated February
             25, 1998 and related form of Guaranty and Schedule of
             Indebtedness and Collateral(14).............................

   10.41     Stock Purchase Agreement by and among Rural/Metro of New
             York, Inc., and Douglas H. Baker with respect to the stock
             of LaSalle Ambulance, Inc., and The Western New York
             Emergency Medical Services Training Institute, Inc., dated
             January 26, 1995(4).........................................

   10.42     Asset Purchase Agreement by and among EMS Ventures of South
             Carolina, Inc., Midlands Ambulance Corp. and Jane L. East,
             dated May 4, 1995(5)........................................

   10.45     Amended and Restated Credit Agreement dated as of March 16,
             1998, by and among the Company as borrower, certain of its
             subsidiaries as Guarantors, the lenders referred to therein,
             and First Union National Bank, as agent and as lender, and
             related Form of Amended and Restated Revolving Credit Note,
             Form of Subsidiary Guarantee Agreement, and Form of
             Intercompany Subordination Agreement(13)....................

   10.49     Agreement of Purchase and Sale between Rural/Metro
             Corporation and Robert E. Ramsey, Jr. and Barry Landon, as
             trustee of the Employee Stock Ownership Plan for the benefit
             of the Company's employees, with respect to the stock of SW
             General, Inc., as amended(8)................................

   10.50     Agreement of Purchase and Sale between Rural/Metro
             Corporation and Robert E. Ramsey, Jr. with respect to the
             stock of Southwest Ambulance of Casa Grande, Inc., as
             amended(8)..................................................
</TABLE>
<PAGE>   88

<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<C>          <S>                                                           <C>
   10.51     Agreement of Purchase and Sale between Rural/Metro
             Corporation and Robert E. Ramsey, Jr., Patrick McGroder,
             Barry Landon and Gary Ramsey, the vendors, with respect to
             the stock of Southwest General Services, Inc., as
             amended(8)..................................................

   10.52     Agreement of Purchase and Sale between Rural/Metro
             Corporation and Robert E. Ramsey, Jr., with respect to
             Medical Emergency Devices and Services, Inc., as
             amended(8)..................................................

   10.54     Purchase Agreement dated January 16, 1998 and Complementary
             Agreement dated March 26, 1998 between Rural/Metro
             Corporation and Messrs. Horacio Artagaueytia, Jose Mateo
             Campomar, Alberto Fluerquin, Carlos Mezzera, Renato Ribeiro,
             Gervasio Reyes, and Carlos Arturo Delmiro Marfetan with
             respect to the stock of Peimu S.A., Recor S.A., Marlon S.A.,
             and Semercor S.A.(11).......................................

   21        Subsidiaries of Registrant..................................

   23        Consent of Arthur Andersen LLP..............................
   27        Financial Data Schedule.....................................
</TABLE>

---------------
 (1) Incorporated by reference to the Registration Statement on Form S-1 of the
     Registrant (Registration No. 33-63448) filed May 27, 1993 and declared
     effective July 15, 1993.

 (2) Incorporated by reference to the Registration Statement on Form S-1 of the
     Registrant (Registration No. 33-76458) filed March 15, 1994 and declared
     effective May 5, 1994.

 (3) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about May 12, 1995.

 (4) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about April 7, 1995, as amended by the
     Registrant's Form 8-K/A Current Reports filed on or about May 15, 1995 and
     August 1, 1995.

 (5) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about May 19, 1995.

 (6) Incorporated by reference to the Registrant's Registration Statement on
     Form S-4 (Registration No. 33-88172) filed with the Commission on December
     30, 1994 and declared effective January 19, 1995.

 (7) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about August 28, 1995.

 (8) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about July 15, 1997, as amended by the
     Registrant's Form 8-K/A Current Report filed with Commission on or about
     August 12, 1997.

 (9) Incorporated by reference to the Registrant's Form 10-K filed with the
     Commission on or about September 29, 1997.

(10) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about February 17, 1998.

(11) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about April 1, 1998, as amended by the
     Registrant's Form 8-K/A Current Report filed on or about June 5, 1998.

(12) Incorporated by reference to the Registration Statement on Form S-4 of the
     Registrant (Registration No. 333-51455) filed April 30, 1998 and declared
     effective on May 14, 1998.

(13) Incorporated by reference to Amendment No. 1 to the Registration Statement
     on Form S-4 of the Registrant (Registration No. 333-51455) filed May 11,
     1998 and declared effective on May 14, 1998.
<PAGE>   89

(14) Incorporated by reference to the Registrant's Form 10-K filed with the
     Commission on or about September 29, 1998.

(15) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about November 10, 1998.

(16) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about February 11, 1999.