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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, 1998           Commission file number 0-22056
 
                            Rural/Metro Corporation
             (Exact name of registrant as specified in its charter)
 
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            DELAWARE                          86-0746929
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<S>                                <C>
 (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)           IDENTIFICATION NO.)
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            8401 EAST INDIAN SCHOOL ROAD, SCOTTSDALE, ARIZONA 85251
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
 
              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (602) 994-3886
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE
 
                              TITLE OF EACH CLASS
 
          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. [ ]
 
     AS OF SEPTEMBER 22, 1998, 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
$125,536,749. 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, 1998, there were 14,465,621 shares of the registrant's
Common Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the registrant's definitive Proxy Statement for the
registrant's 1998 Annual Meeting of Stockholders are incorporated by reference
in Part III hereof.
 
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                               TABLE OF CONTENTS
 
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<S>      <C>                                                           <C>
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS.......    i
PART I...............................................................    1
 
         ITEM 1.   BUSINESS..........................................    1
         ITEM 2.   PROPERTIES........................................   26
         ITEM 3.   LEGAL PROCEEDINGS.................................   26
         ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                   HOLDERS...........................................   26
 
PART II..............................................................   27
 
         ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                   RELATED STOCKHOLDER MATTERS.......................   27
         ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA..............   28
         ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS...............   29
         ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......   37
         ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE...............   64
 
PART III.............................................................   64
 
         ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
                   REGISTRANT........................................   64
         ITEM 11.  EXECUTIVE COMPENSATION............................   64
         ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                   AND MANAGEMENT....................................   64
         ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....   64
 
PART IV..............................................................   65
 
         ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                         REPORTS ON FORM 8-K.........................   65
 
SIGNATURES...........................................................   69
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         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" for the
purpose of the safe harbor provided by Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Rural/Metro Corporation
(the "Company") cautions readers that such "forward looking statements,"
including those relating to the Company's future business prospects, revenue,
working capital, accounts receivable, liquidity, and capital needs, wherever
they appear in this Report or in other statements attributable to the Company,
are necessarily estimates reflecting the best judgment of the Company's 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." Such "forward looking statements" should, therefore, be considered
in light of various important factors, including those set forth below and
others set forth from time to time in the Company's 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, the Company, through its senior
management, may from time to time make "forward looking statements" about
matters described herein or other matters concerning the Company. The Company
disclaims 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 the Company 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; 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; competitive market forces;
fluctuation in quarterly results; volatility of stock price; dependence on key
personnel; and anti-takeover effect of certain of the Company's charter
provisions.
 
     For a more detailed discussion of these factors and their potential impact
on future results, see the applicable discussions herein.
 
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                                     PART I
 
ITEM 1.  BUSINESS
 
INTRODUCTION
 
     The Company is a leading provider of health and safety services, which
include "911" emergency ambulance and general transport services, fire
protection services, and other safety and health care related services to
municipal, residential, commercial, and industrial customers. The Company
believes that it is the only multi-state provider of both ambulance and fire
protection services in the United States and that it ranks as one of the largest
private-sector providers of ambulance and fire protection services in the world.
The Company currently serves over 450 communities in 26 states, the District of
Columbia, Canada, and Latin America. Ambulance services and fire protection
services accounted for approximately 81% and 10%, respectively, of the Company's
revenue for the fiscal year ended June 30, 1998.
 
     Founded in 1948, the Company has been instrumental in the development of
protocols and policies applicable to the emergency services industry. The
Company has grown significantly since the late 1970s both through internal
growth and through acquisitions. To manage this growth, the Company invested in
the development of management and operational systems that have resulted in
productivity gains and increased profitability. The Company believes its key
business competencies in communications and logistics management position it to
continue its growth internally as well as through business alliances,
acquisitions, and joint ventures and enable it to operate profitably in both
large and small communities. The Company completed 18 acquisitions in fiscal
1996, 19 acquisitions in fiscal 1997, and 11 acquisitions in fiscal 1998. The
Company 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 the Company's business,
including potential limitations on the future growth of the Company's 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 the Company, 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
municipalities and fire districts for emergency ambulance services. Average
expenditures per ambulance
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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 business model also encompasses mobile health care utilizing
call centers, telephone triage, 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.
 
     The Company believes 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 the Company's experience, the Company believes that its 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 comprised 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
 
     The Company's strategy is to leverage its experience and competencies in
communications and logistics management to enhance its 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 acquisition of ambulance
service providers and strategic alliances. Having established a regional
presence in many geographic locations, the Company currently is 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. The Company seeks to improve productivity, expand
service offerings to customers, and attract new customers through key business
alliances, joint ventures, or other cooperative business arrangements, both
domestically and internationally.
 
  Expansion of Services to Meet the Evolving Needs of the Public Sector and
Health Care Providers
 
     The Company plans to expand its general transport services through
increased marketing efforts to hospitals, health maintenance organizations, and
other health care providers and its emergency ambulance
 
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services through the pursuit of new contracts and alliances with municipalities
and fire districts. Based on its public/private alliance with San Diego Fire &
Life Safety Services and the recently awarded ambulance service contract in
Aurora, Colorado, the Company believes that, in certain circumstances,
contracting and partnering may provide a cost-effective approach to expanding
into large urban markets. The Company will continue to seek to enter into
public/private alliances and municipal contracts to compete for new business.
The Company intends 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 it has been able to achieve market
leadership. The Company is exploring innovative value-added services to health
care providers, such as access to a medical call center, to better serve the
demand management, telephone triage, and medical transport needs of the managed
care market. The Company believes that its communications and logistics
expertise will enable it to offer services that will improve the responsiveness
and cost-effectiveness of health care services in a managed care environment.
The Company expects 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 the Company to
integrate its services with such other service providers.
 
  Expansion and Integration of Health and Safety Services
 
     The Company plans to continue its efforts to expand its community safety
services by providing fire protection and other safety-related services. In
seeking to expand its fire protection services, the Company emphasizes the
benefits of its services in terms of lower per capita fire service costs,
reduced insurance rates, and lower loss of life and property resulting from its
extensive experience, fire prevention initiatives, management and operational
systems, and utilization of full-time fire fighters and part-time reservists.
The Company responds 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. The Company also pursues opportunities to
provide fire protection and safety services to large industrial complexes,
including airports, large industrial and petrochemical plants, power plants, and
other large self-contained facilities. The Company currently offers other
safety-related services on a limited basis, including its security monitoring
and personal emergency response systems. The Company intends to continue to
leverage its communications and logistics expertise to develop and offer
safety-related services. The Company also intends to leverage its superior
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, the Company believes that its
ambulance and fire protection services operations are complementary. Building
upon the Company's successful delivery of integrated ambulance and fire services
under its contracts with the City of Scottsdale and with Knox County, Tennessee
and through its public/private alliance with San Diego Fire & Life Safety
Services, the Company plans to continue the integration of its fire and
ambulance services in certain of its service areas and to pursue opportunities
to provide integrated services in new service areas. The Company believes that
its 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.
 
  Acquisition of Ambulance Service Providers
 
     The Company seeks acquisitions that enable it to establish new service
areas both domestically and internationally and acquisitions that enable it to
expand its operations within its existing service areas. The Company believes
that the fragmented nature of the industry, combined with the lack of capital
and limited management systems that characterize many providers, provides the
Company with the opportunity to acquire additional ambulance service providers,
including hospital-owned providers, that would benefit from its management and
operational systems, resulting in productivity gains and enhanced levels of
service.
 
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     The Company considers 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 the Company's earnings. The Company pays special
attention to those potential service areas in which it can achieve maximum
productivity by achieving market leadership over a regional area, by utilizing
its ambulances to provide both "911" emergency ambulance and general transport
services, and by integrating ambulance services with fire protection services.
The Company continues to build its regional operations to better position it to
serve the developing managed care customer base. The Company's ability to
complete acquisitions depends upon the availability of cash from operations or
additional debt or equity financing, the Company's capitalization, and the
market price of the Company's Common Stock. A continuation of the depressed
market price of the Company's Common Stock as of the date of this Report may
result in a slower pace of acquisitions. See "Special
Considerations -- Significant Leverage", "-- Risks Associated with Rapid Growth,
Integration, and Acquisitions", and "-- Volatility of Stock" contained in Item 1
of this Report.
 
  Productivity Improvement and Enhancement
 
     The Company utilizes its management and operational systems to enhance
productivity and profitability in its existing operations and in acquired
operations and to enhance its 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 the Company to achieve economies of scale at both the regional and
corporate levels. The Company believes that establishing market leadership in
its various service areas enables it to more efficiently utilize its equipment
and personnel, to better serve large regional health care providers, and to more
effectively market its services, thereby continuing to improve its productivity.
See "Special Considerations -- Risks Associated with Rapid Growth, Integration,
and Acquisitions" contained in Item 1 of this Report.
 
  Entrance into International Markets
 
     The Company plans to expand its presence in international health and safety
and other related services markets. The opportunities pursued to date have been
in Canada and Latin America, but other areas are being assessed. The Company
intends 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. The Company believes select Latin America
markets, including Mexico and 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. The Company
evaluates opportunities to enter into international markets through acquisitions
or alliances based on factors such as its 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 its
participation in the health care market. In addition, the Company seeks
opportunities to provide fire protection and safety services to industrial
complexes, including airports and other large self-contained facilities. See
"Special Considerations -- Risks Associated with Rapid Growth, Integration, and
Acquisitions" and "-- Risks Associated with International Operations and Foreign
Currency Fluctuations" contained in Item 1 of this Report.
 
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CURRENT SERVICE AREAS
 
     The Company provides its services in over 450 communities in the following
26 states, the District of Columbia, Canada, and Latin America:
 
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<S>                                        <C>                                        <C>
Alabama                                    Iowa                                       Oregon
Arizona                                    Kentucky                                   Pennsylvania
Arkansas                                   Louisiana                                  South Carolina
California                                 Maryland                                   South Dakota
Colorado                                   Mississippi                                Tennessee
Florida                                    Nebraska                                   Texas
Georgia                                    New Jersey                                 Virginia
Idaho                                      New York                                   Washington
Indiana                                    Ohio
</TABLE>
 
     The Company provides 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. The Company provides urgent home medical care and ambulance
transport services under the name Emergencias Cardio Coronarias ("ECCO") in
Latin America. The Company may operate under other names depending upon local
statutes or contractual agreements. The Company generally provides its ambulance
services pursuant to a contract or certificate of necessity on an exclusive or
nonexclusive basis. It provides "911" emergency ambulance services primarily
pursuant to contracts or as a result of providing fire protection services.
 
     In certain service areas, the Company is the only provider of both
emergency ambulance and general transport services. In other service areas, the
Company competes for general transport services. In all service areas, the
Company responds to "911" emergency calls if requested by a municipality or fire
district, even in the absence of a contract.
 
     The Company provides 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
 
     The Company generally provides emergency medical ambulance services
pursuant to contracts with counties, fire districts, and municipalities. These
contracts typically appoint the Company as the exclusive provider of "911"
emergency ambulance services in designated service areas and require the Company
to respond to every "911" emergency medical call in those areas. The Company
responds to virtually all "911" calls with advanced life support ("ALS")
ambulance units. The Company staffs its ALS ambulance units with two paramedics
or one paramedic and an emergency medical technician ("EMT") and equips such
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.
 
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  General Transport Services
 
     The Company also provides 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.
The Company utilizes ALS or BLS ambulance units to provide general ambulance
services depending on the patient's needs and the proximity of available units.
The Company staffs its BLS ambulance units with two EMTs and equips such units
with medical supplies and equipment necessary to administer first aid and basic
medical treatment.
 
     The Company also provides 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 the Company or by a health care facility to attend to a patient's
special medical needs.
 
     In addition to ambulance services, the Company provides 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, the Company utilizes vans that contain hydraulic wheelchair lifts or
ramps operated by drivers who generally are trained in cardiopulmonary
resuscitation ("CPR").
 
     The Company provides 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 the Company receives a fixed fee per person per
month. The Company currently has 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
 
     In Argentina, the Company has 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.
 
  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 the Company served as EMTs for the Company
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
 
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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.
 
     The Company maintains a commitment to provide high quality pre-hospital
emergency medical care. In each location in which the Company provides services,
a medical director, who usually is a physician associated with a hospital the
Company serves, monitors adherence to medical protocol and conducts periodic
audits of the care provided. In addition, the Company holds retrospective care
audits with its employees to evaluate compliance with medical and performance
standards.
 
     The Company was one of the first ambulance service providers to obtain
accreditation for many of its 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. The Company believes 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. The Company provides various levels of fire protection
services ranging from fire stations that are fully staffed 24 hours per day to
reserve stations. The Company generally provides its 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 the Company from time to time to suppress forest fires or wildfires on
government lands.
 
     The Company has placed fire prevention and education in the forefront of
its fire protection services and has developed a comprehensive program to
prevent and minimize fires rather than emphasizing a standing army to respond to
fires that occur. The Company believes 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. The Company believes that it provides fire protection services at a
cost significantly lower than the national average as a result of its emphasis
on fire prevention, its advanced systems, and its use of a combination of
full-time fire fighters and part-time reservists. Based upon generally available
industry data, the Company believes that fire loss per capita in the areas
serviced by the Company has been substantially less than the national average.
 
  Fire Protection Personnel
 
     The Company's ability to provide its fire protection services at relatively
low costs results from its efficient use of personnel in addition to its fire
prevention efforts. Typically, personnel costs represent more than two-thirds of
the cost of providing fire protection services. The Company has been able to
reduce its 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, the Company
has the ability to supplement full-time fire fighters on a cost-effective basis.
Reservists comprise approximately 40% of the Company's 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 the Company. Since approximately 70% to 80% of the
Company's fire response activity consists of emergency medical response, all of
the Company's firefighters are trained EMTs and an increasing number of its
firefighters are paramedics. Ongoing training includes instruction in new fire
service tactics and fire fighting techniques as well as continual physical
conditioning.
 
                                        7
<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. The Company utilizes its dispatch capabilities to reposition
equipment and firefighters to maximize the availability and use of resources in
a cost-effective manner.
 
  Fire Prevention
 
     The Company believes that fire prevention programs result in both lower
fire loss and significant overall cost savings. The Company's 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, the Company's personnel perform community education programs
designed to reduce the risk of fire and increase the Company's community
profile.
 
     The Company believes that its 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 the Company's
philosophy of fire prevention. With the cooperation and assistance of the
Company, the City of Scottsdale has designed comprehensive fire prevention
measures, including fire codes, inspections, and sprinkler and smoke detector
ordinances. The Company believes that as a result of strict fire codes, the
enactment of a sprinkler ordinance, and the effectiveness of the services
provided by the Company, 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
 
     The Company provides fire protection services to large industrial
complexes, such as airports, large industrial and petrochemical plants, power
plants, and other self-contained facilities. The Company has contracts ranging
up to five years in duration and expiring at various dates up to February 2002
to provide crash/rescue firefighting and hazardous materials response services
at locations in several states and at three airports in Bolivia. The Company
intends to pursue similar contracts domestically and internationally.
 
FIRE TRAINING SERVICES AND PROTECTION SERVICES
 
     The Company has instituted industrial fire training services and protection
services and provides 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.
 
     The Company anticipates that its training services to industrial,
petrochemical, and other large private concerns will enhance its 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.
 
     The Company utilizes its communications centers for home security, home
fire alarm monitoring, and personal emergency response systems monitoring to
complement the emergency services it offers. The Company believes protection
services can be integrated with fire protection and ambulance services for
optimal efficiency and maximum cost-effectiveness.
 
                                        8
<PAGE>   12
 
MANAGEMENT SYSTEMS
 
     The Company utilizes sophisticated management systems, which it believes
enhance the productivity and profitability of the Company's existing operations
and enable it to enhance the productivity and profitability of acquired
operations. These systems permit the Company 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, risk
management, and third-party reimbursement.
 
     The Company has developed measurement systems that permit management to
monitor the performance level of each operation on a continual basis. The
Company's 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 the Company to
achieve significant discounts in the purchase of equipment and supplies through
a Company-developed catalogue from which managers select items needed for their
operations. Centralized third-party reimbursement allows the Company to maximize
the utilization of its expertise in Medicare, Medicaid, and other third-party
payor reimbursement programs and to ensure the most favorable classification
permitted for all of the Company's operations under such programs.
 
     The Company believes its investment in management systems and its effective
use of such systems represent key components in its success. The Company's
financial reporting system facilitates the Company's successful integration of
acquired companies. The Company places a high priority on rapidly evaluating the
management and reporting systems of acquired operations and subsequently
integrating or transitioning such systems to improve operating efficiencies.
Upon completion of an acquisition, the Company establishes critical success
factors, including number of transports, ratio of transports to calls, resource
utilization and pricing statistics, which are monitored daily. The Company
focuses on converting acquired businesses onto the Company's technology to
promote consistent and timely reporting, taking over cash management functions,
and integrating acquired businesses into the Company's LAN/WAN communications
infrastructure. The Company is committed to an ongoing enhancement of its
systems to provide productive, timely information and effective controls and
believes that its management systems have the capability to support sustained
long-term growth. For additional information regarding the Company's ability to
successfully integrate acquired companies into its existing management systems,
see "Special Considerations -- Risks Associated with Rapid Growth, Integration
and Acquisitions" contained in Item 1 of this Report.
 
HUMAN RESOURCES
 
     The Company strives to maximize the operational autonomy of its managers.
Managers receive extensive training in the use of management systems, customer
service, and supervisory practices. The Company's human resources division is
involved in the training and integration of managers from acquired operations.
The Company's centralized human resources division increases the Company's
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 all areas of training, career
development, and succession planning of employees and assesses the Company's
personnel needs.
 
DISPATCH AND COMMUNICATIONS
 
     The Company uses system status plans and flexible deployment systems to
position its 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, the Company analyzes data on traffic patterns, demographics, usage
frequency, and similar factors with the aid of computers to help it 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
the Company itself. 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.
 
                                        9
<PAGE>   13
 
     Depending on the emergency medical dispatch system used in a designated
service area, the public authority that receives "911" emergency medical calls
either dispatches the Company's ambulances directly from the public control
center or communicates information regarding the location and type of medical
emergency to the Company's control center, which in turn dispatches ambulances
to the scene. In most service areas, the Company's control center receives the
calls from the police after the police have determined the call is for emergency
medical services. When the Company receives the "911" call, it dispatches one or
more ambulances directly from its control center while the call taker
communicates with the caller. All call takers and dispatchers are trained EMTs
with additional training that enables them to instruct a caller about applicable
pre-arrival emergency medical procedures, if necessary. In the Company's 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.
 
     The Company's 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. The Company implements system status plans for
these services designed to assure appropriate response times to non-emergency
calls. The Company works with call centers to enable it to implement demand
management strategies for health care providers. Through its business alliance
with HBO&Co. (formerly National Health Enhancement Systems, Inc. prior to its
merger in December 1997), the Company is working to develop a demand management
system that integrates medical protocols with the Company's logistics and "911"
based communications expertise. By combining telephone triage and medical
transport services, the Company can improve the responsiveness and
cost-effectiveness of health care delivery in a managed care system. Managed
care organizations more frequently are encouraging their plan members to contact
a call center in non-life threatening emergencies. The call centers are staffed
by nurses who use medical protocols to analyze and triage the medical situation
and determine the best mode of transport. In non-emergency situations, the call
centers could dispatch a BLS ambulance rather than a more expensive ALS
ambulance. The call center can also direct the ambulance to transport the
patient to an affiliated facility specified by the managed care organization
rather than to a non-member facility or a hospital emergency room, thereby
further reducing costs for the provider. A long established version of this
business model is currently being utilized by the Company's Argentine
operations.
 
     The Company utilizes communication centers in its 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 its ambulance
services. Response time represents an important criteria in the effectiveness of
fire suppression. Depending upon the area served, the Company's response time
from the receipt of a call to the arrival on the scene generally varies from 4
to 15 minutes. Response times depend on the level of protection sought by the
Company's 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
 
     The Company currently maintains 14 domestic regional billing and payment
processing centers and a centralized collection system at its headquarters in
Arizona. Invoices are generated at the regional level, and the account is
processed by the centralized 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, the Company integrates acquired businesses into
existing regional billing and payment centers or creates a stand-alone billing
and payment center. Substantially all of the Company's revenue is billed and
collected through its integrated billing and collection system, except for its
operations in Columbus, Ohio; Rochester, New York;
 
                                       10
<PAGE>   14
 
and the Metro New York City/New Jersey area. The Company anticipates these
billing centers will be integrated during 1999.
 
     The Company derives a substantial portion of its 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. The Company also
collects payments directly from patients, including payments under deductible
and co-insurance provisions and otherwise. During fiscal 1996, 1997, and 1998
the Company derived approximately 27%, 26%, and 29%, respectively, of its net
ambulance fee collections from Medicare, 11%, 10%, and 11%, respectively, from
Medicaid, 41%, 38%, and 39%, respectively, from private insurers (including
prepaid health plans and other non-government sources), and 21%, 26%, and 21%,
respectively, directly from patients. 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 the Company to evaluate the creditworthiness of patients
requiring emergency transport services. The Company's 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 -- Dependence on Reimbursements
by Third-Party Payors and Individuals" and "-- Possible Adverse Changes in
Reimbursement Rates of Coverage" contained in Item 1 of this Report.
 
     The Company has substantial experience in processing claims to third-party
payors and employs a collection staff specifically trained in third-party
coverage and reimbursement procedures. The Company's 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. The Company's 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, the Company uses 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. The
Company believes the integration of acquired businesses into the Company's
integrated billing and collection system standardizes and improves the
efficiency of billings and collections.
 
     The Company has leveraged its systems and experience in processing
third-party payor claims to provide billing and collection services to fire
departments and municipalities in Phoenix, Dallas, Baltimore, and San Diego. The
Company intends 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 the Company to
provide ambulance services without regard to a patient's insurance coverage or
ability to pay. As a result, the Company often does 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 the Company's 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 the Company is the
existing provider, the county or municipality may elect to renegotiate the
Company's existing contract rather than re-bid the contract. The Company
believes 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, the Company will continue to seek to enter
into public/private alliances to compete for new business. The Company's
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.
 
                                       11
<PAGE>   15
 
     The Company markets its 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. The Company believes that its status as a "911" provider in
a designated service area increases its visibility and enhances its 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. The Company further believes that its strategy of building regional
operations will better position it to serve the developing managed care market.
 
     The Company markets its fire protection services to subscribers in rural
and suburban areas, volunteer fire departments, tax-supported fire districts and
municipalities, 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 the Company provides service for a nonsubscriber, the
Company directly bills the property owner for the cost of services rendered. The
Company also provides fire protection services to newly developed communities
where the subscription fee may be included in the homeowner's association
assessment.
 
CONTRACTS
 
     The Company enters 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 the Company 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 the Company to
provide a performance bond or other assurances of financial responsibility. The
amount of the subsidy, if any, that the Company receives from a county,
municipality, or fire district, and the rates that the Company 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 16%, 13%, and 9% of total revenue for
the fiscal years ended June 30, 1996, 1997, and 1998 respectively, with the
contract with Orange County, Florida accounting for 7%, 5%, and 4%,
respectively, of total revenue for the same periods. Rates charged under the
Orange County contract are agreed upon between the Company and the County. The
Company does 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
the Company in 1984. Although the Company expects that this contract will be
renewed, no assurance can be given that the Company will retain this contract on
terms as favorable, if at all.
 
     The Company provides 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 the
Company 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 the Company
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 4%, 3%, and 2% of total revenue for the fiscal
years ended June 30, 1996, 1997, and 1998 respectively.
 
     The Company provides fire protection services on a subscription basis in
areas where no governmental entity has assumed the financial responsibility for
providing fire protection. The Company derived approximately 51% of its fire
protection service revenue from subscriptions for fiscal 1996, 50% for fiscal
1997, and 49% for fiscal 1998. The Company experienced renewal rates of
approximately 88% during the prior three fiscal years. Fire subscription rates
are not currently regulated by any government agency in the Company's service
areas.
 
     The Company's contracts generally extend for terms of two to five years,
with several contracts having terms of up to 10 years. The Company attempts to
renegotiate contracts in advance of the expiration date and generally has been
successful in such renegotiations. The Company monitors its performance under
each contract. From time to time, the Company may decide that certain contracts
are no longer favorable and may seek to modify or terminate such contracts. The
following table sets forth certain information regarding the
 
                                       12
<PAGE>   16
 
Company's five primary contracts at June 30, 1998 with counties, fire districts,
and municipalities for ambulance services and for fire protection services.
 
<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
  Tucson, Arizona(5).............     3            July 2000            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 the Company in July 1984.
 
(3) The contract was first entered into in 1988 by a provider that was acquired
    by the Company in May 1994.
 
(4) The contract was first entered into in July 1985 by the Company.
 
(5) The contract was first entered into in July 1993 by the Company and
    subsequently awarded to an ambulance service provider acquired by the
    Company.
 
(6) The contract was first entered into in 1952 by the Company. The contract has
    two five-year renewal options exercisable by the City of Scottsdale.
 
     The Company also enters into contracts with hospitals, nursing homes, and
other health care facilities to provide non-emergency and critical care
ambulance services. These contracts typically designate the Company as the first
ambulance service provider contacted to provide non-emergency ambulance services
to those facilities and permit the Company to charge a base fee, mileage
reimbursement, and additional fees for the use of particular medical equipment
and supplies. The Company provides a discount in rates charged to facilities
that assume the responsibility for payment of the charges to the persons
receiving services. See "Special Considerations -- Dependence on Certain
Business Relationships" contained in Item 1 of this Report.
 
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. There
can be no assurance that counties, municipalities, fire districts, hospitals, or
health care organizations that presently contract for ambulance services will
not choose to provide ambulance services directly in the future. The Company is
experiencing increased competition from fire departments in providing emergency
ambulance service. However, the Company believes that the general transport
services market currently is not attractive to fire departments. Some of the
Company's current competitors and certain potential competitors have greater
capital and other resources than the Company. Ambulance and general transport
service providers compete primarily on the basis of quality of service,
performance, and cost. The Company believes 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 communities create barriers to providers
seeking to enter new markets other than through acquisition. The Company
believes that its status as a "911" provider in a service area increases its
visibility and stature and enhances its ability to compete for non-emergency
services within that area. Because smaller ambulance
 
                                       13
<PAGE>   17
 
providers do not have the infrastructure to provide "911" services, the Company
believes it 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. No assurance can be given that fire
districts or municipalities will continue to contract for fire protection
services. In areas where no governmental entity has assumed financial
responsibility for providing fire protection, the Company provides fire
protection services on a subscription basis. No assurance can be given that a
subscription area will not be annexed by a municipality or be converted to a
fire district that provides service directly rather than through a master
contract. See "Special Considerations -- Competition" contained in Item 1 of
this Report.
 
GOVERNMENTAL REGULATION
 
     The Company's business is subject to governmental regulation at the
federal, state, local, and foreign levels. At the federal level, the Company is
subject to regulations under OSHA designed to protect employees of the Company.
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 the Company operates 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. The Company's contracts in its
current service areas typically prescribe maximum rates that the Company 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. The Company believes that it currently is in substantial
compliance with applicable regulatory requirements. These regulatory
requirements, however, may require the Company in the future to increase its
capital and operating expenditures in order to maintain current operations or
initiate new operations. See "Special Considerations -- Possible Adverse Change
in Reimbursement Rates of Coverages," "-- Impact of Rate Structures and
Limitations on Rates of Return," "-- Effect of Governmental Regulations," and
"-- Health Care Reforms and Cost Containment" contained in Item 1 of this
Report.
 
REIMBURSEMENT
 
     The Company must comply with various requirements in connection with its
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 the Company does not accept
assignment, and Medicare requires the Company 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.
 
     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 the Company operates. Although Medicaid programs differ in
certain
 
                                       14
<PAGE>   18
 
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. The Company receives only the reimbursement permitted by
Medicaid and is not permitted to collect from the patient any difference between
its customary charge and the amount reimbursed.
 
     Like other Medicare and Medicaid providers, the Company is subject to
governmental audits of its Medicare and Medicaid reimbursement claims. The
Company has 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, such rules could result
in contract renegotiations or other action by the Company 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" (the "Budget Act"). The Budget Act 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 Budget Act mandates that this fee schedule be
developed through a negotiated rulemaking process between HFCA 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 (CPI) less one percentage point.
 
     The Budget Act 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 Budget Act 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 Budget Act 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.
 
     Certain actions to partially mitigate any adverse effect of these changes
could be taken by the Company. 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.
 
     There can be no assurance whether the proposed HCFA rules, or other
proposals involving various aspects of Medicare reimbursements will be adopted
or implemented, or the effect on the Company of any such adoption and
implementation. No assurance can be given regarding the impact of a prospective
fee schedule. No assurance can be given that future funding levels for Medicare
and Medicaid programs will be
 
                                       15
<PAGE>   19
 
comparable to present levels. Changes in the reimbursement policies, or other
government action, could adversely affect the Company's business, financial
condition, cash flows, and results of operations.
 
INSURANCE
 
     The Company carries a broad range of automobile and general liability,
comprehensive property damage, malpractice, workers' compensation, and other
insurance coverages that the Company considers adequate for the protection of
its assets and operations, subject to certain self insurance retentions up to
$250,000. The Company operates 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. The Company is subject to accident claims as a result of the
normal operation of its fleet of ambulances and fire vehicles. There can be no
assurance, however, that the coverage limits of the Company's policies will be
adequate or that such insurance will continue to be available on commercially
reasonable terms. A successful claim against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. Claims
against the Company, regardless of their merit or outcome, also may have an
adverse effect on the Company's reputation and business. The Company has
undertaken to minimize its exposure through an active risk management program.
 
EMPLOYEES
 
     At September 22, 1998, the Company employed approximately 8,000 full-time
and 4,250 part-time employees, including approximately 9,100 involved in
ambulance services, 600 in fire protection services, 550 in integrated ambulance
and fire protection services, and 2,000 in management, administrative, clerical,
and billing activities. Of these employees, 3,050 are paramedics and 4,900 are
EMTs. The Company is a party to collective bargaining agreements relating to its
Rochester, New York operations and to certain of its ambulance services
employees in Arizona. The Company considers its relations with employees to be
good.
 
EXECUTIVE OFFICERS AND KEY EMPLOYEES
 
<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>    <C>
John B. Furman.......................  54     President and Acting Chief Executive Officer
Robert T. Edwards....................  58     Executive Vice President and Director
Robert E. Ramsey, Jr.................  52     Executive Vice President and Director
Jack E. Brucker......................  46     Senior Vice President and Chief Operating Officer
William R. Crowell...................  39     Senior Vice President -- Finance and Acquisitions
Mark E. Liebner......................  46     Senior Vice President -- Chief Financial Officer &
                                              Treasurer
James E. Stenger.....................  55     Senior Vice President -- Executive Assistant to the
                                                President/CEO
Robert B. Hillier....................  49     Vice President -- Human Resources
Dean P. Hoffman......................  38     Vice President -- Financial Services
Michel A. Sucher, M.D................  51     Vice President -- Medical Affairs
Louis G. Jekel.......................  57     Secretary and Director
</TABLE>
 
     JOHN B. FURMAN has served as President and Acting Chief Executive Officer
of the Company since August 1998. Prior to joining the 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 law firm based in Phoenix, Arizona, which he joined in December
1983. As a member of that firm, Mr. Furman served as the Company's primary
outside counsel for more than 10 years, representing the Company in
substantially all of its acquisitions and capital market activities. From April
1978 to December 1983, he was Associate General Counsel for Waste Management,
Inc.
 
     ROBERT T. EDWARDS has served as Executive Vice President of the Company
since October 1995 and a member of its Board of Directors since May 1993. He
served as Senior Vice President -- Fire Protection
 
                                       16
<PAGE>   20
 
Services of the Company from August 1991 until October 1995. He served as Vice
President and General Manager of the Company's Maricopa County operations from
February 1989 to August 1991 and as Vice President from July 1986 until August
1991. From 1978 to July 1986, Mr. Edwards served in various capacities with the
Company.
 
     ROBERT E. RAMSEY, JR. has served as Executive Vice President of the Company
since August 1998. He served as Senior Vice President from June 1997 until
August 1998 and as a member of its Board of Directors since June 1997. Mr.
Ramsey is President and Chief Executive Officer of SW General, Inc. and
affiliated companies, which he founded in 1982. SW General, Inc. and affiliated
companies were purchased by the Company in June 1997. He is currently President
of the Arizona Ambulance Association.
 
     JACK E. BRUCKER has served as Senior Vice President and Chief Operating
Officer of the Company 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. Mr. Brucker
served in various senior management positions with Fairchild Industries,
including Chief Financial Officer and Chief Operating Officer of the VSI
subsidiary, from January 1982 to September 1987.
 
     WILLIAM R. CROWELL has served as Senior Vice President -- Finance and
Acquisitions of the Company since July, 1997 after having served as Vice
President -- Financial Services of the Company since January 1993. Mr. Crowell
served as Director of Financial Services from July 1992 through December 1992.
Mr. Crowell is a certified public accountant.
 
     MARK E. LIEBNER has served as Senior Vice President of the Company since
August 1994 and as Chief Financial Officer of the Company since October 1991.
From October 1991 to August 1994, Mr. Liebner served as Vice President of the
Company. From July 1988 until September 1991, he was a Vice President of Van
Kampen Merritt, having served in a consulting capacity to the Company in
connection with its 1990 debt restructurings. From March 1982 until June 1988,
Mr. Liebner served as Vice President of Lloyds International Corporation, a
merchant banking affiliate of Lloyds Bank PLC.
 
     JAMES E. STENGER has served as Senior Vice President -- Executive Assistant
to the President/CEO of the Company since July 1997. Mr. Stenger served as Vice
President -- Executive Assistant to the President of the Company from February
1989 through July 1997. He served as Vice President and General Manager of the
Company's Pima and Yuma Counties operations from February 1989 through June 1991
and as Vice President and General Manager of the Company's Maricopa County
operations from July 1987 through January 1989. He served in various fire and
ambulance service operational and administrative capacities with the Company
from 1966 to June 1987. Mr. Stenger has announced his retirement from the
Company effective November 15, 1998.
 
     ROBERT B. HILLIER has served as Vice President -- Human Resources of the
Company 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.
 
     DEAN P. HOFFMAN has served as Vice President -- Financial Services of the
Company since July 1997 after having served as Director of Finance from June
1994 to June 1997. Mr. Hoffman served as Director of Accounting and Budgets of
Pinnacle West Capital Corporation, a public utility and real estate holding
company, from June 1987 until October 1992. From October 1992 until June 1994,
he was a business consultant in private practice. Mr. Hoffman is a certified
public accountant.
 
     MICHEL A. SUCHER, M.D., has served as Vice President -- Medical Affairs of
the Company since January 1995. He served as National Medical Director for the
Company from 1984 to 1995. From 1974 to 1995, Dr. Sucher engaged in the private
practice of emergency medicine and held several positions at Scottsdale Memorial
Hospital, 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.
                                       17
<PAGE>   21
 
     LOUIS G. JEKEL has served as Secretary of the Company and as a member of
its Board of Directors since 1968. Mr. Jekel directs the Company's 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.
 
SPECIAL CONSIDERATIONS
 
Significant Leverage
 
     The Company has significant indebtedness and debt service obligations. As
of June 30, 1998, the Company had a debt-to-equity ratio of 1.4-to-1 with $252.4
million of consolidated indebtedness and $177.8 million of stockholders' equity.
In March 1998, the Company sold $150.0 million of 7 7/8% Senior Notes (the
"Notes") due 2008 (the "Debt Offering"). Coincident with the Debt Offering, the
Company renegotiated its then existing $200.0 million bank revolving credit
facility to create a parity loan with the Notes and to extend the maturity to
March 2003. Proceeds from the Notes were used to pay down the then current
outstanding bank facility. The Notes were issued under an Indenture (the
"Indenture") among the Company, certain of its subsidiaries as guarantors and
the First National Bank of Chicago as trustee. The Indenture permits the Company
to incur additional indebtedness under certain conditions, and the Company
expects that it will incur additional indebtedness during the term of the Notes
pursuant to the Company's revolving credit facility. The Company's ability to
make payments with respect to the Notes and to satisfy its other debt
obligations depends on its future operating performance, which will be affected
by governmental regulations, prevailing economic conditions, financial factors,
and other factors, certain of which are beyond the Company's control. There can
be no assurance that the Company will generate sufficient cash flow to meet its
future debt service obligations.
 
     The Company's leverage and related financial covenants could have a
material adverse effect on its ability to withstand competitive pressures or
adverse economic conditions, make material acquisitions, obtain future
financing, or take advantage of business opportunities that may arise. If the
Company is unable to service the Notes and to meet its debt service obligations
and operating expenses, it will be required to examine alternative means of
repayment that could include restructuring or refinancing some or all of its
indebtedness or raising additional equity. There can be no assurance that any of
these strategies could be effected on satisfactory terms. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Item 7 of this Report.
 
     The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for operating expenses, acquisitions, or general
corporate purposes may be impaired; (ii) a portion of the Company's cash flows
from operations may be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available for operations; (iii) certain
of the Company's indebtedness, including the Company's revolving credit
facility, contain financial covenants, including a total debt leverage ratio, a
total debt to total capitalization ratio, a fixed charge ratio, and other
restrictive covenants, including those restricting the incurrence of additional
indebtedness, the creation of liens, the payment of dividends, and the sale of
assets; and (iv) the Company's leverage may make the Company vulnerable to
industry changes, including government regulations and changing economic
conditions.
 
Restrictive Covenants Imposed by Terms of the Company's Indebtedness
 
     Subject to certain exceptions, the Indenture governing the terms of the
Notes contains certain covenants limiting the incurrence of certain
indebtedness, the payment of dividends, the redemption of capital stock, the
making of certain investments, the issuance of capital stock of subsidiaries,
the creation of liens and other restrictions affecting the Company's
subsidiaries, the issuance of guarantees, transactions with affiliates, the sale
of assets, and the completion of certain mergers and consolidations. A breach of
any of these covenants could result in an event of default under the Indenture.
In addition, the Company's revolving credit facility contains other more
restrictive covenants and requires the Company to satisfy certain financial
tests. The Company's ability to satisfy those tests can be affected by events
beyond its control, and there can be no assurance that the Company will be able
to meet those tests. A breach of any of these covenants could result in a
default under the revolving credit facility and under the Indenture. Upon the
occurrence of an event of
                                       18
<PAGE>   22
 
default under the revolving credit facility, depending on actions taken by the
lenders under the revolving credit facility, the Company could experience
difficulties with customers, personnel, or others. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in Item
7 of this Report.
 
Holding Company Structure
 
     The Company is a holding company and conducts substantially all of its
operations through its subsidiaries. The Company's cash flow and, consequently,
its ability to service its indebtedness, including the Notes, depends on its
ability to gain access to the cash flow of its subsidiaries (whether through
loans, dividends, distributions, or otherwise) and are subject to any legal,
contractual, or other restrictions that could hinder or prevent the Company from
doing so. Each subsidiary is a separate and distinct legal entity from the
Company and, unless it is acting as a guarantor of the Notes, has no obligation,
contingent or otherwise, to pay any amounts due in respect of the Notes or to
make any amounts available for the payment thereof. The holders of any
indebtedness of the Company's subsidiaries will be entitled to payment thereof
from the assets of such subsidiaries prior to the holders of any general,
unsecured obligations of the Company, including the Notes and the guarantees of
certain of its subsidiaries. As of June 30, 1998, the Company's subsidiaries had
$16.6 million of indebtedness.
 
Dependence on Certain Business Relationships
 
     The Company depends to a great extent on certain contracts with
municipalities or fire districts to provide "911" emergency ambulance services
and fire protection services. The Company's five largest contracts accounted for
approximately 18% and 12% of total revenue for the fiscal years ended June 30,
1997 and 1998, respectively, with one contract accounting for approximately 5%
and 4% of total revenue for the same periods. The loss or cancellation of any
one or more of these contracts could have a material adverse effect on the
Company's business, financial condition, cash flows, and results of operations.
No assurance can be given that the Company will be successful in retaining its
existing contracts or in obtaining new contracts for emergency ambulance
services or for fire protection services. In addition, many of the Company's
contracts are for extended periods ranging from two years to five years. During
such periods, the Company may determine that a contract is no longer favorable
and may pursue options to modify or terminate the contract. Factors contributing
to such a determination could include weaker than expected transport volume,
geographical issues adversely affecting response times, and delays in
implementing technology upgrades. The Company faces certain risks in attempting
to terminate unfavorable contracts prior to their expiration due to the
possibility of forfeiting performance bonds and the potential adverse political
and public relations consequences. The Company's inability to terminate or amend
unfavorable contracts could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. The
Company also faces the risk that areas in which it provides fire protection
services through subscription arrangements with residents and businesses will be
converted to tax-supported fire districts or annexed by municipalities. See
"Business -- Marketing and Sales," "-- Contracts," and "-- Competition"
contained in Item 1 of this Report.
 
Risks Associated with Rapid Growth, Integration, and Acquisitions
 
     The Company's strategy with respect to ambulance services depends in large
part on its ability to integrate and successfully operate ambulance service
providers it acquires. The integration of the management, operations,
facilities, and accounting and information systems of acquired businesses
requires continued investment of time and resources and can involve unforeseen
difficulties, which could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. There also
can be no assurance that unforeseen liabilities will not arise in connection
with the operation of businesses acquired by the Company or that any contractual
purchase price adjustments, rights of set-off, or other remedies available to
the Company will be sufficient to compensate the Company in the event unforeseen
liabilities arise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this Report.
 
                                       19
<PAGE>   23
 
     The Company seeks strategic acquisition opportunities in the regular course
of its business. There can be no assurance that the Company will be able to
identify additional suitable acquisition candidates, that it will be able to
consummate any such acquisitions, or that it will be able to integrate any such
acquisitions successfully into its operations. Acquisitions involve numerous
short-term and long-term risks, including 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, loss of net revenue of the acquired company, and possible regulatory
issues of the acquired company. In addition, the Company may be required to
comply with laws and regulations of jurisdictions that differ from those in
which the Company currently operates and may face competitors with greater
knowledge of such local markets.
 
     The Company expects to use cash and securities, including its Common Stock,
as the principal consideration for future acquisitions. The Company's
acquisition program could be adversely affected if the Company does not generate
sufficient cash for future acquisitions from existing operations or through
additional debt or equity financings. There can be no assurance that the
Company's operations will generate sufficient cash for acquisitions or that any
additional financings for acquisitions will be available if and when needed or
on terms acceptable to the Company.
 
     The market price of the Company's Common Stock will also impact the ability
of the Company to complete acquisitions. The Company may be unwilling to utilize
or potential acquired companies or their owners may be unwilling to accept the
Company's Common Stock in connection with acquisitions during periods when the
Company's Common Stock experiences substantial declines in market price. In
addition, declines in market price make the raising of funds more difficult and
costly. As a result of a decline in the market price of the Company's Common
Stock in the fourth quarter of fiscal 1998, the pace of acquisitions utilizing
the Company's Common Stock may decline unless and until the Company's Common
Stock increases in price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this Report and
"Business -- Strategy" contained in Item 1 of this Report.
 
Dependence on Reimbursements by Third-Party Payors and Individuals
 
     Payments received from third-party payors (including Medicare, Medicaid,
and private insurers) represent a substantial portion of the Company's ambulance
receipts. The Company derived approximately 74% and 79% of its net ambulance fee
collections from such third-party payors during fiscal 1997 and 1998, including
26% and 29% from Medicare, respectively. The reimbursement process is complex
and can involve lengthy delays. Third-party payors are continuing their efforts
to control expenditures for health care, including proposals to revise
reimbursement policies. The Company recognizes revenue when the services are
provided; however, there can be lengthy delays before reimbursement is received.
The Company has from time to time experienced delays in receiving reimbursements
from third-party payors. In addition, third-party payors may disallow, in whole
or in part, requests for reimbursement based on determinations that certain
amounts are not reimbursable or because 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, increase overall costs of collection
and may adversely affect the Company's working capital and cause the Company to
incur additional borrowing costs. Under present coverage programs with
third-party payors, the Company also faces 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.
 
     The Company's gross accounts receivable as of June 30, 1997 and June 30,
1998, were $142.8 million and $224.2 million, respectively. The Company's
accounts receivable, net of the allowance for doubtful accounts, were $107.0
million and $154.6 million as of such dates, 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 year
1998. The Company believes that the increase in accounts receivable is related
significantly to acquisition activity and to recent revenue growth. The Company
also attributes the increase in accounts receivable and the increased age of
receivables to certain factors, including delays in payments from certain
third-party payors, particularly in certain of the Company's regional billing
areas, and a general industry trend towards a lengthening payment cycle of
accounts receivable due from third-party payors. In
                                       20
<PAGE>   24
 
addition, the Company believes certain transitional aspects of the integration
of acquired companies into the Company's centralized billing and collection
function has resulted in increases in the amount and age of accounts receivable
during the transition period.
 
     The risks associated with third-party payors and individuals and the
Company's failure to monitor and manage accounts receivable successfully could
have a material adverse effect on the Company's business, financial condition,
cash flows, and results of operations. The Company establishes an allowance for
doubtful accounts based on credit risk applicable to certain types of payors,
historical trends, and other relevant information. The Company reviews its
allowance for doubtful accounts on an ongoing basis and may increase such
allowances from time to time, including when it determines that the level of
effort and cost of collection of certain accounts receivable is unacceptable.
However, there can be no assurance that the Company's collection policies and
allowances for doubtful accounts receivable will be adequate. See
"Business -- Billings and Collections" contained in Item 1 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 7 of this Report.
 
Possible Adverse Changes in Reimbursement Rates of Coverage
 
     During June 1997, HCFA 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 services by Medicare (discussed
below), have not yet been withdrawn. The proposed HCFA rules have not been
finalized. See "Business -- Reimbursement" contained in Item 1 of this Report.
 
     In addition, the "Balanced Budget Act of 1997" (the "Budget Act") became
law in August 1997. The Budget Act provides for the development, negotiation,
and implementation of a prospective fee schedule for ambulance services between
HCFA and ambulance service providers by January 2000. The Budget Act also
reduces the annual rate adjustment for Medicare reimbursements from the Consumer
Price Index (CPI) to CPI less one percentage point.
 
     If the proposed HCFA rules were to be finalized prior to the negotiation of
a prospective fee schedule as stipulated in the Budget Act, and the Company were
unable to mitigate the effect of the new rules, the Company's business,
financial condition, cash flows, and results of operations could be adversely
effected. 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 the Company's cost structure relative to the rate of
increase in the CPI, could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. See
"Business -- Billings and Collections," "-- Governmental Regulation," and
"-- Reimbursement" contained in Item 1 of this Report and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Item 7 of this Report.
 
Impact of Rate Structures and Limitations on Rates of Return
 
     State or local government regulations or administrative policies regulate
rate structures in most states in which the Company conducts ambulance
operations. In certain service areas in which the Company is 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 the Company is 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 the Company is permitted to earn in determining the ambulance service
rates the Company may charge in that state. Ambulance services revenue generated
in Arizona accounted for approximately 9% and 13% of total revenue for the
fiscal years ended June 30, 1997 and 1998, respectively. No assurance can be
given that the Company 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. See
"Business -- Billings and Collections" and "-- Governmental Regulation"
contained in Item 1 of this Report.
 
     Municipalities and fire districts negotiate the payments to be made to the
Company for fire protection services pursuant to master contracts. These master
contracts are based on a budget and on level of effort or
 
                                       21
<PAGE>   25
 
performance criteria desired by the municipalities and fire districts. No
assurance can be given that the Company will be successful in negotiating or
maintaining profitable contracts with municipalities and fire districts. See
"Business -- Contracts" contained in Item 1 of this Report.
 
Risks Associated with International Operations and Foreign Currency Fluctuations
 
     The Company plans to expand its presence in international health and safety
and other related services markets. Although the Company maintains operations in
Canada and in Latin America, there can be no assurance that the Company will be
successful in expanding its international operations. As the Company expands its
international operations, it increasingly will be subject to risks associated
with international operations, including 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,
war or other hostilities, expropriation or nationalization of assets, overlap of
tax structures, and renegotiation or nullification of contracts. The inability
to effectively manage these and other risks could have a material adverse effect
on the Company's business, financial condition, cash flows, and results of
operations.
 
     The Company's revenue from international operations is denominated
primarily in the currency of the country in which it is operating. A decrease in
the value of such foreign currencies relative to the U.S. dollar could result in
losses from currency exchange rate fluctuations. The Company does not currently
engage in foreign currency hedging transactions. However, as the Company
continues to expand its international operations, exposures to gains and losses
on foreign currency transactions may increase. The Company may choose to limit
such exposure by entering into forward-foreign exchange contracts or engaging in
similar hedging strategies. There can be no assurance that any currency exchange
strategy would be successful in avoiding exchange-related losses, or that the
failure to manage currency risks effectively would not have a material adverse
effect on the Company's business, financial condition, cash flows, and results
of operations. In addition, revenues of the Company earned in foreign countries
may be subject to taxation by more than one jurisdiction, thereby adversely
affecting the Company's earnings.
 
Effect of Governmental Regulations
 
     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 the
Company to certain liabilities or restrictions that traditionally have applied
only to governmental bodies or which they are otherwise immune. There can be no
assurance that federal, state, local, or foreign governments will not change
existing laws or regulations, adopt new laws or regulations that increase the
Company's cost of doing business, lower reimbursement levels, or otherwise
adversely affect the Company's business, financial condition, cash flows, and
results of operations. Additionally, there can be no assurance that the Company
or businesses acquired by the Company will be able to comply with all applicable
laws and regulations. See "Business -- Governmental Regulation" and
"-- Reimbursement" contained in Item 1 of this Report.
 
Health Care Reforms and Cost Containment
 
     Numerous legislative proposals have been considered that would result in
major reforms in the United States health care system. The Company cannot
predict which, if any, health care reforms may be proposed or enacted or the
effect that any such legislation would have on the Company's business. In
addition, managed care providers are attempting to contain health care costs
through the use of outpatient services and specialized treatment facilities. No
assurance can be given that changing industry practices will not have an adverse
effect on the Company's business, financial condition, cash flows, accounts
receivable realization, and results of operations. See "Business -- Governmental
Regulation" contained in Item 1 of this Report.
 
                                       23
<PAGE>   26
 
Competition
 
     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. The Company believes 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. Other factors, such as customer service, financial stability, and
personnel policies and practices, also may be considered.
 
     The Company currently encounters competition in providing ambulance
services from governmental entities (including fire districts), hospitals, other
national ambulance service providers, large regional ambulance service
providers, and numerous local and volunteer private providers. There can be no
assurance that municipalities, fire districts, or health care organizations that
currently contract for ambulance services will not choose to provide ambulance
services directly in the future. The Company is experiencing increased
competition from fire departments in providing emergency ambulance service. Some
of the Company's current competitors and certain potential competitors have
greater capital and other resources than the Company.
 
     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
the provision of fire protection services or has not assumed the financial
responsibility for fire protection. In these situations, the Company provides
services for a municipality or fire district on a contract basis or provides
fire protection services directly to residences and businesses on a subscription
basis. There can be no assurance that the Company will be able to obtain
additional fire protection business on a contractual or subscription basis, that
fire districts or municipalities will not choose to provide fire protection
services directly in the future, or that areas in which the Company provides
services through subscriptions will not be converted to tax-supported fire
districts or annexed by municipalities. See "Business -- Competition" contained
in Item 1 of this Report.
 
Dependence on Management and Other Key Personnel
 
     The Company's success depends upon the retention of principal key personnel
and the recruitment and retention of additional key personnel. The loss of
existing key personnel or the failure to recruit and retain necessary additional
key personnel would adversely affect the Company's business prospects. There can
be no assurance that the Company will be able to retain its current personnel or
attract and retain necessary additional personnel. Low unemployment in certain
market areas currently makes the recruitment, training, and retention of
full-time and part-time personnel more difficult and costly, including the cost
of overtime wages.
 
     The Company's internal growth and its 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 the Company's resources and require the addition
of new personnel and the development of additional expertise by existing
personnel. The failure of the Company to attract and retain personnel with the
requisite expertise or to develop internally such expertise could adversely
affect the prospects for the Company's success. The Company has entered into
employment agreements with certain of its executive officers and certain other
key personnel. The Company maintains "key person" insurance on several of its
key executive officers. See "Business -- Executive Officers and Key Employees"
contained in Item 1 of this Report.
 
Control by Current Stockholders
 
     The Company's directors, executive officers, and their affiliates own
beneficially approximately 13%, and the Company's Employee Stock Ownership Plan
(the "ESOP") holds approximately 6%, of the outstanding shares of the Company's
Common Stock. Accordingly, these persons, if they act as a group, likely will be
able to significantly influence the election of the Company's directors and the
outcome of matters requiring approval by the stockholders of the Company.
 
                                       23
<PAGE>   27
 
Change in Control Provisions
 
     The Company's Second Restated Certificate of Incorporation (the "Restated
Certificate") and the Delaware General Corporation Law (the "General Corporation
Law") contain provisions that may have the effect of making more difficult or
delaying attempts by others to obtain control of the Company, even when these
attempts may be in the best interests of stockholders. The Restated Certificate
also authorizes the Board of Directors, without stockholder approval, to issue
one or more series of preferred stock, which could have voting and conversion
rights that adversely affect the voting power of the holders of Common Stock,
and provides for a classified board of directors. The General Corporation Law
also imposes conditions on certain business combination transactions with
"interested stockholders" (as defined therein).
 
     Upon the occurrence of a Change of Control, the Company will be required to
make an offer to each holder of Notes to repurchase all or any part of such
holder's Notes at a repurchase price equal to 101%, or in certain instances
105%, of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the repurchase date. There can be no
assurance that the Company would have sufficient resources to repurchase the
Notes upon the occurrence of a Change of Control. The failure to repurchase all
of the Notes tendered to the Company would constitute an Event of Default under
the Indenture. Furthermore, the repurchase of the Notes by the Company upon a
Change of Control might result in a default on the part of the Company in
respect of the revolving credit facility or other future indebtedness of the
Company, as a result of the financial effect of such repurchase on the Company
or otherwise.
 
     The Company has also adopted a Rights Plan whereby, if and when the Rights
become exercisable, holders of shares of Common Stock will be entitled to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $145 (subject to certain antidilution
adjustments). The Rights will expire 10 years after issuance and will be
exercisable only if a person or group becomes the beneficial owner of 15% or
more of the Common Stock (a "Stock Acquisition Date") or commences a tender or
exchange offer that would result in the offeror beneficially owning 15% or more
of the Common Stock. If a Stock Acquisition Date has occurred, each Right,
unless redeemed by the Company, entitles the holder to purchase for $145 an
amount of Common Stock of the Company, or in certain circumstances a combination
of securities and/or assets or the common stock of the acquiror, having a market
value of twice the purchase price.
 
     The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by the Company at $.01
per Right prior to 10 days (as such period may be extended) after the public
announcement of a Stock Acquisition Date.
 
Volatility of Stock
 
     The market price of the Company's Common Stock has been volatile since the
Company's initial public offering in July 1993. See "Market for the Registrant's
Common Equity and Related Stockholder Matters" contained in Item 5 of this
Report. The period was initially marked by generally rising stock prices,
favorable industry conditions, and improved operating results by the Company.
The Company experienced a significant decline in its stock price in the fourth
quarter of fiscal 1998 as a result of less favorable industry trends, an
increase in its provision for doubtful accounts, an increase in its operating
expenses, and general stock market conditions. The trading price of the
Company's Common Stock in the future could continue to be subject to wide
fluctuations in response to quarterly variations in operating results of the
Company and others in its industry, actual or anticipated announcements
concerning the Company or its competitors, including government regulations and
reimbursement changes, the announcement and implementation of health care reform
proposals, changes in analysts' estimates of the Company's financial
performance, general conditions in the health care industry, general economic
and financial conditions, 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
 
                                       24
<PAGE>   28
 
to the operating performance of such companies. These broad market fluctuations
and other factors may adversely affect the market price of the Company's Common
Stock.
 
Shares Eligible for Future Sale
 
     Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices. As of September 22, 1998, there were
14,465,621 shares of Common Stock outstanding, 10,580,502 shares of which were
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" of the Company, as
that term is defined under the Securities Act. The Company also has outstanding
321,072 restricted shares, as that term is defined under Rule 144 (the
"Restricted Shares") under the Securities Act, 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, the Company has registered
6,700,000 shares of Common Stock for issuance in connection with acquisitions
(of which 3,564,047 shares have been issued), which shares are generally freely
tradeable after their issuance under Rule 145 of the Securities Act, 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.
 
     The Company has registered for offer and sale up to 6,000,000 shares of
Common Stock that are reserved for issuance pursuant to the Company's stock
option plans. As of September 22, 1998, approximately 800,000 stock options had
been exercised. Shares issued after the effective date of such registration
statement upon the exercise of stock options issued under the Company's stock
option plans generally will be eligible for sale in the public market, except
that affiliates of the Company will continue to be subject to volume
limitations. The Company also has 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 have a dilutive effect on earnings per share, and the sale
of such shares could depress the market price of the Company's Common Stock.
 
Year 2000 Compliance
 
     The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's medical equipment, ambulance and fire dispatch
systems, and computer systems and applications will function properly beyond
1999. The Company's assessment of this equipment and systems, both internally
developed and purchased from third party vendors, is nearly complete. The
Company will continue to monitor new medical equipment, ambulance and fire
dispatch systems, and computer systems and applications that the Company adds in
its operations for year 2000 compliance. The results of the assessments
completed to date have indicated that the Company's 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. If the
Company's medical equipment, ambulance and fire dispatch systems, and computer
systems and applications are not year 2000 compliant in a timely manner, the
Company's business operations could be adversely affected and the Company may
incur unanticipated expenses to remedy any problems not addressed by these
compliance efforts.
 
     The Company also depends upon the ability of telephone systems to be year
2000 compliant in order for the Company to receive incoming calls for service to
its ambulance and fire dispatch systems. The failure of telephone service
providers to adequately provide service could impact the Company's ability to
dispatch 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 the
Company for services provided or otherwise adversely affect the Company's
business, financial condition, cash flows, and results of operations.
 
     To date, the Company has not completed its contingency plans in the event
that its medical equipment, ambulance and fire dispatch systems, computer
systems and applications, telephone systems, systems of third-
 
                                       25
<PAGE>   29
 
party payors, or any other components of its business operations fail to operate
in compliance with the year 2000 date change. The Company expects to develop
contingency plans by the end of fiscal 1999.
 
     The cost of the Company's year 2000 compliance program has not had and is
not expected to have a material impact on the Company's results of operations,
financial condition, or liquidity. There can be no assurance, however, that the
Company will not experience material adverse consequences in the event that the
Company's year 2000 compliance program is not successful or that its 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
 
     The Company leases its principal executive offices in Scottsdale, Arizona.
The Company leases administrative facilities and other facilities used
principally for ambulance and fire apparatus basing, garaging and maintenance in
those areas in which it provides ambulance and fire protection services. The
Company also owns nine administrative facilities and 13 other facilities within
its service areas. Aggregate rental expense was approximately $6.6 million and
$10.2 million during fiscal 1997 and 1998, respectively. At September 22, 1998,
the Company's fleet included 1,452 owned and 429 leased ambulances, 115 owned
and 27 leased fire vehicles and 294 owned and 25 leased other vehicles. The
Company uses a combination of in-house and outsourced maintenance services to
maintain its fleet, depending on the size of the market and the availability of
quality outside maintenance services.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     The Company from time to time is subject to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims. The Company is not engaged in any legal proceedings in the ordinary
course of business that are expected to have a material adverse effect on the
financial condition or results of operations of the Company.
 
     The Company, Warren S. Rustand, former Chairman of the Board and Chief
Executive Officer of the Company, James H. Bolin, Vice Chairman of the Board,
and Robert E. Ramsey, Jr., Executive Vice President and Director, have been
named as defendants in two purported class action lawsuits ("Complaints"):
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 have
been filed by the same law firms and contain virtually identical allegations,
were brought on behalf of a class of persons who purchased the Company's
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. In summary, both
Complaints allege that between April 28, 1997 and June 11, 1998 the defendants
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 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. Both cases are at the earliest stages of litigation.
The Company and the individual defendants intend 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.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                       26
<PAGE>   30
 
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS
 
     The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol RURL since its 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, 1997
First quarter..............................................  $37.13    $29.25
Second quarter.............................................   39.00     32.00
Third quarter..............................................   35.88     30.50
Fourth quarter.............................................   32.75     26.50
</TABLE>
 
<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
</TABLE>
 
     On September 22, 1998, the closing sale price of the Company's Common Stock
was $9.88 per share. On September 22, 1998, there were approximately 978 holders
of record of the Company's Common Stock.
 
     Pursuant to a private placement under Section 4(2) of the Securities Act,
in April 1998, the Company issued 15,468 shares at $32.33 per share to the
former shareholder of Absolute-Care, Inc. ("Absolute-Care") in connection with
the Company's acquisition of Absolute-Care and issued 7,734 shares at $32.33 per
share to the former shareholder of Absolute Life Support Systems, Inc.
("Absolute Life") in connection with the Company's acquisition of Absolute Life.
 
DIVIDEND POLICY
 
     The Company has never paid any cash dividends on its Common Stock. The
Company currently plans to retain earnings to finance the growth of the
Company's 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 the Company as well as other factors
deemed relevant by the Board of Directors. The Company's Notes, term notes, and
revolving credit facility contain restrictions on the Company's 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.
 
                                       27
<PAGE>   31
 
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data for the fiscal years
ended June 30, 1998, 1997, 1996, 1995 and 1994 is derived from the consolidated
financial statements of the Company 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 the Consolidated
Financial Statements of the Company and related notes thereto appearing
elsewhere in this Report on Form 10-K.
 
<TABLE>
<CAPTION>
                                                                          YEARS ENDED JUNE 30,
                                                          ----------------------------------------------------
                                                            1998       1997       1996       1995       1994
                                                          --------   --------   --------   --------   --------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>        <C>        <C>        <C>        <C>
STATEMENT OF INCOME DATA
Revenue
  Ambulance services....................................  $387,041   $257,488   $197,201   $127,461   $ 68,942
  Fire protection services..............................    45,971     42,163     38,770     32,274     30,502
  Other.................................................    42,546     20,154     14,292     11,848      4,920
                                                          --------   --------   --------   --------   --------
        Total revenue...................................   475,558    319,805    250,263    171,583    104,364
Operating expenses
  Payroll and employee benefits.........................   254,806    170,833    135,464     90,843     54,750
  Provision for doubtful accounts.......................    81,178     43,424     31,036     22,263     13,658
  Depreciation..........................................    19,213     12,136      9,778      6,654      4,369
  Amortization of intangibles...........................     7,780      4,660      3,569      2,074        584
  Other operating expenses..............................    80,216     54,922     45,752     33,809     21,613
  Loss contract/restructuring charge....................     5,000      6,026         --         --         --
                                                          --------   --------   --------   --------   --------
Operating income........................................    27,365     27,804     24,664     15,940      9,390
  Interest expense, net.................................    14,082      5,720      5,108      3,059      1,780
  Other.................................................      (199)        --         --         --         --
                                                          --------   --------   --------   --------   --------
Income before provision for income taxes and
  extraordinary
  item..................................................    13,482     22,084     19,556     12,881      7,610
Provision for income taxes..............................    (5,977)    (9,364)    (8,044)    (5,288)    (2,884)
                                                          --------   --------   --------   --------   --------
Income before extraordinary item........................     7,505     12,720     11,512      7,593      4,726
Extraordinary item......................................        --         --         --       (693)        --
                                                          --------   --------   --------   --------   --------
  Net income............................................  $  7,505   $ 12,720   $ 11,512   $  6,900   $  4,726
                                                          ========   ========   ========   ========   ========
Basic earnings per share(1)
  Income before extraordinary item......................  $    .55   $   1.10   $   1.20   $    .96   $    .75
  Extraordinary item....................................        --         --         --       (.09)        --
                                                          --------   --------   --------   --------   --------
        Net income......................................  $    .55   $   1.10   $   1.20   $    .87   $    .75
                                                          ========   ========   ========   ========   ========
Diluted earnings per share(1)
  Income before extraordinary item......................  $    .54   $   1.04   $   1.14   $   0.92   $   0.71
  Extraordinary item....................................        --         --         --      (0.08)        --
                                                          --------   --------   --------   --------   --------
        Net income......................................  $    .54   $   1.04   $   1.14   $    .84   $   0.71
                                                          ========   ========   ========   ========   ========
Weighted average number of shares outstanding(1)........
  Basic.................................................    13,529     11,585      9,570      7,924      6,329
  Diluted...............................................    14,002     12,271     10,075      8,249      6,668
                                                                                JUNE 30,
                                                          ----------------------------------------------------
                                                            1998       1997       1996       1995       1994
                                                          --------   --------   --------   --------   --------
                                                                             (IN THOUSANDS)
BALANCE SHEET DATA
  Working capital.......................................  $124,238   $ 94,766   $ 55,402   $ 26,358   $ 23,915
  Total assets..........................................   535,452    364,066    230,114    159,430     88,247
  Current portion of long-term debt.....................     8,565      9,814      6,610      8,377      3,590
  Long-term debt, net of current portion(2).............   243,831    144,643     60,731     53,282     13,339
  Stockholders' equity..................................   177,773    159,808    119,966     65,648     47,349
</TABLE>
 
                                       28
<PAGE>   32
 
---------------
(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 the Company's revolving credit facility
    of $86,000,000, $134,000,000, $49,500,000 and $34,900,000 at June 30, 1998,
    1997, 1996 and 1995, respectively.
 
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
the Selected Consolidated Financial Data and the Consolidated Financial
Statements of the Company and related notes thereto appearing elsewhere in this
report on Form 10-K.
 
INTRODUCTION
 
     The Company derives its revenue primarily from fees charged for ambulance
and fire protection services. The Company provides ambulance services in
response to emergency medical calls ("911" emergency ambulance services) and
non-emergency transport services (general transport services) to patients on
both a fee-for-service basis and 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 transport services as well as other competitive
factors. Fire protection services are provided either under contracts with
municipalities or fire districts 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 the
Company's ambulance service fee receipts. The Company derived approximately 74%
and 79% of its net ambulance fee collections from such third party payors during
1997 and 1998, respectively. 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 made
for the expected difference between ambulance services fees charged and amounts
actually collected. The Company's provision for doubtful accounts generally is
higher with respect to collections to be derived directly from patients than for
collections to be derived from third-party payors and generally is higher for
"911" emergency ambulance services than for general ambulance transport
services.
 
     Because of the nature of the Company's ambulance services, it is necessary
to respond to a number of calls, primarily "911" emergency ambulance service
calls, which may not result in transports. Results of operations are discussed
below on the basis of actual transports since transports are more directly
related to revenue. Expenses associated with calls that do not result in
transports are included in operating expenses. The percentage of calls not
resulting in transports varies substantially depending upon the mix of general
transport and "911" emergency ambulance service calls in the Company's markets
and is generally higher in markets in which the calls are primarily "911"
emergency ambulance service calls. Rates in the Company's markets take into
account the anticipated number of calls that may not result in transports. The
Company does not separately account for expenses associated with calls that do
not result in transports. Revenue generated under the Company's capitated
service arrangements in Argentina and contractual agreements in Canada is
included in ambulance services revenue.
 
     Revenue generated under fire protection services contracts is recognized
over the life of the contract. Subscription fees received in advance are
deferred and recognized over the term of the subscription agreement, which
generally is one year.
 
     Other revenue primarily consists of fees associated with alternative
transportation, dispatch, fleet, billing and home health care services and is
recognized when the services are provided.
 
     Other operating expenses primarily consist of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.
 
                                       29
<PAGE>   33
 
     The Company's net income for the year ended June 30, 1998 was $7.5 million
or $.54 per share (diluted). This compares to net income of $12.7 million and
$11.5 million, or $1.04 and $1.14 per share (diluted), for the years ended June
30, 1997 and 1996, respectively. During fiscal 1998, the Company completed the
acquisition of eleven ambulance service providers operating in Alabama, Arizona,
Georgia, Idaho, Maryland, Mississippi, New Jersey, New York, South Carolina,
Tennessee, Washington, and Argentina. During fiscal 1998, the Company also
entered into a joint venture to provide non-emergency ambulance service and
medical transportation in Maryland, Washington D.C., and Northern Virginia and
entered into a public/private alliance to provide emergency and non-emergency
ambulance service in San Diego, California.
 
RESULTS OF OPERATIONS
 
     The following table sets forth for the years ended June 30, 1998, 1997 and
1996, certain items from the Company's consolidated financial statements
expressed as a percentage of total revenue:
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED JUNE 30,
                                                              -----------------------
                                                              1998     1997     1996
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Revenue
  Ambulance services........................................   81.4%    80.5%    78.8%
  Fire protection services..................................    9.7     13.2     15.5
  Other.....................................................    8.9      6.3      5.7
                                                              -----    -----    -----
          Total revenue.....................................  100.0    100.0    100.0
Operating expenses
  Payroll and employee benefits.............................   53.6     53.4     54.1
  Provision for doubtful accounts...........................   17.1     13.6     12.4
  Depreciation..............................................    4.0      3.8      3.9
  Amortization of intangibles...............................    1.6      1.5      1.4
  Other operating expenses..................................   16.9     17.1     18.3
  Loss contract/restructuring charge........................    1.0      1.9       --
                                                              -----    -----    -----
Operating income............................................    5.8      8.7      9.9
  Interest expense, net.....................................    3.0      1.8      2.1
                                                              -----    -----    -----
Income before income taxes..................................    2.8      6.9      7.8
  Provision for income taxes................................    1.2      2.9      3.2
                                                              -----    -----    -----
Net income..................................................    1.6%     4.0%     4.6%
                                                              =====    =====    =====
</TABLE>
 
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 the Company's services under
fee-for-service arrangements. The increase also resulted from revenue generated
from new fire protection contracts awarded to the Company through competitive
bidding.
 
     Other revenue increased primarily from the fees received for billing,
dispatch, and other services pursuant to the Company's agreement with San Diego
Fire and Life Safety Services.
 
                                       30
<PAGE>   34
 
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 the year ended June 30, 1998
primarily due to the low unemployment in certain market 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 the Company's third quarter Form 10 Q, the Company 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, the Company and its management assessed the impact this more difficult
medical reimbursement environment was having on the timing and collectability of
the Company's 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 the Company's
regional billing centers and has affected the Company's billing and collection
procedures. Net accounts receivable on non-integrated collection systems
currently represent 13.8% of total net accounts receivable at June 30, 1998. The
Company anticipates the remaining three non-integrated billing centers will be
integrated during 1999.
 
     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, the Company recorded a non-recurring
pre-tax charge of $5.0 million primarily for severance payments. This charge
relates to the Company's reduction of certain administrative personnel at
corporate headquarters and regional offices. Management expects these severance
payments will be substantially completed during fiscal 1999.
 
                                       31
<PAGE>   35
 
     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 during fiscal 1998.
 
     The Company's 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.
 
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1997
 
Revenue
 
     Total revenue increased $69.5 million, or 27.8%, from $250.3 million for
the year ended June 30, 1996 to $319.8 million for the year ended June 30, 1997.
Approximately $43.6 million of this increase resulted from the acquisition of
ambulance service providers during fiscal 1997. Fire protection services revenue
increased by $3.4 million, and other revenue increased by $5.9 million.
 
     Total ambulance transports increased by 205,000, or 28.9%, from 710,000 for
the year ended June 30, 1996 to 915,000 for the year ended June 30, 1997. The
acquisition of eighteen ambulance service companies during fiscal 1997 accounted
for 154,000 of these additional transports.
 
     Fire protection services revenue increased due to rate increases for fire
protection services and greater utilization of the Company's services under
fee-for-service arrangements. The increase also resulted from the revenue
generated from new fire protection contracts awarded to the Company through
competitive bidding.
 
Operating Expenses
 
     Payroll and employee benefit expenses increased $35.4 million, or 26.1%,
from $135.4 million for the year ended June 30, 1996 to $170.8 million for the
year ended June 30, 1997. This increase was primarily due to the acquisition of
nineteen companies during fiscal 1997. Payroll and employee benefits decreased
from 54.1% of total revenue for the year ended June 30, 1996 to 53.4% of total
revenue for the year ended June 30, 1997 as a result of operational
efficiencies.
 
     Provision for doubtful accounts increased $12.4 million, or 40.0%, from
$31.0 million for the year ended June 30, 1996 to $43.4 million for the year
ended June 30, 1997. Provision for doubtful accounts increased from 12.4% of
total revenue for the year ended June 30, 1996 to 13.6% of total revenue for the
year ended June 30, 1997, reflecting the effect of the acquisition of ambulance
service providers operating in markets with a greater mix of "911" emergency
activity.
 
     Depreciation increased $2.3 million, or 23.5%, from $9.8 million for the
year ended June 30, 1996 to $12.1 million for the year ended June 30, 1997,
primarily due to increased property and equipment from recent acquisition
activity.
 
     Amortization of intangibles increased by $1.1 million, or 30.6%, from $3.6
million for the year ended June 30, 1996 to $4.7 million for the year ended June
30, 1997. This increase was the result of increased intangible assets caused by
recent acquisition activity. Amortization of intangibles increased from 1.4% of
total revenue for the year ended June 30, 1996 to 1.5% for the year ended June
30, 1997.
 
     Other operating expenses increased $9.2 million, or 20.1%, from $45.7
million for the year ended June 30, 1996 to $54.9 million for the year ended
June 30, 1997, primarily as a result of increased expenses associated with the
operation of the nineteen companies acquired during fiscal 1997. Other operating
expenses decreased from 18.3% of total revenue for the year ended June 30, 1996
to 17.1% of total revenue for the year ended June 30, 1997 as a result of
operational efficiencies.
 
     The Company recorded a $6.0 million non-recurring pre-tax charge for the
year ended June 30, 1997. Included in this amount was an allowance of $3.2
million related to an unprofitable ambulance service
 
                                       32
<PAGE>   36
 
contract. Also included was a restructuring charge of $2.8 million relating to
the integration of ambulance company acquisitions. The charge consists primarily
of severance costs and other costs related to the elimination of redundant
functions.
 
     Interest expense increased by $0.6 million, or 11.8%, from $5.1 million for
the year ended June 30, 1996 to $5.7 million for the year ended June 30, 1997.
This increase was caused by higher debt balances, reflecting increased borrowing
on the Company's revolving credit facility.
 
     The Company's effective tax rate increased from 41.1% for the year ended
June 30, 1996 to 42.4% for the year ended June 30, 1997, primarily the result of
a higher percentage of the Company's taxable income being generated in higher
tax rate states and the effect of nondeductible goodwill generated in connection
with the acquisition of certain ambulance service providers.
 
SEASONALITY AND QUARTERLY RESULTS
 
     The following table reflects certain selected unaudited quarterly operating
results for each quarter of fiscal 1998 and 1997. 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,
                                   1996        1996       1997     1997(2)      1997        1997       1998     1998(1)
                                 ---------   --------   --------   --------   ---------   --------   --------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>         <C>        <C>        <C>        <C>         <C>        <C>        <C>
Revenue:
  Ambulance service............   $59,028    $62,465    $69,161    $66,834     $77,598    $ 89,769   $107,279   $112,395
  Fire protection..............    10,305     10,349     10,551     10,958      11,212      11,351     11,547     11,861
  Other revenue................     4,661      4,716      5,209      5,568       8,963      10,222     10,957     12,404
                                  -------    -------    -------    -------     -------    --------   --------   --------
  Total revenue................    73,994     77,530     84,921     83,360      97,773     111,342    129,783    136,660
  Operating income (loss)......     6,592      7,474      9,500      4,238      10,346      12,199     14,283     (9,463)
  Net income (loss)............     3,299      3,771      4,675        975       4,658       5,424      6,372     (8,949)
Diluted earnings (loss) per
  share........................   $  0.28    $  0.31    $  0.38    $  0.08     $  0.35    $   0.38   $   0.45   $  (0.64)
                                  =======    =======    =======    =======     =======    ========   ========   ========
</TABLE>
 
---------------
(1) 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 payment and an
    additional provision for doubtful accounts of $17.9 million.
 
(2) In the fourth quarter of 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 and a
    $2.8 million restructuring charge related to the integration of ambulance
    company acquisitions.
 
     The Company has historically experienced, and expects to continue to
experience, moderate 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 the Company's
Arizona and Florida regions resulting from the greater winter populations in
those regions. In the future, the operating results of the Company's Argentine
operations may impact the seasonality of the Company's quarterly operating
results.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Historically, the Company has financed its cash requirements principally
through cash flow from operating activities, term and revolving indebtedness,
capital equipment lease financing, 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, 1998, the Company had working capital of $124.2 million,
including cash of $6.5 million, compared to working capital of $94.8 million,
including cash of $3.4 million at June 30, 1997. During the fiscal year ended
June 30, 1998, the Company's cash flow provided by operations was $12.6 million
resulting primarily from increases in accrued and other liabilities and deferred
income taxes of $9.4 million and
 
                                       33
<PAGE>   37
 
$8.8 million, respectively. Cash flow used in operations was $6.2 million for
the fiscal year ended June 30, 1997.
 
     Cash provided by financing activities was $68.3 million for the year ended
June 30, 1998 primarily because of the issuance of senior notes offset by
payments on the revolving credit facility and on other debt and capital lease
obligations.
 
     Cash used in investing activities was $77.7 million for the year ended June
30, 1998 primarily because of cash paid for businesses acquired, capital
expenditures, and increases in other assets.
 
     The Company's gross accounts receivable as of June 30, 1998 and June 30,
1997 were $224.2 million and $142.8 million, respectively. The Company's
accounts receivable, net of the allowance for doubtful accounts, were $154.6
million and $107.0 million as of such dates, 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 year
1998. The Company believes that the increase in accounts receivable is related
significantly to acquisition activity and to recent revenue growth. The Company
also attributes the increase in accounts receivable and the increased age of
receivables to certain factors, including delays in payments from certain
third-party payors, particularly in certain of the Company's regional billing
areas and a general industry trend towards a lengthening payment cycle of
accounts receivable due from third-party payors. In addition, the Company
believes certain transitional aspects of the integration of acquired companies
into the Company's centralized billing and collection function has resulted in
increases in the amount and age of accounts receivable during the transition
period.
 
     During the fiscal year ended June 30, 1998, the Company increased the
amount of its 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 of the Company
that is unconditionally guaranteed on a joint and several basis by substantially
all of the Company's 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-base rate. The LIBOR-based rates range from LIBOR plus 0.875% to
LIBOR plus 1.7%. At June 30, 1998, the interest rate was 7.3% on the revolving
credit facility. Interest rates and availability under the revolving credit
facility depend upon the Company meeting certain financial covenants, including
total debt leverage ratios, total debt to capitalization ratios, and fixed
charge ratios. Approximately $86.0 million was outstanding on the revolving
credit facility at June 30, 1998. Because of a financial covenant which
restricts the Company's ratio of debt (including outstanding letters of credit)
to capitalization to .60, availability on the facility was $11.9 million at June
30, 1998.
 
     In November 1997, the Company entered into a $5.0 million term loan (the
Term Loan). The Company used the proceeds from the loan to fund acquisitions,
capital expenditures and for general corporate purposes.
 
     In February 1998, the Company 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 commercial paper rate plus 1.7%. At June 30, 1998, the interest rate was 7.4%
on the lease line of credit. Approximately $2.6 million was outstanding on this
line of credit at June 30, 1998.
 
     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 the Term Loan and a portion of
the balances owed on the revolving credit facility. 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. The Company
incurred expenses related to the offering of approximately $5.3 million and will
amortize such costs over the life of the Notes. The Company recorded a $258,000
discount on the Notes and will amortize such discount over the life of the
Notes. Unamortized discount at June 30, 1998 was $250,000 and such amount is
recorded as an offset to long-term debt in the consolidated financial
statements. In April 1998, the Company 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
the Company and are unconditionally guaranteed on a joint and several basis by
substantially all
 
                                       34
<PAGE>   38
 
of the Company's domestic wholly-owned current and future subsidiaries. See Note
4 of Notes to the Company's Consolidated Financial Statements. The Notes contain
certain covenants that, among other things, limit the Company's ability to incur
certain indebtedness, sell assets, or enter into certain mergers or
consolidations.
 
     During the fiscal year ended June 30, 1998, the Company purchased all the
issued and outstanding stock of two ambulance service providers operating in
Arizona and Georgia and substantially all of the assets of five ambulance
service providers operating in Alabama, Maryland, New Jersey, and South
Carolina. Also, during the fiscal year ended June 30, 1998, the Company
purchased all the issued and outstanding stock of four operating companies that
provide urgent home medical care and ambulance transport services in three
cities in Argentina. The combined purchase price of the operations accounted for
as purchases was $84.9 million. The Company paid cash of $36.8 million, issued
notes payable to sellers of $6.5 million, issued to sellers 334,532 shares of
the Company's common stock valued at $9.0 million, and assumed $32.6 million of
liabilities. The Company funded the cash portion of the acquisitions primarily
from the Company's revolving credit facility.
 
     During the fiscal year ended June 30, 1998, subsidiaries of the Company
merged with and into three ambulance service providers operating in Idaho,
Mississippi, New Jersey, New York, Tennessee and Washington. The Company issued
an aggregate of 803,565 shares of its common stock in exchange for all of the
issued and outstanding stock of the acquired companies. These transactions were
accounted for as poolings-of-interest in accordance with Accounting Principles
Board Opinion No. 16. The acquisitions were not considered significant;
accordingly, prior year financial statements have not been restated.
 
     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. For financial
statement purposes, the results of operations and the assets and liabilities of
the joint venture are consolidated and included in the Company's consolidated
financial statements. Minority interest is recorded for the results of
operations and the equity interest attributable to the joint venture partner.
 
     During the fiscal year ended June 30, 1998, the Company entered into a
public/private alliance to provide emergency and non-emergency ambulance service
in San Diego, California. This alliance is not consolidated in the Company's
financial statements. The Company's investment in the alliance is recorded in
other assets and the equity income of the alliance is recorded in other revenue
in the accompanying consolidated financial statements.
 
     The Company expects that existing working capital, together with cash flow
from operations and additional borrowing capacity, will be sufficient to meet
its operating and capital needs for existing operations for the twelve months
subsequent to June 30, 1998. The Company's business growth occurs primarily
through new business contracts and acquisitions. The Company intends to finance
any contracts or acquisitions that it consummates through the use of cash from
operations, credit facilities, seller notes payable and the issuance of common
stock. In addition, the Company may seek to raise additional capital through
public or private debt or equity financings. The availability of these capital
sources will depend upon prevailing market conditions, interest rates, the
financial condition of the Company and the market price of the Company's common
stock.
 
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
 
     The results of operations of the Company for the periods discussed have not
been affected significantly by inflation or foreign currency fluctuations. The
Company's revenue from international operations is denominated primarily in the
currency of the country in which it is operating. Although the Company has 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 the Company's business, financial condition, cash
flows, and results of operations. The Company does not currently engage in
foreign currency hedging transactions. However, as the Company continues to
expand its international operations, exposure to gains and losses on foreign
currency transactions may increase. The Company may choose to limit such
exposure by entering into forward exchange contracts or engaging in similar
hedging strategies. See "Special Considerations -- Risks Associated with
International Operations and Foreign Currency Fluctuations."
 
                                       35
<PAGE>   39
 
YEAR 2000 COMPLIANCE
 
     The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's medical equipment, ambulance and fire dispatch
systems, and computer systems and applications will function properly beyond
1999. The Company's assessment of this equipment and systems, both internally
developed and purchased from third-party vendors, is nearly complete. The
Company will continue to monitor new medical equipment, ambulance and fire
dispatch systems, and computer systems and applications that the Company adds in
its operations for year 2000 compliance. The results of the assessments
completed to date have indicated that the Company's 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. If the
Company's medical equipment, ambulance and fire dispatch systems, and computer
systems and applications are not year 2000 compliant in a timely manner, the
Company's operations could be adversely affected and the Company may incur
unanticipated expenses to remedy any problems not addressed by these compliance
efforts.
 
     The Company also depends upon the ability of telephone systems to be year
2000 compliant in order for the Company to receive incoming calls for service to
its ambulance and fire dispatch systems. The failure of telephone service
providers to adequately provide service could impact the Company's ability to
dispatch 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 the
Company for services provided or otherwise adversely affect the Company's
business, financial condition, cash flows, and results of operations.
 
     To date, the Company has not completed its contingency plans in the event
that its medical equipment, ambulance and fire dispatch systems, computer
systems and applications, telephone systems, systems of third-party payors, or
any other components of its business operations fail to operate in compliance
with the year 2000 date change. The Company expects to develop contingency plans
by the end of fiscal 1999.
 
     The cost of the Company's year 2000 compliance program has not had and is
not expected to have a material impact on the Company's results of operations,
financial condition, or liquidity. There can be no assurance, however, that the
Company will not experience material adverse consequences in the event that the
Company's year 2000 compliance program is not successful or that its vendors or
third-party payors are not able to resolve their year 2000 compliance issues in
a timely manner.
 
                                       36
<PAGE>   40
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     Consolidated financial statements of the Company as of June 30, 1998 and
for each of the fiscal years in the three-year period ended June 30, 1998,
together with related notes and the report of Arthur Andersen LLP are set forth
on the following pages.
 
                              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 the Company's 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.
 
     The Company maintains 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.
 
     The Company maintains 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. The Company believes its policies and procedures provide
reasonable assurance that operations are conducted in conformity with law and
with the Company's 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.
 
     The Board of Directors pursues its responsibility for the quality of the
Company's 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 Acting Chief Executive Officer
 
/s/ MARK E. LIEBNER
---------------------------------------------------------
Mark E. Liebner
Senior Vice President, Chief Financial Officer
 
                                       37
<PAGE>   41
 
                    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, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998, 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,
  September 28, 1998.
 
                                       38
<PAGE>   42
 
                            RURAL/METRO CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                1998         1997
                                                              ---------    ---------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
                                       ASSETS
CURRENT ASSETS
  Cash......................................................  $  6,511     $  3,398
  Accounts receivable, net of allowance for doubtful
     accounts of $69,552 and $35,814, respectively (Note
     1).....................................................   154,603      106,978
  Inventories...............................................    13,128        8,645
  Prepaid expenses and other................................    16,402        7,162
                                                              --------     --------
          Total current assets..............................   190,644      126,183
PROPERTY AND EQUIPMENT, net (Notes 1, 3 and 4)..............    92,545       70,645
INTANGIBLE ASSETS, net (Notes 1 and 2)......................   235,456      160,282
OTHER ASSETS................................................    16,807        6,956
                                                              --------     --------
                                                              $535,452     $364,066
                                                              ========     ========
                        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable..........................................  $ 13,435     $  4,359
  Accrued liabilities (Note 1)..............................    44,406       17,244
  Current portion of long-term debt (Notes 3 and 4).........     8,565        9,814
                                                              --------     --------
          Total current liabilities.........................    66,406       31,417
LONG-TERM DEBT, net of current portion (Notes 3 and 4)......   243,831      144,643
NON-REFUNDABLE SUBSCRIPTION INCOME..........................    13,682       13,367
DEFERRED INCOME TAXES (Note 9)..............................    23,282       10,772
OTHER LIABILITIES...........................................     2,298        4,059
                                                              --------     --------
          Total liabilities.................................   349,499      204,258
                                                              --------     --------
COMMITMENTS AND CONTINGENCIES (Note 5)
MINORITY INTEREST...........................................     8,180           --
                                                              --------     --------
STOCKHOLDERS' EQUITY (Notes 2, 6 and 7)
  Preferred stock, $.01 par value, 2,000,000 shares
     authorized, none issued at June 30, 1998 and 1997......        --           --
  Common stock, $.01 par value, 23,000,000 shares
     authorized; 14,099,483 and 12,770,147 shares
     outstanding at June 30, 1998 and 1997, respectively....       144          130
  Additional paid-in capital................................   134,078      121,355
  Retained earnings.........................................    45,139       40,334
  Deferred compensation.....................................      (349)        (772)
  Treasury stock, at cost, 149,456 shares at June 30, 1998
     and 1997...............................................    (1,239)      (1,239)
                                                              --------     --------
          Total stockholders' equity........................   177,773      159,808
                                                              --------     --------
                                                              $535,452     $364,066
                                                              ========     ========
</TABLE>
 
   The accompanying notes are an integral part of these consolidated balance
                                    sheets.
 
                                       39
<PAGE>   43
 
                            RURAL/METRO CORPORATION
 
                       CONSOLIDATED STATEMENTS OF INCOME
                FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                                1998           1997           1996
                                                             -----------    -----------    -----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                          <C>            <C>            <C>
REVENUE
  Ambulance services.......................................   $387,041       $257,488       $197,201
  Fire protection services.................................     45,971         42,163         38,770
  Other....................................................     42,546         20,154         14,292
                                                              --------       --------       --------
          Total revenue....................................    475,558        319,805        250,263
                                                              --------       --------       --------
OPERATING EXPENSES
  Payroll and employee benefits............................    254,806        170,833        135,464
  Provision for doubtful accounts..........................     81,178         43,424         31,036
  Depreciation.............................................     19,213         12,136          9,778
  Amortization of intangibles..............................      7,780          4,660          3,569
  Other operating expenses.................................     80,216         54,922         45,752
  Loss contract/restructuring charge (Note 1)..............      5,000          6,026             --
                                                              --------       --------       --------
          Total expenses...................................    448,193        292,001        225,599
                                                              --------       --------       --------
OPERATING INCOME...........................................     27,365         27,804         24,664
  Interest expense, net (Note 4)...........................     14,082          5,720          5,108
  Other....................................................       (199)            --             --
                                                              --------       --------       --------
INCOME BEFORE PROVISION FOR INCOME TAXES...................     13,482         22,084         19,556
PROVISION FOR INCOME TAXES (Note 9)........................      5,977          9,364          8,044
                                                              --------       --------       --------
NET INCOME.................................................   $  7,505       $ 12,720       $ 11,512
                                                              ========       ========       ========
BASIC EARNINGS PER SHARE...................................   $   0.55       $   1.10       $   1.20
                                                              ========       ========       ========
DILUTED EARNINGS PER SHARE.................................   $   0.54       $   1.04       $   1.14
                                                              ========       ========       ========
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING -- BASIC.....................................     13,529         11,585          9,570
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING -- DILUTED...................................     14,002         12,271         10,075
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       40
<PAGE>   44
 
                            RURAL/METRO CORPORATION
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                                  ADDITIONAL
                                             PREFERRED   COMMON    PAID-IN     RETAINED     DEFERRED     TREASURY
                                               STOCK     STOCK     CAPITAL     EARNINGS   COMPENSATION    STOCK      TOTAL
                                             ---------   ------   ----------   --------   ------------   --------   --------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>      <C>          <C>        <C>            <C>        <C>
BALANCE, June 30, 1995.....................     $--       $ 90     $ 52,431    $15,912      $(1,546)     $(1,239)   $ 65,648
  Issuance of 657,329 shares of common
    stock for pooling-of-interests (Note
    2).....................................      --          7          151      2,757           --           --       2,915
                                                ---       ----     --------    -------      -------      -------    --------
BALANCE, June 30, 1995 as restated for
  effect of pooling-of-interests...........      --         97       52,582     18,669       (1,546)      (1,239)     68,563
  Issuance of 1,675,512 shares of common
    stock net of offering costs of
    $2,506.................................      --         16       38,795         --         (535)          --      38,276
  Tax benefit related to the exercise of
    nonqualified stock options and vesting
    of stock grants........................      --         --          982         --           --           --         982
  Amortization of deferred compensation....      --         --           --         --          633           --         633
  Net income...............................      --         --           --     11,512           --           --      11,512
                                                ---       ----     --------    -------      -------      -------    --------
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
                                                ===       ====     ========    =======      =======      =======    ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       41
<PAGE>   45
 
                            RURAL/METRO CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                              1998         1997        1996
                                                            ---------    --------    --------
                                                                     (IN THOUSANDS)
<S>                                                         <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income..............................................  $   7,505    $ 12,720    $ 11,512
  Adjustments to reconcile net income to net cash provided
     by (used in) operating activities
     Depreciation and amortization........................     26,993      16,796      13,347
     Amortization of deferred compensation................        558         676         633
     Amortization of gain on sale of real estate..........       (103)       (103)       (103)
     Provision for doubtful accounts......................     81,178      43,424      31,036
     Undistributed earnings/(loss) of minority
       shareholder........................................       (199)         --          --
  Changes in assets and liabilities, net of effect of
     businesses acquired
     Increase in accounts receivable......................   (116,481)    (75,352)    (52,474)
     Increase in inventories..............................     (4,260)     (2,651)     (1,684)
     Increase in prepaid expenses and other...............     (2,285)     (1,867)     (2,937)
     Increase (decrease) in accounts payable..............      1,167      (1,255)     (1,653)
     Increase in accrued liabilities and other............      9,418         487       2,316
     Increase in non-refundable subscription income.......        305         124         788
     Increase in deferred income taxes....................      8,775         806       1,580
                                                            ---------    --------    --------
       Net cash provided by (used in) operating
          activities......................................     12,571      (6,195)      2,361
                                                            ---------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Issuance of senior notes................................    145,805          --          --
  (Repayment) borrowings on revolving credit facility,
     net..................................................    (50,000)     86,000      15,100
  Repayment of debt and capital lease obligations.........    (31,887)    (21,328)    (20,346)
  Borrowings under capital lease obligations..............      2,701          --       2,016
  Issuance of common stock................................      1,665       5,443      37,066
                                                            ---------    --------    --------
       Net cash provided by financing activities..........     68,284      70,115      33,836
                                                            ---------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Cash paid for businesses acquired (Note 2)..............    (36,848)    (35,512)    (17,164)
  Capital expenditures....................................    (31,043)    (23,872)    (18,237)
  Increase in other assets................................     (9,851)     (2,526)       (308)
                                                            ---------    --------    --------
       Net cash used in investing activities..............    (77,742)    (61,910)    (35,709)
                                                            ---------    --------    --------
INCREASE IN CASH..........................................      3,113       2,010         488
CASH, beginning of year...................................      3,398       1,388         900
                                                            ---------    --------    --------
CASH, end of year.........................................  $   6,511    $  3,398    $  1,388
                                                            =========    ========    ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       42
<PAGE>   46
 
                            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 diversified emergency services company
providing ambulance transport services, urgent home medical care, fire
protection and training services, alternative transportation services and home
health care services 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 and ambulance services under capitated service
arrangements. Fire protection services are provided either under contracts with
municipalities or fire districts, or on a non-refundable subscription fee basis
to individual homeowners or commercial property owners.
 
     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 12%, 18% and 22% of total
revenue for the fiscal years ended June 30, 1998, 1997 and 1996, respectively,
with the largest of the five contracts accounting for 4%, 5% and 7%,
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.
 
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, 1998, 1997 and 1996, the Company derived approximately 29%,
26% and 27%, respectively, of its net ambulance fee collections from Medicare
and 11%, 10% and 11%, respectively, from Medicaid. The reimbursement process is
complex and can involve 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 reimbursement is
received. The Company has from time to time experienced delays in receiving
reimbursements from third-party payors. In addition, third-party payors may
disallow, in whole or in part, requests for reimbursement based on
determinations that certain amounts are not reimbursable or because 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 Act). The Act 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.
 
                                       43
<PAGE>   47
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In addition, the Act provides for the development and implementation of a
prospective fee schedule, by January 2000, for ambulance services. The Act
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. Medicare
reimbursement for ambulance services provided during calendar years 1998 and
1999 will be increased by the Consumer Price Index (CPI) less one percentage
point.
 
     The Budget Act 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 Budget Act 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 Act 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.
 
     Certain actions to partially mitigate any adverse effect of these changes
could be taken by the Company. 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 Act, the
Company is unable to predict the ultimate impact of the Act. However, future
impact of the Act, 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 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
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, all prior
period EPS data presented has been restated in the consolidated financial
statements.
 
                                       44
<PAGE>   48
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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, 1998, 1997 and 1996 is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
                                        1998                                      1997                        1996
                       ---------------------------------------   ---------------------------------------   -----------
                         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............    $7,505         13,529         $0.55       $12,720        11,585         $1.10       $11,512
                                                       =====                                     =====
Effect of stock
  options............        --            473                          --           686                          --
                         ------         ------                     -------        ------                     -------
Diluted EPS..........    $7,505         14,002         $0.54       $12,720        12,271         $1.04       $11,512
                         ======         ======         =====       =======        ======         =====       =======
 
<CAPTION>
                                 1996
                       -------------------------
                          SHARES       PER SHARE
                       (DENOMINATOR)    AMOUNT
<S>                    <C>             <C>
Basic EPS............      9,570         $1.20
                                         =====
Effect of stock
  options............        505
                          ------
Diluted EPS..........     10,075         $1.14
                          ======         =====
</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.
 
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 fifteen to thirty years. Property and equipment
held under capital leases is 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 $234,205,000 and $159,959,000 and covenants not to
compete of $1,251,000 and $333,000 at June 30, 1998 and 1997, respectively.
Costs in excess of the fair value of net assets acquired are amortized over
twenty-five to thirty-five 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 $17,065,000 and $10,318,000 at June 30, 1998 and
1997, respectively.
 
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.
 
                                       45
<PAGE>   49
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
ACCRUED LIABILITIES
 
     Included in accrued liabilities is $16,427,000 and $7,556,000 for salaries,
wages and related payroll expenses and $2,823,000 and $1,679,000 for accrued
insurance premiums at June 30, 1998 and 1997, respectively.
 
LOSS CONTRACT/RESTRUCTURING CHARGE
 
     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 have been
terminated as of June 30, 1998. As of June 30, 1998, the balance of the
allowance for restructuring costs and severance payments was $5.4 million. 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 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 note, note 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.
 
                                       46
<PAGE>   50
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(2) BUSINESS DEVELOPMENT ACTIVITIES
 
ACQUISITIONS
 
     The Company acquired the operations of eleven companies during the year
ended June 30, 1998 and the operations of nineteen companies during the year
ended June 30, 1997. Eight of the acquisitions completed during the year ended
June 30, 1998 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. Three acquisitions were accounted for as
poolings-of-interest in accordance with APB Opinion No. 16. The acquisitions
accounted for as poolings-of-interest were not considered significant;
accordingly, prior year financial statements have not been restated.
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>
                                                            1998       1997
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Cash.....................................................  $36,848    $35,512
Common stock.............................................    8,971     18,699
Notes payable to sellers.................................    6,470      4,477
Assumption of liabilities................................   24,833     23,915
                                                           -------    -------
          Total..........................................  $77,122    $82,603
                                                           =======    =======
</TABLE>
 
     The Company issued 334,532 and 873,741 shares of its common stock in
connection with acquisitions accounted for as purchases in the years ended June
30, 1998 and 1997, respectively. The Company issued 803,565 and 361,970 shares
of its common stock in connection with the poolings-of-interest transactions
completed during the years ended June 30, 1998 and 1997, respectively.
 
     The fair value of the assets purchased has been allocated as follows:
 
<TABLE>
<CAPTION>
                                                            1998       1997
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Property and equipment...................................  $ 4,381    $ 8,629
Intangible assets........................................   66,469     67,423
Other assets.............................................    6,272      6,551
                                                           -------    -------
          Total..........................................  $77,122    $82,603
                                                           =======    =======
</TABLE>
 
     Subsequent to June 30, 1998, the Company purchased all the issued and
outstanding stock of two ambulance service providers with operations in
Argentina. The combined purchase price of the operations accounted for as
purchases was $7.9 million. The Company paid cash of $4.3 million, issued notes
payable to sellers of $0.8 million and assumed $2.8 of liabilities.
 
JOINT VENTURE
 
     During the fiscal year 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
 
                                       47
<PAGE>   51
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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 and joint venture completed during the fiscal
years ended June 30, 1998 and 1997 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 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>
                                                          YEAR ENDED JUNE 30,
                                                         ----------------------
                                                           1998         1997
                                                         ---------    ---------
                                                         (IN THOUSANDS, EXCEPT
                                                           PER SHARE AMOUNTS)
<S>                                                      <C>          <C>
Revenue................................................  $532,489     $484,092
Net income.............................................  $  9,564     $ 18,943
Earnings per share -- basic............................  $   0.68     $   1.38
Earnings per share -- diluted..........................  $   0.66     $   1.31
</TABLE>
 
PUBLIC/PRIVATE ALLIANCE
 
     During the year ended June 30, 1998, the Company entered into a
public/private alliance with the 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 $6.0 million for the year ended June 30, 1998. 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 services. The Company accounts for the
activities of the LLC using the equity method. At June 30, 1998, the Company's
investment in the LLC was $737,000 and such amount is included in other assets
in the accompanying consolidated financial statements. The Company's share of
the undistributed earnings of the LLC was $727,000 for the year ended June 30,
1998. The Company's share of such undistributed earnings is included in other
revenue in the accompanying consolidated financial statements.
 
                                       48
<PAGE>   52
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(3) PROPERTY AND EQUIPMENT
 
     Property and equipment, including equipment held under capital leases,
consisted of the following:
 
<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                         --------------------
                                                           1998        1997
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Equipment..............................................  $ 49,900    $ 37,040
Vehicles...............................................    76,783      57,312
Land and buildings.....................................    19,469      13,736
Leasehold improvements.................................     6,367       5,546
                                                         --------    --------
                                                          152,519     113,634
Less: Accumulated depreciation.........................   (59,974)    (42,989)
                                                         --------    --------
                                                         $ 92,545    $ 70,645
                                                         ========    ========
</TABLE>
 
     The Company acquired equipment of $2,701,000 and $2,698,000 under capital
lease and other financing agreements during the years ended June 30, 1998 and
1996, respectively. No equipment was acquired under capital lease or other
financing agreements during the year ended June 30, 1997.
 
     The Company held vehicles and equipment with a net carrying value of
$10,153,000 and $7,748,000 at June 30, 1998 and 1997, respectively, under
capital lease agreements. Accumulated depreciation on these assets totaled
$9,741,000 and $8,367,000 at June 30, 1998 and 1997, respectively.
 
(4) CREDIT AGREEMENTS AND BORROWINGS
 
     Notes payable and capital lease obligations consisted of the following:
 
<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                         --------------------
                                                           1998        1997
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
7 7/8% Senior Notes due 2008...........................  $149,750    $     --
Revolving credit facility..............................    86,000     134,000
Capital lease obligations and other notes payable,
  collateralized by property and equipment, at varying
  rates, from 5.08% to 21.01%, due through 2003........    12,113      13,939
Unsecured promissory notes payable from acquisitions at
  varying rates, from 6.0% to 9.0%, due through 2006...     4,533       6,518
                                                         --------    --------
                                                          252,396     154,457
Less: Current maturities...............................    (8,565)     (9,814)
                                                         --------    --------
                                                         $243,831    $144,643
                                                         ========    ========
</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 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 such costs over the life of the Notes. The Company recorded a
$258,000 discount on the Notes and will amortize such discount over the life of
the Notes.
 
                                       49
<PAGE>   53
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Unamortized discount at June 30, 1998 was $250,000 and such amount is 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. Such registration
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 or combined
financial position, results of operations and cash flows for the year ended June
30, 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 years ended June 30, 1997 and 1996
have not been presented as such presentation is considered to be insignificant
since most of the Non-guarantors did not exist in those periods. 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.
 
                                       50
<PAGE>   54
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
                          CONSOLIDATING BALANCE SHEET
                              AS OF 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 TO/FROM 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      26,863         13,735              --        44,406
  Current portion of long-term
     debt............................        --       7,939            626              --         8,565
                                       --------   ---------       --------       ---------     ---------
          Total current
            liabilities..............     3,808      43,630         18,968              --        66,406
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................        --      23,044            238              --        23,282
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>
 
                                       51
<PAGE>   55
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
                       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
  Loss contract/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
                                      =======    ========       =======        ========       ========
</TABLE>
 
                                       52
<PAGE>   56
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
                     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)
    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.........      3,808       6,189           (579)            --          9,418
         Increase in non-refundable
           subscription income...........         --         288             17             --            305
         Increase in deferred income
           taxes.........................         --       8,774              1             --          8,775
                                           ---------   ---------       --------       --------      ---------
         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>
 
                                       53
<PAGE>   57
                            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 1.7%. 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 $86.0 million was outstanding on the revolving credit facility at
June 30, 1998. Because of a financial covenant which restricts the Company's
ratio of debt (including outstanding letters of credit) to capitalization to
 .60, availability on the facility was $11.9 million at June 30, 1998.
 
     At June 30, 1998, the revolving credit facility was priced at LIBOR plus
1.625%. The weighted average interest rate on the revolving credit facility was
7.31% and 6.81% at June 30, 1998 and 1997, 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>
  1999............................................    $  4,231          $ 5,409
  2000............................................       1,483            3,725
  2001............................................         916            1,676
  2002............................................         374            1,234
  2003............................................      84,724              616
  Thereafter......................................     150,596               --
                                                      --------          -------
                                                      $242,324           12,660
                                                      ========
  Less: Amounts representing interest.............                       (2,588)
                                                                        -------
                                                                        $10,072
                                                                        =======
</TABLE>
 
     The Company incurred interest expense of $14,259,000, $5,739,000 and
$5,205,000 and paid interest of $11,519,000, $6,223,000 and $5,324,000 in the
years ended June 30, 1998, 1997 and 1996, respectively.
 
     The Company had outstanding letters of credit totaling $2,355,000 and
$3,980,000 at June 30, 1998 and 1997, respectively.
 
(5) 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 $10,193,000, $6,625,000 and $5,345,000 for the years ended June 30,
1998, 1997 and 1996, respectively.
 
                                       54
<PAGE>   58
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Minimum rental commitments under non-cancelable operating leases for each
of the years ending June 30 are as follows (in thousands):
 
<TABLE>
<S>                                                   <C>
1999................................................  $6,953
2000................................................   5,792
2001................................................   4,682
2002................................................   3,488
2003................................................   2,611
Thereafter..........................................   7,070
</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, the Company was named as a defendant in two purported
class action lawsuits. 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. Both cases are at the earliest stages of litigation. 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.
 
(6) EMPLOYEE BENEFIT PLANS
 
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
 
     The Company established the ESOP in 1979 and makes contributions to the
ESOP at the discretion of the Board of Directors. The Board of Directors
approved discretionary contributions of $300,000 and $100,000 for the years
ended June 30, 1997 and 1996, respectively. No discretionary contributions were
approved for the year ended June 30, 1998. The ESOP held, for the benefit of all
participants, approximately 6% and 8% as of June 30, 1998 and 1997,
respectively, of the outstanding common stock of the Company. The ESOP is
administered by the ESOP's Advisory Committee, consisting of certain officers of
the Company.
 
     Most full and part-time employees of the Company who have completed 200
hours of work per year and have reached age 21 are eligible for admission to the
ESOP. Each participant's account vests 20% after three years of service and an
additional 20% each year thereafter.
 
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, 1998, 124,321 shares of common stock have been issued under the ESPP.
 
                                       55
<PAGE>   59
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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, 1998, 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 by applicable law,
the Company may issue any other options, warrants or awards other than pursuant
to the 1992 Plan without shareholder approval. The 1992 Plan will remain in
force until November 5, 2002.
 
                                       56
<PAGE>   60
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following summarizes stock option activity:
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED JUNE 30, 1998
                                          ------------------------------------------------
                                                                              WEIGHTED
                                          NUMBER OF    EXERCISE PRICE         AVERAGE
                                           SHARES         PER SHARE        EXERCISE PRICE
                                          ---------    ---------------    ----------------
<S>                                       <C>          <C>                <C>
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
                                                                               ======
</TABLE>
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED JUNE 30, 1997
                                          ------------------------------------------------
                                                                              WEIGHTED
                                          NUMBER OF    EXERCISE PRICE         AVERAGE
                                           SHARES         PER SHARE        EXERCISE PRICE
                                          ---------    ---------------    ----------------
<S>                                       <C>          <C>                <C>
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>
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED JUNE 30, 1996
                                          ------------------------------------------------
                                                                              WEIGHTED
                                          NUMBER OF    EXERCISE PRICE         AVERAGE
                                           SHARES         PER SHARE        EXERCISE PRICE
                                          ---------    ---------------    ----------------
<S>                                       <C>          <C>                <C>
Options outstanding at beginning of
  year..................................  1,145,955    $ 5.60 - $19.50         $12.74
  Granted...............................    841,750    $22.50 - $24.25         $24.00
  Canceled..............................     (6,000)            $24.00         $24.00
  Exercised.............................   (155,330)   $ 5.60 - $17.25         $11.50
                                          ---------
Options outstanding at end of year......  1,826,375    $ 5.60 - $24.25         $18.37
                                          =========
Options exercisable at end of year......    495,205    $ 5.60 - $19.50         $12.05
                                          =========
Options available for grant at end of
  year..................................  1,285,425
                                          =========
Weighted average fair value per share of
  options granted.......................                                       $ 9.80
                                                                               ======
</TABLE>
 
                                       57
<PAGE>   61
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING
                  ------------------------------------------
                                 WEIGHTED                          OPTIONS EXERCISABLE
                                  AVERAGE                      ----------------------------
                                 REMAINING       WEIGHTED                       WEIGHTED
   RANGE OF         OPTIONS     CONTRACTUAL      AVERAGE         OPTIONS        AVERAGE
EXERCISE PRICES   OUTSTANDING      LIFE       EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------   -----------   -----------   --------------   -----------   --------------
<S>               <C>           <C>           <C>              <C>           <C>
$ 1.25 - $ 8.04      121,774       4.34           $ 6.36          117,595        $ 6.54
$13.00 - $18.75      433,662       5.81            16.93          303,104         16.86
$22.50 - $24.50      716,125       7.18            23.98          371,875         23.96
$29.00 - $36.00    1,822,344       8.76            30.71        1,082,575         30.91
                   ---------       ----           ------        ---------        ------
                   3,093,905       7.81           $26.26        1,875,149        $25.73
                   =========       ====           ======        =========        ======
</TABLE>
 
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
 
     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 1998, 1997 and 1996, using the
Black-Scholes option pricing model with the following weighted average
assumptions:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED JUNE 30,
                                          --------------------------------------------------------
                                                1998                1997                1996
                                          ----------------    ----------------    ----------------
                                          OPTIONS    ESPP     OPTIONS    ESPP     OPTIONS    ESPP
                                          -------    -----    -------    -----    -------    -----
<S>                                       <C>        <C>      <C>        <C>      <C>        <C>
Risk free interest rate.................    5.01%     4.95%     6.23%     5.90%     6.14%     5.68%
Expected dividend yield.................    0.00%     0.00%     0.00%     0.00%     0.00%     0.00%
Expected lives in years (after vesting
  for options)..........................    1.32       0.5      1.59       0.5      1.59       0.5
Expected volatility.....................   46.65%    63.42%    36.50%    43.60%    33.41%    32.59%
</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, 1998...............................  $11,386    $397
For year ended June 30, 1997...............................  $ 9,681    $306
For year ended June 30, 1996...............................  $ 8,250    $212
</TABLE>
 
                                       58
<PAGE>   62
                            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 year end net income and
diluted earnings per share would have been reported as follows:
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED JUNE 30,
                                                 ----------------------------
                                                  1998      1997       1996
                                                 ------    -------    -------
                                                    (IN THOUSANDS, EXCEPT
                                                      PER SHARE AMOUNTS)
<S>                                              <C>       <C>        <C>
Net income:
  Historical...................................  $7,505    $12,720    $11,512
  Pro forma....................................   2,090      8,013      8,352
Diluted earnings per share:
  Historical...................................  $ 0.54    $  1.04    $  1.14
  Pro forma....................................  $ 0.15    $  0.65    $  0.85
</TABLE>
 
     The effects of applying SFAS 123 for providing pro forma disclosures for
1998, 1997 and 1996 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
$1,934,000 and $1,515,000 for the 401(k) Plan years ended December 31, 1997 and
1996, respectively.
 
(7) STOCKHOLDERS' EQUITY
 
PREFERRED STOCK
 
     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.
 
                                       59
<PAGE>   63
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
COMMON STOCK
 
     In April 1996, the Company issued 1,367,500 shares of common stock at
$27.25 per share, generating $34.8 million. The proceeds were used to reduce the
outstanding balance on the Company's revolving credit facility.
 
(8) RELATED PARTY TRANSACTIONS
 
     The Company incurred legal fees of approximately $148,000, $139,000 and
$122,000 for the years ended June 30, 1998, 1997 and 1996, respectively, with a
law firm in which a member of the Board of Directors is a partner.
 
     The Company incurred rental expense of $1,490,000, $600,000 and $592,000 in
each of the years ended June 30, 1998, 1997 and 1996, respectively, related to
leases of fire and ambulance facilities with two directors of the Company and
with employees that were previously owners of businesses acquired by the
Company.
 
     At June 30, 1998 and 1997, the Company had notes payable to employees that
were previously owners of businesses acquired by the Company totaling $770,000
and $1,770,000, respectively.
 
(9) 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,
                                                        -----------------------------
                                                         1998       1997       1996
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
United States.........................................  $11,791    $22,084    $19,556
Foreign...............................................    1,691         --         --
                                                        -------    -------    -------
Income before income taxes............................  $13,482    $22,084    $19,556
                                                        =======    =======    =======
</TABLE>
 
     The components of the provision for income taxes were as follows:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,
                                                        -----------------------------
                                                         1998       1997       1996
                                                        -------    -------    -------
                                                               (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Current
  U.S. federal........................................  $   790    $ 2,761    $ 4,219
  State...............................................       68        618        796
  Foreign.............................................      762         --         --
                                                        -------    -------    -------
          Total current...............................    1,620      3,379      5,015
                                                        -------    -------    -------
Deferred
  U.S. federal........................................    4,576      5,985      3,029
  Foreign.............................................     (219)        --         --
                                                        -------    -------    -------
          Total deferred..............................    4,357      5,985      3,029
                                                        -------    -------    -------
          Total provision.............................  $ 5,977    $ 9,364    $ 8,044
                                                        =======    =======    =======
</TABLE>
 
                                       60
<PAGE>   64
                            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,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Deferred tax liabilities
  Amortization and accelerated depreciation.................  $(12,449)   $ (9,379)
  Accounts receivable valuation.............................   (18,980)     (5,663)
  Accounting method changes.................................      (962)       (944)
  Other.....................................................      (637)         --
                                                              --------    --------
                                                               (33,028)    (15,986)
                                                              --------    --------
Deferred tax assets
  Restructuring charge......................................     2,140       1,912
  Compensation accruals.....................................       781         499
  Insurance reserves........................................       986         471
  Other.....................................................       569         158
                                                              --------    --------
                                                                 4,476       3,040
                                                              --------    --------
Net deferred tax liability..................................   (28,552)    (12,946)
Less current portion........................................     5,270       2,174
                                                              --------    --------
Net long-term deferred tax liability........................  $(23,282)   $(10,772)
                                                              ========    ========
</TABLE>
 
     For the years ended June 30, 1998, 1997 and 1996 income tax benefits of
$1,012,000, $4,867,000 and $982,000, 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,
                                                           --------------------------
                                                            1998      1997      1996
                                                           ------    ------    ------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Federal income tax provision at statutory rate...........  $4,719    $7,729    $6,845
State taxes, net of federal benefit......................     293       967       491
Amortization of nondeductible goodwill...................     900       663       646
Other, net...............................................      65         5        62
                                                           ------    ------    ------
Provision for income taxes...............................  $5,977    $9,364    $8,044
                                                           ======    ======    ======
</TABLE>
 
     The Company received income tax refunds (net of income tax payments) of
approximately $3,323,000 during the year ended June 30, 1998. Cash payments for
income taxes (net of refunds) were approximately $8,197,000 and $2,848,000
during the years ended June 30, 1997 and 1996, respectively.
 
                                       61
<PAGE>   65
                            RURAL/METRO CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
     Selected quarterly financial data for the years ended June 30, 1998 and
1997 is as follows:
 
<TABLE>
<CAPTION>
                                                               1998
                                           ---------------------------------------------
                                            FIRST      SECOND      THIRD        FOURTH
                                           QUARTER    QUARTER     QUARTER     QUARTER(1)
                                           -------    --------    --------    ----------
                                           (IN THOUSANDS, EXCEPT FOR 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>
 
<TABLE>
<CAPTION>
                                                               1997
                                           ---------------------------------------------
                                            FIRST      SECOND      THIRD        FOURTH
                                           QUARTER    QUARTER     QUARTER     QUARTER(2)
                                           -------    --------    --------    ----------
                                           (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                        <C>        <C>         <C>         <C>
Revenue..................................  $73,994    $ 77,530    $ 84,921     $ 83,360
Operating income.........................    6,592       7,474       9,500        4,238
Net income...............................    3,299       3,771       4,675          975
Earnings per share.......................  $   .28    $    .31    $    .38     $    .08
</TABLE>
 
---------------
(1) 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. See further
    discussion in Item 7 "Management's Discussion and Analysis of Financial
    Condition and Results of Operations."
 
(2) In the fourth quarter of 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 and a
    $2.8 million restructuring charge related to the integration of ambulance
    company acquisitions.
 
                                       62
<PAGE>   66
 
                                                                     SCHEDULE II
 
                            RURAL/METRO CORPORATION
 
                       VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                              (IN THOUSANDS)
<S>                                                  <C>         <C>         <C>
Allowance for doubtful accounts:
  Balance at beginning of year.....................  $ 35,814    $ 26,571    $ 10,412
  Provision charged to expense.....................    81,178      43,424      31,036
  Write-offs.......................................   (47,440)    (34,181)    (14,877)
                                                     --------    --------    --------
  Balance at end of year...........................  $ 69,552    $ 35,814    $ 26,571
                                                     ========    ========    ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
                                                              (IN THOUSANDS)
<S>                                                  <C>         <C>         <C>
Loss contract/restructuring allowance:
  Balance at beginning of year.....................  $  4,815    $     --    $     --
  Provision........................................     5,000       6,026          --
  Payments/usage...................................    (4,408)     (1,211)         --
                                                     --------    --------    --------
  Balance at end of year...........................  $  5,407    $  4,815    $     --
                                                     ========    ========    ========
</TABLE>
 
                                       63
<PAGE>   67
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     None.
 
                                    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 1998 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 1998 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 1998 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
1998 Annual Meeting of Stockholders.
 
                                       64
<PAGE>   68
 
                                    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...............................  37
     (2) Report of Independent Public Accountants...........  38
     (3) Consolidated Financial Statements
          Consolidated Balance Sheets at June 30, 1998 and
         1997...............................................  39
          Consolidated Statements of Income for the Years
          Ended June 30, 1998, 1997 and 1996................  40
          Consolidated Statements of Changes in
          Stockholders' Equity for the Years Ended June 30,
          1998, 1997 and 1996...............................  41
          Consolidated Statements of Cash Flows for the
          Years Ended June 30, 1998, 1997 and 1996..........  42
          Notes to Consolidated Financial Statements........  43
(ii) Financial Statement Schedule
     Schedule II  Valuation and Qualifying Accounts.........  63
     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:
 
     On June 5, 1998 the Company filed a Current Report on Form 8-K/A amending
its Current Report on Form 8-K filed on April 1, 1998, disclosing Combined
Financial Statement and Unaudited Pro Forma Combined Financial Statement and
Notes thereto of Peimu S.A., Semercor S.A., Marlon S.A., and Emergencias Recor
S.A.
 
     On June 19, 1998 the Company filed a Current Report on Form 8-K announcing
a preliminary outlook for its fourth quarter.
 
     (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.(14)
4.3          Form of Global Note (included in Exhibit 4.2)(14)
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.(14)
</TABLE>
 
                                       65
<PAGE>   69
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<S>          <C>
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 September 12, 1997
10.6         Forms of Stock Option Agreements pursuant to the Amended and
             Restated 1992 Stock Option Plan of Registrant(1)
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) Robert T.
             Edwards, Dean P. Hoffman, William R. Crowell, and William F.
             Gillis, effective July 1, 1997; (ii) Jack E. Brucker,
             effective December 1, 1997; and (iii) Mark E. Liebner,
             effective January 1, 1998
10.16(b)     Form of Change of Control Agreement by and between
             Registrant and Warren S. Rustand dated November 3, 1995.(9)
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.
10.16(d)     Form of Change of Control Agreement by and between the
             Registrant and the following executive officers: (i) Robert
             T. Edwards dated December 1, 1995, (ii) William F. Gillis,
             dated July 1, 1997, (iii) Dean P. Hoffman, dated October 28,
             1997, and (iv) Jack E. Brucker, dated November 24, 1997
10.16(e)     Employment Agreement by and between Registrant and Warren S.
             Rustand, dated November 3, 1995(9)
10.16(f)     Employment Agreement by and between Registrant and Robert E.
             Ramsey Jr., dated June 30, 1997.(11)
10.16(g)     Employment Agreement by and between Registrant and John B.
             Furman effective August 27, 1998.
10.16(h)     Form of Change of Control Agreement by and between
             Registrant and John B. Furman, effective August 27, 1998.
10.16(i)     Severance Agreement by and between Warren S. Rustand and
             Registrant effective August 24, 1998.
10.16(j)     Consulting Agreement by and between James H. Bolin and
             Registrant effective January 1, 1998.
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)     Employee Stock Ownership Plan and Trust of the Registrant,
             effective July 1, 1989(1)
10.18(b)     Amendment No. 1 to the Employee Stock Ownership Plan of the
             Registrant, dated February 4, 1994(6)
10.18(c)     Amendment No. 2 to the Employee Stock Ownership Plan of the
             Registrant, dated April 14, 1994(7)
10.21        Retirement Savings Value Plan 401(k) of Registrant, as
             amended, dated July 1, 1990(1)
</TABLE>
 
                                       66
<PAGE>   70
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<S>          <C>
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
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.
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.(15)
10.46        Stock Purchase Agreement by and among Rural/Metro of New
             York, Inc. and Alan D. Lewis, Sr. and Pamela A. Lewis with
             respect to the stock of Corning Ambulance Service, Inc.,
             dated June 15, 1995(8)
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.(10)
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.(10)
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.(10)
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.(10)
10.53        Term Loan Agreement by and among Registrant, as borrower,
             and First Union National Bank, as lender, dated as of
             November 26, 1997.(12)
</TABLE>
 
                                       67
<PAGE>   71
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<S>          <C>
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.(13)
21           Subsidiaries of Registrant
23.2         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 August 18, 1995, as amended by the
      Registrant's Form 8-K/A Current Report filed on or about August 28, 1995.
 
 (9)  Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
      filed with the Commission on or about May 15, 1996.
 
(10) 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 on or about August 12, 1997.
 
(11) Incorporated by reference to the Registrant's Form 10-K filed with the
     Commission on or about September 29, 1997.
 
(12) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about February 17, 1998.
 
(13) 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.
 
(14) 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.
 
(15) 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.
 
                                       68
<PAGE>   72
 
                                   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
 
Dated: September 28, 1998                 By: /s/ DEAN P. HOFFMAN
 
                                          --------------------------------------
                                          Dean P. Hoffman
                                          Vice President, Financial Services
 
     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>
 
        By: /s/ JOHN B. FURMAN           President and Acting Chief Executive       September 28, 1998
---------------------------------------  Officer (Principal Executive Officer)
            John B. Furman
 
       By: /s/ ROBERT T. EDWARDS         Executive Vice President and Director      September 28, 1998
---------------------------------------
           Robert T. Edwards
 
       By: /s/ ROBERT E. RAMSEY          Executive Vice President and Director      September 28, 1998
---------------------------------------
           Robert E. Ramsey
 
        By: /s/ MARK E. LIEBNER          Senior Vice President, Chief Financial     September 28, 1998
---------------------------------------  Officer and Treasurer (Principal
            Mark E. Liebner              Financial Officer)
 
        By: /s/ DEAN P. HOFFMAN          Vice President, Financial Services         September 28, 1998
---------------------------------------  (Principal Accounting Officer)
            Dean P. Hoffman
 
        By: /s/ JAMES H. BOLIN           Vice Chairman of the Board of Directors    September 28, 1998
---------------------------------------
            James H. Bolin
 
        By: /s/ COR J. CLEMENT           Vice Chairman of the Board of Directors    September 28, 1998
---------------------------------------
            Cor J. Clement
 
      By: /s/ MARY ANNE CARPENTER        Director                                   September 28, 1998
---------------------------------------
          Mary Anne Carpenter
 
        By: /s/ LOUIS G. JEKEL           Director                                   September 28, 1998
---------------------------------------
            Louis G. Jekel
</TABLE>
 
                                       69
<PAGE>   73
 
<TABLE>
<CAPTION>
               SIGNATURE                                  TITLE                            DATE
---------------------------------------  ---------------------------------------    ------------------
<S>                                      <C>                                        <C>
 
       By: /s/ WILLIAM C. TURNER         Director                                   September 28, 1998
---------------------------------------
           William C. Turner
 
        By: /s/ HENRY G. WALKER          Director                                   September 28, 1998
---------------------------------------
            Henry G. Walker
 
       By: /s/ LOUIS A. WITZEMAN         Director                                   September 28, 1998
---------------------------------------
           Louis A. Witzeman
</TABLE>
 
                                       70
<PAGE>   74
 
<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.(14)
4.3          Form of Global Note (included in Exhibit 4.2)(14)
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.(14)
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 September 12, 1997
10.6         Forms of Stock Option Agreements pursuant to the Amended and
             Restated 1992 Stock Option Plan of Registrant(1)
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) Robert T.
             Edwards, Dean P. Hoffman, William R. Crowell, and William F.
             Gillis, effective July 1, 1997; (ii) Jack E. Brucker,
             effective December 1, 1997; and (iii) Mark E. Liebner,
             effective January 1, 1998
10.16(b)     Form of Change of Control Agreement by and between
             Registrant and Warren S. Rustand dated November 3, 1995.(9)
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.
10.16(d)     Form of Change of Control Agreement by and between the
             Registrant and the following executive officers: (i) Robert
             T. Edwards dated December 1, 1995, (ii) William F. Gillis,
             dated July 1, 1997, (iii) Dean P. Hoffman, dated October 28,
             1997, and (iv) Jack E. Brucker, dated November 24, 1997
10.16(e)     Employment Agreement by and between Registrant and Warren S.
             Rustand, dated November 3, 1995(9)
10.16(f)     Employment Agreement by and between Registrant and Robert E.
             Ramsey Jr., dated June 30, 1997.(11)
10.16(g)     Employment Agreement by and between Registrant and John B.
             Furman effective August 27, 1998.
10.16(h)     Form of Change of Control Agreement by and between
             Registrant and John B. Furman, effective August 27, 1998.
</TABLE>
 
                                       71
<PAGE>   75
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<S>          <C>
10.16(i)     Severance Agreement by and between Warren S. Rustand and
             Registrant effective August 24, 1998.
10.16(j)     Consulting Agreement by and between James H. Bolin and
             Registrant effective January 1, 1998.
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)     Employee Stock Ownership Plan and Trust of the Registrant,
             effective July 1, 1989(1)
10.18(b)     Amendment No. 1 to the Employee Stock Ownership Plan of the
             Registrant, dated February 4, 1994(6)
10.18(c)     Amendment No. 2 to the Employee Stock Ownership Plan of the
             Registrant, dated April 14, 1994(7)
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
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.
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.(15)
10.46        Stock Purchase Agreement by and among Rural/Metro of New
             York, Inc. and Alan D. Lewis, Sr. and Pamela A. Lewis with
             respect to the stock of Corning Ambulance Service, Inc.,
             dated June 15, 1995(8)
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.(10)
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.(10)
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.(10)
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.(10)
10.53        Term Loan Agreement by and among Registrant, as borrower,
             and First Union National Bank, as lender, dated as of
             November 26, 1997.(12)
</TABLE>
 
                                       72
<PAGE>   76
 
<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF EXHIBIT
-----------                     ----------------------
<S>          <C>
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.(13)
21           Subsidiaries of Registrant
23.2         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 August 18, 1995, as amended by the
      Registrant's Form 8-K/A Current Report filed on or about August 28, 1995.
 
 (9)  Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
      filed with the Commission on or about May 15, 1996.
 
(10) 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 on or about August 12, 1997.
 
(11) Incorporated by reference to the Registrant's Form 10-K filed with the
     Commission on or about September 29, 1997.
 
(12) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
     filed with the Commission on or about February 17, 1998.
 
(13) 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.
 
(14) 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.
 
(15) 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.
 
                                       73