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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A
                                (AMENDMENT NO. 2)

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

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2001

                         COMMISSION FILE NUMBER 0-22056


                             RURAL/METRO CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              86-0746929
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

             8401 EAST INDIAN SCHOOL ROAD, SCOTTSDALE, ARIZONA 85251
               (Address of principal executive offices) (Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                         PREFERRED STOCK PURCHASE RIGHTS
                                (Title of Class)

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

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

     AS OF APRIL 22, 2002,  THE AGGREGATE  MARKET VALUE OF THE VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT,  COMPUTED BY REFERENCE TO THE CLOSING SALES
PRICE  OF  SUCH  STOCK  AS OF SUCH  DATE  ON THE  NASDAQ  SMALLCAP  MARKET,  WAS
$13,278,038.  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 April 22,  2002,  there were  15,459,588  shares of the  registrant's
Common Stock outstanding.

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                                TABLE OF CONTENTS


FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS..............   1

PART I
  ITEM 1.   BUSINESS........................................................   2
  ITEM 2.   PROPERTIES......................................................  21
  ITEM 3.   LEGAL PROCEEDINGS...............................................  22
  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............  22

PART II
  ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS ............................................  23
  ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA............................  23
  ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.......................................  25
  ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......  50
  ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................  50
  ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE........................................  98

PART III
  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............  99
  ITEM 11.  EXECUTIVE COMPENSATION.......................................... 101
  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 106
  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 107

PART IV
  ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. 108

SIGNATURES ................................................................. 114
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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" as that
term is used under the  securities  laws. We caution  readers that such "forward
looking statements,"  including those relating to our future business prospects,
working capital,  accounts receivable collection,  liquidity, cash flow, capital
needs,   operational   results,   compliance   with  debt  facilities  and  debt
restructuring  prospects,  wherever  they  appear  in this  Report  or in  other
statements  attributable  to us, are necessarily  estimates  reflecting the best
judgment  of  our  senior   management   and  involve  a  number  of  risks  and
uncertainties  that could cause actual results to differ  materially  from those
suggested by the "forward looking statements." You should consider such "forward
looking  statements" in light of various important factors,  including those set
forth  below  and  others  set  forth  from  time  to time  in our  reports  and
registration statements filed with the Securities and Exchange Commission.

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

     All references to "we," "our," "us," or "Rural/Metro"  refer to Rural/Metro
Corporation,  and its  predecessors,  operating  divisions,  direct and indirect
subsidiaries,  and affiliates.  Rural/Metro Corporation, a Delaware corporation,
is strictly a holding company. All services, operations and management functions
are provided through its subsidiaries and affiliated entities.

     For a  discussion  of  certain  risks  associated  with our  business,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in Item 7 of this Report and, specifically,  "Risk Factors" included
in such Item 7.
<PAGE>
                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     Founded in 1948, we are a leading  provider of health and safety  services,
which include 911 emergency  ambulance and general medical transport services to
municipal,  residential,  commercial, and industrial customers. We are organized
as a Delaware  corporation.  We also provide fire protection  services and other
safety and health care related services, which include dispatch,  billing, fleet
services,  alternative  transport services and home health services.  We believe
that we are the only multi-state  provider of both ambulance and fire protection
services in the United States and that we rank among the largest  private-sector
providers of ambulance and fire protection services in the world.

     We  currently  serve over 400  communities  in 25 states,  the  District of
Columbia,  and Latin America.  Revenues for these services are primarily derived
from fees  charged for  ambulance  and fire  protection  services.  Our domestic
operations generated revenues of approximately  $461.2 million,  $512.7 million,
and $498.4 million in the fiscal years 2001,  2000 and 1999,  respectively,  and
our international  operations generated revenues of approximately $43.1 million,
$57.4  million and $63.0  million for the same  respective  periods.  We provide
ambulance  services  under  contracts  with  municipal  and county  governments,
hospitals and other  healthcare  organizations.  We primarily derive our revenue
under these contracts through  reimbursements  under private insurance  programs
and government  programs such as Medicare and Medicaid,  as well as through fees
paid by patients utilizing our services.  Fire protection  services are provided
under  contracts with  municipalities,  fire districts or other agencies or on a
subscription fee basis to individual  homeowners or commercial  property owners.
Ambulance services and fire protection  services accounted for approximately 80%
and 12%,  respectively,  of our revenue for the fiscal year ended June 30, 2001,
and 82% and 10%, respectively, of our revenue for the fiscal year ended June 30,
2000.

     We grew  significantly  from the late 1970s  through the late 1990s through
internal growth and acquisitions. This growth, consisting mainly of acquisitions
in the 1990s as part of a  consolidation  of the  domestic  ambulance  industry,
provided us with a significant market presence  throughout the United States and
parts of Latin America. To manage this growth, we invested in the development of
management and  operational  systems that have resulted in  productivity  gains.
While we believe that our prior growth strategy has created a strong platform of
core businesses,  commencing in fiscal 2000, we focused on  strengthening  those
core businesses and improving our economies of scale.  This focus included:  (i)
operational  restructuring  through the  closure or  downsizing  of  financially
under-performing  operations,  (ii) corporate  restructuring  and  improvements,
(iii) improving the quality and collection of revenue, and (iv) selective growth
through  expansion  in  existing  service  areas and  development  of  strategic
alliances.  Our current business strategy includes  continued  emphasis on these
focal points and on delivering high-quality, efficient and effective services to
our customers.

     We incurred a net loss of approximately  $226.7 million or a loss of $15.38
per share for the year ended June 30, 2001. The loss relates to the write-off of
impaired  assets under SFAS No. 121 for certain  domestic and Argentine  assets,
our operational  restructuring  program involving the closure of certain service
areas,  the loss of two  exclusive  911  contracts,  the  disposition  of clinic
operations in Latin America, changes in estimates that impacted our reserves for
workers compensation and general liability matters, and additional provision for
doubtful  accounts related to closed or closing service areas and  non-transport
related receivables.

     Despite  recent net losses,  our  restructuring  efforts have enabled us to
self-fund our  obligations  from existing cash reserves and operating  cash flow
since March 2000.  During the last nineteen months, we have self-funded cash for
operations,  capital  expenditures,  principal  payments on our revolving credit
facility,  regularly  scheduled debt service,  and capital lease  payments.  Our
current  financial status has resulted from our continued focus on strengthening
operations,  cash collection and other processes. We have been operating under a
waiver of financial covenant compliance related to our revolving credit facility
since  February 2000 and have been actively  working with our lenders since that

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time to obtain a long-term financing  solution.  We believe our current business
model and strategy can  generate  sufficient  cash flow to provide a basis for a
new long-term  agreement with our current  lenders or to  restructure  our debt.
However,   there  can  be  no  assurance  that  any  such   arrangement  can  be
accomplished. See Risk Factors - "We may not be able to restructure our existing
debt"  and  "We  may not be able to  sustain  sufficient  operating  cash  flow"
contained in Item 7 of this Report.

INDUSTRY OVERVIEW

     AMBULANCE TRANSPORT BUSINESS

     Based on generally  available  industry  data, it is estimated  that annual
expenditures for ambulance  services in the United States are between $7 billion
and $11 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  transportation.  When the public sector
serves as first  responder,  private sector  companies often serve as the second
responder and support the first responder as needed. The private sector provides
the majority of  non-emergency  ambulance  services.  It is  estimated  that the
ambulance service industry includes  approximately more than 12,000 providers of
service,   1,500  or  more  of  which  are   private  and  1,000  of  which  are
hospital-owned.  Most commercial  providers are small companies serving one or a
limited number of markets.  Several  multi-state  providers,  including us, have
emerged through the acquisition and  consolidation of smaller  ambulance service
providers in recent years.

     FIRE PROTECTION BUSINESS

     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 operate throughout the United States.  Volunteer fire
departments range from departments consisting entirely of volunteer personnel to
departments  that  utilize one or more paid  personnel  located at each  station
supplemented  by volunteers who proceed  directly to the fire scene. In addition
to providing fire protection  services to municipalities  and tax-supported fire
districts,  we and other members of the private sector  provide fire  protection
services to large industrial  complexes,  petrochemical plants, power plants and
other self-contained facilities.

     Based on our experience,  we believe that our ambulance and fire protection
services  are  complementary  and  benefit  us through  diversification,  shared
resources, experience and competitive advantage in certain service areas.

HISTORICAL GROWTH IN AMBULANCE SERVICE EXPENDITURES; PRIMARY DEMAND FACTORS

     Ambulance service  expenditures in the United States have grown as a result
of an  increase  in the number of  transports  and an  increase  in the  average
expenditures  per transport.  Several primary factors are cited for the increase
and continued  demand of the emergency  ambulance  and  non-emergency  ambulance
services we provide:

     *    The U.S. population is aging. Persons over the age of 65 years tend to
          require more frequent  hospital and ambulance  services.  The need for
          ambulance  services  is  increasing  with the  aging of the Baby  Boom
          population; about 62 million Americans will be age 65 or older in 2025
          compared to 35 million  today.  Such increase in demand affects all of
          our  operations and is more  pronounced in operations  such as Arizona
          and  Florida   that  serve  higher   concentrations   of  the  elderly
          populations.

     *    The size,  growth and  geographic  distribution  of the population are
          also  favorable   demographics  for  the  ambulance  industry.   Local
          population  increases and urban sprawl create an increased  demand for
          ambulance services and a steady,  corresponding growth rate. Moreover,
          there is an  increased  incidence  in the level of health and accident
          risks associated with a growing population. In most cases, the current
          assets and resources of our existing operations can service the demand
          created  by this  growth,  without  need  for  significant  additional
          capital expenditures.

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     *    The increased  availability  of 911 emergency  service,  the impact of
          educational  programs  on its use,  and the  frequency  by which  some
          members of the population utilize hospital emergency rooms for medical
          care also have increased the number of ambulance transports.

     *    Increased  patient travel between  specialized  treatment  health care
          facilities  has increased  the demand for emergency and  non-emergency
          ambulance services.

     *    The  greater  use of  outpatient  care  facilities  and  home  care in
          response to health care cost  containment  efforts also has  increased
          ambulance transport usage.

     *    The continuing demand for highly responsive emergency services, driven
          by regulatory and market forces, has further  necessitated an increase
          in expenditures  to maintain and enhance  emergency  medical  systems.
          High-quality medical care and response time criteria require ambulance
          service providers to acquire sophisticated emergency medical, dispatch
          and related  systems and equipment,  recruit and retain highly trained
          personnel, and create advanced emergency management protocols. Average
          expenditures per transport have increased incrementally as a result of
          the   additional   costs  to  meet   these   criteria   and   maintain
          high-performance systems.

CONSOLIDATION OF THE AMBULANCE INDUSTRY

     During the 1990s, the fragmented nature of the ambulance industry, combined
with  limited  capital  and  management   systems  that  typified  many  smaller
providers,  offered an opportunity to consolidate  the industry with the goal of
achieving improved  productivity and enhanced levels of service. As a result, we
and several other entities began  consolidating  the ambulance  industry through
mergers and  acquisitions  of smaller  providers.  Thereafter,  as the  industry
became less fragmented and acquisition opportunities  diminished,  the number of
acquisitions slowed. The larger consolidators, such as American Medical Response
(AMR) and, to a lesser extent,  Rural/Metro  Corporation,  incurred  significant
debt in order to compete for  acquisition  targets and  subsequently  fund their
integration.  Accordingly,  we are a highly  leveraged  company and face certain
risk  factors  related  to our  debt  structure.  See  Risk  Factors  - "We have
significant indebtedness," "- Lenders impose restrictive covenants on us. We are
operating  under a temporary  compliance  waiver with respect to covenants under
our revolving  credit facility" and "- "We may not be able to receive waivers of
financial  covenants  from  our  lenders"  contained  in Item 7 of this  Report.
However,  we believe that our timely  participation in the  consolidation of the
industry has provided us with a strong domestic platform of core operations with
a  substantial  revenue base and a marketable  reputation  for quality  service,
which  enables us to  capitalize on our position as a leader in the industry and
build upon our business in existing service areas.

COMPETITION

     The  ambulance  service  industry  continues  to  be  highly   competitive,
notwithstanding  the  consolidation  of the 1990s.  The  principal  participants
include  governmental  entities  (including  fire  districts),   other  national
ambulance  service  providers,   large  regional  ambulance  service  providers,
hospitals,  and  numerous  local  and  volunteer  private  providers.  Counties,
municipalities,  fire districts,  hospitals,  or health care  organizations that
presently  contract  for  ambulance  services  may choose to  provide  ambulance
services  directly  in the  future.  Some of our  competitors  may have  greater
capital  and  other  resources  than  we  do.  We  are  experiencing   increased
competition  from municipal fire  departments in providing  emergency  ambulance
service.  However,  we believe that the non-emergency  transport services market
currently is unattractive to municipal fire departments.

     We believe that  counties,  fire  districts,  and  municipalities  consider
quality of care, historical response time performance,  and cost to be among the
most important factors in awarding a contract,  although other factors,  such as
customer service,  financial  stability,  and personnel  policies and practices,
also may be considered.  Although  commercial  providers often compete intensely
for  business  within a  particular  community,  it is  generally  difficult  to
displace a provider  that has a history of  satisfying  the  quality of care and
response  time  performance   criteria  established  within  the  service  area.
Moreover,  significant start-up costs, together with the long-term nature of the
contracts under which services are provided and the relationships many providers
have within their communities,  create barriers for entry into new markets other
than  through  acquisition.  We believe  that our status as a 911  provider in a

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service area increases our  visibility and stature,  and enhances our ability to
compete for non-emergency  services within that area.  Because smaller ambulance
providers  typically do not have the infrastructure to provide 911 services,  we
believe  we can  compete  favorably  with  such  competitors  for  non-emergency
ambulance services contracts in areas where we also provide 911 services.

     In the fire  protection  industry,  services for residential and commercial
properties are provided  primarily by  tax-supported  fire districts,  municipal
fire  departments,  and  volunteer  departments.  Private  providers,  like  us,
represent  a small  portion of the total fire  protection  market and  generally
provide  fire  protection  services  where  a  tax-supported  fire  district  or
municipality  has  decided to  contract  for the  provision  of fire  protection
services or has not assumed financial  responsibility for fire protection.  Fire
districts or  municipalities  may not  continue to contract for fire  protection
services.  In certain areas where no governmental  entity has assumed  financial
responsibility  for  providing  fire  protection,  we  provide  fire  protection
services on a subscription  basis.  Municipalities may annex a subscription area
or that area may be converted to a fire district that provides service directly,
rather than through a master contract.  As demonstrated by our recent attainment
of new  contracts in the areas of  industrial  fire and airport  rescue and fire
fighting, we believe there are growth opportunities for us within these markets.
Additionally, we believe our effort to grow this business has helped improve the
quality of our  revenue  due to the greater  predictability  of  non-refundable,
subscription-based fees received from fire protection service contracts.

MARKET REFORM AND CHANGING REIMBURSEMENT REGULATIONS

     Market  reform and the passage of the  Balanced  Budget Act of 1997,  along
with other  regulatory  changes,  have  impacted  and  reshaped  the health care
delivery system in the United States and, by extension,  the ambulance industry.
As with all other health care providers,  emergency  medical service  providers,
like us,  must comply  with  various  requirements  in order to  participate  in
Medicare and Medicaid.  Medicare is a federal health  insurance  program for the
elderly and for chronically  disabled  individuals,  which,  among other things,
pays  for  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 co-pay amounts,
deductibles  and the  remaining  balance,  if we do not accept  assignment,  and
Medicare  requires us to expend  reasonable  efforts to collect the balance.  In
determining  reasonable  charges,  Medicare  considers and applies the lowest of
various charge factors,  including the actual charge,  the customary charge, the
prevailing  charge  in the  same  locality,  the  amount  of  reimbursement  for
comparable services, or the inflation-indexed charge limit.

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

     Like other Medicare and Medicaid providers,  we are subject to governmental
audits of our Medicare and Medicaid reimbursement claims. We take our compliance
responsibilities  very  seriously.  To this end, we have  established a national
corporate compliance department that works closely with senior management, local
managers,  billing and collections  personnel,  and both the human resources and
legal  departments,  as well as  governmental  agencies  to  ensure  substantial
compliance  with  all  established  regulations  and  procedures.  Nevertheless,
despite our best  efforts,  there can be no  assurance  that we can achieve 100%
compliance  at  all  times,   particularly  in  light  of  the  complicated  and
ever-changing  nature of the reimbursement  regulations,  and the high volume of
daily  transports  we  provide  nationwide.  Failure  to  comply  may  lead to a
significant penalty or reimbursement, which could have a material adverse effect
on our business, financial condition, cash flows and results of operations. From
time  to  time,   we  have   taken   corrective   action  to   address   billing
inconsistencies,  which we have identified through our periodic, internal audits
of billing  procedures  or which  have been  brought  to our  attention  through
governmental  examination  of our records and  procedures.  These  matters cover
periods  prior  to and  after  our  acquisition  of  operations.  As part of our
commitment  to  working  with  those  governmental   agencies   responsible  for
enforcement   of  Medicare  and  Medicaid   compliance,   we  have   voluntarily
self-disclosed  billing issues identified at some of our operations.  The Office

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of Inspector General ("OIG") has examined certain billing procedures and records
in Memphis,  Tennessee and Cleveland,  Ohio regarding  compliance  with Medicare
statutes.  We  also  self-disclosed  billing  inconsistencies  in our  Scranton,
Pennsylvania  operation  to the OIG,  which had been  instituted  by the  former
owners and continued by us until new billing  practices were established and the
inconsistencies were discovered. We identified and instituted corrective actions
for isolated billing issues at our Greenville,  South Carolina operations, which
we also  self-disclosed  to the OIG. We fully  cooperate  with such  federal and
state  agencies  to  provide  requested   information  and  to  incorporate  any
recommended modifications of our existing compliance programs.

     Government  funding for 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.  In  June  of  1997,  the  Health  Care  Financing
Administration,  now  renamed  the Center for  Medicare  and  Medicaid  Services
(HCFA/CMS),  issued  proposed  rules that would  revise  Medicare  policy on the
coverage of ambulance services.

     In August of 1997, then President Clinton,  signed the "Balanced Budget Act
of  1997"  (BBA).   The  BBA  provided  for  certain  changes  to  the  Medicare
reimbursement  system,   including  the  development  and  implementation  of  a
prospective  fee schedule by January  2000 for  ambulance  services  provided to
Medicare  beneficiaries.  The BBA  mandated  that this fee schedule be developed
through a negotiated  rulemaking  process between HCFA/CMS 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, 1999, and 2000 were
increased  by the  Consumer  Price  Index  less one  percentage  point.  The BBA
required that ambulance  service providers accept assignment of payment directly
from Medicare and accept such amount,  along with the co-pay and deductible paid
by the patient,  as payment in full.  The BBA also  stipulated  that  individual
states may now elect not to provide payment for cost sharing for coinsurance, or
co-payments, for dual-qualified (Medicare and Medicaid) beneficiaries.

     Following the BBA, in January of 1999,  HCFA/CMS announced its intention to
form a  negotiated  rule-making  committee  to  create  a new fee  schedule  for
Medicare reimbursement of ambulance services. In August 1999, HCFA/CMS announced
that the implementation of the prospective fee schedule as well as the mandatory
acceptance  of  assignment  would be  postponed  to January  2001.  The proposed
Medicare ambulance fee schedule and rule was published September 12, 2000 in the
Federal  Register,  followed by a 60-day comment  period.  On November 30, 2000,
HCFA/CMS notified Medicare carriers that it would not implement the proposed fee
schedule and rules as scheduled on January 1, 2001. As of this filing,  HCFA/CMS
has not established an implementation date for the final fee schedule and rules.
However,  we have  implemented  a  program  to comply  with the new rules  which
require  that a  physician's  certification  be obtained  for certain  ambulance
transports.

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

     *    The proposed  HCFA/CMS  rules, or other  proposals  involving  various
          aspects of Medicare reimbursements may not be adopted or implemented;

     *    We are uncertain regarding the effect on us of any final rule;

     *    We are  uncertain of the impact of a final  prospective  fee schedule,
          however,  based upon current  indications,  we believe that the impact
          upon our cash flows will be neutral; and

     *    Future  funding  levels for Medicare and Medicaid  programs may not be
          comparable to present levels.

     If  implemented,  these rules could  result in contract  renegotiations  or
other  actions by us to offset any  negative  impact of the  proposed  change in
reimbursement  policies  that  could  have  a  material  adverse  effect  on our
business, financial condition, cash flows and results of operations.

                                       6
<PAGE>
     In  general,  the  increasing  costs  of  providing  health  care  and  the
challenges associated with the reimbursement environment have caused health care
organizations to focus on cost containment measures while seeking to provide the
most appropriate level of service at the most appropriate treatment facility. To
institute  and  coordinate  cost-efficient  and  effective  health care delivery
programs,  we believe health care  organizations must contract with an ambulance
service provider that has the necessary mix of vehicles,  staff expertise,  call
center  services,  geographic  scope  and  economies  of scale  to  successfully
implement such  programs.  We believe that we are well situated to capitalize on
the  needs of the  industry  due to our  emphasis  on  providing  an  effective,
quality-care,  service  delivery  model,  as enhanced by  cost-efficiencies  and
centralized support functions from both local and national economies of scale.

OTHER GOVERNMENTAL REGULATIONS

     Our  business  is also  subject to other  governmental  regulations  at the
federal,  state, local, and foreign levels. At the federal level, we are subject
to regulations under the Occupational  Safety and Health  Administration  (OSHA)
designed to protect our employees  and  regulations  under the Health  Insurance
Portability and Accountability Act of 1996 (HIPAA) which protects the privacy of
patients'  health  information  handled by health  care  providers.  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  or  require  additional
standards.

     Each state where we operate  regulates various aspects of its ambulance and
fire  business  that may vary  widely  from state to state.  State  requirements
govern the licensing or certification of ambulance service  providers,  training
and  certification  of  medical  personnel,  the scope of  services  that may be
provided by medical personnel,  staffing requirements,  medical control, medical
procedures,  communication  systems,  vehicles,  and  equipment.  State or local
government  regulations or  administrative  policies regulate rate structures in
most states in which we conduct ambulance operations. The process of determining
rates  includes  cost  reviews,  analyses  of levels of  reimbursement  from all
sources,  and determination of reasonable  profits.  In certain service areas in
which we are the  exclusive  provider  of  services,  the  municipality  or fire
district sets the rates for emergency  ambulance  services  pursuant to a master
contract and  establishes the rates for general  ambulance  services that we are
permitted to charge.

     Applicable  federal,  state,  local,  and foreign laws and  regulations are
subject to change.  We believe that we currently are in  substantial  compliance
with applicable regulatory requirements. These regulatory requirements, however,
may require us in the future to increase our capital and operating  expenditures
in order to maintain  current  operations or initiate new operations.  See "Risk
Factors --  "Proposed  rules may  adversely  affect our  reimbursement  rates of
coverage," "-- Certain state and local governments  regulate rate structures and
limit  rates  of  return,"  "--  Numerous  governmental  entities  regulate  our
business,"  and "-- Health  care  reforms  and cost  containment  may affect our
business" contained in Item 7 of this Report.

OUR CURRENT SERVICE AREAS

     We  currently  provide  our  services in more than 400  communities  in the
following 25 states, the District of Columbia, and Latin America:

Alabama                 Kentucky             New York               Texas
Arizona                 Oregon               North Dakota           Virginia
California              Louisiana            Ohio                   Washington
Colorado                Maryland             Pennsylvania           Wisconsin
Florida                 Mississippi          South Carolina         Bolivia
Georgia                 Nebraska             South Dakota           Argentina
Indiana                 New Jersey           Tennessee

                                       7
<PAGE>
     We  provide  ambulance  services  in each of these  states,  including  the
District  of  Columbia,  primarily  under the names  Rural/Metro  Ambulance  and
Rural/Metro  Medical  Services  and in certain  areas of Arizona  under the name
Southwest  Ambulance,  except in Oregon,  North  Dakota and  Wisconsin  where we
exclusively provide fire protection services.  We also operate under other names
depending  upon local  statutes  or  contractual  agreements.  We  provide  fire
protection services under the name Rural/Metro Fire Department in 11 states, and
in Oregon  also under the name Valley Fire  Services,  and in Bolivia  under the
name R/M Servicios de Salud e Incendios (Bolivia) S.A. In Argentina,  we provide
urgent  home  medical  care and  ambulance  transport  services  under  the name
Emergencias Cardio Coronarias (ECCO).

     We  generally  provide  our  ambulance  services  pursuant to a contract or
certificate of necessity on an exclusive or  nonexclusive  basis. We provide 911
emergency  ambulance  services primarily pursuant to contracts or as a result of
providing fire  protection  services.  In certain service areas, we are the only
provider of both emergency ambulance and non-emergency  ambulance  services.  In
other service areas, we compete for non-emergency  ambulance  contracts.  In all
service areas,  we respond to 911 emergency calls if requested by a municipality
or fire district, even in the absence of a contract.

MEDICAL TRANSPORT SERVICES

     EMERGENCY AMBULANCE SERVICES

     We   generally   provide   emergency   ambulance   response   and   medical
transportation services pursuant to contracts with counties, fire districts, and
municipalities.  These contracts  typically appoint us as the exclusive provider
of 911 emergency  ambulance  services in designated service areas and require us
to respond to every 911  emergency  medical  call in those  areas.  The level of
response to the call is dependent  upon the  underlying  contract.  We typically
respond to virtually all 911 calls with ALS ambulance units.

     ALS  ambulances are staffed with either two paramedics or one paramedic and
an emergency medical  technician (EMT) and are equipped with ALS equipment (such
as  cardiac  monitors,  defibrillators,  advanced  airway  equipment  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,
administer  advanced life support  techniques  and  procedures  that may include
tracheal intubation, cardiac monitoring,  defibrillation of cardiac arrhythmias,
and the  administration  of  medications  and  intravenous  solutions  under the
direction of a physician.  The crew also may perform BLS services, which include
cardiopulmonary  resuscitation  (CPR), basic airway management,  and basic first
aid including  splinting,  spinal  immobilization,  recording of vital signs and
other non-invasive procedures. As soon as medically appropriate,  the patient is
placed on a portable gurney and transferred  into the ambulance.  While one crew
member  monitors  and  treats the  patient,  the other  crew  member  drives the
ambulance  to a hospital  designated  either by the  patient  or the  applicable
medical  protocol.  While on scene or en route,  the  ambulance  crew alerts the
hospital  regarding  the patient's  medical  condition,  and if  necessary,  the
attending  ambulance crew member seeks advice from an emergency  physician as to
treatment.  Upon arrival at the hospital,  the patient generally is taken to the
emergency  department  where care is  transferred  to the  emergency  department
staff.

     NON-EMERGENCY AMBULANCE SERVICES

     We also provide ambulance services to patients requiring either advanced or
basic levels of medical  supervision  and treatment  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) at another facility. We utilize ALS or BLS
ambulance units to provide  non-emergency  ambulance services,  depending on the
patient's needs and the proximity of available units. We generally staff our BLS
ambulance  units with two EMTs and equip these units with  medical  supplies and
equipment necessary to administer first aid and basic medical treatment.

                                       8
<PAGE>
     We provide ambulance  services,  critical care transports,  and non-medical
transportation services pursuant to contracts with governmental agencies, health
care facilities,  or at the request of a patient. Such services may be scheduled
in advance or  provided on an  as-needed  basis.  Contracts  with  managed  care
organizations  provide  for  reimbursement  on a  per  transport  basis  or on a
capitated basis under which we receive a fixed fee, per person, per month.

     CRITICAL CARE TRANSPORT SERVICES

     We provide critical care transport  services to medically unstable patients
(such as cardiac patients and neonatal patients) who require critical care while
being transported between health care facilities.  Critical care services differ
from ALS services in that the ambulance may be equipped with additional  medical
equipment  and may be staffed  by a medical  specialist  provided  by us or by a
health care facility to attend to a patient's special medical needs.  Typically,
staffing  may include  the use of critical  case  trained  professional  nurses,
respiratory therapists and/or neo-natal nurse specialists.

     ALTERNATIVE TRANSPORT SERVICES

     In addition to ambulance services,  we provide  non-medical  transportation
for the handicapped and certain non-ambulatory persons in limited service areas.
Such  transportation  generally takes place between  residences or nursing homes
and hospitals or other health care  facilities.  In providing  this service,  we
utilize vans that contain hydraulic wheelchair lifts or ramps.

     DISASTER RESPONSE TEAMS

     Aside from our day-to-day  operations,  we maintain disaster response teams
that are occasionally called upon by the federal government, through the Federal
Emergency  Management Agency (FEMA), and by state,  county and local governments
to assist in responding to local or national medical  emergencies.  For example,
we provided  assistance for the efforts in New York City following the September
11,  2001  terrorist  attacks,  at the  request  of FEMA and the New York  State
Emergency  Management  Office.  We staff these  emergencies based upon available
resources from our existing pool of employees and equipment  around the country,
committing  resources in a manner that is designed to avoid any  interruption of
service in our existing service areas.  Such services are typically paid for and
provided on a  fee-for-service  basis  pursuant to contract with the  requesting
agency or governmental entity.

     URGENT HOME MEDICAL CARE

     In Argentina,  individual and business  customers prepay monthly for urgent
home medical care and ambulance services. Personnel conduct telephone triage and
prioritize the dispatch of services to subscribers.  Mobile services may include
the  dispatch  of  physicians  to  the  patient  in an  ambulance  for  serious,
life-threatening  situations,  or more frequently,  in the physician's car, thus
covering a wider scope of service than the traditional  U.S.  ambulance  service
model.

     In Argentina,  doctors and nurses  perform urgent and primary care services
for our business  customers.  Argentine  doctors are trained in medicine and are
licensed as such in Argentina at both the national  and, in certain  localities,
the local level.  There are no  continuing  education  requirements.  Generally,
nurses are trained over periods ranging from six months to four years after high
school in accordance  with local programs.  Accordingly,  as each nurse receives
additional training, his or her scope of practice increases.

     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

                                       9
<PAGE>
the  EMT  training  program,  the  certification  as a  paramedic  requires  the
completion  of more  than  800  hours  of  training  in  advanced  patient  care
assessment, pharmacology, cardiology, and clinical and field skills. Many of the
paramedics  currently  employed  by us  served  as EMTs  for us  prior  to their
certification  as  paramedics.  We  are  subject  to  nationwide  and  area-wide
shortages of qualified EMTs and paramedics. We compete with hospitals, municipal
fire  departments and other health care providers for these valued  individuals.
We have  undertaken  efforts to minimize the affect of these  shortages and have
implemented a number of programs to retain and attract a quality workforce.

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

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

     We are members of a number of other professional organizations, namely, the
American  Ambulance  Association,  National  Emergency Number (911) Association,
American  College  of  Emergency  Physicians  and  National  Association  of EMS
Physicians.  In those  states where we provide  service,  we are involved in the
state  ambulance  association,   if  one  exists,  and  in  many  instances  our
involvement  includes  holding  elected  positions.  In  addition,  many  of our
employees are members of the National  Association of EMTs, National Association
of EMS Educators and other EMS organizations. We were one of the first ambulance
service  providers  to obtain  accreditation  for many of our  larger  ambulance
operations from the Commission on Accreditation of Ambulance  Services,  a joint
program between the American  Ambulance  Association and the American College of
Emergency   Physicians.   The  process  is  voluntary  and  evaluates   numerous
qualitative factors in the delivery of services.  We believe  municipalities and
managed  care  providers  may consider  accreditation  as one of the criteria in
awarding contracts in the future.

FIRE PROTECTION SERVICES

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

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

                                       10
<PAGE>
     FIRE PROTECTION PERSONNEL

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

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

     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 personnel and equipment as circumstances
warrant.  The amount of equipment and personnel depends upon the type, location,
and severity of the incident. We utilize our dispatch capabilities to reposition
equipment and  firefighters to maximize the availability and use of resources in
a cost-effective manner.

     FIRE PREVENTION

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

     We believe that our long-standing public/private relationship with the City
of  Scottsdale  provides  an  example  of  an  effective,   cost-efficient  fire
protection  program.  The Scottsdale  program  emphasizes our philosophy of fire
prevention.  With our  cooperation  and  assistance,  the City of Scottsdale has
designed   comprehensive  fire  prevention   measures,   including  fire  codes,
inspections,  and sprinkler and smoke detector ordinances.  We believe that as a
result of strict fire codes,  the  enactment of a sprinkler  ordinance,  and the
effectiveness of the services we provide,  Scottsdale's per capita cost for fire
protection is as much as 37% lower than other cities of similar size.

INDUSTRIAL FIRE PROTECTION SERVICES

     We provide  fire  protection  services  and,  on a limited  basis,  unarmed
security services to large industrial  complexes,  petrochemical  plants,  power
plants, and other self-contained  facilities. The combination of fire protection
services with security services in large industrial  complexes has the potential
to provide  for  greater  efficiency  and  utilization  in the  delivery of such
services  and to result in reduced  cost to our  industrial  customers  for such
services. We have contracts ranging up to five years in duration and expiring at
various  dates up to September  2, 2004 to provide  firefighting  and  hazardous
materials  response services at locations in several states. We intend to pursue
similar contracts domestically and internationally.

     AIRCRAFT, RESCUE AND FIRE FIGHTING SERVICES (ARFF)

     We also provide aircraft rescue and firefighting services for approximately
a dozen airports in the United States and Latin  America,  including the Federal
Express National Operations Center in Memphis,  Tennessee, and the international

                                       11
<PAGE>
airport in Port Columbus, Ohio. In addition to aircraft rescue and fire fighting
services, we also provide structural firefighting and emergency medical response
for  airport  terminals.  Our ARFF  firefighters,  many of whom  have  extensive
military  and  civilian  ARFF  experience,   have  completed  comprehensive  and
professional  training  programs.  Our personnel are  cross-trained as emergency
medical  technicians or paramedics,  as well as in hazardous materials response.
We are able to provide  value-added  services  such as first  responder  medical
service  in  support  of  local  fire   departments  for   in-terminal   medical
emergencies,  safety training for fuel handlers and other airport personnel, and
fire  prevention  activities.  We intend to  continue to grow this aspect of our
business strategically through competitive proposals and bidding processes.

     EMERGENCY MEASURES INQUIRY CENTER (EMIC)

     The Aviation  Disaster  Family  Assistance Act of 1996 requires  commercial
airlines flying into and out of the United States to provide certain  assistance
to the families of passengers involved in aircraft disasters. In response to the
need by  airlines  to  comply  with  this  federal  requirement,  we  offer  our
communications  and emergency  response  expertise gained through our operations
experience to provide the airlines with the resources it will need to respond to
these  disasters.  We  offer  the  first  line of  communications  for  airlines
worldwide to families of passengers and other  individuals  seeking  information
following  an  airline  disaster.  Our  communications  and  emergency  response
expertise allows us to manage airlines'  communications  with family members and
other individuals seeking information following an airline disaster, and was put
into service during the recent events of September 11, 2001 in New York City and
Washington,  D.C. Our call center, staffed with individuals specially trained in
critical  incident  stress  and  family  assistance  care,  processes  calls and
information pertaining to airline disasters. We currently provide these services
for approximately twenty airlines worldwide.

FIRE TRAINING SERVICES

     TRAINING SERVICES

     We  have  instituted   industrial   fire  training   services  and  provide
sophisticated   training   for   industrial,   professional,   and   specialized
firefighters  using  live  burn  training  to  simulate  realistic  firefighting
situations.  We also provide  shipboard fire training services to several cruise
lines.  The training  permits fire  brigade,  ship crew  members,  and emergency
response  teams  to meet  increased  federal  training  requirements,  the  OSHA
requirements,  and other  regulatory  requirements  for work  place  safety  and
on-site response teams.

     WILDLAND FIRE PROTECTION SERVICES

     We provide disaster response fire protection services when requested by the
federal  government,  through the U.S.  Forest Service,  and other  governmental
entities  to assist  in  responding  to fire  emergencies  such as the  multiple
wildland fires that occurred  during the past two years in northern and southern
parts of the United  States.  We staff these  emergencies  based upon  available
resources from our existing pool of employees and equipment  around the country,
committing  resources in a manner that is designed to avoid any  interruption of
service in our existing service areas.  Such services are typically paid for and
provided on a  fee-for-service  basis  pursuant to contracts with the requesting
agency or governmental entity.

CONTRACTS

     We enter into contracts with counties, municipalities,  fire districts, and
other  governmental  entities to provide  911  emergency  ambulance  services in
designated service areas. These contracts typically specify maximum fees that we
may charge and set forth required  criteria,  such as response  times,  staffing
levels,  types of vehicles and  equipment,  quality  assurance,  indemnity,  and
insurance and indemnity  coverage.  In certain instances,  we also sometimes are
required  by  contract  or by law to post a surety  bond or other  assurance  of
financial or performance responsibility.  The amount of subsidy, if any, that we
receive from a county, municipality, or fire district, and the rates that we may
charge for services under a contract for emergency ambulance  services,  depends
in large part on local  political  climate and patient mix as well as the nature

                                       12
<PAGE>
of  services  rendered.  The four  largest  ambulance  contracts  accounted  for
approximately 8% of total revenue during fiscal 1999, 9% of total revenue during
fiscal 2000, and 10% of total revenue during fiscal 2001.

     We provide fire protection  services  pursuant to master  contracts or on a
subscription   basis.   Master  contracts  provide  for  negotiated  rates  with
governmental entities. Certain contracts are performance-based and require us to
meet certain  dispatch and response times in a certain  percentage of responses.
These  contracts also set maximum  thresholds for variances from the performance
criteria.  These  contracts  establish  the level of  service  required  and may
encompass fire prevention and education  activities as well as fire suppression.
Other  contracts are  level-of-effort  based and require us to provide a certain
number of personnel for a certain time period for a particular function, such as
fire prevention or fire  suppression.  We provide fire protection  services on a
subscription  basis in areas  where  no  governmental  entity  has  assumed  the
financial responsibility for providing fire protection. We derived approximately
48% of our fire protection  service revenue from  subscriptions for fiscal 1999,
45% for fiscal 2000,  and 45% for fiscal 2001. We  experienced  renewal rates of
approximately 88% during the prior three fiscal years.  Fire subscription  rates
are not currently regulated by any governmental agency in our service areas.

     Our contracts  generally  extend for terms of two to five years. We attempt
to renegotiate  contracts in advance of the  expiration  date and generally have
been successful in these  renegotiations.  We monitor our performance under each
contract.  From time to time, we may decide that certain contracts are no longer
favorable  and may seek to modify or  terminate  these  contracts.  At any given
time, we have  approximately  125 contracts with counties,  fire districts,  and
municipalities  for ambulance  services and for fire  protection  services.  The
following  table  sets  forth  certain  information  regarding  our six  primary
contracts at June 30, 2001 with counties, fire districts, and municipalities for
ambulance services and for fire protection services.

<TABLE>
<CAPTION>
                                      TERM IN YEARS    EXPIRATION DATE     TYPE OF SERVICE (1)
                                      -------------    ---------------     -------------------
<S>                                  <C>              <C>                 <C>
Ambulance
   Orange County, Florida (2).........      2              October 2002        911/General
   Rochester, New York (3)............      4              October 2001        911/General
   Knox County, Tennessee (4).........      4                 June 2002        911/General
   Fort Worth, Texas (5)..............      5               August 2004        911/General
Integrated Fire and Ambulance
   Scottsdale, Arizona (6)............      5             December 2001            911
Public/Private Alliance
   San Diego, California (7)..........      5                 June 2005        911/General
</TABLE>

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

(2)  The contract was first entered into in 1962 by a provider that was acquired
     by us in July 1984.  The  current  contract  includes  a one-year  optional
     renewal exercisable by our customer on or before October 1, 2002.

(3)  The contract was first entered into in 1988 by a provider that was acquired
     by us in May 1994.  The current  contract has been  extended to October 31,
     2001.  As is the process in many services  areas,  the City of Rochester is
     currently preparing a request for proposal to bid this contract.

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

(5)  The contract was first entered into in August 1999.

(6)  The  contract  was first  entered  into in 1952 by us. The contract had two
     five-year  renewal  options  exercisable by the City of Scottsdale.  We are
     currently working with the City of Scottsdale to negotiate a new contract.

(7)  The  contract was first  entered into in May 1997 and is effective  through
     June 2005. The contract has a three-year  renewal option exercisable by our
     customer.

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<PAGE>
     In addition to the six primary contracts with counties, fire districts, and
municipalities  for ambulance  services and for fire protection  services listed
above,  we were  awarded  several  significant  contracts  during  fiscal  2001,
including the following contracts under which we provided services during fiscal
2001 to the following municipalities and facilities:

     *    NORTH FULTON COUNTY, GEORGIA -- Through a competitive bidding process,
          we were awarded a ten-year  contract by North Fulton  County,  Georgia
          for 911 emergency medical services.

     *    SOUTH FULTON COUNTY,  GEORGIA -- We were awarded a nine-year  contract
          to provide 911  emergency  medical  services for South Fulton  County,
          Georgia where the customer has with two optional two-year renewals.

     *    CITY OF SIOUX FALLS,  SOUTH DAKOTA -- A five-year contract was awarded
          to  us  by  the  City  of  Sioux  Falls,  South  Dakota  for  911  and
          non-emergency   medical  services  carrying  an  unlimited  number  of
          two-year optional renewals by the customer.

     *    MERCY MEDICAL CENTER,  CANTON, OHIO -- We were awarded a non-emergency
          ambulance  contract  by Mercy  Medical  Center in  Canton,  Ohio for a
          three-year term, which features two, one-year optional renewals by the
          customer.

     *    BAPTIST  MEMORIAL  HEALTHCARE  CORPORATION,  MEMPHIS,  TENNESSEE  -- A
          three-year exclusive  non-emergency  transportation services agreement
          was  awarded  to us by  Baptist  Memorial  Healthcare  Corporation  in
          Memphis, Tennessee.

     Additionally,  we were awarded the following  significant  contracts during
fiscal 2001 under which we will begin to provide services in fiscal 2002:

     *    CSA 17,  NORTHERN SAN DIEGO COUNTY,  CALIFORNIA -- In connection  with
          our  alliance  with San Diego  Fire & Life  Safety  Services,  we were
          awarded a two-year 911 emergency  medical services  contract with two,
          two-year  renewal  terms by the customer in Northern San Diego County,
          California  (includes Del Mar,  Rancho Santa Fe,  Encinitas and Solana
          Beach)  through a  competitive  bidding  process  which  included  the
          incumbent provider.

     *    CITGO  PETROLEUM  CORP.,  LAKE  CHARLES,  LOUISIANA  -- We  previously
          provided  services  since  1999,  and were  awarded a new  contract to
          continue the provision of industrial  fire services at Citgo Petroleum
          Corp. in Lake Charles,  Louisiana,  the  sixth-largest oil refinery in
          the United States, for two one-year terms.

     *    UNIVERSITY  OF  COLORADO  HEALTH  SCIENCES  CENTER  --  We  previously
          provided  services  since  1999,  and  were  awarded  a new  five-year
          contract  for  non-emergency  and  critical  care  transports  for the
          University of Colorado Health Sciences Center.

     We also enter into  contracts  with  hospitals,  nursing  homes,  and other
health care  facilities to provide  non-emergency  and critical  care  ambulance
services.  These contracts typically designate us as the first ambulance service
provider  contacted  to  provide  non-emergency   ambulance  services  to  those
facilities and typically permit us to charge a base fee, mileage  reimbursement,
and additional fees for the use of particular medical equipment and supplies. We
provide a discount in rates charged to facilities that assume the responsibility
for payment of the charges to the persons receiving services. At any given time,
we have  approximately  1,000 contracts with hospitals,  nursing homes and other
health care facilities.

     In connection with our restructuring  program,  we renegotiated a number of
contracts where the rates,  services or market  conditions were not conducive to
operational  profitability.   Additionally,   we  exited  certain  contracts  in
connection  with the  closure  or  downsizing  of  financially  under-performing
service areas,  the majority of which solely  provided  non-emergency  ambulance
services  and  which  could not meet our  financial  performance  criteria  on a
sustained basis.  Only two operational  closures  involved the loss of contracts
through a competitive bidding process. One such closure was in Lincoln, Nebraska
where  we were  unable  to  secure a new  five-year  exclusive  911 and  general
transportation  contract  with the City of Lincoln.  Also through a  competitive
bidding  process,  we were  unable  to  secure a new  contract  with the City of

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<PAGE>
Arlington,  Texas.  We bid that contract based on our  historical  knowledge and
experience  as the  incumbent  provider  and,  accordingly,  believe that a more
aggressive bid would have been  unprofitable  to us. In each situation  where we
have closed a service area, our operational teams have endeavored to ensure that
an orderly  transition  occur with no service  interruptions.  In many areas, we
worked closely with the community,  local governmental  entities and alternative
providers until our departure date, which in some cases extended for a number of
months so that the transition could be properly effectuated. We believe that our
actions  under  these  circumstances  are  consistent  with our  commitment  and
reputation as a dependable,  high-quality service provider. See "Risk Factors --
We depend on certain business relationships" contained in Item 7 of this Report.

     Counties, fire districts,  and municipalities  generally award contracts to
provide 911 emergency services either through requests for competitive proposals
or bidding  processes.  In some instances in which we are the existing provider,
the county or municipality may elect to renegotiate our existing contract rather
than re-bid the contract.  We will continue to seek to enter into public/private
alliances to compete for new  business.  Our alliance with San Diego Fire & Life
Safety Services allowed the entities to bid for and win multi-year  contracts to
provide 911 and ambulance services throughout the City of San Diego and Northern
San Diego County.

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

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

MANAGEMENT SYSTEMS

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

     We have developed measurement systems that permit management to monitor the
performance  level of each  operation  on a  continual  basis.  Our  centralized
systems  significantly  augment local  processes  and permit  managers to direct
their  attention  primarily  to  operations.  The  systems  include  centralized
billings and collections procedures that provide for more efficient tracking and
collection of accounts receivable.  Centralized purchasing permits us to achieve
discounts in the purchase of medical  equipment and supplies.  Other centralized
infrastructure  components such as accounts payable,  legal,  compliance,  human
resources  and  risk  management  give us the  capability  to  purchase  related
products  and  services on a  global-operations  basis,  identify and respond to
company-wide  trends,  and provide internal  support and handling  services in a
more cost-effective, efficient and consistent manner across all operations.

     We  strive to  maximize  operational  autonomy  of our  managers.  Managers
receive extensive  training in the use of management  systems,  customer service
and  supervisory  practices.  The human  resources  department  participates  in
training, career development,  and succession planning of employees and assesses
our personnel needs.

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<PAGE>
     We believe our  investment in  management  systems and our effective use of
these  systems  represent key  components in our success.  Process and personnel
improvements in these areas are continuing, as part of our restructuring program
and our commitment to further  strengthening local operations.  We are committed
to  an  ongoing  enhancement  of  our  systems  to  provide  productive,  timely
information and effective  controls and believe that our management systems have
the capability to support future growth, if any.

DISPATCH AND COMMUNICATIONS

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

     Depending on the  emergency  medical  dispatch  system used in a designated
service area,  the public  authority  that receives 911 emergency  medical calls
either  dispatches  our  ambulances  directly from the public  control center or
communicates information regarding the location and type of medical emergency to
our control center,  which in turn  dispatches  ambulances to the scene. In most
service areas,  our control  center  receives the call from the police after the
police have  determined  the call is for  emergency  medical  services.  When we
receive  the 911 call,  we dispatch  one or more  ambulances  directly  from our
control  center  while the call taker  communicates  with the  caller.  All call
takers and dispatchers are trained EMTs or Emergency  Medical  Dispatchers (EMD)
with  additional  training that enables them to instruct a caller on pre-arrival
emergency medical  procedures,  if necessary.  In our larger control centers,  a
computer  assists the dispatcher by analyzing a number of factors,  such as time
of day,  ambulance  location,  and  historical  traffic  patterns,  in  order to
recommend optimal ambulance  selection.  In all cases, a dispatcher  selects and
dispatches  the  ambulance.  While the  ambulance is en route to the scene,  the
ambulance receives  information  concerning the patient's condition prior to the
ambulance's arrival at the scene.

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

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

     We  utilize   communication   centers  in  our  community  fire  protection
activities  for the receipt of fire alarms and the  dispatch  of  equipment  and
personnel that are the same as or similar to those  maintained for our ambulance
services. Response time represents an important criteria in the effectiveness of
fire  suppression,  which are dependant on the level of protection sought by our
customers  in terms  of fire  station  spacing,  the  size of the  service  area
covered, and the amount of equipment and personnel dedicated to fire protection.

BILLINGS AND COLLECTIONS

     We currently  maintain 13 domestic regional billing and payment  processing
centers and a centralized  private pay collection  system at our headquarters in
Arizona.  Invoices  are  generated  at the  regional  level,  and the account is

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<PAGE>
processed by the centralized  collection system for private-pay accounts only if
payment is not received in a timely  manner.  Customer  service is directed from
each of the  regional  centers.  Substantially  all of our revenue is billed and
collected through our integrated billing and collection  system,  except for our
operations in Rochester, New York and the New Jersey/Metro New York City area.

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

                                                   1999      2000      2001
                                                   ----      ----      ----
     Medicare ..........................            24%       23%       25%
     Medicaid ..........................            10%       11%       11%
     Private insurers ..................            41%       47%       51%
     Patients ..........................            25%       19%       13%
                                                   ---       ---       ---
                                                   100%      100%      100%
                                                   ===       ===       ===

     Companies in the ambulance service industry maintain significant provisions
for doubtful accounts  relative to companies in other industries.  Collection of
complete and accurate patient billing  information  during an emergency  service
call is sometimes  difficult,  and incomplete  information hinders  post-service
collection  efforts.  In  addition,  it is not  possible  for us to evaluate the
creditworthiness  of  patients  requiring  emergency  transport  services.   Our
allowance  for  doubtful  accounts  generally  is higher with respect to revenue
derived directly from patients than for revenue derived from third-party  payers
and generally is higher for transports  resulting from 911 emergency  calls than
for  non-emergency  ambulance  requests.  See  "Risk  Factors  -- We  depend  on
reimbursements  by third-party  payers and  individuals," and "-- Proposed rules
may adversely affect our reimbursement rates of coverage" contained in Item 7 of
this Report.

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

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

INSURANCE AND SURETY BONDING

     Many of our  contracts  and  certain  statutes  where we  conduct  business
require us to carry specified  amounts of insurance  coverage.  We carry a broad
range  of  comprehensive   general  liability,   automobile,   property  damage,
professional,  workers'  compensation,  and other liability  insurance  policies
which typically are renewed annually.  As a result of the nature of our services
and the day-to-day  operation of our vehicle fleet,  we are subject to accident,
injury and malpractice claims in the ordinary course of business.  We operate in
some states  that  adhere to a gross  negligence  standard  for the  delivery of

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<PAGE>
emergency  medical  care,  thereby  subjecting  us to  less  exposure  for  tort
judgments.

     Based upon  historical  claim  trends,  we consider our  insurance  program
adequate for the protection of our assets and operations. Our insurance policies
are subject to certain deductibles and self-insured  retention limits, up to and
including $1,000,000. The coverage limits of our policies may not be sufficient,
or we may experience claims within our deductibles or self insured retentions in
amounts greater than anticipated. In addition,  insurance may not continue to be
available on commercially reasonable terms. A successful claim or claims against
us in excess of our insurance coverage, or claims within our deductibles or self
insured  retentions in amounts greater than  anticipated,  could have a material
adverse effect on our business,  financial condition, cash flows, and results of
operations.  Claims against us,  regardless of their merit or outcome,  also may
have an adverse  effect on our  reputation.  We have  undertaken to minimize our
claims exposure through process  improvements in our legal,  risk management and
safety  programs.  We have also  instituted  changes to our  accounting and cash
management  practices  in  relation to funding and  reserving  for both  workers
compensation and liability  claims.  These changes include,  among other things:
posting  reserves  for  unreported,  potential  claims  related  to  automobile,
professional and general liability; the inclusion of a liability ceiling in some
of our  insurance  coverages;  and  setting  aside  operational  cash  flow into
restricted  accounts  specifically  designated  for the  payment of current  and
future liability claims.

     In fiscal 2001 and fiscal 2002, we began  including  liability  ceilings in
certain  insurance  policies,  which limit our maximum  liability for deductible
payments  related to covered  losses  occurring  in those years.  The  liability
ceiling on our  comprehensive  general,  automobile and  professional  liability
policies  is fixed at $4.25  million  and $5 million  for fiscal  2000 and 2001,
respectively. We have established our reserves for anticipated claims covered by
these policies at the ceiling amount.  We have also included a cap in our fiscal
2002 workers  compensation policy, which limits our maximum deductible liability
to $10 million  for that  policy  year.  Prior year  policies  did not include a
maximum  liability  cap;  however,  we believe that our reserves are adequate to
address our deductible obligations for those prior years.

     We have set  aside  operational  cash  flow  into  designated  "loss  fund"
accounts,  which cash is restricted to the payment of our deductible obligations
as  required  under  certain   insurance   policies.   In  connection  with  our
comprehensive  general,  automobile and professional policies, we have set aside
$1.6 million and budgeted for an  additional  $800,000 of cash deposits into the
"loss fund" account to fund  deductible  payments  related to fiscal 2001 policy
year claims;  $3.0 million of cash  deposits  into the "loss fund"  account have
been budgeted to fund deductible payments related to the fiscal 2002 policy year
claims.  Additionally,  during fiscal 2002, we will set aside approximately $6.3
million of operational cash flow, in order to fund, in advance,  our anticipated
total deductible obligation for fiscal 2002 workers compensation claims.

     Counties,  municipalities,  and  fire  districts  sometimes  require  us to
provide  a  surety  bond  or  other   assurance  of  financial  and  performance
responsibility.  We may  also  be  required  by law to post a  surety  bond as a
prerequisite to obtaining and maintaining a license to operate.  As a result, we
have a portfolio of surety bonds that is renewed annually.

EMPLOYEES

     At September 30, 2001, we employed  approximately 7,000 full-time and 3,600
part-time  employees,   including  approximately  6,290  involved  in  ambulance
services,  880 in fire protection services, 330 in integrated ambulance and fire
protection  services,  1,060 in urgent home  medical,  and 2,040 in  management,
administrative,  clerical and billing activities. Of these employees,  2,300 are
paramedics  and  3,120  are  EMTs.  We  are a  party  to  collective  bargaining
agreements relating to our Rochester,  New York; Buffalo, New York; Corning, New
York;  Youngstown,  Ohio;  San  Diego,  California;  Maricopa  County,  Arizona,
Integrated Fire employees; Gadsden, Alabama; and Arlington, Texas operations and
certain  of our  ambulance  services  employees  in  Arizona.  We  consider  our
relations with employees to be good.

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<PAGE>
STRATEGY

     Our strategy is to continue strengthening our existing core businesses,  to
continue  building  upon our economies of scale,  and to continue  providing the
most proficient  levels of health and safety services possible for the customers
and  communities  we serve.  Over the past year,  our efforts to strengthen  our
business have been primarily focused on: (i) operational  restructuring  through
the closure or  downsizing  of  financially  under-performing  operations,  (ii)
corporate  restructuring  and  improvements,  (iii)  improving  the  quality and
collection of revenue,  and (iv) selective growth through  expansion in existing
service  areas and  development  of strategic  alliances.  Our current  business
strategy for fiscal 2002 includes  continued  emphasis on these focal points and
our   long-standing   commitment   to  deliver   high-quality,   efficient   and
cost-effective  services  to  our  existing  and  prospective  customers  in our
established service areas.

     OPERATIONAL RESTRUCTURING -- DOMESTIC

     In connection  with our  operational  restructuring  program,  we closed or
downsized  certain  financially  under-performing  service areas.  We decided to
close or downsize 26  operations  in fiscal 2000 and nine  operations  in fiscal
2001.  The  majority  of the closed  operations  provided  solely  non-emergency
ambulance  services  and  could  not meet  our  internal  financial  performance
criteria on a sustained basis. The restructuring efforts resulted in significant
cost savings. While we do plan to continue our restructuring efforts in terms of
an ongoing quality  assurance and improvement  program for existing  operational
processes, at this time we do not anticipate closing additional operations other
than those that have been  accounted for as of June 30, 2001.  However,  we will
continue to monitor each operation's compliance with the financial components of
our performance criteria and take appropriate future action as necessary,  up to
and including closure.

     OPERATIONAL RESTRUCTURING -- INTERNATIONAL

     We also have and are continuing to implement an  operational  restructuring
program  in our  international  service  areas.  Early  on in the  restructuring
program, we sold and closed our Canadian ambulance  operations and,  thereafter,
turned  our  attention  to  our  Latin  American  operations.  At  the  time  of
acquisition,  we intended to capitalize on the growth  opportunities  created by
the privatization of health and safety services in markets such as Argentina and
the expansion of health insurance companies and health maintenance organizations
into Latin  America.  We believed  select Latin  America  markets  represented a
growth  opportunity and provided 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 physicians and nurses.  While our
prior acquisition strategy resulted in our entering the Argentina market with an
established  service area of  significant  size,  the  operations  became a cash
burden on our domestic operations in fiscal 2000. In response, we began pursuing
two strategic  alternatives for Argentina on parallel tracks. First, we made and
continue to make efforts to sell the Argentine  operating  subsidiaries,  hiring
Banc of America Securities in Argentina to act as our brokering agent.  However,
given the current  declining  state of the  Argentine  economy,  no  significant
market exists for the sale of the business.  Second, we implemented an extensive
restructuring  program in Argentina,  consistent  with our goals in the domestic
program,  and disposed of our financially  under-performing  urgent care clinics
operating  under the name GEA S.A. We continue to see positive  results from our
restructuring program,  including the establishment of strong new leadership and
an improved  corporate  infrastructure of systems and management  talent. In the
absence of a sale,  we are  committed  to  implementation  of our  restructuring
program in Argentina in an effort to increase operating margins.  However, given
the significant  uncertainties of the economic and political climate,  there can
be no assurance that the Argentine  operation will continue to provide a benefit
to us,  or that  we will  not be  subject  to  significant  financial  or  other
liabilities associated with its continued operation.

     By contrast, we expanded upon our Bolivian airport rescue and fire fighting
operation by adding  non-emergency  transportation  services to new and existing
customers.  The complementary nature of the fire and ambulance services, and our
reputation for reliable,  quality service in that area, enabled local management
to grow the ambulance  service and  contribute  positive cash flow.  The primary
growth in that business resulted from new contracts with commercial  businesses,
embassies  and other  governmental  entities with payment  largely  derived from
subscription  fees. See "Risk Factors -- We face risks associated with our prior
rapid growth,  integration,  and acquisitions," and "-- We face additional risks

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<PAGE>
associated  with  our  international  operations"  contained  in  Item 7 of this
Report.

     CORPORATE RESTRUCTURING AND IMPROVEMENTS

     In  fiscal  2001,  we  also  implemented   restructuring  programs  at  the
"corporate" level by increasing  efficiencies and cost  effectiveness in each of
the departments  supporting field operations.  While we experienced decreases in
overhead  through  staff  reductions  at the early  stages of the  program,  the
majority of the cash flow  benefit  from those  actions  will not be  recognized
until fiscal 2002 due to extended  severance  tails  associated  with employment
agreements held by former executives and other employees.  More importantly,  we
expect  the  most   significant   long-term   benefits   will  result  from  our
implementation  of  improved  cash  management  procedures,  as well as  greater
process  efficiencies in areas that support local  operations,  such as the risk
management, human resources, compliance, finance and legal functions.

     We continue  to  strengthen  our  existing  infrastructure.  We utilize our
management  and  operational  systems to enhance  productivity  in our  existing
operations  and to enhance our  opportunities  with joint  venture and  business
alliance   partners.   The   standardization   of  certain   functions  and  the
centralization  of certain key  management  and operating  systems  permit us to
achieve economies of scale at both the regional and corporate levels.  See "Risk
Factors -- We face risks  associated  with our prior rapid growth,  integration,
and acquisitions" contained in Item 7 of this Report.

     IMPROVED QUALITY AND COLLECTION OF REVENUE

     Our strategies and objectives for fiscal 2001 included a substantial  focus
on creating further gains in billing and collection  performance,  building upon
the important steps already taken with respect to the balance sheet and our core
operational base.

     We have  leveraged  opportunities  throughout  fiscal 2001 to diversify the
payer mix for ambulance services, as we have sought to strengthen our fixed-rate
contract   portfolio  with  hospital  systems  and  managed  care  organizations
designated  as  payers  of  first  resort.  We have  successfully  secured  such
contracts  in fiscal 2001 and will  continue  to seek  innovative  payer  models
designed to enhance financial margins. Additionally, as we secured new specialty
fire contracts and  subscription-based  fire protection fees, it further reduces
its  reliance  on  third-party  payers  for  reimbursement.   Revenue  for  fire
protection   services  in  fiscal  2001  increased  by  approximately  7.1%.  By
undertaking  these  actions,  we believe that we are  beginning to create a more
predictable, reliable revenue base.

     Additionally,   we  have  instituted  a  variety  of  enhancements  to  our
pre-billing  process designed to maximize  reimbursement from all payer classes,
including Medicare,  Medicaid,  private insurance companies and patients.  Those
processes  include the  pre-screening  of requests  for  non-emergency  calls to
determine if the patient's  medical  condition  warrants the necessity of ALS or
BLS ambulance transportation.  If certain medical necessity criteria, as defined
by Medicare, are not met, we refer the requesting party and/or patient to a more
appropriate  means  of  transportation.  The  objective  of this  program  is to
maximize the  utilization of our ambulance  fleet for  non-emergency  transports
that will result in payment.  Measures  also have been  initiated to enhance our
ability to receive  reimbursement  for transports  provided in the course of 911
emergency  incidents.  These actions include intensified training and monitoring
in the  preparation of pertinent field  documentation  and patient care reports,
which are a prerequisite to timely payment. Our heightened focus on patient care
documentation  through our  quality  assurance  training  program and efforts to
write-off  uncollectible  receivables has resulted in improved cash collections.
This,  along with  additional  provision  for doubtful  accounts,  resulted in a
decrease in our days' sales  outstanding  (DSO) for fiscal 2001 to 89 at the end
of fiscal  2001 as  compared  to 105 and 111 in  fiscal  2000 and  fiscal  1999,
respectively.

     We  expect  the  ongoing  effective  management  and  pre-screening  of all
categories  of medical  transports  will result in more  timely and  appropriate
reimbursement  for these  services.  We will continue to focus  attention on our
payer mix and initiatives designed to reduce the risk of non-payment.

                                       20
<PAGE>
     SELECTIVE GROWTH THROUGH EXPANSION IN EXISTING SERVICE AREAS AND
     DEVELOPMENT OF STRATEGIC ALLIANCES

     Our primary growth strategy for fiscal 2001 remained focused on the pursuit
of new business within  existing  service areas. We believe there is significant
opportunity  for such  expansion in nearly all of our current local and regional
business  markets,  particularly  in the  delivery  of  non-emergency  ambulance
transportation services. We plan to continue our efforts to strategically expand
our non-emergency ambulance transportation services through pro-active marketing
efforts to hospitals,  health maintenance  organizations,  and other health care
providers.

     We will market our emergency  ambulance services through the pursuit of new
contracts  and  alliances  with  municipalities,  other  governmental  entities,
hospital-based emergency providers, and fire districts.  Based on our successful
public/private  alliance  with  San  Diego  Fire &  Life  Safety  Services,  our
ambulance  service  contract in Aurora,  Colorado,  and contracts  with numerous
Arizona municipalities, we believe that contracting and partnering may provide a
cost-effective  approach to  expansion  into  certain  existing  and new service
areas.  We believe  that our  strategic  public/private  alliances  can  provide
operating economies,  coordination of the delivery of services,  efficiencies in
the use of personnel and equipment, and enhanced levels of service, while saving
taxpayer   dollars.   We  will  continue  to  seek  such   mutually   beneficial
public/private  alliances and municipal  contracts in existing and, to a limited
extent, new service areas.

     We expect to pursue  alliances  with  health  care  providers  through  the
establishment  of  service   contracts,   and  through  very  limited  strategic
acquisitions of health care and safety-related  providers.  We evaluate proposed
acquisitions  on the  potential  to  increase  operating  margins and returns on
investment and our ability to establish a strong  strategic local  relationship.
While  we  have  halted   aggressive,   growth-oriented   acquisition   programs
originating from the  consolidation  of the ambulance  industry in the 1990s, we
recognize certain opportunities may exist in the future. Our ability to complete
acquisitions depends upon the availability of cash from operations or additional
debt or equity financing, market price of our common stock and other restrictive
covenants under the revolving credit facility. The depressed market price of our
common stock and the limited  availability  of growth  capital have resulted and
will continue to result in reduced acquisition  activity,  which consistent with
our strategy,  will be characterized by highly  selective  targeted growth.  See
"Risk Factors "We have significant  indebtedness," and "We face risks associated
with our prior rapid growth, integration,  and acquisitions" contained in Item 7
of this Report.

     We plan to continue our efforts to offer our community  safety  services by
providing fire protection and other  safety-related  services.  We emphasize the
benefits  of our  services  in terms of lower per  capita  fire  service  costs,
reduced insurance rates, and lower loss of life and property  resulting from our
experience, fire prevention initiatives, management and operational systems, and
utilization of full-time firefighters and part-time reservists. Our model offers
an   alternative   to  the  economic   pressures   faced  by  many  public-  and
private-sector  entities to reduce or limit expenditures for emergency services.
We  continue  to pursue  opportunities  to provide  fire  protection  and safety
services to large industrial complexes,  petrochemical plants, power plants, and
other  self-contained  facilities.  We  also  will  continue  to  provide  other
safety-related  services on a very limited basis,  including  personal emergency
response systems and home health care services.

ITEM 2. PROPERTIES

FACILITIES AND EQUIPMENT

     We lease  our  principal  executive  offices  in  Scottsdale,  Arizona.  In
addition,   we  lease  administrative   facilities  and  other  facilities  used
principally for ambulance and fire apparatus basing, garaging and maintenance in
those areas in which we provides ambulance and fire protection services. We also
own 21  facilities  within our  service  areas.  Aggregate  rental  expense  was
approximately  $13.2 million during fiscal 2000, and approximately $12.1 million
during fiscal 2001. At October 8, 2001,  our fleet  included 1,368 owned and 208
leased ambulances,  125 owned and 26 leased fire vehicles,  and 473 owned and 57
leased  other  vehicles.  We  use  a  combination  of  in-house  and  outsourced
maintenance services to maintain our fleet,  depending on the size of the market
and the availability of quality outside maintenance services.

                                       21
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

     From  time  to  time,   we  are  subject  to  litigation   and   regulatory
investigations  arising in the ordinary course of business.  We believe that the
resolutions  of currently  pending claims or legal  proceedings  will not have a
material  adverse effect on our business,  financial  condition,  cash flows and
results of  operations.  However,  we are unable to predict with  certainty  the
outcome of pending  litigation  and regulatory  investigations.  In some pending
cases,  our  insurance  coverage  may not be adequate  to cover all  liabilities
arising out of such claims. In addition, there can be no assurance that HCFA/CMS
or other regulatory agencies will not initiate additional investigations related
to the  Company's  business in the future.  There can be no  assurance  that the
resolution of any future  litigation,  either  individually or in the aggregate,
would not have a material adverse effect on our business,  financial  condition,
cash flows and results of operations.

     We, Warren S. Rustand, our former Chairman of the Board and Chief Executive
Officer of the Company,  James H. Bolin,  our former Vice Chairman of the Board,
and Robert E.  Ramsey,  Jr.,  our former  Executive  Vice  President  and former
Director,  have been named as defendants in two purported class action lawsuits:
HASKELL V. RURAL/METRO  CORPORATION,  ET AL., Civil Action No. C-328448 filed on
August 25, 1998 in Pima County,  Arizona Superior Court and RUBLE V. RURAL/METRO
CORPORATION,  ET AL.,  CIV  98-413-TUC-JMR  filed on September 2, 1998 in United
States  District  Court for the  District of Arizona.  The two  lawsuits,  which
contain virtually  identical  allegations,  were brought on behalf of a class of
persons who purchased our publicly traded securities  including its common stock
between  April  28,  1997  and June  11,  1998.  Haskell  v.  Rural/Metro  seeks
unspecified damages under the Arizona Securities Act, the Arizona Consumer Fraud
Act, and under Arizona  common law fraud,  and also seeks  punitive  damages,  a
constructive  trust, and other  injunctive  relief.  Ruble v. Rural/Metro  seeks
unspecified  damages under Sections  10(b) and 20(a) of the Securities  Exchange
Act of 1934,  as amended.  The  complaints  in both actions  allege that between
April  28,  1997 and June 11,  1998 the  defendants  issued  certain  false  and
misleading statements regarding certain aspects of our financial status and that
these statements  allegedly caused our common stock to be traded at artificially
inflated  prices.  The complaints also allege that Mr. Bolin and Mr. Ramsey sold
stock during this period,  allegedly taking advantage of inside information that
the stock prices were artificially  inflated. On May 25, 1999, the Arizona state
court  granted  our request  for a stay of the  Haskell  action  until the Ruble
action is finally  resolved.  We and the individual  defendants moved to dismiss
the Ruble action.  On January 25, 2001, the Court granted the motion to dismiss,
but granted the plaintiffs  leave to replead.  On March 31, 2001, the plaintiffs
filed a second amended complaint. We and the individual defendants have moved to
dismiss the second amended complaint.  The Court is currently  scheduled to hear
oral argument on that motion in December  2001. If the lawsuits were  ultimately
determined  adversely  to us, it could  have a  material  adverse  effect on our
business, financial condition, cash flows and results of operations.

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

     Not applicable.

                                       22
<PAGE>
                                     PART II

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

     Our common stock traded on the Nasdaq National Market under the symbol RURL
since our initial  public  offering  on July 16,  1993.  On August 4, 2000,  our
common stock began trading on the Nasdaq  SmallCap  Market.  The following table
sets  forth the high and low sale  prices  of the  common  stock for the  fiscal
quarters indicated.

                                                          HIGH        LOW
                                                          ----        ---
     YEAR ENDED JUNE 30, 2000
        First quarter.................................   $ 10.00     $ 6.13
        Second quarter................................   $  7.63     $ 3.94
        Third quarter.................................   $  5.94     $ 1.13
        Fourth quarter................................   $  2.38     $ 1.13

     YEAR ENDED JUNE 30, 2001
        First quarter.................................   $  2.31     $ 1.50
        Second quarter................................   $  3.38     $ 1.25
        Third quarter.................................   $  2.16     $ 0.81
        Fourth quarter................................   $  1.09     $ 0.87

     YEAR ENDED JUNE 30, 2002
        First quarter.................................   $  0.97     $ 0.57
        Second quarter (through October 8, 2001)......   $  0.74     $ 0.58

     On October 8, 2001,  the closing  sale price of our common  stock was $0.70
per share. On October 8, 2001, there were approximately  1,014 holders of record
of our common stock.

DIVIDEND POLICY

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

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following  selected  consolidated  financial  data for the fiscal years
ended June 30, 2001, 2000, 1999, 1998, and 1997 is derived from our consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants.  Their reports on the financial statements for June 30, 2001
and 2000  include  a  statement  that  certain  matters  raise  doubt  about the
Company's  ability to continue as a going  concern.  The  selected  consolidated
financial data provided below should be read in conjunction  with  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
our  consolidated  financial  statements and notes  appearing  elsewhere in this
Report.

                                       23
<PAGE>
<TABLE>
<CAPTION>
                                                                                 YEARS ENDED JUNE 30,
                                                        ----------------------------------------------------------------------
                                                           2001           2000           1999           1998           1997
                                                        ----------     ----------     ----------     ----------     ----------
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA
Revenue
  Ambulance services ..............................     $ 402,833      $ 467,741      $ 467,632      $ 387,041      $ 257,488
  Fire protection services ........................        61,573         57,549         50,490         45,971         42,163
  Other ...........................................        39,910         44,784         43,244         42,546         20,154
                                                        ---------      ---------      ---------      ---------      ---------
       Total revenue ..............................       504,316        570,074        561,366        475,558        319,805
Operating expense
  Payroll and employee benefits ...................       301,055        323,285        297,341        254,806        170,833
  Provision for doubtful accounts .................       102,470         95,623         81,227         81,178         43,424
  Provision for doubtful accounts-- change in
   accounting estimate ............................            --         65,000             --             --             --
  Depreciation ....................................        21,809         25,009         24,222         19,213         12,136
  Amortization of intangibles .....................         7,352          8,687          9,166          7,780          4,660
  Other operating expenses ........................       142,009        127,743         98,739         80,216         54,922
  Asset impairment charges ........................        94,353             --             --             --             --
  Loss on disposition of clinic operations ........         9,374             --             --             --             --
  Contract termination costs and related asset
   impairment .....................................         9,256             --             --             --             --
  Restructuring charge and other ..................         9,091         34,047          2,500          5,000          6,026
                                                        ---------      ---------      ---------      ---------      ---------
Operating income (loss) ...........................      (192,453)      (109,320)        48,171         27,365         27,804
Interest expense, net .............................        30,001         25,939         21,406         14,082          5,720
Other .............................................         2,402         (2,890)            70           (199)            --
                                                        ---------      ---------      ---------      ---------      ---------
Income (loss) before income taxes, extraordinary
 loss and cumulative effect of a change in
 accounting principle .............................      (224,856)      (132,369)        26,695         13,482         22,084
Provision for (benefit from) income taxes .........        (1,875)        32,837        (11,231)        (5,977)        (9,364)
                                                        ---------      ---------      ---------      ---------      ---------
Income (loss) before extraordinary loss and
 cumulative effect of a change in accounting
 principle ........................................      (226,731)       (99,532)        15,464          7,505         12,720
Extraordinary loss on expropriation of Canadian
 ambulance service licenses .......................            --         (1,200)            --             --             --
Cumulative effect of a change in accounting
 principle ........................................            --           (541)            --             --             --
                                                        ---------      ---------      ---------      ---------      ---------
       Net income (loss) ..........................     $(226,731)     $(101,273)     $  15,464      $   7,505      $  12,720
                                                        =========      =========      =========      =========      =========

Basic earnings per share (1)
Income (loss) before extraordinary item ...........     $  (15.38)     $   (6.82)     $    1.07      $    0.55      $    1.10
Extraordinary loss on expropriation of Canadian
 ambulance service licenses .......................            --          (0.08)            --             --             --
Cumulative effect of a change in accounting
 principle ........................................            --          (0.04)            --             --             --
                                                        ---------      ---------      ---------      ---------      ---------
       Net income (loss) ..........................     $  (15.38)     $   (6.94)     $    1.07      $    0.55      $    1.10
                                                        =========      =========      =========      =========      =========

Diluted earnings per share (1)
Income (loss) before extraordinary item ...........     $  (15.38)     $   (6.82)     $    1.06      $    0.54      $    1.04
Extraordinary item ................................            --          (0.08)            --             --             --
Cumulative effect of change in accounting principle            --          (0.04)            --             --             --
                                                        ---------      ---------      ---------      ---------      ---------
       Net income (loss) ..........................     $  (15.38)     $   (6.94)     $    1.06      $    0.54      $    1.04
                                                        =========      =========      =========      =========      =========

Weighted average number of shares outstanding (1)
  Basic ...........................................        14,744         14,592         14,447         13,529         11,585
  Diluted .........................................        14,744         14,592         14,638         14,002         12,271
</TABLE>

                                       24
<PAGE>
<TABLE>
<CAPTION>
                                                                       YEARS ENDED JUNE 30,
                                               -------------------------------------------------------------------
                                                  2001           2000           1999         1998          1997
                                               ---------      ---------      ---------     ---------     ---------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>            <C>            <C>           <C>           <C>
BALANCE SHEET DATA
Working capital (deficit) ................     $(273,370)     $(192,512)     $ 140,929     $ 110,529     $  94,766
Total assets .............................       298,534        491,217        579,907       535,452       364,066
Current portion of long-term debt (2) ....       294,439        299,104          5,765         8,565         9,814
Long-term debt, net of current portion (2)         1,286          2,850        268,560       243,831       144,643
Stockholders' equity (deficit) ...........      (130,526)        95,591        196,839       177,773       159,908
</TABLE>

----------
(1)  Earnings per share for all periods presented has been stated or restated in
     accordance  with  Statement  of  Financial  Accounting  Standards  No. 128,
     "Earnings Per Share" effective as of October 1, 1997.

(2)  Includes  balances  outstanding  under our  revolving  credit  facility  of
     approximately $143,042,000 at June 30, 2001, $146,807,000 at June 30, 2000,
     $113,500,000  at  June  30,  1999,   $86,000,000  at  June  30,  1998,  and
     $134,000,000  at June  30,  1997.  At June 30,  2001  and 2000 the  amounts
     outstanding  under our revolving  credit facility and the senior notes have
     been classified as a current liability.

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

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

INTRODUCTION

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

     Domestic ambulance service fees are recorded net of Medicare,  Medicaid and
other  reimbursement  limitations and are recognized when services are provided.
Payments received from third-party payers represent a substantial portion of our
ambulance  service  fee  receipts.  We  derived  approximately  87% of  our  net
ambulance  fee  collections  during  2001  and  81% of  our  net  ambulance  fee
collections  during 2000 from such third party payers. We establish an allowance
for doubtful  accounts  based on credit  risks  applicable  to certain  types of
payers,  historical  trends and other  relevant  information.  This allowance is
examined on a  quarterly  basis and  revised  based on changes in  circumstances
surrounding the  collectibility of receivables.  Provision for doubtful accounts
is made for the expected  difference between ambulance services fees charged and
amounts actually  collected.  Our provision for doubtful  accounts  generally is
higher with respect to collections to be derived directly from patients than for
collections  to be derived from  third-party  payers and generally is higher for
911 emergency ambulance services than for general ambulance transport services.

     Because of the nature of our ambulance services, it is necessary to respond
to a number of calls, primarily 911 emergency ambulance service calls, which may
not result in transports. Results of operations are discussed below on the basis
of actual  transports  because  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  non-emergency  ambulance  and  911
emergency  ambulance service calls in markets and is generally higher in service
areas in which the calls are primarily 911 emergency  ambulance  service  calls.

                                       25
<PAGE>
Rates in our markets take into account the anticipated  number of calls that may
not result in transports.  We do not separately account for expenses  associated
with  calls  that do not  result  in  transports.  Revenue  generated  under our
capitated  service  arrangements in Argentina is included in ambulance  services
revenue.

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

     Other   revenue   primarily   consists  of  revenue   generated   from  our
public/private   alliance  in  San  Diego,   fees  associated  with  alternative
transportation,  dispatch,  fleet, billing, and home health care services and is
recognized when the services are provided.

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

     We have pledged assets with a net book value of approximately $11.8 million
to secure  certain of our  obligations  under our insurance  and surety  bonding
program,  including  certain  reimbursement  obligations  with  respect  to  the
workers' compensation, performance bonds, appeal bonds and other aspects of such
insurance and surety bonding program.

     Our net loss for the year ended June 30, 2001 was $226.7  million or a loss
of $15.38  (diluted)  per share.  This  compares to a net loss of  approximately
$101.3  million or $6.94 per share  (diluted)  for the year ended June 30, 2000,
and net income of $15.5 million or $1.06 per share  (diluted) for the year ended
June 30,  1999.  The  operating  results  for the year ended June 30,  2001 were
adversely  affected by the write-off of impaired  assets under SFAS No. 121, our
operational  restructuring  program  involving  the  closure of certain  service
areas,  the loss of two  exclusive  911  contracts,  the  disposition  of clinic
operations in Latin America, changes in estimates that impacted our reserves for
workers compensation and general liability matters, and additional provision for
doubtful  accounts related to closed or closing service areas and  non-transport
related receivables.

                                       26
<PAGE>
RESULTS OF OPERATIONS

     The  following  table sets forth the years ended June 30, 2001,  2000,  and
1999, certain items from our consolidated  financial  statements  expressed as a
percentage of total revenue:

<TABLE>
<CAPTION>
                                                                            YEARS ENDED JUNE 30,
                                                                      --------------------------------
                                                                       2001         2000         1999
                                                                      ------       ------       ------
<S>                                                                    <C>          <C>          <C>
Revenue
   Ambulance services ...........................................       79.9%        82.0%        83.3%
   Fire protection services .....................................       12.2         10.1          9.0
   Other ........................................................        7.9          7.9          7.7
                                                                      ------       ------       ------
         Total revenue ..........................................      100.0        100.0        100.0

Operating expenses
  Payroll and employee benefits .................................       59.7         56.7         53.0
  Provision for doubtful accounts ...............................       20.3         16.8         14.5
  Provision for doubtful accounts-- change in accounting
  estimate ......................................................         --         11.4           --
  Depreciation ..................................................        4.3          4.4          4.3
  Amortization of intangibles ...................................        1.5          1.5          1.6
  Other operating expenses ......................................       28.2         22.4         17.6
  Asset impairment charges ......................................       18.7           --           --
  Loss on disposition of clinic operations ......................        1.9           --           --
  Contract termination costs and related asset impairment .......        1.8           --           --
  Restructuring charge and other ................................        1.8          6.0          0.4
                                                                      ------       ------       ------

Operating income (loss) .........................................      (38.2)       (19.2)         8.6
   Interest expense, net ........................................        5.9          4.6          3.8
   Other ........................................................        0.5         (0.5)          --
                                                                      ------       ------       ------

Income (loss) before income taxes, extraordinary loss and
cumulative effect of a change in accounting principle ...........      (44.6)       (23.3)         4.8
   Provision (benefit) for income taxes .........................        0.4         (5.8)         2.0
                                                                      ------       ------       ------

Net income (loss) before extraordinary loss and cumulative
  effect of a change in accounting principle ....................      (45.0)       (17.5)         2.8
Extraordinary loss ..............................................         --         (0.2)          --
Cumulative effect of a change in accounting principle ...........         --         (0.1)          --
                                                                      ------       ------       ------

        Net income (loss) .......................................      (45.0)%      (17.8)%        2.8%
                                                                      ======       ======       ======
</TABLE>

YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 2001

     REVENUE

     Total  revenue  decreased  approximately  $65.8  million,  or  11.5%,  from
approximately  $570.1 million for the year ended June 30, 2000 to  approximately
$504.3  million for the year ended June 30,  2001.  Ambulance  services  revenue
decreased  approximately  $64.9 million,  or 13.9%,  from  approximately  $467.7
million for the year ended June 30, 2000 to approximately $402.8 million for the
year  ended  June 30,  2001.  Fire  protection  services  revenue  increased  by
approximately $4.1 million,  or 7.1%, from  approximately  $57.5 million for the
year ended June 30, 2000 to approximately  $61.6 million for the year ended June
30, 2001. Other revenue decreased by approximately $4.9 million,  or 10.9%, from

                                       27
<PAGE>
approximately  $44.8  million for the year ended June 30, 2000 to  approximately
$39.9 million for the year ended June 30, 2001.

     The  decrease  in  ambulance  services  revenue  is  primarily  related  to
decreased volume in our domestic  ambulance  service areas.  Domestic  ambulance
service  revenue  decreased   approximately   $53.5  million,   or  12.8%,  from
approximately  $418.6 million for the year ended June 30, 2000 to  approximately
$365.1 million for the year ended June 30, 2001.  Approximately $38.1 million of
the decrease is attributable to the closure of certain  underperforming  service
areas in the third and fourth quarters of fiscal 2000.  Additionally,  there was
an  approximate  $2.4  million  decrease  related to the loss of a  contract  in
Lincoln,  Nebraska.  Domestic  ambulance services revenue in areas served by our
company in both fiscal 2001 and 2000  decreased by 4.6% or  approximately  $17.2
million. Total domestic ambulance transports decreased by approximately 166,000,
or 13.1%,  from  1,266,000 for the year ended June 30, 2000 to 1,100,000 for the
year ended June 30, 2001. These decreases were a direct result of our efforts to
reduce non-emergency  transports in certain areas and improve the quality of our
revenue.  Ambulance services revenue was further affected by an approximate $6.6
million  decrease in revenue in Argentina  related to  decreases in  memberships
under capitated service arrangements due to the impact of the economic recession
in Argentina and an approximate $4.5 million decrease in revenue  generated from
our former Canadian operations.

     Fire protection  services revenue increased  approximately $0.6 million due
to new airport and industrial  contracting activity,  approximately $1.1 million
due to rate increases  under existing fire protection  contracts,  approximately
$0.6 million due to forestry revenue  increases and  approximately  $1.8 million
due to rate and utilization increases for fire protection services.

     Approximately  $4.3  million of the  decrease in other  revenue  relates to
decreases in revenue generated from alternative transportation services. Revenue
generated  from  alternative  transportation  services  has  been a focus of our
efforts to reduce  transports  in certain  areas and  improve the quality of our
revenue.  Additionally,  approximately  $2.9  million of the  decrease  in other
revenue is related to decreases  in  Argentina  medical  clinic  revenue.  These
decreases  were  offset by a $2.5  million  increase  in revenue  related to our
public/private alliance with the City of San Diego.

     OPERATING EXPENSES

     Payroll  and  employee  benefit  expenses  decreased   approximately  $22.2
million, or 6.9%, from approximately  $323.3 million for the year ended June 30,
2000 to  approximately  $301.1  million  for  the  year  ended  June  30,  2001.
Approximately  $20.9 million of the decrease is  attributable  to the closure of
certain  underperforming  service areas that were closed in the third and fourth
quarters  of fiscal  2000 and  approximately  $4.1  million of the  decrease  is
related to the closure of our Canadian operations.  Payroll and employee benefit
expenses  for the fiscal year ended June 30, 2001  includes  approximately  $5.0
million  of  additional  workers  compensation   insurance  expense  related  to
increased claims  experience,  approximately $3.0 million related to the accrual
of paid time off for field  personnel  due to changes in paid time off  policies
from previous years and approximately $5.4 million related to an increase in our
employee   health   insurance   reserves  as  calculated   by  our   third-party
administrator.  The  remaining  decrease  reflects  reductions  in  payroll  and
employee benefit expenses in existing service areas due to decreased  transports
as  discussed  above.  Payroll and  employee  benefit  expenses  increased  from
approximately  56.7% of total  revenue  during the year  ended June 30,  2000 to
approximately  59.7% of total  revenue  during  the year  ended  June 30,  2001.
Increased  service  utilization in our Argentine  operations also contributed to
the increase in payroll and employee  benefit  expenses as a percentage of total
revenue. Exclusive of the effect of the specific fiscal 2001 expenses identified
earlier in this paragraph,  we expect that payroll and employee benefit expenses
will increase as a percentage of total revenue in fiscal 2002.

     During the year ended June 30, 2001 we recorded a $10.0  million  provision
related to underperformance in collections on service areas closed during fiscal
2000.  In addition,  we recorded a $6.4 million  provision  related to estimated
underperformance  in  collections  for service areas included in the fiscal 2001
restructuring.  It has been our  experience  that once a  service  area has been
exited,  it becomes more  difficult  to collect  outstanding  receivables.  As a
result,  management  has now  determined  that any  non-transport  receivable in
excess of 90 days  outstanding  will be reserved.  This adjustment  totaled $4.8

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<PAGE>
million at June 30, 2001. An additional $5.0 million provision was also recorded
for contractual transport receivables that were deemed uncollectible.

     A summary of activity in our  allowance  for doubtful  accounts  during the
fiscal years ended June 30, 2001 and 2000 is as follows.  The provision  charged
to expense during fiscal 2000 includes the $65.0 million charge  recorded in the
second quarter  relating to the change in methodology  used by us in determining
our allowance for doubtful accounts as described in the following paragraph.  We
experienced  a decrease  in  collections  in service  areas that were  closed or
downsized  due to our lack of physical  presence in the service  area. In fiscal
2000,  we  recorded  charges of $3.0  million and $6.8  million  recorded in the
respective third and fourth quarters for uncollectible accounts in those service
areas that were  identified  for closure or  downsizing  during  those  periods.
Provisions  charged to expense  during fiscal 2001 include an  additional  $10.0
million charge  recorded in the second quarter due to the  determination  of the
ultimate  uncollectibility  of accounts relating to service areas identified for
closure or downsizing in fiscal 2000. The fourth quarter of fiscal 2001 included
charges  totaling $16.2 million related to service areas  identified for closure
during that quarter as well as for other collectibility issues.

                                              JUNE 30,
                                      ------------------------
                                         2001          2000
                                      ---------      ---------
                                          (IN THOUSANDS)

     Balance at beginning of year     $  87,752      $  43,392
     Provision charged to expense       102,470        160,623
     Write-offs                        (124,993)      (116,263)
                                      ---------      ---------
     Balance at end of year           $  65,229      $  87,752
                                      =========      =========

     Provision for doubtful  accounts was  approximately  $160.6 million for the
year ended June 30,  2000 and  approximately  $102.5  million for the year ended
June 30, 2001.  Provision for doubtful  accounts  decreased  from  approximately
28.2% of total revenue for the year ended June 30, 2000 to  approximately  20.3%
of total  revenue  for the year  ended June 30,  2001.  Provision  for  doubtful
accounts,  excluding  a $65.0  million  provision  taken in fiscal 2000 due to a
change in method of estimation  and $9.8 million of  provisions  taken in fiscal
2000 related to specific accounts deemed  uncollectible in certain service areas
being  closed  or  downsized  as  part  of  our   restructuring   program,   was
approximately 15.1% of total revenue for the year ended June 30, 2000. Provision
for doubtful accounts, excluding charges totaling $26.2 million discussed in the
preceding  paragraph  , was  approximately  15.1% of total  revenue for the year
ended  June 30,  2001.  The  provision  for  doubtful  accounts  increased  from
approximately  19.6% of domestic  ambulance  service  revenue for the year ended
June 30, 2000 to approximately  20.0% of domestic  ambulance service revenue for
the year ended June 30, 2001,  excluding  the  additional  provisions  discussed
above. Net accounts  receivable on non-integrated  collection  systems currently
represent  13.3% of total net  accounts  receivable  at June 30,  2001.  We will
continue  to review  the  benefits  and  timing  of  integrating  the  remaining
non-integrated billing centers.

     Depreciation   decreased   approximately  $3.2  million,   or  12.8%,  from
approximately  $25.0  million for the year ended June 30, 2000 to  approximately
$21.8 million for the year ended June 30, 2001, primarily due to the disposal of
certain  assets  related to closed  operations  as well as a decrease in capital
expenditures during the current year.  Depreciation decreased from approximately
4.4% of total revenue for the year ended June 30, 2000 to approximately  4.3% of
total revenue for the year ended June 30, 2001.

     Amortization of intangibles  decreased by  approximately  $1.3 million,  or
14.9%,  from  approximately  $8.7  million  for the year ended June 30,  2000 to
approximately  $7.4 million for the year ended June 30, 2001.  This decrease was
the result of the  write-off  of  approximately  $22.3  million of  goodwill  in
conjunction  with the closure or  downsizing  of certain  service  areas  during
fiscal 2000.  Amortization was approximately  1.5% of total revenue for the year
ended June 30, 2000 and 2001,  respectively.  We  anticipate  that  amortization
expense  (and,  to a lesser  extent,  depreciation  expense)  will be reduced in

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<PAGE>
fiscal 2002 as a result of the  write-off  of impaired  assets in fiscal 2001 as
discussed below.

     Other operating expenses increased  approximately  $14.3 million, or 11.2%,
from  approximately  $127.7  million  for  the  year  ended  June  30,  2000  to
approximately  $142.0  million for the year ended June 30, 2001. The increase is
primarily  due to  additional  general  liability  insurance  reserves  of $15.0
million as explained more fully in the following paragraph, $8.5 million related
to  asset   write-offs   and  reserve   adjustments   as  a  result  of  account
reconciliations  of our various Argentine  subsidiaries  performed in the fourth
quarter of fiscal 2001, the accrual of  approximately  $1.3 million related to a
Medicare audit  settlement and $1.0 million  related to the write-off of amounts
owed to us by a  former  owner.  These  amounts  are  offset  by a  decrease  of
approximately  $6.4  million  relating  to  closed  service  areas,  as  well as
decreases  in other  operating  expenses in existing  service  areas  related to
decreased  transports.  Other operating  expenses  increased from  approximately
22.4% of total revenue for the year ended June 30, 2000 to  approximately  28.0%
of total revenue for the year ended June 30, 2001.

     Effective  January  1, 2001,  we refined  our  methodology  of  determining
reserves  related to general  liability  claims.  The changing  environment with
respect to the rising cost of claims as well as the cost of litigation  prompted
a  comprehensive  review by  management  of detailed  information  from external
advisors,  historical  settlement  information and analysis of open claims which
led to this  change.  The new method more  closely  approximates  the  potential
outcome  of  each  open  claim  as  well  as  the  legal  costs  related  to the
administration  of these  claims.  Additionally,  reserves  were set up to cover
potential  unknown  claims  based on  historical  occurrences  of  claims  filed
subsequent to the end of the policy year. For financial reporting purposes, this
change was treated as a change in accounting estimate.

     We have  experienced a substantial  rise in the costs  associated with both
our  insurance  and surety  bonding  programs in  comparison  to prior years.  A
significant  factor  is the  overall  hardening  of the  insurance,  surety  and
re-insurance  markets,  which has  resulted  in  demands  for  larger  premiums,
collateralization of payment obligations and increasingly  rigorous underwriting
requirements.  Our higher  costs also  result  from our claims  history and from
vendors'  perception of our financial position due to our current debt structure
and cash  position,  as well as the  qualified  opinion  currently  issued  with
respect to our audited financial  statements.  Sustained and substantial  annual
increases in premiums and requirements  for collateral or pre-funded  deductible
obligations  may have a  material  adverse  effect  on our  business,  financial
condition, cash flow and results of operations. Total premium cost for insurance
in fiscal 2001 was approximately  $7.8 million as compared to total premium cost
of  approximately  $2.9 million in fiscal  2000.  We have been able to self-fund
these  premium  increases  out of  operating  cash  flow and have  adjusted  our
budgetary assumptions to address anticipated future increases.  We have budgeted
approximately  $12.1 million for  projected  total premium costs in fiscal 2002.
Management does not believe that we will experience increases in future years at
similar incremental rates; however, external factors beyond our control, such as
the condition of the current insurance market and the potential market impact of
the terrorist attacks of September 11, 2001, may cause such increases.

     Medical,  fleet,  and fire supplies are maintained in a central  warehouse,
numerous regional  warehouses,  and multiple stations,  lockers, and vehicles. A
physical  inventory of all  locations at June 30, 2001  revealed a shortage from
recorded  levels.  Shrinkage,  obsolescence,  and supplies  lost due to closures
account for most of the shortage. To reduce the recorded inventory to the actual
physical  count, an adjustment of  approximately  $8.4 million was recorded as a
component of other operating expenses in the accompanying consolidated statement
of  operations  for the year ended June 30, 2001. An estimated par level will be
used for all  non-warehouse  inventory.  The par level is based on the  physical
inventory  counts taken at June 30, 2001, and will be adjusted based on periodic
counts.

     In connection  with the  budgeting  process for the fiscal year ending June
30, 2002,  which was completed in the fourth quarter of fiscal 2001, we analyzed
each cost center within our various  service areas not identified for closure or
downsizing  to  determine  whether  the  associated   long-lived  assets  (e.g.,
property,  equipment and goodwill) would be recoverable from future  operations.
Cost centers  represent  individual  operating units within a given service area
for  which  separately  identifiable  cash flow  information  is  available.  We
performed this analysis as a result of our expectations of a challenging  health

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<PAGE>
care  reimbursement  environment as well as  anticipated  increases in labor and
insurance costs with respect to our domestic ambulance operations. This analysis
considered  the  results  of  operations  over the past  year as well as  HCFA's
failure to  implement  the  ambulance  fee  schedule as of January 1, 2001.  The
analysis  with respect to our  Argentine  operations  included the impact of the
deteriorating   economic  and  political  environment  as  well  as  information
developed by a third party  concerning  the  marketability  of these  operations
during fiscal 2001.

     In order to assess recoverability, we estimated the related net future cash
flows for each cost center and then compared the resulting  undiscounted amounts
to the carrying value of each cost center's  long-lived  assets (e.g.,  property
and  equipment  and  goodwill).  It should be noted that  property and equipment
balances  are  specifically  identified  with  each cost  center.  Additionally,
goodwill  is  specifically  identified  with  each  cost  center  at the time of
acquisition and, therefore,  related allocations were not necessary for purposes
of performing the impairment analysis.

     For  those  cost  centers  where  estimated  future  net  cash  flows on an
undiscounted basis were less than the related carrying amounts of the long-lived
assets,  an asset  impairment was considered to exist. We measured the amount of
the asset  impairment  for each such cost center by  discounting  the  estimated
future net cash flows using a discount rate of 18.5% and comparing the resulting
amount to the carrying value of its long-lived assets. Based upon this analysis,
the Company determined that asset impairment charges approximating $94.4 million
were  required for cost centers  within our  domestic  and  Argentine  ambulance
operations.  The asset  impairments  were charged  directly  against the related
asset balances. A summary of the related charge is as follows:

                                                        PROPERTY,
                                                        EQUIPMENT
                                             GOODWILL   AND OTHER    TOTAL
                                             --------   ---------    -----
                                                      (IN THOUSANDS)

     Domestic ambulance operations            $41,631    $ 6,419    $48,050
     Argentine ambulance operations            44,327      1,976     46,303
                                              -------    -------    -------
        Total                                 $85,958    $ 8,395    $94,353
                                              =======    =======    =======

     During the  fourth  quarter of the  fiscal  year  ended June 30,  2001,  we
decided to close or downsize  nine service  areas and in  connection  therewith,
recorded  restructuring  and other charges totaling $9.1 million.  These charges
included $1.5 million to cover severance  costs  associated with the termination
of approximately  250 employees,  all of whom were expected to leave the Company
by the end of  fiscal  2002,  lease  termination  and other  exit  costs of $2.6
million, and asset impairment charges for goodwill and property and equipment of
$4.1 million and $0.9  million,  respectively,  related to the impacted  service
areas.  The asset  impairments  were charged  directly against the related asset
balances. The service areas selected for closure or downsizing generated revenue
of $17.7  million,  operating  losses of $4.0 million and negative  cash flow of
$3.2 million for the fiscal year ended June 30, 2001.

     During the third and fourth quarters of fiscal year ended June 30, 2000, we
decided to close or  downsize  26  service  areas and in  connection  therewith,
recorded  restructuring and other charges totaling $34.0 million.  These charges
included $6.6 million to cover severance  costs  associated with the termination
of  approximately  300  employees,  all of whom had been  terminated by June 30,
2001,  lease  termination  and  other  exit  costs of $3.3  million,  and  asset
impairment  charges for goodwill and property and equipment of $22.3 million and
$1.3 million,  respectively. The asset impairments were charged directly against
the related asset  balances.  The service areas  selected for closure  generated
revenue of $38.7  million,  operating  losses of $3.7 million and negative  cash
flow of $1.0 million for the fiscal year ended June 30, 2000.

     A summary of activity in the  restructuring  reserve,  which is included in
accrued liabilities in the consolidated balance sheets, is as follows:

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<PAGE>
                                                          JUNE 30,
                                                  ------------------------
                                                    2001            2000
                                                  --------        --------
                                                       (IN THOUSANDS)

     Balance at beginning of year                 $  8,132        $  1,328
     Provision                                       9,091          34,047
     Payments/usage                                (11,054)        (27,243)
                                                  --------        --------
     Balance at end of year                       $  6,169        $  8,132
                                                  ========        ========

     During the fourth  quarter of the fiscal year ended June 30, 2001,  we sold
our  Argentine  clinic  operations  in exchange for a $3.0 million  non-interest
bearing  note  receivable.  The note,  which is included in other  assets in the
consolidated  balance  sheet,  requires  monthly  principal  payments of $25,000
through  April 2011.  The sale  resulted in a loss on disposal of $9.4  million,
including  the  write-off  of $9.3  million  of  related  goodwill.  The  clinic
operations  generated revenue of $4.0 million,  operating losses of $1.5 million
and negative  cash flow of $0.9 million for the fiscal year ended June 30, 2001.

     In November  2000,  we learned that our  exclusive 911 contract in Lincoln,
Nebraska  would not be renewed  effective  December  31, 2000 and in  connection
therewith,  recorded a contract termination charge of $5.2 million.  This charge
included  asset  impairments  for related  goodwill and equipment  totaling $4.3
million  (the  exclusive  911  contract  was  acquired  in a  purchase  business
combination in fiscal 1995),  $0.8 million to cover severance  costs  associated
with  terminated  employees,  and $0.1 million to cover lease  terminations  and
other exit  costs.  The asset  impairments  were  charged  directly  against the
related  assets.  The  Lincoln  contract  generated  revenue  of  $4.7  million,
operating  income of $0.4  million and cash flow of $0.5 million in fiscal 2000,
its last full year of operations.

     In May 2001, we learned that our exclusive 911 contract in Arlington, Texas
would not be renewed effective  September 30, 2001 and in connection  therewith,
recorded a contract  termination  charge of $4.1 million.  This charge  included
asset  impairments  for related  goodwill  and  equipment  of $3.9  million (the
exclusive 911 contract was acquired in a purchase business combination in fiscal
1997),  $0.1  million  to  cover  severance  costs  associated  with  terminated
employees, and $0.1 million to cover lease termination and other exit costs. The
asset  impairments  were  charged  directly  against  the  related  assets.  The
Arlington contract  generated revenue of $8.3 million,  operating income of $0.1
million  and cash flow of $0.5  million  in fiscal  2001,  its last full year of
operations.

     Interest expense  increased by approximately  $4.1 million,  or 15.8%, from
approximately  $25.9  million for the year ended June 30, 2000 to  approximately
$30.0  million for the year ended June 30,  2001.  This  increase  was caused by
higher than average debt  balances  during  fiscal 2001,  fees,  and  additional
interest incurred in conjunction with various waiver agreements.

     Other expense increased by approximately  $5.3 million from other income of
$2.9  million in fiscal 2000 to other  expense of $2.4  million in fiscal  2001.
This increase was primarily attributable to a charge of $4.0 million relating to
the put provisions  contained in the joint venture agreement described in Note 3
to the consolidated financial statements.

     Our  effective tax rate  decreased  from  approximately  24.8% for the year
ended June 30, 2000 to  approximately  (0.8)% for the year ended June 30,  2001.
The decrease in the  effective  tax rate is  primarily  due to the impact of the
valuation  allowance  and other  permanent  differences,  consisting of goodwill
write-offs  and  amortization.  The  permanent  differences  and  the  valuation
allowance  result in a reduction  of the tax benefits  which could  otherwise be
available  in a loss year,  and thus a reduction  in the  effective  tax rate. A
valuation  allowance of approximately  $102 million has been provided because we
believe that the  realizability of the deferred tax asset does not meet the more
likely than not criteria under SFAS No. 109, "Accounting for Income Taxes."

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<PAGE>
     During the year ended June 30, 2000, we recorded an  extraordinary  loss on
the expropriation of Canadian  ambulance service licenses of approximately  $1.2
million (net of $0 of income taxes). We received approximately $2.2 million from
the  Ontario  Ministry  of Health as  compensation  for the loss of license  and
incurred costs and wrote-off assets, mainly goodwill, totaling $3.4 million.

     The  cumulative  effect of a change in accounting  principle  resulted in a
$541,000  approximate charge (net of tax benefit of approximately  $392,000) and
was related to our expensing of  previously  capitalized  organization  costs in
accordance  with Statement of Position 98-5,  REPORTING ON THE COSTS OF START-UP
ACTIVITIES.

YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 2000

     REVENUE

     Total  revenue  increased   approximately  $8.7  million,   or  1.5%,  from
approximately  $561.4 million for the year ended June 30, 1999 to  approximately
$570.1  million for the year ended June 30,  2000.  Ambulance  services  revenue
increased  approximately  $0.1  million,  or 0.02%,  from  approximately  $467.6
million for the year ended June 30, 1999 to approximately $467.7 million for the
year ended June 30, 2000. Domestic ambulance services revenue in areas served by
our company in both fiscal 2000 and 1999 increased by  approximately  2.5%. Fire
protection  services revenue increased by approximately $7.0 million,  or 14.0%,
from  approximately   $50.5  million  for  the  year  ended  June  30,  1999  to
approximately  $57.5  million for the year ended June 30,  2000.  Other  revenue
increased by  approximately  $1.6 million,  or 3.7%,  from  approximately  $43.2
million for the year ended June 30, 1999 to approximately  $44.8 million for the
year ended June 30, 2000.

     Total domestic ambulance transports  decreased by approximately  22,000, or
1.7%,  from  approximately  1,288,000  for  the  year  ended  June  30,  1999 to
approximately  1,266,000  for the year ended June 30, 2000 due to our efforts to
reduce non-emergency  transports in certain areas and improve the quality of our
revenue.  The effect on revenue  caused by the reduction in transports  was more
than offset by transports  generated through new contracting activity as well as
increases in average patient charges in other areas.

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

     Other revenue increased primarily due to revenue associated with urgent and
primary care services provided in Argentina by a company that we acquired in the
third  quarter of fiscal  1999,  partially  offset by a decrease in  alternative
transportation  services  revenue  due to our  efforts to reduce  transports  in
certain areas and improve the quality of our revenue.

     OPERATING EXPENSES

     Payroll  and  employee  benefit  expenses  increased   approximately  $26.0
million, or 8.7%, from approximately  $297.3 million for the year ended June 30,
1999 to approximately  $323.3 million for the year ended June 30, 2000.  Payroll
and employee  benefit  expenses for the fiscal year ended June 30, 2000 includes
approximately  $14.8  million  of  additional  health and  workers  compensation
insurance expense due to a significant  increase in the utilization of insurance
benefits  experienced during the closure of certain service areas as well as the
development  of certain  existing  claims.  Payroll  expense  related to our new
contracting  activity  during the fiscal  year ended June 30,  2000  contributed
approximately  $7.3 million to the increase,  and the remainder was attributable
to higher average labor costs in certain  service areas.  We expect these higher
average labor costs to continue in the future,  including  the  increased  costs
associated  with accounts  receivable  collection and with Health Care Financing
Administration   (HCFA)  compliance.   Payroll  and  employee  benefit  expenses
increased from  approximately  53.0% of total revenue during the year ended June
30, 1999 to approximately  56.7% of total revenue during the year ended June 30,

                                       33
<PAGE>
2000. Increased service utilization in our Argentine operations also contributed
to the increase in payroll and  employee  benefit  expenses as a  percentage  of
total revenue.

     Because  of the  continuing  difficulties  encountered  in  the  healthcare
reimbursement  environment,  we accelerated  our emphasis  during fiscal 2000 on
increasing the quality of our revenue in exiting service areas or  substantially
reducing  service  where it had become  unprofitable  to  perform  non-emergency
transports   because   of  low   reimbursement   rates   or  a  high   risk   of
non-reimbursement  by payers.  We shifted the focus of our billing  personnel to
place  greater  emphasis  on the  billing  process as opposed to the  collection
process. We instituted mandatory  comprehensive  training for our paramedics and
emergency medical technicians on new standards of documentation of ambulance run
tickets.  We analyzed the various payer classes  within our accounts  receivable
balance and the increasing costs to collect these receivables.

     Based on the  increasingly  unpredictable  nature  of  healthcare  accounts
receivable and the increasing costs to collect those  receivables,  we concluded
that the process  changes had not brought about the benefits  anticipated.  As a
result,  we changed our method of estimating our allowance for doubtful accounts
effective October 1, 1999. Under our new method of estimation, we have chosen to
fully reserve our accounts  receivable  earlier in the collection cycle than had
previously been our practice.  We provide specific allowances based upon the age
of the accounts  receivable within each payer class and also provide for general
allowances based upon historic  collection rates within each payer class.  Payer
classes include Medicare,  Medicaid, and private pay. Accordingly, the effect of
this change was an additional $65.0 million  provision for doubtful  accounts in
fiscal  2000,  which  is  stated   separately  in  the  accompanying   financial
statements.  We  anticipate  that this change will  result in  increases  in our
provision rate for doubtful  accounts in future periods.  During fiscal 2000, we
continued to increase our focus on higher quality revenue by reducing the amount
of  non-emergency  ambulance  transports in selected service areas and continued
previously  implemented  initiatives  to maximize the collection of our accounts
receivable.  Also,  during the fiscal  year ended  June 30,  2000,  we  recorded
additional  provisions for doubtful accounts of $9.8 million related to specific
accounts deemed  uncollectible in certain service areas that are being closed or
downsized as part of our restructuring program.

     Provision  for doubtful  accounts was  approximately  $81.2 million for the
year ended June 30,  1999 and  approximately  $160.6  million for the year ended
June 30, 2000.  Provision for doubtful  accounts  increased  from  approximately
14.5% of total revenue for the year ended June 30, 1999 to  approximately  28.2%
of total  revenue  for the year  ended June 30,  2000.  Provision  for  doubtful
accounts,  using the new method of  estimation  but  excluding the $65.0 million
additional  provision  due to the  change in method of  estimation  and the $9.8
million additional  provision for doubtful accounts related to specific accounts
deemed uncollectible in certain service areas that are being closed or downsized
as part of our  restructuring  program,  was  approximately  14.5% of the  total
revenue  for the year  ended  June 30,  1999  and  approximately  15.1% of total
revenue for the year ended June 30, 2000.  The provision  for doubtful  accounts
increased from approximately 19.5% of domestic ambulance service revenue for the
year ended June 30, 1999 to approximately  19.6% of domestic  ambulance  service
revenue for the year ended June 30, 2000,  excluding the additional provision of
$65.0 million  described above and the $9.8 million  additional  provision.  Net
accounts   receivable   on   non-integrated   collection   systems   represented
approximately 7.6% of total net accounts receivable at June 30, 2000.

     Depreciation   increased   approximately   $0.8  million,   or  3.3%,  from
approximately  $24.2  million for the year ended June 30, 1999 to  approximately
$25.0  million  for the year ended June 30,  2000,  primarily  due to  increased
property  and  equipment  from  recent new  contracting  activity.  Depreciation
increased from  approximately  4.3% of total revenue for the year ended June 30,
1999 to approximately 4.4% of total revenue for the year ended June 30, 2000.

     Amortization of intangibles  decreased by  approximately  $0.5 million,  or
5.4%,  from  approximately  $9.2  million  for the year ended  June 30,  1999 to
approximately  $8.7 million for the year ended June 30, 2000.  This decrease was
the result of the  write-off  of  approximately  $22.3  million of  goodwill  in
conjunction  with closure or downsizing  of certain  service areas during fiscal
2000.  Amortization  decreased from  approximately 1.6% of total revenue for the
year ended June 30,  1999 to  approximately  1.5% of total  revenue for the year
ended June 30, 2000.

                                       34
<PAGE>
     Other operating expenses increased  approximately  $29.0 million, or 29.4%,
from $98.7  million  for the year ended June 30,  1999 to  approximately  $127.7
million  for the year ended June 30,  2000.  Of the  approximate  $29.0  million
increase, approximately $3.9 million was attributable to the accrual of proposed
settlements  relating to a Medicare  investigation  and certain Medicaid audits,
approximately  $4.1 million  related to the  write-off  capitalized  acquisition
costs,  costs  relating to the closure of the vehicle  refurbishment  center and
other asset  write-offs,  approximately  $1.1 million  related to  restructuring
consultants  and  attorneys  representing  both us and our lenders in connection
with  resolving the violation of certain  financial  covenants  contained in the
Company's revolving credit agreement,  approximately $2.9 million related to the
write-off of two  investments,  approximately  $2.0 million was  attributable to
operations in services areas with newly acquired  contracts,  approximately $4.2
million was  attributable to the operation of a company that was acquired in the
third quarter of fiscal 1999,  approximately  $3.8 million was  attributable  to
additional  insurance  expense related  primarily to general  liability  claims,
approximately $1.8 million was attributable to the write-off of impaired assets,
and approximately  $1.7 million was attributable to an increase in domestic fuel
costs.  Other operating  expenses  increased from  approximately  17.6% of total
revenue for the year ended June 30, 1999 to approximately 22.4% of total revenue
for the year ended June 30,  2000.  The  increased  service  utilization  in our
Argentine operations also contributed to the increase in operating expenses as a
percentage of total revenue.

     During the third and fourth quarters of fiscal year ended June 30, 2000, we
decided to close or  downsize  26  service  areas and in  connection  therewith,
recorded  restructuring and other charges totaling $34.0 million.  These charges
included $6.6 million to cover severance  costs  associated with the termination
of  approximately  300  employees,  all of whom had been  terminated by June 30,
2001,  lease  termination  and  other  exit  costs of $3.3  million,  and  asset
impairment  charges for goodwill and property and equipment of $22.3 million and
$1.3 million,  respectively. The asset impairments were charged directly against
the related asset  balances.  The service areas  selected for closure  generated
revenue of $38.7  million,  operating  losses of $3.7 million and negative  cash
flow of $1.0 million for the fiscal year ended June 30, 2000.

     During  the first  quarter  of the fiscal  year  ended  June 30,  1999,  we
recorded a $2.5 million charge to cover severance payments to certain members of
senior management all of whom had been terminated by June 30, 1999.

     A summary of  activity in the  Company's  restructuring  reserve,  which is
included  in accrued  liabilities  in the  consolidated  balance  sheets,  is as
follows:

                                                          JUNE 30,
                                                  ------------------------
                                                    2000            1999
                                                  --------        --------
                                                       (IN THOUSANDS)

     Balance at beginning of year                 $  1,328        $  5,407
     Provision                                      34,047           2,500
     Payments/usage                                (27,243)         (6,579)
                                                  --------        --------
     Balance at end of year                       $  8,132        $  1,328
                                                  ========        ========

     Interest expense  increased by $4.5 million,  or 21.0%,  from $21.4 million
for the year ended June 30,  1999 to $25.9  million  for the year ended June 30,
2000.  This increase was caused by higher debt  balances,  fees,  and additional
interest  incurred in  conjunction  with various  waiver  agreements  and higher
interest rates than historically incurred.

     Our  effective  tax rate  decreased  from 42.1% for the year ended June 30,
1999 to 24.8% for the year ended June 30, 2000.  The  decrease in the  effective
tax rate is due to the impact of permanent differences,  primarily consisting of
goodwill  write-offs and amortization and a valuation  allowance.  The permanent
differences  and  the  valuation  allowance  result  in a  reduction  of the tax
benefits which could otherwise be available in a loss year, and thus a reduction

                                       35
<PAGE>
in the effective tax rate. A valuation  allowance of approximately $12.8 million
has been provided  because the company  believes that the  realizability  of the
deferred  tax asset does not meet the more likely than not  criteria  under SFAS
No. 109, "Accounting for Income Taxes."

     During the year ended June 30, 2000, we recorded an  extraordinary  loss on
the expropriation of Canadian  ambulance service licenses of approximately  $1.2
million (net of $0 of income taxes). We received approximately $2.2 million from
the  Ontario  Ministry  of Health as  compensation  for the loss of license  and
incurred costs and wrote-off  assets,  mainly goodwill,  totaling  approximately
$3.4 million.

     The  cumulative  effect of a change in accounting  principle  resulted in a
$541,000  approximate charge (net of tax benefit of approximately  $392,000) and
was related to our expensing of  previously  capitalized  organization  costs in
accordance with Statement of Position 98-5,  "Reporting on the Costs of Start-Up
Activities".

                                       36
<PAGE>
SEASONALITY AND QUARTERLY RESULTS

     The following table reflects certain selected unaudited quarterly operating
results for each quarter of fiscal 2001 and 2000.  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,
                                 1999      1999(1)      2000(2)      2000(3)       2000        2000(4)      2001(5)      2001(6)
                              ---------   ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                           <C>         <C>          <C>          <C>          <C>          <C>          <C>          <C>
(IN THOUSANDS, EXCEPT PER
  SHARE AMOUNTS)
Revenue:
  Ambulance service .......   $ 116,897   $ 121,109    $ 119,902    $ 109,833    $ 101,742    $ 100,202    $ 101,923    $  98,966
  Fire protection .........      13,063      14,551       14,981       14,954       15,724       15,140       15,364       15,345
  Other revenue ...........      11,240      11,447       11,515       10,582       10,772        9,867        9,435        9,836
                              ---------   ---------    ---------    ---------    ---------    ---------    ---------    ---------
  Total revenue ...........     141,200     147,107      146,398      135,369      128,238      125,209      126,722      124,147
  Operating income (loss) .       9,581     (57,978)     (18,002)     (42,921)       3,213      (13,770)     (16,034)    (165,862)
  Net income (loss) .......       1,884     (42,386)     (16,615)     (44,156)      (4,085)     (21,574)     (23,646)    (177,426)
Diluted earnings (loss) per
  share ...................   $    0.13   $   (2.91)   $   (1.14)   $   (3.02)   $   (0.28)   $   (1.47)   $   (1.60)   $  (11.91)
                              =========   =========    =========    =========    =========    =========    =========    =========
</TABLE>

----------

(1)  In the  second  quarter  of  fiscal  2000,  we  recorded  a  $65.0  million
     additional  provision  for  doubtful  accounts  related  to a change in our
     method of estimating doubtful accounts.

(2)  In the third  quarter of fiscal 2000, we recorded  restructuring  and other
     charges of approximately $25.1 million related to the closure or downsizing
     of certain  non-emergency  service  areas and the  reduction  of  corporate
     overhead  and a $3.0 million  additional  provision  for doubtful  accounts
     related to  uncollectible  accounts in those  service  areas that are being
     closed or downsized.

(3)  In the fourth  quarter  fiscal 2000,  we recorded  restructuring  and other
     charges of approximately $18.2 million related to the closure or downsizing
     of certain  non-emergency  service  areas and the  reduction  of  corporate
     overhead,  a $12.2 million  charge to establish  reserves for both reported
     and unreported  workers  compensation  claims and a $6.8 million additional
     provision for doubtful accounts related to uncollectible  accounts in those
     service areas that are being closed or downsized.

(4)  In the  second  quarter  of  fiscal  2001,  we  recorded  a  $10.0  million
     additional  provision for doubtful accounts related to the uncollectibility
     of  receivables  in service areas closed in fiscal 2000. We also recorded a
     $5.2 million  approximate  charge  related to the loss of an exclusive  911
     contract in Lincoln Nebraska.

(5)  In the third quarter of the fiscal 2001, we recorded a $5.0 million  charge
     related  to   increased   claims   experience   in  workers   compensation.
     Additionally  we recorded a $15.0 million  charge for increases in reserves
     for reported  claims as well as to establish  reserves for claims  incurred
     but not reported.

(6)  In the fourth quarter of fiscal 2001, we recorded additional provisions for
     doubtful  accounts  of $16.2  million,  $94.4  million of asset  impairment
     charges,  $9.4 million related to the  disposition of clinic  operations in
     Argentina,  $9.1 million of restructuring and other charges, a $4.1 million
     charge related to the loss of an exclusive 911 contract in Arlington Texas,
     $5.4  million  related to  increased  claim  estimates  on employee  health
     insurance,  $3.0 million  related to the accrual of paid time off for field
     personnel,  $8.4  million  related to  inventory  write-offs,  $1.3 million
     related to Medicare audit, $1.0 million related to write-off of amounts due
     from former seller,  $8.5 million  related to asset  write-offs and reserve
     adjustments at our various  Argentine  subsidiaries,  $3.1 million of other
     asset write-offs,  and $4.0 million related to the put provisions contained
     in a joint venture agreement.

     We have  historically  experienced,  and expect to continue to  experience,
seasonality in quarterly operating results. This seasonality has resulted from a
number of factors,  including  relatively higher second and third fiscal quarter
demand for transport  services in our Arizona and Florida regions resulting from
the greater winter populations in those regions.  Also, our Argentine operations

                                       37
<PAGE>
experience greater  utilization of services by customers under capitated service
arrangements in the fourth quarter, as compared to the other three quarters,  as
South America enters into its winter season.

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

LIQUIDITY AND CAPITAL RESOURCES

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

     During the year ended June 30, 2001,  cash flow provided by operations  was
approximately $5.4 million resulting  primarily from net losses of approximately
$226.7 million,  offset by non-cash expenses of depreciation and amortization of
approximately  $29.2 million,  provision for doubtful  accounts of approximately
$102.5  million,  and  write-offs  of assets of  approximately  $114.8  million.
Additionally, we experienced an increase in accrued liabilities of approximately
$39.1  million and an increase in accounts  receivable  of  approximately  $62.1
million.  Cash flow used in operations was  approximately  $11.4 million for the
year ended June 30, 2000.

     Cash used in financing  activities was  approximately  $5.9 million for the
year ended June 30, 2001,  primarily due to  repayments on the revolving  credit
facility  and on other debt and  capital  lease  obligations.  Cash  provided by
financing activities was approximately $28.3 million for the year ended June 30,
2000.

     Cash used in investing  activities was  approximately  $1.3 million for the
year ended June 30, 2001 due primarily to capital  expenditures of approximately
$5.8  million  offset by proceeds  from the sale of property  and  equipment  of
approximately  $2.0 million and decreases in other assets of approximately  $2.5
million.  Cash used in investing  activities was approximately $13.8 million for
the  year  ended  June  30,  2000,  due  in  part  to  capital  expenditures  of
approximately $15.9 million.

     Our gross  accounts  receivable  as of June 30, 2001 and June 30, 2000 were
approximately $168.5 million and approximately $231.7 million, respectively. Our
accounts  receivable,  net of the allowance for doubtful  accounts,  were $103.3
million and $143.9 million as of such dates,  respectively.  We believe that the
decrease in net accounts receivable is due to many factors, including additional
provision  for  doubtful  accounts and overall  improvement  in  collections  on
existing operations.

     The allowance for doubtful  accounts  decreased  from  approximately  $87.8
million at June 30, 2000 to  approximately  $65.2 million at June 30, 2001.  The
primary reason for this decrease is the write-off of  uncollectible  receivables
offset by the current  period  provision  for  doubtful  accounts.  As discussed
above, we have instituted initiatives to improve our collection procedures,  and
we have changed our method of estimating  our  allowance  for doubtful  accounts
effective in the second quarter of fiscal 2000. While  management  believes that
we now have a more predictable method of determining the realizable value of our
accounts  receivable,   based  on  continuing  difficulties  in  the  healthcare
reimbursement  environment,  there can be no  assurance  that  there will not be
additional future write-offs.

     We have set  aside  operational  cash  flow  into  designated  "loss  fund"
accounts,  which cash is restricted to the payment of our deductible obligations
as  required  under  certain   insurance   policies.   In  connection  with  our
comprehensive  general,  automobile and professional policies, we have set aside
$1.6 million and budgeted for an  additional  $800,000 of cash deposits into the
"loss fund" account to fund  deductible  payments  related to fiscal 2001 policy
year claims;  approximately  $3.0 million of cash  deposits into the "loss fund"
account have been  budgeted to fund  deductible  payments  related to the fiscal
2002 policy year claims.  Additionally,  during  fiscal 2002,  we will set aside

                                       38
<PAGE>
approximately  $6.3  million  of  operational  cash flow,  in order to fund,  in
advance,  our anticipated  total  deductible  obligation for fiscal 2002 workers
compensation claims.

     Under the terms of a joint  venture  agreement  between  a  minority  joint
venture partner and us, the partner was entitled to "put" the minority  interest
to us on  October  20,  2000 for a payment  anticipated  to be a net  payment of
approximately  $5.1  million.  We then had the  option  to delay the "put" for a
period of one year. The minority joint venture  partner  indicated his intention
to exercise the "put" option and we indicated  our  intention to delay the "put"
for a year. We have commenced  negotiations with the partner.  Our liquidity and
financial  position may be materially  adversely affected if the exercise of the
put is valid and we are unable to negotiate  satisfactory payment terms with the
partner.

     We have a $143.0  million  revolving  credit  facility,  as  amended,  that
matures March 16, 2003. The credit facility is unsecured and is  unconditionally
guaranteed  on a joint and several  basis by  substantially  all of our domestic
wholly owned current and future  subsidiaries.  Interest rates and  availability
under the revolving  credit  facility  depend on our meeting  certain  financial
covenants,  including total debt leverage ratios,  total debt to  capitalization
ratios, and fixed charge ratios.

     The revolving  credit  facility  initially was priced at the greater of (i)
prime rate,  (ii) Federal Funds rate plus 0.5% plus the  applicable  margin,  or
(iii) a LIBOR-based rate. The LIBOR-based rates ranged from LIBOR plus 0.875% to
LIBOR plus 1.75%. As discussed below,  during March 2000, all borrowings  became
priced at prime rate plus 0.25%. At June 30, 2001, the weighted average interest
rate was  approximately  7.0% on the revolving  credit  facility.  Approximately
$143.0  million was  outstanding  on the revolving  credit  facility at June 30,
2001. We have received a compliance waiver, as amended,  regarding the financial
covenants  contained in our revolving credit facility,  which covers the periods
from December 31, 1999 through December 3, 2001. The waiver, as amended,  covers
the  representations  and warranties  related to no material  adverse changes as
well as the following financial covenants:  total debt leverage ratio, the total
debt to total  capitalization  ratio,  and the fixed charge coverage ratio.  The
waiver, as amended, provides , among other things, that no additional borrowings
will be available to us through the end of the waiver period,  December 3, 2001.
There  is no  assurance  that we are in  compliance  with  all of the  technical
conditions of the waiver, as amended.

     As LIBOR  contracts  expired in March 2000, all  borrowings  were priced at
prime rate plus 0.25 percentage  points and interest is payable monthly.  During
the  period  covered by the  waiver,  as  amended,  we are  accruing  additional
interest  expense at a rate of 2.0% per annum on the outstanding  balance on the
revolving  credit facility unless certain pay down  requirements  are met during
that  period.  We have  recorded  approximately  $3.8  million  related  to this
additional interest expense through June 30, 2001, approximately $3.3 million of
which remains in accrued liabilities at June 30, 2001. Also outstanding are $6.5
million  in  letters  of credit  issued  under the  revolving  credit  facility.
Management  believes that an amendment to the revolving  credit  facility  could
substantially  alter the terms and conditions of the revolving  credit facility,
including potentially higher interest rates, which could have a material adverse
effect on our financial  condition.  There can be no assurance that an amendment
or  restructuring  of  the  revolving  credit  facility  can  be  negotiated  on
satisfactory terms, or at all.

     Although we are not aware of any event of default under either the terms of
the  revolving  credit  facility  (as a result of the waiver  agreement)  or our
$150.0  million 7 7/8% Senior  Notes due 2008,  and  although  there has been no
acceleration  of the  repayment of the revolving  credit  facility or the 7 7/8%
Senior  Notes  due  2008,  the  entire  balance  of these  instruments  has been
reclassified  as a  current  liability  at June  30,  2001  in the  accompanying
financial  statements  in  accordance  with  Statement of  Financial  Accounting
Standards (SFAS) No. 78  "Classification of Obligations that are Callable by the
Creditor".  This reclassification,  together with significant losses incurred in
fiscal 2000 and 2001,  has  resulted in our  independent  accountants  modifying
their  fiscal  year  end  audit  report  to  include  a  statement   that  these
uncertainties  create substantial doubt about our ability to continue as a going
concern.  The existence of a going concern  statement may make it more difficult
to  pursue  additional   capital  through  public  or  private  debt  or  equity
financings.  Our  inability  to  successfully  negotiate  an  amendment  to  our
revolving credit facility could have a material adverse effect on our ability to
continue as a going concern.

                                       39
<PAGE>
     Including  the  classification  of  entire  outstanding  balance  under the
revolving  credit  facility as a current  liability at June 30,  2001,  we had a
working capital  deficiency of approximately  $273.4 million,  including cash of
approximately  $8.7  million,  compared  to  a  working  capital  deficiency  of
approximately $192.5 million,  including cash of approximately $10.3 million, at
June 30, 2000.

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

     In February 1998, we entered into a $5.0 million  capital  equipment  lease
line of credit.  The lease line of credit  matures at varying dates through July
2003. The lease line of credit is priced at the higher of LIBOR plus 1.7% or the
commercial  paper rate plus 1.7%. At June 30, 2001 the interest rate was 5.7% on
the lease line of credit.  Approximately  $0.9 million was  outstanding  on this
line of credit at June 30, 2001.

     In March 1998,  we issued  $150.0  million of 7 7/8% Senior  Notes due 2008
(the  Notes)  under  Rule 144A  under the  Securities  Act of 1933,  as  amended
(Securities Act). Interest under the Notes is payable semi-annually on September
15 and March 15, and the Notes are not callable  until March 2003 subject to the
terms  of the  Indenture.  We  incurred  expenses  related  to the  offering  of
approximately  $5.3 million and will  amortize  these costs over the life of the
Notes.  We  recorded a $258,000  discount  on the Notes and will  amortize  this
discount over the life of the Notes.  Unamortized  discount at June 30, 2001 was
approximately  $173,000, and this amount is recorded as an offset to the current
portion of long-term debt in the  consolidated  financial  statements.  In April
1998, we filed a registration  statement under the Securities Act relating to an
exchange offer for the Notes. The registration became effective on May 14, 1998.
The  Notes  are   general   unsecured   obligations   of  our  company  and  are
unconditionally  guaranteed on a joint and several basis by substantially all of
our domestic wholly owned current and future  subsidiaries.  See Note 4 of notes
to our consolidated  financial  statements.  The Notes contain certain covenants
that, among other things, limit our ability to incur certain indebtedness,  sell
assets, or enter into certain mergers or consolidations.

     Assuming  that we receive  continued  waivers  under our  revolving  credit
facility  (of which  there can be no  assurance),  we expect that cash flow from
operations  and our  existing  cash  reserves  will be  sufficient  to meet  our
regularly scheduled debt service and our planned operating and capital needs for
the twelve months subsequent to June 30, 2001. Through our restructuring program
we have closed or downsized several locations that were negatively impacting our
cash flow. In addition, we have significantly reduced our corporate overhead. We
have  improved  the quality of revenue and have  experienced  an upward trend in
daily cash collections.

     As noted above, we have received a series of waivers since February 2000 in
relation to our  noncompliance  with  financial  covenants  under our  revolving
credit facility.  We are currently  operating under a waiver that will expire on
December 3, 2001. We will not be in compliance with these financial covenants on
December 3, 2001, and there can be no assurance that we will continue to receive
waivers  from our  lenders.  If we fail to receive  additional  waivers from our
lenders  we will be in  default  under  our  revolving  credit  facility  or the
agreement  for the senior notes or both. A default under the senior notes or our
revolving credit facility may, among other things,  cause all amounts owed by us
under such facilities to become due immediately upon such default. Any inability
to obtain additional waivers could have a material adverse effect on our ability
to continue as a going concern.

     We have been actively  working with the lenders under our revolving  credit
facility  during the term of the  covenant  waivers  to  structure  a  long-term
financing  solution.  In  connection  with these  efforts,  we have  retained an
investment banking firm to assist us in evaluating  available  alternatives.  We
believe our current  business  model and strategy can generate  sufficient  cash
flow to provide a basis for a new long-term  agreement with our current  lenders
or to restructure our debt.  However,  there can be no assurance we will sustain
our  targeted  levels  of  operating  cash  flow or that  we can  accomplish  an

                                       40
<PAGE>
arrangement  with regard to our debt on terms  acceptable  to us, or at all. Any
such  arrangement  may involve the conversion of all or a portion of our debt to
equity  or  other  similar  transactions  that  could  result  in  material  and
substantial dilution to existing stockholders.  If we issue equity securities in
connection with any such  arrangement,  the percentage  ownership of our current
stockholders  will be materially  reduced,  and such equity  securities may have
rights, preferences or privileges senior to our current stockholders.  If we are
unable to reach a long-term agreement with our lenders, our business,  operating
results,  financial condition and ability to continue as a going concern will be
materially adversely affected.

     During the year ended  June 30,  1999,  we made  investments  in  companies
offering  ambulance  services,   ambulance  billing  services,  and  alternative
transportation  services.  We contributed cash, accounts  receivable,  and fixed
assets totaling approximately $1.9 million at June 30, 1999 to these businesses.
During the year ended June 30, 2000, one of these  investments was determined to
be impaired and amounts  totaling $1.6 million were  written-off.  These amounts
represent the initial investment plus other amounts loaned to the company. These
investments have been recorded using the cost method of accounting.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

     Our results of operations for the periods  discussed have not been affected
significantly  by inflation or foreign currency  fluctuations.  Our revenue from
international operations is denominated primarily in the currency of the country
in which it is operating. At June 30, 2001, our balance sheet reflects a $14,000
cumulative  equity  adjustment  (increase)  from foreign  currency  translation.
During  the year ended  June 30,  2000,  we  recognized  a $173,000  translation
adjustment  as a component of the  extraordinary  loss on the  expropriation  of
Canadian ambulance service licenses.  Although we have not incurred any material
exchange gains or losses to date, there can be no assurance that fluctuations in
the currency exchange rates in the future will not have an adverse effect on our
business,  financial condition, cash flows, and results of operations. We do not
currently  engage in  foreign  currency  hedging  transactions.  However,  as we
continue to expand our international operations, exposure to gains and losses on
foreign currency transactions may increase. We may choose to limit such exposure
by entering  into  forward  exchange  contracts  or engaging in similar  hedging
strategies.  See "Risk Factors -- We face additional  risks  associated with our
international operations contained in Item 7 of this Report.

                                       41
<PAGE>
                                  RISK FACTORS

     THE FOLLOWING  RISK FACTORS,  IN ADDITION TO THOSE  DISCUSSED  ELSEWHERE IN
THIS REPORT, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING US AND OUR BUSINESS.

WE HAVE SIGNIFICANT INDEBTEDNESS.

     We  have   significant   indebtedness.   As  of  June  30,  2001,  we  have
approximately $295.7 million of consolidated indebtedness,  consisting primarily
of $150.0  million of 7 7/8% senior notes due in 2008 and  approximately  $143.0
million  outstanding under our revolving credit facility maturing March 2003. We
currently are operating  under a waiver relating to  noncompliance  with certain
technical financial covenants imposed by the revolving credit facility.  We have
complied  with all  payment  obligations  arising  under  our  revolving  credit
facility and the senior notes.

     Our  ability  to  service  our  debt   depends  on  our  future   operating
performance,  which is affected by  governmental  regulations,  the state of the
economy,  financial factors, and other factors,  certain of which are beyond our
control.  We may not generate sufficient funds to enable us to make our periodic
debt payments.  Failure to make our periodic debt payments could have a material
adverse effect on our ability to continue as a going concern.

WE ARE  OPERATING  UNDER A TEMPORARY  COMPLIANCE  WAIVER WITH RESPECT TO CERTAIN
TECHNICAL FINANCIAL COVENANTS UNDER OUR REVOLVING CREDIT FACILITY.

     The  agreement  governing  the terms of the senior notes  contains  certain
covenants limiting our ability to:

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

     The revolving credit facility contains other more restrictive covenants and
requires us to satisfy certain financial tests,  including a total debt leverage
ratio,  a total debt to total  capitalization  ratio,  and a fixed charge ratio.
Currently,  we are not in compliance  under our revolving  credit  facility with
respect  to  certain  technical  financial  covenants,  including  a total  debt
leverage ratio, a total debt to total  capitalization  ratio, and a fixed charge
ratio.  Our ability to satisfy  those  covenants  can be affected by events both
within and beyond our control, and we may be unable to meet these covenants.

     We have received waivers of covenant  compliance under our revolving credit
facility  covering  periods from February  2000 through  December 3, 2001, as we
were not in  compliance  with the  technical  financial  covenants  as described
above.  In accordance  with the waiver,  we are accruing an additional 2% annual
deferred interest on the amounts we owe under our revolving credit facility.  To
date,  we have paid  approximately  $4.0 million in  principal on our  revolving
credit facility in connection with the covenant waivers.

     A breach of the waiver or any of the  covenants  or other terms of our debt
could  result in an event of  default  under the credit  facility  or the senior
notes or both,  which  could have a material  adverse  effect on our  ability to
continue as a going  concern.  We may not be in  compliance  with certain of the
technical  financial  conditions  of the waiver;  however,  the lenders have not
asserted that we have failed to comply with any such requirements.

WE MAY NOT CONTINUE TO RECEIVE WAIVERS OF FINANCIAL COVENANTS FROM OUR LENDERS.

     As noted above, we have received a series of waivers since February 2000 in
relation to our noncompliance with certain technical  financial  covenants under
our revolving  credit facility.  We are currently  operating under a waiver that
will  expire on  December  3,  2001.  We will not be in  compliance  with  these
financial  covenants  on  December 3, 2001,  and we may not  continue to receive

                                       42
<PAGE>
waivers  from our  lenders.  If we fail to receive  additional  waivers from our
lenders  we may  be in  default  under  our  revolving  credit  facility  or the
agreement  for the senior notes or both. A default under the senior notes or our
revolving credit facility may, among other things,  cause all amounts owed by us
under such facilities to become due immediately upon such default. Any inability
to obtain additional waivers could have a material adverse effect on our ability
to continue as a going concern.

OUR INDEPENDENT  PUBLIC ACCOUNTANTS HAVE RENDERED A REPORT THAT INCLUDES A GOING
CONCERN STATEMENT.

     The  senior  notes and the  credit  facility  have been  reclassified  as a
current  liability under  accounting  rules relating to debt that is callable by
the creditor  since we are operating  under a waiver under our credit  facility.
This, in addition to the  significant  operating  losses incurred in fiscal 2000
and  2001,  as  well  as  those  items  discussed  in  Note  1 of the  Notes  to
Consolidated  Financial  Statements,  have  resulted in our  independent  public
accountants   modifying   their  report  to  include  a  statement   that  these
uncertainties  create substantial doubt about our ability to continue as a going
concern.  The existence of a going  concern  statement  generally  makes it more
difficult to obtain trade credit,  insurance and surety  bonding,  or additional
capital through public or private debt or equity  financings.  The going concern
statement  also  may  make it  more  difficult  to  maintain  existing  customer
relationships and to initiate new customer relationships.

WE MAY NOT BE ABLE TO RESTRUCTURE OUR EXISTING DEBT.

     We have been actively  working with the lenders under our revolving  credit
facility  during the term of the  covenant  waivers  to  structure  a  long-term
financing  solution.  In  connection  with these  efforts,  we have  retained an
investment banking firm to assist us in evaluating  available  alternatives.  We
believe our current  business  model and strategy can generate  sufficient  cash
flow to provide a basis for a new long-term  agreement with our current  lenders
or to restructure  our debt.  However,  we may be unable to sustain our targeted
levels of operating cash flow, and we may be unable to accomplish an arrangement
with regard to our debt on terms  acceptable to us, or at all. If we are able to
reach an arrangement with our lenders,  the agreement may involve the conversion
of all or a portion  of our debt to equity or other  similar  transactions  that
could result in material and substantial dilution to existing  stockholders.  If
we  issue  equity  securities  in  connection  with any  such  arrangement,  the
percentage ownership of our current stockholders will be materially reduced, and
such equity securities may have rights, preferences, or privileges senior to our
current  stockholders.  If we are unable to reach a long-term agreement with our
lenders,  our business,  operating results,  financial  condition and ability to
continue as a going concern will be materially adversely affected.

WE MAY NOT BE ABLE TO SUSTAIN SUFFICIENT OPERATING CASH FLOW.

     Despite  significant net losses in fiscal 2001 and 2000, our  restructuring
efforts  have  enabled us to  self-fund  our  obligations  since March 2000 from
existing  cash reserves and operating  cash flow.  However,  we may be unable to
sustain our targeted  levels of operating  cash flow. Our ability to sustain our
operating  cash  flow will  depend  upon  various  factors,  including  industry
conditions, economic conditions, competitive conditions, and other factors, many
of which are beyond our control. If we are unable to sustain our targeted levels
of operating  cash flow, or in the event of an  unanticipated  cash  requirement
(such as an adverse litigation outcome,  reimbursement delays, or other matters)
we will need to pursue additional debt or equity  financing.  Any such financing
may not be  available  on terms  acceptable  to us, or at all.  The terms of our
waiver agreement currently restrict us from borrowing under the revolving credit
facility.  The revolving  credit facility and the senior notes also restrict our
ability to provide  collateral to any  prospective  lender.  Failure to maintain
adequate  operating  cash  flow  will  have a  material  adverse  effect  on our
business,  operating results,  financial condition, and ability to continue as a
going concern.

WE OPERATE THROUGH OUR SUBSIDIARIES.

     We are a holding  company and conduct  substantially  all of our operations
through  our  direct  and  indirect  subsidiaries.  To make  our  periodic  debt
payments,  we must have  access to the cash  flow of our  subsidiaries,  whether
through loans, dividends,  distributions,  or otherwise.  While our subsidiaries
are  separate  and  distinct  legal  entities,  we  have  always  operated  on a
consolidated basis for cash management purposes. In addition,  substantially all

                                       43
<PAGE>
of our  subsidiaries  have guaranteed the senior notes and the revolving  credit
facility. Nonetheless, our ability to make our debt payments could be subject to
legal, contractual,  and other restrictions that could hinder or prevent us from
gaining  access  to the  cash  flow of our  subsidiaries.  With  respect  to any
obligation not specifically  guaranteed by the subsidiaries,  those separate and
distinct legal entities have no obligation,  contingent or otherwise, to pay any
amounts.  Accordingly,  the  holders  of any  debt of our  subsidiaries  will be
entitled to payment from the assets of such subsidiaries prior to the holders of
any of our general, unsecured obligations. As of June 30, 2001, our subsidiaries
had $2.9 million of debt in addition to their guarantees of the senior notes and
the revolving credit facility.

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

     We receive a  substantial  portion of our payments for  ambulance  services
from third-party payers, including Medicare,  Medicaid, and private insurers. We
received   approximately   81%  of  our  ambulance  fee  collections  from  such
third-party  payers  during  fiscal  2000,  including   approximately  23%  from
Medicare.  In fiscal  2001,  we  received  approximately  87% of  ambulance  fee
collections from these third parties, including approximately 25% from Medicare.

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

     We also face the continuing  risk of  non-reimbursement  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  payers
are the obligations of individual patients.  We may not receive whole or partial
reimbursement from these uninsured individuals. We continually review the mix of
activity  between  emergency  and  general  medical  transport  in  view  of the
reimbursement  environment  and evaluate  methods of  recovering  these  amounts
through the collection process.

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

     The risks associated with third-party payers and uninsured  individuals and
the inability to monitor and manage accounts receivable  successfully could have
a material adverse effect on our business,  financial condition, cash flows, and
results of  operations.  Our  collection  policies or our allowance for doubtful
accounts receivable may not be adequate.

PROPOSED RULES MAY ADVERSELY AFFECT OUR REIMBURSEMENT RATES OF COVERAGE.

     During June 1997, the Health Care Financing  Administration issued proposed
rules that would revise Medicare  policy on the coverage of ambulance  services.
These  proposed  rules have been  subject to public  comment  and,  despite  the
passage  of new  laws  addressing  changes  to the  reimbursement  of  ambulance
services by Medicare (as  discussed  below),  have not yet been  withdrawn.  The
proposed rules have not been finalized.

     In addition,  the "Balanced  Budget Act of 1997" became law in August 1997.
This law in part provides for the development,  negotiation,  and implementation
of prospective fee schedule for Medicare  reimbursement  of ambulance  services.

                                       44
<PAGE>
The new law also reduces the annual rate adjustment for Medicare  reimbursements
from the Consumer Price Index, or CPI, to CPI less one percentage point.

     Upon  implementation,  the new law  will  require  that  ambulance  service
providers  accept  assignment  whereby we receive payment directly from Medicare
and  accept  such  amount,  along with the  co-pay  and  deductible  paid by the
patient,  as payment in full. The new law also stipulates that individual states
may now elect not to  provide  payment  for  cost-sharing  for  coinsurance,  or
copayments, for dual-qualified (Medicare and Medicaid) beneficiaries.

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

     The  proposed  Medicare  ambulance  fee  schedule  and rule  was  published
September 12, 2000 in the Federal  Register,  to be followed by a 60-day comment
period. On November 30, 2000, HCFA/CMMS notified Medicare carriers that it would
not  implement  the  proposed  fee schedule and rules as scheduled on January 1,
2001. As of this filing,  HCFA/CMMS has not established an  implementation  date
for the final fee schedule and rules.  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 payers and budget pressures on payer sources
could influence the timing and,  potentially,  the ultimate  receipt of payments
and   reimbursements.   A  reduction  in  coverage  or  reimbursement  rates  by
third-party payers, or an increase in our cost structure relative to the rate of
increase  in the CPI,  could have a  material  adverse  effect on our  business,
financial condition, cash flows, and results of operations.

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

     State or local government  regulations or administrative  policies regulate
rate  structures  in most states in which we conduct  ambulance  operations.  In
certain  service areas in which we are the exclusive  provider of services,  the
municipality  or fire district sets the rates for emergency  ambulance  services
pursuant to a master contract and  establishes  the rates for general  ambulance
services that we are permitted to charge. Rates in most service areas are set at
the same amounts for emergency and general ambulance services.  For example, the
State of Arizona  establishes a rate of return on sales we are permitted to earn
in  determining  the  ambulance  service  rates  we may  charge  in that  state.
Ambulance  services revenue generated in Arizona accounted for approximately 13%
of total  revenue for fiscal  2000 and  approximately  15% of total  revenue for
fiscal 2001. We may be unable to receive  ambulance  service rate increases on a
timely basis where rates are regulated or to establish or maintain  satisfactory
rate structures where rates are not regulated.

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

NUMEROUS GOVERNMENTAL ENTITIES REGULATE OUR BUSINESS

     Numerous  federal,  state,  local, and foreign laws and regulations  govern
various aspects of the business of ambulance  service and fire fighting  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

                                       45
<PAGE>
subject to risks of  cancellation or  unenforceability  as a result of budgetary
and other factors and may subject us to certain liabilities or restrictions that
traditionally have applied only to governmental bodies.  Federal,  state, local,
or foreign governments could:

     *    change existing laws or regulations,

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

     *    lower reimbursement levels,

     *    choose to provide services for themselves, or

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

     We could  encounter  difficulty in complying with all  applicable  laws and
regulations.

HEALTH CARE REFORMS AND COST CONTAINMENT MAY AFFECT OUR BUSINESS.

     Numerous  legislative  proposals have been  considered that would result in
major reforms in the U.S.  health care system.  We cannot predict which, if any,
health  care  reforms  may be  proposed  or enacted or the effect  that any such
legislation  would have on our business.  The Health  Insurance  Portability and
Accountability  Act of 1996  (HIPAA),  which  protects  the privacy of patients'
health  information  handled by health care providers and establishes  standards
for its electronic transmission, was enacted on August 21, 1996. The final rule,
which took effect on April 14, 2001,  requires  covered  entities to comply with
the final  rule's  provisions  by April 14,  2003,  and covers all  individually
identifiable  health  information  used or  disclosed by a covered  entity.  Our
Corporate  Compliance  Committee has formed a HIPAA  Subcommittee to address the
impact of HIPAA and to  consider  changes to or  enactment  of  policies  and/or
procedures  which may need to be  implemented  to comply  under the final  rule.
Because  the impact of HIPAA on the health  care  industry  is not known at this
time,  we  may  incur  significant  costs  associated  with  implementation  and
continued compliance with HIPAA or further legislation which may have a material
adverse effect on our business,  financial condition,  cash flows, or results of
operations.

     In  addition,  managed  care  providers  are  focusing on cost  containment
measures while seeking to provide the most  appropriate  level of service at the
most appropriate  treatment facility.  Changing industry practices could have an
adverse effect on our business,  financial condition, cash flows, and results of
operations.

CLAIMS  AGAINST US COULD  EXCEED OUR  INSURANCE  COVERAGE.  WE HAVE  EXPERIENCED
MATERIAL INCREASES IN THE COST OF OUR INSURANCE COVERAGE.

     We are subject to a significant number of accident,  injury and malpractice
claims as a result of the nature of our business and the day-to-day operation of
our vehicle fleet.  The coverage limits of our policies may not be adequate.  In
addition,  we may  experience  claims within our  deductibles  and  self-insured
retentions in amounts greater than expected.  Such increased costs and potential
liabilities in excess of our insurance  coverage  could have a material  adverse
effect  on our  business,  financial  condition,  cash  flows,  and  results  of
operations.  Claims against us,  regardless of their merit or outcome,  also may
have an adverse effect on our reputation and business.

     In fiscal  2000 and  2001,  we  experienced  significant  increases  in the
premiums we have had to pay,  and in the  collateral  or other  advance  funding
required.  We also have increased our deductible and  self-insurance  retentions
under several coverages.

     Many  counties,  municipalities,  and fire  districts  also  require  us to
provide  a  surety  bond  or  other   assurance  of  financial  and  performance
responsibility,  and  the  cost  and  collateral  requirements  associated  with
obtaining such bonds have increased.  Sustained and substantial annual increases
in premiums and requirements for collateral and/or restricted funds could have a
material  adverse effect on our business,  financial  condition,  cash flow, and
results of operations.

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<PAGE>
WE MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET.

     On July 30, 2001,  the Nasdaq Stock Market  notified us that we were not in
compliance with a Nasdaq SmallCap maintenance  standard.  This standard requires
that we maintain at least a $1.00 minimum bid price. Under the Nasdaq notice, we
had until October 29, 2001 to comply with the maintenance requirement.  In order
to  comply,  our  common  stock  had to  trade  above  $1.00  for at  least  ten
consecutive trading days prior to such date.

     On September 27, 2001,  Nasdaq  announced,  effective  immediately,  it was
implementing an across-the-board  moratorium on the minimum bid and public float
requirements for continued listing on Nasdaq. In particular, companies currently
under review for failure to maintain  such  requirements,  as we are,  have been
removed  from the  compliance  process  with respect to the bid price and public
float  requirements.  The suspension of these requirements will remain effective
until January 2, 2002,  and no  deficiencies  will accrue during the  suspension
period.

     On such date Nasdaq  reinstates  these  requirements,  which  currently  is
January 2, 2002, we will again become subject to such requirements. In addition,
if our time period to comply is tolled during Nasdaq's suspension period and not
reset,  we will have  approximately  30 days  from such date to comply  with the
requirement  that our common stock trade above $1.00 for at least 10 consecutive
trading  days.  As of  September  21,  2001,  our common stock has not traded in
excess of $1.00 on any day since the date we received notice from Nasdaq.

     In  addition,  we must  continue  to meet  other  maintenance  requirements
including either  stockholders'  equity,  market  capitalization  or net income.
Nasdaq  has  amended  the old net  tangible  asset test and  replaced  it with a
stockholders'  equity test.  Companies  will have until November 2002 to achieve
compliance  with  the  stockholders'  equity  test if  that  is the  alternative
maintenance standard with which they are complying.

     If we do not satisfy the maintenance requirements,  we may decide to appeal
the decision by Nasdaq to delist our common stock, or we may decide to apply for
quotation on the OTC Bulletin Board or any other  organized  market on which our
shares may be eligible for trading.

     As a result of delisting from the Nasdaq SmallCap  Market,  investors would
have significantly less liquidity,  limited availability of quotations, and more
difficulty  purchasing  and selling our common  stock,  even if our common stock
continues to trade on the OTC Bulletin  Board.  Further,  delisting could reduce
the ability of holders of our common stock to purchase or sell shares as quickly
and as inexpensively as they have done historically.  All of these factors could
have a material adverse effect on the market price of our common stock.

WE DEPEND ON CERTAIN BUSINESS RELATIONSHIPS.

     We depend to a great extent on certain  contracts  with  municipalities  or
fire districts to provide 911 emergency  ambulance  services and fire protection
services.  Our six largest contracts  accounted for approximately 13.9% of total
revenue for the fiscal year ended June 30, 2000 and approximately 16.1% of total
revenue  for the  fiscal  year  ended  June 30,  2001.  One of  these  contracts
accounted for  approximately  3% of total revenue for the fiscal year ended June
30, 2000 and  approximately  4% of total revenue for the fiscal year ended 2001.
Contracts  with  municipalities  or fire  districts  may have certain  budgetary
approval  constraints.  Failure to allocate  funds for a contract may  adversely
affect our ability to continue to perform services without suffering significant
losses.  The loss or  cancellation  of several of these  contracts  could have a
material  adverse effect on our business,  financial  condition,  cash flow, and
results of  operations.  We may not be  successful  in  retaining  our  existing
contracts or in obtaining new contracts for emergency  ambulance services or for
fire protection services.

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

                                       47
<PAGE>
adverse effect on our business,  financial condition, cash flows, and results of
operations. We also face the risk that areas in which we provide fire protection
services through subscription arrangements with residents and businesses will be
converted to tax-supported fire districts or annexed by municipalities.

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

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

WE FACE ADDITIONAL RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

     We currently  maintain  operations  in Latin  America,  with  ambulance and
healthcare  services provided in Argentina,  as well as aircraft rescue and fire
fighting services to several airports in Bolivia.  In addition to other business
risks  discussed  herein,  we are  subject  to  various  risks  associated  with
international operations, including the following:

     *    management of a multi-national organization,

     *    fluctuations in currency exchange rates,

     *    compliance  with  local  laws and other  regulatory  requirements  and
          changes in such laws and requirements,

     *    restrictions on the repatriation of funds,

     *    inflationary conditions,

     *    employment and severance issues,

     *    political and economic instability, including economic recessions,

     *    war or other hostilities,

     *    expropriation or nationalization of assets,

     *    overlap of tax structures and imposition of new taxes, and

     *    renegotiation or nullification of contracts.

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

     Certain of our  international  customers  receive  services under capitated
service arrangements. During periods of high utilization, as we have experienced
in Argentina  particularly  during the winter months, our operations  experience
greater  utilization of services  under these  capitated  service  arrangements.
During  these  periods,  our  operations  incur  increased  expenses  without  a
corresponding increase in revenue.

     Our revenue from international  operations is denominated  primarily in the
currencies of the countries in which we operate. A decrease in the value of such
foreign  currencies  relative  to the U.S.  dollar  could  result in losses from
currency  exchange  rate  fluctuations.  We do not  currently  engage in foreign
currency hedging transactions. In the future, we may seek to limit such exposure
by  entering  into  forward-foreign  exchange  contracts  or engaging in similar
hedging  strategies.  Any  currency  exchange  strategy may be  unsuccessful  in
avoiding  exchange-related  losses,  and the  failure to manage  currency  risks
effectively  may have a  material  adverse  effect  on our  business,  financial

                                       48
<PAGE>
condition, cash flows, and results of operations.  In addition,  revenue we earn
in foreign  countries may be subject to taxation by more than one  jurisdiction,
thereby adversely affecting our earnings.

WE ARE IN A HIGHLY COMPETITIVE INDUSTRY.

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

     *    quality of medical care,

     *    historical response time performance,

     *    customer service,

     *    financial stability, and

     *    personnel policies and practices.

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

     *    governmental entities (including fire districts),

     *    hospitals,

     *    other national ambulance service providers,

     *    large regional ambulance service providers, and

     *    local and volunteer private providers.

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

     Tax-supported  fire districts,  municipal fire  departments,  and volunteer
fire departments  represent the principal  providers of fire protection services
for residential and commercial  properties.  Private providers  represent only a
small portion of the total fire protection market and generally provide services
where a tax-supported  municipality or fire district has decided to contract for
these  services  or has  not  assumed  the  financial  responsibility  for  fire
protection.  In these situations, we provide services for a municipality or fire
district on a contract  basis or provide fire  protection  services  directly to
residences  and  businesses  who subscribe for this service.  We cannot  provide
assurance that:

     *    we will be able continue to maintain current contracts or subscription
          or to obtain  additional fire protection  business on a contractual or
          subscription basis;

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

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

WE DEPEND ON OUR MANAGEMENT AND OTHER KEY PERSONNEL.

     Our success  depends upon our ability to recruit and retain key  personnel.
We could  experience  difficulty  in retaining  our current key  personnel or in
attracting and retaining necessary additional key personnel. Low unemployment in
certain market areas currently makes the recruiting,  training, and retention of
full-time and part-time personnel more difficult and costly,  including the cost
of overtime wages.  Our internal growth will further  increase the demand on our
resources  and  require the  addition of new  personnel.  We have  entered  into
employment  agreements with certain of our executive  officers and certain other
key  personnel.  Failure  to retain or  replace  our key  personnel  may have an
adverse effect on our business.

                                       49
<PAGE>
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated  financial  statements as of June 30, 2001 and for each of
the fiscal  years in the  three-year  period ended June 30, 2001  together  with
related  notes  and the  report  of  Arthur  Andersen  LLP are set  forth on the
following pages.

                                       50
<PAGE>
                    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  (collectively,   the
Company) as of June 30, 2001 and 2000, and the related  consolidated  statements
of  operations,  changes in  stockholders'  equity  (deficit),  cash flows,  and
comprehensive income (loss) for each of the three years in the period ended June
30, 2001. These consolidated  financial  statements and the schedule referred to
below are the responsibility of the Company's management.  Our responsibility is
to express an opinion on these  consolidated  financial  statements and schedule
based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  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, 2001 and 2000, and the results of their  operations
and their  cash flows for each of the three  years in the period  ended June 30,
2001, in conformity with accounting  principles generally accepted in the United
States.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the  Company  is  operating  under a waiver  of  certain
financial  covenants   contained  in  its  revolving  credit  facility,   has  a
significant working capital deficiency,  cannot borrow additional funds from its
revolving credit facility,  and incurred  significant losses for the years ended
June 30, 2000 and 2001. These as well as other matters raise  substantial  doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in Note 1. The financial  statements do not
include any adjustments  relating to the  recoverability  and  classification of
asset carrying  amounts or the amount and  classification  of  liabilities  that
might result should the Company be unable to continue as a going concern.

     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 of
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audits of the basic  financial  statements  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.

                             /s/ ARTHUR ANDERSEN LLP

Phoenix, Arizona
  October 12, 2001

                                       51
<PAGE>
                             RURAL/METRO CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                              2001         2000
                                                                            ---------    ---------
                                                                                (IN THOUSANDS)
<S>                                                                         <C>          <C>
ASSETS
CURRENT ASSETS
Cash ....................................................................   $   8,699    $  10,287
Accounts receivable, net of allowance for doubtful accounts of $65,229
  and $87,752 respectively ..............................................     103,260      143,905
Inventories .............................................................      13,173       19,070
Prepaid expenses and other ..............................................       5,192        6,552
                                                                            ---------    ---------
          Total current assets ..........................................     130,324      179,814
PROPERTY AND EQUIPMENT, net .............................................      57,999       85,919
INTANGIBLE ASSETS, net ..................................................      92,424      207,200
OTHER ASSETS ............................................................      17,787       18,284
                                                                            ---------    ---------
                                                                            $ 298,534    $ 491,217
                                                                            =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable ........................................................   $  12,915    $  16,135
Accrued liabilities .....................................................      96,340       57,087
Current portion of long-term debt .......................................     294,439      299,104
                                                                            ---------    ---------
          Total current liabilities .....................................     403,694      372,326
LONG-TERM DEBT, net of current portion ..................................       1,286        2,850
NON-REFUNDABLE SUBSCRIPTION INCOME ......................................      15,701       14,989
OTHER LIABILITIES .......................................................          --          101
                                                                            ---------    ---------
          Total liabilities .............................................     420,681      390,266
                                                                            ---------    ---------
MINORITY INTEREST .......................................................       8,379        5,360
                                                                            ---------    ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
  issued at June 30, 2001 and 2000.......................................
Common stock, $.01 par value, 23,000,000 shares authorized,
  14,899,920 and 14,626,336 shares outstanding at June 30, 2001 and
  2000, respectively ....................................................         152          149
Additional paid-in capital ..............................................     137,948      137,603
Accumulated deficit .....................................................    (267,401)     (40,670)
Cumulative translation adjustment .......................................          14         (252)
Treasury stock, at cost, 149,456 shares at June 30, 2001 and 2000 .......      (1,239)      (1,239)
                                                                            ---------    ---------
          Total stockholders' equity (deficit) ..........................    (130,526)      95,591
                                                                            ---------    ---------
                                                                            $ 298,534    $ 491,217
                                                                            =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       52
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                   2001         2000         1999
                                                                                ---------    ---------    ---------
                                                                              (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                                             <C>          <C>          <C>
REVENUE
   Ambulance services .......................................................   $ 402,833    $ 467,741    $ 467,632
   Fire protection services .................................................      61,573       57,549       50,490
   Other ....................................................................      39,910       44,784       43,244
                                                                                ---------    ---------    ---------
         Total net revenue ..................................................     504,316      570,074      561,366
                                                                                ---------    ---------    ---------
OPERATING EXPENSES
   Payroll and employee benefits ............................................     301,055      323,285      297,341
   Provision for doubtful accounts ..........................................     102,470       95,623       81,227
   Provision for doubtful accounts-- change in accounting estimate ..........          --       65,000           --
   Depreciation .............................................................      21,809       25,009       24,222
   Amortization of intangibles ..............................................       7,352        8,687        9,166
   Other operating expenses .................................................     142,009      127,743       98,739
   Asset impairment charges .................................................      94,353           --           --
   Loss on disposition of clinic operations .................................       9,374           --           --
   Contract termination costs and related asset impairment ..................       9,256           --           --
   Restructuring charge and other ...........................................       9,091       34,047        2,500
                                                                                ---------    ---------    ---------
         Total expenses .....................................................     696,769      679,394      513,195
                                                                                ---------    ---------    ---------
OPERATING INCOME (LOSS) .....................................................    (192,453)    (109,320)      48,171
Interest expense, net .......................................................      30,001       25,939       21,406
Other .......................................................................       2,402       (2,890)          70
                                                                                ---------    ---------    ---------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE ..................................    (224,856)    (132,369)      26,695

PROVISION FOR (BENEFIT FROM) INCOME TAXES ...................................       1,875      (32,837)      11,231
                                                                                ---------    ---------    ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE ..............................................    (226,731)     (99,532)      15,464

EXTRAORDINARY LOSS ON EXPROPRIATION OF CANADIAN AMBULANCE SERVICE
LICENSES (NET OF INCOME TAXES) ..............................................          --       (1,200)          --

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET OF AN
INCOME TAX BENEFIT OF $392) .................................................          --         (541)          --
                                                                                ---------    ---------    ---------
NET INCOME (LOSS) ...........................................................   $(226,731)   $(101,273)   $  15,464
                                                                                =========    =========    =========
INCOME (LOSS) PER SHARE
   Basic--
     Income (loss) before extraordinary loss and cumulative effect of
      a change in accounting principle ......................................   $  (15.38)   $   (6.82)   $    1.07
     Extraordinary loss on expropriation of Canadian ambulance service
      licenses ..............................................................          --        (0.08           --
     Cumulative effect of a change in accounting principle ..................          --        (0.04)          --
                                                                                ---------    ---------    ---------
Net income (loss) ...........................................................   $  (15.38)   $   (6.94)   $    1.07
                                                                                =========    =========    =========
   Diluted--
     Income (loss) before extraordinary loss and cumulative effect of
      a change in accounting principle ......................................   $  (15.38)   $   (6.82)   $    1.06
     Extraordinary loss on expropriation of Canadian ambulance service
      licenses ..............................................................          --        (0.08           --
     Cumulative effect of a change in accounting principle ..................          --        (0.04)          --
                                                                                ---------    ---------    ---------
Net income (loss) ...........................................................   $  (15.38)   $   (6.94)   $    1.06
                                                                                =========    =========    =========
AVERAGE NUMBER OF SHARES OUTSTANDING--BASIC .................................      14,744       14,592       14,447
                                                                                =========    =========    =========
AVERAGE NUMBER OF SHARES OUTSTANDING--DILUTED ...............................      14,744       14,592       14,638
                                                                                =========    =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       53
<PAGE>
                             RURAL/METRO CORPORATION

    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR
                  THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                        RETAINED
                                                          ADDITIONAL    EARNINGS                  CUMULATIVE
                                       PREFERRED  COMMON   PAID-IN    (ACCUMULATED    DEFERRED    TRANSLATION  TREASURY
                                         STOCK    STOCK    CAPITAL      DEFICIT)    COMPENSATION  ADJUSTMENT    STOCK       TOTAL
                                         -----    -----    -------      --------    ------------  ----------    -----       -----
<S>                                    <C>        <C>     <C>         <C>           <C>           <C>          <C>        <C>
(IN THOUSANDS)
BALANCE, June 30, 1998 .............               $144   $ 134,078    $  45,139       $(349)        $  --     $(1,239)   $ 177,773
  Issuance of 430,829 shares of
   common stock ....................         --       4       3,706           --          --            --          --        3,710
  Tax benefit related to the
   exercise of nonqualified stock
   options and vesting of stock
   grants ..........................         --      --           8           --          --            --          --            8
  Amortization of deferred
   compensation ....................         --      --          --           --         349            --          --          349
   Cumulative translation
    adjustment .....................                 --          --           --          --          (465)         --         (465)
Net income .........................         --      --          --       15,464          --            --          --       15,464
                                       --------    ----   ---------    ---------       -----         -----     -------    ---------

BALANCE, June 30, 1999 .............         --     148     137,792       60,603          --          (465)     (1,239)     196,839
  Issuance of 121,828 shares of
   common stock ....................         --       1         654           --          --            --          --          655
   Cancellation of shares
   previously issued in acquisitions         --      --        (843)          --          --            --          --         (843)
  Change in cumulative
   translation adjustment due to
   expropriation of Canadian
   ambulance service licenses ......         --      --          --           --          --           173          --          173
   Cumulative translation
    adjustment .....................         --      --          --           --          --            40          --           40
Net loss ...........................         --      --          --     (101,273)         --            --          --     (101,273)
                                       --------    ----   ---------    ---------       -----         -----     -------    ---------

BALANCE, June 30, 2000 .............         --     149     137,603      (40,670)         --          (252)     (1,239)      95,591
  Issuance of 273,584 shares of
   common stock ....................         --       3         345           --          --            --          --          348
  Cumulative translation
   adjustment ......................         --      --          --           --          --           266          --          266
Net loss ...........................         --      --          --     (226,731)         --            --          --     (226,731)
                                       --------    ----   ---------    ---------       -----         -----     -------    ---------

BALANCE, June 30, 2001 .............   $     --    $152   $ 137,948    $(267,401)      $  --         $  14     $(1,239)   $(130,526)
                                       ========    ====   =========    =========       =====         =====     =======    =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       54
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                  2001         2000         1999
                                                                                ---------    ---------    ---------
                                                                                          (IN THOUSANDS)
<S>                                                                             <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .........................................................     $(226,731)   $(101,273)   $  15,464
Adjustments to reconcile net income (loss) to cash provided by (used in)
  operating activities--
  Write-off of assets included in restructuring charge ....................         4,092       28,873           --
  Write-off of assets included in contract termination ....................         8,086           --           --
  Write-off of other impaired assets ......................................        94,353           --           --
  Loss on disposition of clinic operations ................................         9,374           --           --
  Extraordinary loss ......................................................            --        1,200           --
  Cumulative effect of a change in accounting principle ...................            --          541           --
  Depreciation and amortization ...........................................        29,161       33,696       33,388
  Amortization of deferred compensation ...................................            --           --           80
  Amortization of gain on sale of real estate .............................          (101)        (104)        (103)
  (Gain) loss on sale of property and equipment ...........................          (326)         (80)         143
  Provision for doubtful accounts .........................................       102,470      160,623       81,227
  Undistributed earnings (loss) of minority shareholder ...................         3,019       (2,890)          70
  Amortization of discount on Senior Notes ................................            26           26           26
Change in assets and liabilities, net of effect of businesses acquired--
  Increase in accounts receivable .........................................       (62,099)    (119,219)    (112,030)
  (Increase) decrease in inventories ......................................         5,811       (3,370)      (3,244)
  Decrease in prepaid expenses and other ..................................         1,147        2,501        2,335
  Increase (decrease) in accounts payable .................................        (2,654)      (1,669)       2,692
  Increase (decrease) in accrued liabilities and other liabilities ........        39,013         (889)      (3,030)
  Increase in nonrefundable subscription income ...........................           712           80        1,227
  Increase (decrease) in deferred income taxes ............................            --       (9,438)       3,702
                                                                                ---------    ---------    ---------
      Net cash provided by (used in) operating activities .................         5,353      (11,392)      21,947
                                                                                ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) on revolving credit facility, net .................        (3,765)      33,307       27,500
Repayment of debt and capital lease obligations ...........................        (2,773)      (5,704)      (7,794)
Borrowings under capital lease obligations ................................           283           --           --
Issuance of common stock ..................................................           348          655        1,785
                                                                                ---------    ---------    ---------
       Net cash provided by (used in) financing activities ................        (5,907)      28,258       21,491
                                                                                ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for businesses acquired .........................................            --           --      (12,665)
Proceeds from the expropriation of Canadian ambulance services licenses ...            --        2,191           --
Net proceeds from the disposition of clinic operations ....................            28           --           --
Capital expenditures ......................................................        (5,774)     (17,131)     (24,485)
Proceeds from the sale of property and equipment ..........................         1,969        1,300          403
(Increase) decrease in other assets .......................................         2,477         (159)      (5,557)
                                                                                ---------    ---------    ---------
       Net cash used in investing activities ..............................        (1,300)     (13,799)     (42,304)
                                                                                ---------    ---------    ---------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE ...................................           266           40         (465)
                                                                                ---------    ---------    ---------
INCREASE (DECREASE) IN CASH ...............................................        (1,588)       3,107          669
CASH, beginning of year ...................................................        10,287        7,180        6,511
                                                                                ---------    ---------    ---------
CASH, end of year .........................................................     $   8,699    $  10,287    $   7,180
                                                                                =========    =========    =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Fair market value of stock issued to employee benefit plan ................     $      --    $      --    $   1,933
                                                                                =========    =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       55
<PAGE>
                             RURAL/METRO CORPORATION

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                     2001         2000         1999
                                                   ---------    ---------    ---------
                                                             (IN THOUSANDS)
<S>                                                <C>          <C>          <C>
NET INCOME (LOSS) ..............................   $(226,731)   $(101,273)   $  15,464
   Foreign currency translation adjustments ....        266           40         (465)
                                                   ---------    ---------    ---------
COMPREHENSIVE INCOME (LOSS) ....................   $(226,465)   $(101,233)   $  14,999
                                                   =========    =========    =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       56
<PAGE>
                             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,  fire protection  services,  alternative
transportation services, home health care services and urgent home medical care,
in 25 states, the District of Columbia and Latin America.  In the United States,
the Company  provides 911  emergency  and  non-emergency  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 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 six largest  contracts  accounted  for 16%,  14% and 13% of total
revenue for the fiscal years ended June 30, 2001,  2000 and 1999,  respectively,
with  the  largest  of  the  six  contracts   accounting  for  4%,  3%  and  3%,
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.

     RESTRUCTURING, REVOLVING CREDIT FACILITY DEFAULT AND MANAGEMENT'S PLANS

     UPDATE

     The  Company has  incurred  net losses of  approximately  $226.7 and $101.3
million  for the  years  ended  June 30,  2001 and  2000,  and as a  result,  is
operating under a waiver of covenant compliance of financial covenants under the
Company's  revolving  credit  facility  (See note 4). In  addition,  no  further
amounts can be borrowed under the revolving  credit facility  through the end of
the waiver  period,  December 3, 2001.  The losses  incurred in fiscal year 2001
relate  to  the  write-off  of  impaired  assets,   the  Company's   operational
restructuring  program  involving the closure of certain service areas, the loss
of two exclusive 911 contracts,  the  disposition of clinic  operations in Latin
America,   changes  in  the   estimates   impacting  our  reserves  for  workers
compensation  and  general  liability  matters,  and  additional  provision  for
doubtful  accounts related to closed or closing service areas and  non-transport
related receivables. The losses incurred in fiscal year 2000 primarily relate to
the  Company's  restructuring  program  aimed at closing or  downsizing  certain
underperforming non-emergency service areas, the reduction of corporate overhead
and   additional   provision  for  doubtful   accounts  due  to  the  continuing
difficulties experienced in the healthcare reimbursement environment. See Note 1
for  information  about the  Company's  restructuring  charges  and  method  for
providing for doubtful accounts.

     The Company has been in  discussions  with the  revolving  credit  facility
lenders  ("Lenders")  and has obtained  waivers of covenant  compliance  through
December 3, 2001. The waiver covers the  representations  and warranties related
to no material adverse changes as well as the following financial covenants: the
total debt leverage ratio, the total debt to total  capitalization ratio and the
fixed charge coverage ratio. The waiver stipulates that no additional borrowings
will be available through the end of the waiver period. In addition,  the waiver
(as amended through December 3, 2001) requires the Company (i) to engage certain
financial advisors,  (ii) to meet certain benchmarks for projected cash balances
and expenditures,  (iii) maintain positive consolidated  operating income net of
restructuring  charges,  (iv) to reduce the outstanding balance on the revolving
credit  facility by  $1,250,000 no later than October 31, 2001 and (v) to reduce
the outstanding  balance on the revolving credit facility upon the attainment of
certain cash balance  thresholds.  There is no assurance  that the Company is in
compliance  with all of the conditions of the waiver.  The Company has discussed
with the  Lenders  its failure to  maintain  positive  operating  income (net of
restructuring  charges),  at June 30, 2001, as required under the waiver and the
Lenders  have not  asserted  that the  Company  has  failed to  comply  with any
requirements under the waiver. Although the Company believes no Event of Default

                                       57
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is  continuing  either under the terms of the  revolving  credit  facility (as a
result of the waiver  agreement)  or the  Company's  $150  million 7 7/8% Senior
Notes due 2008 (the Notes),  and although there has been no  acceleration of the
repayment of the revolving  credit facility or the Notes,  the entire balance of
these   instruments  has  been  reclassified  as  a  current  liability  in  the
accompanying financial statements at June 30, 2001 and 2000.

     Under the waiver of covenant compliance, the Company has agreed to restrict
its access to  additional  funds under the  revolving  credit  facility  through
December 3, 2001.  Although no further amounts may be borrowed,  the Company has
been  self-sufficient  and has not  needed  to  borrow  any  funds  for the last
nineteen months, since March 2000.

     Despite recent net losses, the Company's restructuring efforts have enabled
it to self-fund its  obligations  from existing cash reserves and operating cash
flow since  March  2000.  During  the last  nineteen  months,  the  Company  has
self-funded cash for operations, capital expenditures, principal payments on its
revolving credit facility,  regularly scheduled debt service,  and capital lease
payments.  The Company has been operating  under a waiver of financial  covenant
compliance  related to its revolving credit facility since February 2000 and has
been  actively  working  with its lenders  since that time to obtain a long-term
financing  solution.  The Company  believes that its current  business model and
strategy  can  generate  sufficient  cash  flow to  provide  a  basis  for a new
long-term agreement with its current lenders or to restructure its debt.

     There can be no assurance that the Company's  restructuring efforts will be
successful.  In addition,  an amendment to the revolving credit facility,  could
substantially  alter the terms and conditions of the credit facility,  including
potentially  higher interest rates, which could have a further adverse effect on
the Company. Under current circumstances, the Company's ability to continue as a
going concern depends upon the successful  restructuring of the revolving credit
facility as well as the success of its restructuring  program and the ability to
return to profitability. The financial statements do not include any adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.

     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, 2001, 2000 and 1999, the Company derived approximately 25%,
23% and 24%,  respectively,  of its net ambulance fee collections  from Medicare
and 11%, 11% and 10%, respectively,  from Medicaid. The reimbursement process is
complex and can involve lengthy delays.  Third-party payers 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  payers.  In addition,  third-party  payers 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  payers.  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 payers,  historical  trends and other relevant  information.
This allowance is examined on a quarterly  basis and revised based on changes in
circumstances surrounding the collectibility of receivables.

                                       58
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 payers to control expenditures for health care
could  affect the  revenue,  cash flows,  accounts  receivable  realization  and
profitability of the Company.

     A summary of activity in the  Company's  allowance  for  doubtful  accounts
during the fiscal  years ended June 30, 2001,  2000 and 1999 is as follows.  The
provision  charged to expense  during  fiscal 2000  includes  the $65.0  million
charge recorded in the second quarter relating to the change in methodology used
by the Company in determining  its allowance for doubtful  accounts as described
in the following paragraph. The Company experienced a decrease in collections in
service  areas  that  were  closed or  downsized  due to the  Company's  lack of
physical  presence in the service  area.  In fiscal 2000,  the Company  recorded
charges of $3.0 million and $6.8 million  recorded in the  respective  third and
fourth  quarters for  uncollectible  accounts in those  service  areas that were
identified for closure or downsizing during those periods. Provisions charged to
expense during fiscal 2001 include an additional  $10.0 million charge  recorded
in the second quarter due to the determination of the ultimate  uncollectibility
of accounts  relating to service areas  identified  for closure or downsizing in
fiscal 2000. The fourth quarter of fiscal 2001 included  charges  totaling $16.2
million  related to service areas  identified for closure during that quarter as
well as for other collectibility issues.

                                            JUNE 30,
                               -----------------------------------
                                 2001         2000         1999
                               ---------    ---------    ---------
                                          (IN THOUSANDS)

Balance at beginning of year   $  87,752    $  43,392    $  69,552
Provision charged to expense     102,470      160,623       81,227
Write-offs                      (124,993)    (116,263)    (107,387)
                               ---------    ---------    ---------
Balance at end of year         $  65,229    $  87,752    $  43,392
                               =========    =========    =========

     Effective   October  1,  1999,  the  Company  changed  its  methodology  of
determining its provision for doubtful accounts. This change is being treated as
a change in  accounting  estimate.  During the fiscal year ended June 30,  2000,
management's   analysis  of  the  various  payer  classes  within  our  accounts
receivable balance, the increasingly unpredictable nature of healthcare accounts
receivable,  the increasing costs to collect these  receivables and management's
conclusion that process changes have not brought about the benefits anticipated,
led to this change.  Under the Company's new method of estimating  its allowance
for  doubtful  accounts,  the Company has chosen to fully  reserve its  accounts
receivable  earlier  in the  collection  cycle  than  had  previously  been  the
practice.  The new method  provides  specific  allowances  based upon the age of
accounts  receivable  within  each payer  class and also  provides  for  general
allowances based upon historic  collection rates within each payer class.  Payer
classes include Medicare,  Medicaid and private pay. Accordingly,  the effect of
this change was an  additional  $65.0 million  provision for doubtful  accounts,
which was recorded separately and is reflected in the accompanying  statement of
operations for the fiscal year ended June 30, 2000.

     In August of 1997, then President  Clinton signed the "Balanced  Budget Act
of  1997"  (BBA).   The  BBA  provided  for  certain  changes  to  the  Medicare
reimbursement  system,   including  the  development  and  implementation  of  a
prospective  fee schedule by January  2000 for  ambulance  services  provided to
Medicare  beneficiaries.  The BBA  mandated  that this fee schedule be developed
through a negotiated  rulemaking  process between HCFA/CMS 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, 1999, and 2000 were
increased  by the  Consumer  Price  Index  less one  percentage  point.  The BBA

                                       59
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

required that ambulance  service providers accept assignment of payment directly
from Medicare and accept such amount,  along with the co-pay and deductible paid
by the patient,  as payment in full.  The BBA also  stipulated  that  individual
states may now elect not to provide payment for cost sharing for coinsurance, or
co-payments, for dual-qualified (Medicare and Medicaid) beneficiaries.

     Following the BBA, in January of 1999,  HCFA/CMS announced its intention to
form a  negotiated  rule-making  committee  to  create  a new fee  schedule  for
Medicare reimbursement of ambulance services. The committee convened in February
1999.  In  August  1999,  HCFA/CMS  announced  that  the  implementation  of the
prospective fee schedule as well as the mandatory acceptance of assignment would
be postponed to January 2001. The proposed  Medicare  ambulance fee schedule and
rule was published September 12, 2000 in the Federal Register, to be followed by
a 60-day  comment  period.  On November 30,  2000,  HCFA/CMS  notified  Medicare
carriers  that it would not  implement  the  proposed  fee schedule and rules as
scheduled on January 1, 2001. As of this filing, HCFA/CMS has not established an
implementation date for the final fee schedule and rules.  However,  the Company
has  implemented  a program to comply  with the new rules which  require  that a
physician's  certification  be obtained  for certain  ambulance  transports.  If
implemented,  these  rules  could  result in  contract  renegotiations  or other
actions  by us  to  offset  any  negative  impact  of  the  proposed  change  in
reimbursement  policies that could have a material adverse effect on the Company
business, financial condition, cash flows and results of operations.

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

     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  revenue  generated  from  our
public/private   alliance  in  San  Diego,   fees  associated  with  alternative
transportation,  dispatch,  fleet, billing,  urgent and primary care services in
clinics and home health care  services and is  recognized  when the services are
provided.

     EARNINGS PER SHARE

     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, 2001,  2000 and 1999 are as follows (in  thousands,  except
per share amounts):

<TABLE>
<CAPTION>
                                  2001                                  2000                                    1999
                  -----------------------------------    -----------------------------------    ------------------------------------
                    LOSS         SHARES     PER SHARE     INCOME       SHARES      PER SHARE     INCOME        SHARES      PER SHARE
                 (NUMERATOR)  (DENOMINATOR)   AMOUNT    (NUMERATOR) (DENOMINATOR)    AMOUNT    (NUMERATOR)  (DENOMINATOR)    AMOUNT
                  ---------    -----------  ---------    ---------   -----------   ---------    ---------    -----------   ---------
<S>               <C>          <C>          <C>          <C>          <C>          <C>          <C>           <C>          <C>
Basic EPS .....   $(226,731)      14,744    $  (15.38)   $(101,273)      14,592    $   (6.94)   $  15,464        14,447    $    1.07
                                            =========                              =========                               =========
Effect of stock
options .......          --           --                        --           --                        --           191           --
                  ---------    ---------    ---------    ---------    ---------    ---------    ---------     ---------    ---------
Diluted EPS ...   $(226,731)      14,744    $  (15.38)   $(101,273)      14,592    $   (6.94)   $  15,464        14,638    $    1.06
                  =========    =========    =========    =========    =========    =========    =========     =========    =========
</TABLE>

     As a result of  anti-dilutive  effects,  approximately  169,000  and 39,000
common stock  equivalents  were not included in the  computation of diluted loss
per share for the years ended June 30, 2001 and 2000, respectively.

     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

                                       60
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. During the year ended June 30, 2000,
the Company recognized a $173,000  translation  adjustment as a component of the
extraordinary loss on the expropriation of Canadian ambulance service licenses.

     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 (goodwill) of approximately  $91,298,000 and $205,913,000
and covenants not to compete of approximately  $1,026,000 and $1,117,000 at June
30, 2001 and 2000, 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
approximately   $20,292,000   and   $28,577,000  at  June  30,  2001  and  2000,
respectively.

                                       61
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of  activity  in the  Company's  intangible  asset  balance is as
follows:

<TABLE>
<CAPTION>
                                                                            JUNE 30,
                                                                      ----------------------
                                                                        2001         2000
                                                                      ---------    ---------
                                                                           (IN THOUSANDS)
<S>                                                                   <C>          <C>
Balance at beginning of year                                          $ 207,200    $ 240,360
Amortization expense                                                     (7,352)      (8,687)
Asset impairments (See Note 2)                                          (85,958)          --
Write-offs related to:
  Restructuring of operations (See Note 2)                               (4,092)     (22,250)
  Contract terminations (See Note 2)                                     (8,086)          --
  Disposition of Argentine clinic operations  (See Note 2)               (9,313)          --
  Expropriation of Canadian ambulance service licenses (See Note 2)          --       (2,752)
Other                                                                        25          529
                                                                      ---------    ---------
Balance at end of year                                                $  92,424    $ 207,200
                                                                      =========    =========
</TABLE>

     LONG-LIVED ASSETS

     The  Company  reviews  the  carrying  value of its  long-lived  assets  for
impairment  whenever events or circumstances  indicate that the related carrying
value may not be fully  recoverable  from future  operations.  These reviews are
generally  performed  at the cost  center  level;  cost  centers  represent  the
individual  operating  units within a given  service  area for which  separately
identifiable  cash flow  information is available.  In performing its impairment
analysis,  the Company compares the carrying value of the long-lived  assets for
each  applicable  cost center to the estimated,  undiscounted  future cash flows
associated  with the cost  center.  In cases where the  estimated,  undiscounted
future cash flows are less than the related  carrying value of the cost center's
long-lived assets, an impairment loss is recognized for the amount by which such
carrying  value exceeds the estimated  fair value of such assets.  The estimated
fair  value is  determined  based  on the  present  value  of the cost  center's
estimated  future cash flows  discounted at a rate  commensurate  with the risks
involved.

     ACCRUED LIABILITIES

     Included  in  accrued   liabilities  is   approximately   $11,397,000   and
$11,264,000  for salaries,  wages and related  payroll  expenses,  approximately
$19,715,000  and  $3,171,000  for  general  liability  claims and  approximately
$14,944,000 and $11,315,000 for workers compensation claims at June 30, 2001 and
2000, respectively.

     GENERAL LIABILITY AND WORKERS' COMPENSATION PROGRAMS

     The Company  retains certain levels of exposure with respect to its general
liability and workers'  compensation programs and purchases excess coverage from
third party  insurers for  exposures in excess of those  levels.  In addition to
expensing  premiums  and other costs  relating to excess  coverage,  the Company
establishes  reserves for both  reported  and  incurred but not reported  claims
within its level of retention based on currently  available  information as well
as its historical  experience in settling claims.  The Company adjusts its claim
reserves with an associated  charge or credit to expense as new  information  on
the underlying claims is obtained.

                                       62
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of activity in the Company's  general  liability  claim reserves,
which are included in accrued liabilities in the consolidated balance sheets, is
as follows:

                                           JUNE 30,
                               --------------------------------
                                 2001        2000        1999
                               --------    --------    --------
                                       (IN THOUSANDS)

Balance at beginning of year   $  3,171    $  2,081    $  2,530
Provision charged to expense     22,326       6,146       3,218
Claim payments charged
   against the claim reserve     (5,782)     (5,056)     (3,667)
                               --------    --------    --------
Balance at end of year         $ 19,715    $  3,171    $  2,081
                               ========    ========    ========

     Provisions  charged to expense during fiscal 2000 included a charge of $3.8
million in the fourth quarter for increases in estimated  settlement amounts for
reported  claims.  The  rising  cost of  claims  as well as the cost of  related
litigation  prompted the Company to perform a  comprehensive  review of detailed
information from external advisors,  historical settlement  information and open
claims during the third quarter of fiscal 2001. As a result of this review,  the
Company  recorded a charge of $15.0  million for  increases  in its reserves for
reported  claims as well as to establish  reserves  for claims  incurred but not
reported.   The  Company  engaged  independent  actuaries  to  assist  with  its
evaluation of the adequacy of its general  liability  claim  reserves as of June
30, 2001.

     A  summary  of  activity  in  the  Company's  workers'  compensation  claim
reserves,  which are included in accrued liabilities in the consolidated balance
sheets, is as follows:

                                           JUNE 30,
                               --------------------------------
                                 2001        2000        1999
                               --------    --------    --------
                                        (IN THOUSANDS)

Balance at beginning of year   $ 11,315    $    132    $    570
Provision charged to expense     11,832      18,941       4,929
Claim payments charged
   against the claim reserve     (8,203)     (7,758)     (5,367)
                               --------    --------    --------
Balance at end of year         $ 14,944    $ 11,315    $    132
                               ========    ========    ========

     In connection with the Company's restructuring  activities,  an increase in
the volume of workers  compensation  claims  was  noted.  Provisions  charged to
expense  during  fiscal  2000  included a charge of $12.2  million in the fourth
quarter to establish  reserves  for both  reported and incurred but not reported
claims.   The  Company  had  previously   expensed  the  cost  of  its  workers'
compensation  program as related  payments were made,  and the Company  believes
that this method approximates the accrual method.  Provisions charged to expense
during  fiscal 2001  included a charge of $5.0 million in the third  quarter for
increases  in  reserves  for  unreported  claims  based on  updated  information
received from the Company's  third party claims  administrator,  which indicated
that larger loss  development  factors were necessary for purposes of estimating
the related exposure.  The Company engaged independent  actuaries to assist with
its evaluation of the adequacy of its workers' compensation claim reserves as of
June 30, 2001.

                                       63
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 accounting
principles  generally  accepted in the United States,  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.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 141,  Business  Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets.  SFAS No. 141 requires the purchase  method of  accounting  for business
combinations    initiated    after   June   30,   2001,   and   eliminates   the
pooling-of-interest  method.  The Company believes that the adoption of SFAS No.
141 will not have a significant impact on our financial statements.

     SFAS No. 142, among other things,  prohibits the  amortization  of goodwill
and instead requires an annual  assessment of goodwill  impairment by applying a
fair value based test.  In  addition,  the  standard  includes  provisions  upon
adoption for the reclassification of certain existing recognized intangibles and
reclassification  of certain  intangibles  out of previously  reported  goodwill
balances. SFAS No. 142 requires that any goodwill recorded in connection with an
acquisition  consummated on or after July 1, 2001 not be amortized,  even if the
statement is not adopted in its entirety at that time.  The  effective  date for
SFAS No. 142 is fiscal years  beginning  after December 15, 2001. In conjunction
with early  adoption  provisions,  the Company has chosen to adopt this standard
effective   July  1,  2001.   Any   adjustments  as  a  result  of  the  initial
implementation  of  SFAS  No.  142  impairment  tests  will be  recorded  as the
cumulative  effect of a change in accounting  principle  effective July 1, 2001.
The Company has not yet  determined the amount of such  adjustment,  if any. Net
unamortized goodwill at June 30, 2001 is approximately $ 91.3 million and annual
amortization   expense  under  prior  reporting  rules  would  be  approximately
$3,573,000 for fiscal 2002.

     In  August,  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets," which supercedes SFAS No. 121 and
Accounting   Principles  Board  Opinion  No.  30,   "Reporting  the  Results  of
Operations--  Reporting  the Effect of Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions." The

                                       64
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company is required to adopt SFAS No. 144 during the fiscal year ending June 30,
2003.  The Company does not anticipate  any material  impact  resulting from the
adoption of SFAS No. 144.

     CHANGE IN ACCOUNTING PRINCIPLE

     In accordance  with Statement of Position 98-5,  "Reporting on the Costs of
Start-up Activities," effective July 1, 1999, the Company was required to change
its  accounting  principle  for  organization  costs.  Previously,  the  Company
capitalized  such costs and amortized them using the  straight-line  method over
five years. At June 30, 1999 such unamortized costs totaled $933,000. During the
fiscal  year  ended  June  30,  2000,  the  Company  wrote-off  its  capitalized
organization costs and will expense any future organization costs incurred.  The
write-off was $541,000 (net of a tax benefit of $392,000) and has been reflected
in the  consolidated  statements  of  operation as the  "Cumulative  Effect of a
Change in Accounting Principle" in accordance with APB No. 2.

(2)  ASSET IMPAIRMENTS, RESTRUCTURING AND OTHER CHARGES

     ASSET IMPAIRMENTS

     In connection  with the  budgeting  process for the fiscal year ending June
30, 2002,  which was completed in the fourth quarter of fiscal 2001, the Company
analyzed each cost center within its various  service areas not  identified  for
closure or  downsizing to determine  whether the  associated  long-lived  assets
(e.g.,  property,  equipment  and  goodwill)  would be  recoverable  from future
operations.  Cost centers  represent  individual  operating units within a given
service  area  for  which  separately  identifiable  cash  flow  information  is
available.  The Company  performed this analysis as a result of its expectations
of a challenging  health care  reimbursement  environment as well as anticipated
increases in labor and  insurance  costs with respect to its domestic  ambulance
operations.  This analysis  considered  the results of operations  over the past
year as well as HCFA's  failure to implement  the  ambulance  fee schedule as of
January 1, 2001. The analysis with respect to the Company's Argentine operations
included the impact of the deteriorating  economic and political  environment as
well as information  developed by a third party concerning the  marketability of
these operations during fiscal 2001.

     In order to assess  recoverability,  the Company  estimated the related net
future  cash  flows  for each  cost  center  and  then  compared  the  resulting
undiscounted  amounts to the  carrying  value of each cost  center's  long-lived
assets  (e.g.,  property and equipment  and  goodwill).  It should be noted that
property and  equipment  balances  are  specifically  identified  with each cost
center. Additionally,  goodwill is specifically identified with each cost center
at the time of acquisition and, therefore, related allocations are not necessary
for purposes of performing the impairment analysis.

     For  those  cost  centers  where  estimated  future  net  cash  flows on an
undiscounted basis were less than the related carrying amounts of the long-lived
assets,  an asset  impairment was considered to exist.  The Company measured the
amount of the asset  impairment  for each such cost  center by  discounting  its
estimated future net cash flows using a discount rate of 18.5% and comparing the
resulting amount to the carrying value of its long-lived assets. Based upon this
analysis,  the Company  determined that asset impairment  charges  approximating
$94.4 million were  required for cost centers  within its domestic and Argentine
ambulance  operations.  The asset  impairments were charged directly against the
related asset balances. A summary of the related charge is as follows:

                                       65
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                              PROPERTY,
                                              EQUIPMENT
                                  GOODWILL    AND OTHER     TOTAL
                                  --------    ---------    -------
                                           (IN THOUSANDS)

Domestic ambulance operations      $41,631     $ 6,419     $48,050
Argentine ambulance operations      44,327       1,976      46,303
                                   -------     -------     -------
   Total                           $85,958     $ 8,395     $94,353
                                   =======     =======     =======

     RESTRUCTURING AND OTHER CHARGES

     Restructuring  and Other Charges - During the fourth  quarter of the fiscal
year ended June 30, 2001, the Company  decided to close or downsize nine service
areas and in connection therewith,  recorded restructuring charges in accordance
with EITF 94-3 and other related  charges  totaling $9.1 million.  These charges
included $1.5 million to cover severance  costs  associated with the termination
of approximately 250 employees, all of whom were expected to leave by the end of
fiscal 2002, lease  termination and other exit costs of $2.4 million,  and asset
impairment  charges for goodwill and property and  equipment of $4.1 million and
$1.1 million,  respectively,  related to the impacted  service areas.  The asset
impairments  were  charged  directly  against the related  asset  balances.  The
service  areas  selected for closure or  downsizing  generated  revenue of $17.7
million, operating losses of $4.0 million and negative cash flow of $3.2 million
for the fiscal year ended June 30, 2001.

     The  components of the charge and the  remaining  accrual at June 30, 2001,
are as follows:

                                 CHARGE                       BALANCE AT
                                RECORDED         USAGE      JUNE 30, 2001
                                --------        -------     -------------
Severance costs                  $ 1,475        $   (11)       $ 1,464
Lease termination costs            2,371            (14)         2,357
Write-off of intangible assets     4,092         (4,092)            --
Write-off of impaired assets
  and other costs                  1,153            (52)         1,101
                                 -------        -------        -------

                                 $ 9,091        $(4,169)       $ 4,922
                                 =======        =======        =======

     During the third and fourth  quarters of fiscal  year ended June 30,  2000,
the  Company  decided to close or downsize  26 service  areas and in  connection
therewith, recorded restructuring charges in accordance with EITF 94-3 and other
related charges  totaling $34.0 million.  These  restructuring  charges included
$6.6  million  to cover  severance  costs  associated  with the  termination  of
approximately 300 employees,  all of whom had left the Company by June 30, 2001,
lease  termination  and other exit costs of $3.3 million,  and asset  impairment
charges for  goodwill  and  property  and  equipment  of $22.3  million and $1.9
million,  respectively.  The asset impairments were charged directly against the
related asset balances. The service areas selected for closure generated revenue
of $38.7  million,  operating  losses of $3.7 million and negative  cash flow of
$1.0 million for the fiscal year ended June 30, 2000.

                                       66
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The  components of the charge and the  remaining  accrual at June 30, 2001,
are as follows:

<TABLE>
<CAPTION>
                            CHARGE   FISCAL 2000    BALANCE AT   FISCAL 2001              BALANCE AT
                           RECORDED     USAGE     JUNE 30, 2000     USAGE      OTHER    JUNE 30, 2001
                           --------   --------    -------------   --------    --------  -------------
<S>                        <C>       <C>          <C>            <C>          <C>       <C>
Severance costs            $  6,621   $ (3,092)      $  3,529     $ (4,520)   $  1,361     $    370
Lease termination costs       3,299        (52)         3,247       (1,057)     (1,313)         877
Write-off of intangible
  assets                     22,250    (22,250)            --           --                       --
Write-off of impaired
  assets and other costs      1,877       (521)         1,356       (1,308)        (48)          --
                           --------   --------       --------     --------    --------     --------

                           $ 34,047   $(25,915)      $  8,132     $ (6,885)   $     --     $  1,247
                           ========   ========       ========     ========    ========     ========
</TABLE>

     During  the first  quarter of the fiscal  year  ended  June 30,  1999,  the
Company  recorded a $2.5 million charge to cover  severance  payments to certain
members of senior management all of whom had left the Company by June 30, 1999.

     LOSS ON DISPOSAL OF CLINIC  OPERATIONS  - During the fourth  quarter of the
fiscal  year  ended  June  30,  2001,  the  Company  sold its  Argentine  clinic
operations in exchange for a $3.0 million  non-interest bearing note receivable.
The note, which is included in other assets in the  consolidated  balance sheet,
requires  monthly  principal  payments of $25,000  through April 2011.  The sale
resulted in a loss on disposal of $9.4 million,  including the write-off of $9.3
million of related  goodwill.  The clinic  operations  generated revenue of $4.0
million, operating losses of $1.5 million and negative cash flow of $0.9 million
for the fiscal year ended June 30, 2001.

     CONTRACT TERMINATIONS AND RELATED ASSET IMPAIRMENTS - In November 2000, the
Company  learned that its exclusive 911 contract in Lincoln,  Nebraska would not
be renewed effective December 31, 2000 and in connection  therewith,  recorded a
contract  termination  charge  of  $5.2  million.  This  charge  included  asset
impairments  for related  goodwill  and  equipment  totaling  $4.3  million (the
exclusive 911 contract was acquired in a purchase business combination in fiscal
1995),  $0.8  million  to  cover  severance  costs  associated  with  terminated
employees,  and $0.1 million to cover lease  terminations  and other exit costs.
The asset  impairments  were charged  directly  against the related assets.  The
Lincoln  contract  generated  revenue of $4.7 million,  operating income of $0.4
million  and cash flow of $0.5  million  in fiscal  2000,  its last full year of
operations.

     In May 2001,  the  Company  learned  that its  exclusive  911  contract  in
Arlington,  Texas  would not be  renewed  effective  September  30,  2001 and in
connection  therewith,  recorded a contract  termination charge of $4.1 million.
This charge  included asset  impairments  for related  goodwill and equipment of
$3.9 million  (the  exclusive  911 contract was acquired in a purchase  business
combination in fiscal 1997),  $0.1 million to cover severance  costs  associated
with terminated employees, and $0.1 million to cover lease termination and other
exit costs.  The asset  impairments  were charged  directly  against the related
assets.  The Arlington  contract  generated  revenue of $8.3 million,  operating
income of $0.1  million  and cash flow of $0.5  million in fiscal  2001 its last
full year of operations.

     EXPROPRIATION  OF CANADIAN  AMBULANCE  SERVICE LICENSES - During the fiscal
year ended June 30,  2000,  the Company  recorded an  extraordinary  loss on the
expropriation  of Canadian  ambulance  service  licenses of  approximately  $1.2
million (net of $0 of income taxes).  The Company  received  approximately  $2.2
million  from the  Ontario  Ministry of Health as  compensation  for the loss of
license and incurred costs and wrote-off assets, mainly goodwill,  totaling $3.4
million.

                                       67
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3)  BUSINESS DEVELOPMENT ACTIVITIES

     ACQUISITIONS

     The Company completed no acquisitions  during the years ended June 30, 2001
and 2000 other than the purchase of capital  items and equipment in the ordinary
course of business.

     JOINT VENTURE

     During the fiscal  year ended June 30,  1998,  the Company  entered  into a
joint   venture  to  provide   non-emergency   ambulance   service  and  medical
transportation  in the Maryland,  Washington,  D.C. and northern Virginia areas.
The Company obtained a majority  interest in the joint venture in exchange for a
commitment to provide $8.0 million for  acquisitions by the joint venture in the
greater  Baltimore,  Maryland and Washington,  D.C. areas (which  commitment was
fulfilled  by June  30,  1998)  while  the  other  party  to the  joint  venture
contributed  all of the issued and  outstanding  stock in two ambulance  service
companies in exchange for his minority stake in the joint  venture.  The Company
consolidated the joint venture for financial reporting purposes.

     The joint  venture  agreement  allowed  the  minority  partner to "put" his
interest in the joint venture to the Company. The Company then had the option to
delay its purchase of the minority  partner's interest for a period of one year.
During the second  quarter of the fiscal year ended June 30, 2001,  the minority
partner  elected to exercise the put option and the Company  exercised its right
to delay purchasing the minority  partner's interest until the second quarter of
the fiscal year ending June 30,  2002.  During the  remainder of the fiscal year
ended June 30, 2001, the Company  negotiated with its minority partner regarding
the purchase price of the minority partner's interest. During the fourth quarter
of the fiscal year ended June 30, 2001, the Company  determined  that,  based on
the provisions of the joint venture agreement and negotiations with the minority
partner,  the  anticipated  purchase  price  for  the  minority  interest  would
approximate $5.1 million. The Company included the goodwill of the joint venture
in the asset  impairment  charge described in Note 2. The Company had recorded a
net liability to the minority  partner totaling $1.1 million and,  therefore,  a
charge of  approximately  $4.0 million was recorded in the fourth quarter of the
fiscal year ended June 30, 2001 relating to the anticipated purchase price. This
amount is included in other expense in the consolidated  statement of operations
for the year ended June 30, 2001.

     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. In addition, the Company contracts with
the LLC to provide  billing and collection  services.  Revenue  generated  under
these  contracts  totaled  approximately  $13.4 million,  $10.4 million and $7.3
million for the years ended June 30,  2001,  2000 and 1999,  respectively.  Such
revenue is included in other revenue in the accompanying  consolidated financial
statements.  San Diego Fire and Life Safety Services also contracts with the LLC
to provide emergency response and transportation  services. The Company accounts
for the  activities  of the LLC using the equity  method.  At June 30,  2001 and
2000,  the  Company's  investment  in the LLC  was  approximately  $893,000  and
$1,011,000,  respectively  and such  amounts are included in other assets in the
accompanying  consolidated  financial  statements.  The  Company's  share of the
earnings of the LLC was approximately $780,000,  $1,151,000 and $863,000 for the
years ended June 30, 2001, 2000 and 1999,  respectively.  The Company's share of
such  undistributed  earnings is included in other  revenue in the  accompanying
consolidated financial statements.

                                       68
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     OTHER INVESTMENTS

     During  the year ended June 30,  1999,  the  Company  made  investments  in
companies  offering  ambulance   services,   ambulance  billing  services,   and
alternative  transportation  services.  The Company  contributed cash,  accounts
receivable,  and fixed assets  totaling  approximately  $1.9 million at June 30,
1999 to these  businesses.  These  investments have been recorded using the cost
method of  accounting  and are  included  in other  assets  in the  accompanying
consolidated financial statements.  The Company has determined that one of these
investments  was impaired as of June 30, 2000 and therefore has written off this
investment and related  amounts  loaned to the business.  The amount written off
totaled  approximately  $1.6 million and is included in restructuring  and other
charges in the accompanying  consolidated statement of operations for the fiscal
year ended June 30, 2000.

(4)  PROPERTY AND EQUIPMENT

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

                                                JUNE 30,
                                         ----------------------
                                            2001         2000
                                         ---------    ---------
                                             (IN THOUSANDS)

Equipment ............................   $  57,840    $  64,085
Vehicles .............................      71,628       90,511
Land and buildings ...................      16,896       19,707
Leasehold improvements ...............       8,373        8,923
                                         ---------    ---------
                                           154,737      183,226
Less: Accumulated depreciation .......     (96,738)     (97,307)
                                         ---------    ---------
                                         $  57,999    $  85,919
                                         =========    =========

     Equipment  totaling  $275,000 was acquired  under capital leases during the
year ended June 30, 2001. No equipment was acquired under capital lease or other
financing agreements during the year ended June 30, 2000.

     The Company  held  vehicles  and  equipment  with a net  carrying  value of
approximately   $16,938,000   and   $19,120,000  at  June  30,  2001  and  2000,
respectively, under capital lease agreements.  Accumulated depreciation on these
assets totaled  approximately  $14,283,000  and $13,663,000 at June 30, 2001 and
2000, respectively.

     The  Company  has  pledged  assets  with a net book value of  approximately
$11,754,000 to secure certain of its obligations  under its insurance and surety
bonding program including certain reimbursement  obligations with respect to the
workers' compensation, performance bonds, appeal bonds and other aspects of such
insurance and surety bonding programs.

                                       69
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of activity in the Company's property and equipment balance is as
follows:

                                                             JUNE 30,
                                                       --------------------
                                                         2001        2000
                                                       --------    --------
                                                          (IN THOUSANDS)

Balance at beginning of year                           $ 85,934    $ 95,032
Depreciation expense                                    (21,809)    (25,009)
Additions                                                 5,774      17,131
Asset impairments (See Note 2)                           (8,502)         --
Asset disposals                                          (1,643)     (1,220)
Write-offs related to:
   Disposition of Argentine clinic
    operations (See Note 2)                              (1,740)         --
   Expropriation of Canadian ambulance
    service licenses (See Note 2)                            --         (15)
                                                       --------    --------
Balance at end of year                                 $ 58,014    $ 85,934
                                                       ========    ========

                                       70
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5)  CREDIT AGREEMENTS AND BORROWINGS

     Notes payable and capital lease obligations consisted of the following:

<TABLE>
<CAPTION>
                                                                                   JUNE 30,
                                                                            ----------------------
                                                                               2001         2000
                                                                            ---------    ---------
                                                                                (IN THOUSANDS)
<S>                                                                         <C>          <C>
7 7/8% senior notes due 2008, net of discount of $173,000 and
   $199,000, respectively ...............................................   $ 149,827    $ 149,801
Revolving credit facility ...............................................     143,042      146,807
Capital lease obligations and other notes payable, collateralized by
   property and equipment, at varying rates, from 6.89% to 21.01%, due
   through 2003 .........................................................       2,175        3,808
Unsecured promissory notes payable from acquisitions at varying rates,
   from 6.0% to 9.0%, due through 2006 ..................................         681        1,538
                                                                            ---------    ---------
                                                                              295,725      301,954
Less: Current maturities ................................................    (294,439)    (299,104)
                                                                            ---------    ---------
                                                                            $   1,286    $   2,850
                                                                            =========    =========
</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  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.  Unamortized  discount  at June 30,  2001 and 2000 was  approximately
$173,000 and $199,000,  respectively, and such amounts are recorded as an offset
to long-term debt in the  accompanying  consolidated  financial  statements.  In
April 1998, the Company filed a registration  statement under the Securities Act
relating to an exchange offer for the Notes. 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  for the years  ended  June 30,  2001 and 2000,  results  of
operations and cash flows for the three years ended June 30, 2001, 2000 and 1999
of Rural/Metro Corporation (Parent) and the guarantor subsidiaries  (Guarantors)
and the subsidiaries which are not guarantors (Non-guarantors).

                                       71
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

                           CONSOLIDATING BALANCE SHEET
                               AS OF JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     PARENT       GUARANTORS   NON-GUARANTORS   ELIMINATING    CONSOLIDATED
                                                    ---------     ----------   --------------   -----------    ------------
<S>                                                 <C>           <C>          <C>              <C>            <C>
ASSETS
CURRENT ASSETS
   Cash ......................................      $      --      $   6,763      $   1,936      $      --      $   8,699
   Accounts receivable, net ..................             --         93,471          9,789             --        103,260
   Inventories ...............................             --         13,093             80             --         13,173
   Prepaid expenses and other ................            531          4,320            341             --          5,192
                                                    ---------      ---------      ---------      ---------      ---------
      Total current assets ...................            531        117,647         12,146             --        130,324

PROPERTY AND EQUIPMENT, net ..................             --         57,271            728             --         57,999

INTANGIBLE ASSETS, net .......................             --         86,573          5,851             --         92,424

DUE FROM (TO) AFFILIATES .....................        294,729       (235,817)       (58,912)            --             --

OTHER ASSETS .................................          2,356         13,064          2,367             --         17,787

INVESTMENT IN SUBSIDIARIES ...................       (127,702)            --             --        127,702             --
                                                    ---------      ---------      ---------      ---------      ---------

                                                    $ 169,914      $  38,738      $ (37,820)     $ 127,702      $ 298,534
                                                    =========      =========      =========      =========      =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable ..........................      $      --      $   9,478      $   3,437      $      --      $  12,915
   Accrued liabilities .......................          7,571         73,069         15,700             --         96,340
   Current portion of long-term debt .........        292,869          1,315            255             --        294,439
                                                    ---------      ---------      ---------      ---------      ---------
      Total current liabilities ..............        300,440         83,862         19,392             --        403,694

LONG-TERM DEBT, net of current portion .......             --          1,272             14             --          1,286

NON-REFUNDABLE SUBSCRIPTION INCOME ...........             --         15,701             --             --         15,701
                                                    ---------      ---------      ---------      ---------      ---------

DEFERRED INCOME TAXES ........................             --          1,164         (1,164)            --             --

OTHER LIABILITIES ............................             --             --             --             --             --
                                                    ---------      ---------      ---------      ---------      ---------
      Total liabilities ......................        300,440        101,999         18,242             --        420,681
                                                    ---------      ---------      ---------      ---------      ---------
MINORITY INTEREST ............................             --             --             --          8,379          8,379
                                                    ---------      ---------      ---------      ---------      ---------

STOCKHOLDERS' EQUITY
   Common stock ..............................            152             82             17            (99)           152
   Additional paid-in capital ................        137,948         54,622         34,942        (89,564)       137,948
   Retained earnings (accumulated deficit) ...       (267,401)      (117,965)       (91,035)       209,000       (267,401)
   Cumulative translation adjustment .........             14             --             14            (14)            14
   Treasury stock ............................         (1,239)            --             --             --         (1,239)
                                                    ---------      ---------      ---------      ---------      ---------
      Total stockholders' equity .............       (130,526)       (63,261)       (56,062)       119,323       (130,526)
                                                    ---------      ---------      ---------      ---------      ---------

                                                    $ 169,914      $  38,738      $ (37,820)     $ 127,702      $ 298,534
                                                    =========      =========      =========      =========      =========
</TABLE>

                                       72
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

                           CONSOLIDATING BALANCE SHEET
                               AS OF JUNE 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      PARENT      GUARANTORS   NON-GUARANTORS   ELIMINATING    CONSOLIDATED
                                                    ---------     ----------   --------------   -----------    ------------
<S>                                                 <C>           <C>          <C>              <C>            <C>
ASSETS
CURRENT ASSETS
   Cash .......................................     $      --      $   9,035      $   1,252      $      --       $  10,287
   Accounts receivable, net ...................            --        126,788         17,117             --         143,905
   Inventories ................................            --         18,018          1,052             --          19,070
   Prepaid expenses and other .................           531          5,129            892             --           6,552
                                                    ---------      ---------      ---------      ---------       ---------
       Total current assets ...................           531        158,970         20,313             --         179,814

PROPERTY AND EQUIPMENT, net ...................            --         76,325          9,594             --          85,919

INTANGIBLE ASSETS, net ........................            --        131,117         76,083             --         207,200

DUE FROM (TO) AFFILIATES ......................       319,747       (256,053)       (63,694)            --              --

OTHER ASSETS ..................................         3,386         12,273          2,625             --          18,284

INVESTMENT IN SUBSIDIARIES ....................        74,464             --             --        (74,464)             --
                                                    ---------      ---------      ---------      ---------       ---------

                                                    $ 398,128      $ 122,632      $  44,921      $ (74,464)      $ 491,217
                                                    =========      =========      =========      =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable ...........................     $      --      $  11,922      $   4,213      $      --       $  16,135
   Accrued liabilities ........................         5,929         43,746          7,412             --          57,087
   Current portion of long-term debt ..........       296,608          2,164            332             --         299,104
                                                    ---------      ---------      ---------      ---------       ---------
       Total current liabilities ..............       302,537         57,832         11,957             --         372,326

LONG-TERM DEBT, net of current portion ........            --          2,384            466             --           2,850

NON-REFUNDABLE SUBSCRIPTION INCOME ............            --         14,971             18             --          14,989

DEFERRED INCOME TAXES .........................            --           (725)           725             --              --

OTHER LIABILITIES .............................            --            101             --             --             101
                                                    ---------      ---------      ---------      ---------       ---------
       Total liabilities ......................       302,537         74,563         13,166             --         390,266
                                                    ---------      ---------      ---------      ---------       ---------

MINORITY INTEREST .............................            --             --             --          5,360           5,360
STOCKHOLDERS' EQUITY
   Common stock ...............................           149             82             17            (99)            149
   Additional paid-in capital .................       137,603         54,622         34,942        (89,564)        137,603
   Retained earnings (accumulated deficit) ....       (40,670)        (6,635)        (2,952)         9,587         (40,670)
   Cumulative translation adjustment ..........          (252)            --           (252)           252            (252)
   Treasury stock .............................        (1,239)            --             --             --          (1,239)
                                                    ---------      ---------      ---------      ---------       ---------
       Total stockholders' equity .............        95,591         48,069         31,755        (79,824)         95,591
                                                    ---------      ---------      ---------      ---------       ---------

                                                    $ 398,128      $ 122,632      $  44,921      $ (74,464)      $ 491,217
                                                    =========      =========      =========      =========       =========
</TABLE>

                                       73
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   PARENT       GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                                  ---------     ----------   --------------   -----------   ------------
<S>                                               <C>           <C>          <C>              <C>           <C>
REVENUE
   Ambulance services .........................   $      --      $ 349,977      $  52,856      $      --      $ 402,833
   Fire protection services ...................          --         60,422          1,151             --         61,573
   Other ......................................          --         35,493          4,417             --         39,910
                                                  ---------      ---------      ---------      ---------      ---------
         Total revenue ........................          --        445,892         58,424             --        504,316
                                                  ---------      ---------      ---------      ---------      ---------

OPERATING EXPENSES
   Payroll and employee benefits ..............          --        261,179         39,876             --        301,055
   Provision for doubtful accounts ............          --         96,253          6,217             --        102,470
   Depreciation ...............................          --         19,043          2,766             --         21,809
   Amortization of intangibles ................          --          5,073          2,279             --          7,352
   Other operating expenses ...................          --        117,644         24,365             --        142,009
   Asset impairment charges ...................          --         32,338         62,015             --         94,353
   Loss on disposition of clinic operations ...          --             --          9,374             --          9,374
   Contract termination costs and related
     asset impairment .........................          --          9,256             --             --          9,256
   Restructuring charge and other .............          --          9,091             --             --          9,091
                                                  ---------      ---------      ---------      ---------      ---------
         Total expenses .......................          --        549,877        146,892             --        696,769
                                                  ---------      ---------      ---------      ---------      ---------

OPERATING LOSS ................................          --       (103,985)       (88,468)            --       (192,453)
   Interest expense, net ......................      28,962             17          1,022             --         30,001
   Other ......................................          --          4,046             --         (1,644)         2,402
                                                  ---------      ---------      ---------      ---------      ---------

LOSS BEFORE INCOME TAXES ......................     (28,962)      (108,048)       (89,490)         1,644       (224,856)

PROVISION FOR (BENEFIT FROM) INCOME TAXES .....          --          3,282         (1,407)            --          1,875
                                                  ---------      ---------      ---------      ---------      ---------
NET LOSS ......................................     (28,962)      (111,330)       (88,083)         1,644       (226,731)

LOSS FROM WHOLLY-OWNED SUBSIDIARIES ...........    (197,769)            --             --        197,769             --
                                                  ---------      ---------      ---------      ---------      ---------
NET LOSS ......................................   $(226,731)     $(111,330)     $ (88,083)     $ 199,413      $(226,731)
                                                  =========      =========      =========      =========      =========
Foreign currency translation adjustments ......          --             --            266             --            266
Comprehensive income (loss) from wholly-owned
  subsidiaries ................................         266             --             --           (266)            --
                                                  ---------      ---------      ---------      ---------      ---------
COMPREHENSIVE LOSS ............................   $(226,465)     $(111,330)     $ (87,817)     $ 199,147      $(226,465)
                                                  =========      =========      =========      =========      =========

</TABLE>

                                       74
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                PARENT      GUARANTORS   NON-GUARANTORS   ELIMINATING   CONSOLIDATED
                                                              ---------     ----------   --------------   -----------   ------------
<S>                                                           <C>           <C>          <C>              <C>           <C>
REVENUE
   Ambulance services .....................................   $      --      $ 391,898      $  75,843      $      --     $ 467,741
   Fire protection services ...............................          --         56,437          1,112             --        57,549
   Other ..................................................          --         37,041          7,743             --        44,784
                                                              ---------      ---------      ---------      ---------     ---------
         Total revenue ....................................          --        485,376         84,698             --       570,074
                                                              ---------      ---------      ---------      ---------     ---------

OPERATING EXPENSES
   Payroll and employee benefits ..........................          --        272,944         50,341             --       323,285
   Provision for doubtful accounts ........................          --         80,823         14,800             --        95,623
   Provision for doubtful accounts--change in accounting
    estimate ..............................................          --         65,000             --             --        65,000
   Depreciation ...........................................          --         22,068          2,941             --        25,009
   Amortization of intangibles ............................          --          6,220          2,467             --         8,687
   Other operating expenses ...............................          --        106,904         20,839             --       127,743
   Restructuring charge and other .........................          --         32,162          1,865             --        34,027
                                                              ---------      ---------      ---------      ---------     ---------
         Total expenses ...................................          --        586,141         93,253             --       679,394
                                                              ---------      ---------      ---------      ---------     ---------

OPERATING LOSS ............................................          --       (100,765)        (8,555)            --      (109,320)
   Interest expense, net ..................................      25,045         (1,125)         2,019             --        25,939
   Other ..................................................          --             --             --         (2,890)       (2,890)
                                                              ---------      ---------      ---------      ---------     ---------

LOSS BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
   EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE .............     (25,045)       (99,640)       (10,574)         2,890      (132,369)

BENEFIT FOR INCOME TAXES ..................................      (6,211)       (24,046)        (2,580)            --       (32,837)
                                                              ---------      ---------      ---------      ---------     ---------

LOSS BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF A
   CHANGE IN ACCOUNTING PRINCIPLE .........................     (18,834)       (75,594)        (7,994)         2,890       (99,532)

EXTRAORDINARY LOSS ON EXPROPRIATION OF CANADIAN AMBULANCE
   SERVICE LICENSES .......................................          --             --         (1,200)            --        (1,200)

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE .....          --           (541)            --             --          (541)
                                                              ---------      ---------      ---------      ---------     ---------

NET LOSS ..................................................     (18,834)       (76,135)        (9,194)         2,890      (101,273)

LOSS FROM WHOLLY-OWNED SUBSIDIARIES .......................     (82,439)            --             --         82,439            --
                                                              ---------      ---------      ---------      ---------     ---------

NET LOSS ..................................................   $(101,273)     $ (76,135)     $  (9,194)     $  85,329     $(101,273)
                                                              =========      =========      =========      =========     =========
   Foreign currency translation adjustments ...............          --             --             40             --            40
   Comprehensive income from wholly-owned subsidiaries ....          40             --             --            (40)           --
                                                              ---------      ---------      ---------      ---------     ---------

COMPREHENSIVE LOSS ........................................   $(101,233)     $ (76,135)     $  (9,154)     $  85,289     $(101,233)
                                                              =========      =========      =========      =========     =========
</TABLE>

                                       75
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

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

<TABLE>
<CAPTION>
                                                           PARENT      GUARANTORS   NON-GUARANTORS   ELIMINATING    CONSOLIDATED
                                                         ---------     ----------   --------------   -----------    ------------
<S>                                                      <C>           <C>          <C>              <C>            <C>
REVENUE
  Ambulance services ..............................      $      --      $ 379,653      $  87,979      $      --      $ 467,632
  Fire protection services ........................             --         49,397          1,093             --         50,490
  Other ...........................................             --         38,813          4,431             --         43,244
                                                         ---------      ---------      ---------      ---------      ---------
       Total revenue ..............................             --        467,863         93,503             --        561,366
                                                         ---------      ---------      ---------      ---------      ---------

OPERATING EXPENSES
  Payroll and employee benefits ...................             --        240,341         57,000             --        297,341
  Provision for doubtful accounts .................             --         75,743          5,484             --         81,227
  Depreciation ....................................             --         22,230          1,992             --         24,222
  Amortization of intangibles .....................            214          6,601          2,351             --          9,166
  Other operating expenses ........................             --         81,633         17,106             --         98,739
  Restructuring charge and other ..................             --          2,500             --             --          2,500
                                                         ---------      ---------      ---------      ---------      ---------
       Total expenses .............................            214        429,048         83,933             --        513,195
                                                         ---------      ---------      ---------      ---------      ---------

OPERATING INCOME (LOSS) ............................          (214)        38,815          9,570             --         48,171
   Interest expense, net ...........................        19,675           (139)         1,870             --         21,406
   Other ...........................................            --             --             --             70             70
                                                         ---------      ---------      ---------      ---------      ---------

INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME
   TAXES ...........................................       (19,889)        38,954          7,700            (70)        26,695

PROVISION (BENEFIT) FOR INCOME TAXES ...............        (8,353)        16,332          3,252             --         11,231
                                                         ---------      ---------      ---------      ---------      ---------

                                                           (11,536)        22,622          4,448            (70)        15,464
INCOME FROM WHOLLY-OWNED SUBSIDIARIES ..............        27,000             --             --        (27,000)            --
                                                         ---------      ---------      ---------      ---------      ---------

NET INCOME .........................................     $  15,464      $  22,622      $   4,448      $ (27,070)     $  15,464
                                                         =========      =========      =========      =========      =========

   Foreign currency translation adjustments ........            --             --           (465)            --           (465)
   Comprehensive loss from wholly-owned subsidiaries          (465)            --             --            465             --
                                                         ---------      ---------      ---------      ---------      ---------

COMPREHENSIVE INCOME ...............................     $  14,999      $  22,622      $   3,983      $ (26,605)     $  14,999
                                                         =========      =========      =========      =========      =========
</TABLE>

                                       76
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             PARENT       GUARANTORS   NON-GUARANTORS   ELIMINATING    CONSOLIDATED
                                                            ---------     ----------   --------------   -----------    ------------
<S>                                                         <C>           <C>          <C>              <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES
   Net loss .............................................   $(226,731)     $(111,330)     $ (88,083)     $ 199,413      $(226,731)
   Adjustments to reconcile net loss to cash provided by
    (used in) operations--
    Write-off of assets included in restructuring charge           --          4,092             --             --          4,092
    Write-off of assets included in contract termination           --          8,086             --             --          8,086
    Write-off of other impaired assets ..................          --         32,339         62,014             --         94,353
    Loss on disposition of clinic operations ............          --             --          9,374             --          9,374
    Depreciation and amortization .......................          --         24,116          5,045             --         29,161
    Amortization of gain on sale of real estate .........          --           (101)            --             --           (101)
    (Gain) loss on sale of property and equipment .......          --           (305)           (21)            --           (326)
    Provision for doubtful accounts .....................          --         96,253          6,217             --        102,470
    Undistributed earnings of minority shareholder ......          --             --             --          3,019          3,019
    Amortization of discount on Senior Notes ............          26             --             --             --             26
   Change in assets and liabilities--
    (Increase) decrease in accounts receivable ..........          --        (62,936)           837             --        (62,099)
    Decrease in inventories .............................          --          4,925            886             --          5,811
    Decrease in prepaid expenses and other ..............          --            833            314             --          1,147
    (Increase) decrease in due to/from affiliates .......     227,184        (20,236)        (4,782)      (202,166)            --
    Decrease in accounts payable ........................          --         (2,445)          (209)            --         (2,654)
    Increase (decrease) in accrued liabilities and other
     liabilities ........................................       1,642         29,324          8,047             --         39,013
    Increase (decrease) in nonrefundable subscription
     income .............................................          --            730            (18)            --            712
    Decrease in deferred income taxes ...................          --          1,889         (1,889)            --             --
                                                            ---------      ---------      ---------      ---------      ---------
        Net cash provided by (used in) operating
         activities .....................................       2,121          5,234         (2,268)           266          5,353
                                                            ---------      ---------      ---------      ---------      ---------

CASH FLOW FROM FINANCING ACTIVITIES
   Borrowings (repayments) on revolving credit facility,
    net .................................................      (3,765)            --             --             --         (3,765)
   Repayment of debt and capital lease obligations ......          --         (2,244)          (529)            --         (2,773)
   Borrowings under capital lease obligations ...........          --            283             --             --            283
   Issuance of common stock .............................         348             --             --             --            348
                                                            ---------      ---------      ---------      ---------      ---------
        Net cash used in financing activities ...........      (3,417)        (1,961)          (529)            --         (5,907)
                                                            ---------      ---------      ---------      ---------      ---------

CASH FLOW FROM INVESTING ACTIVITIES
   Net proceeds from the disposition of clinic operations          --             --             28             --             28
   Capital expenditures .................................          --         (6,771)           997             --         (5,774)
   Proceeds from the sale of property and equipment .....          --          1,909             60             --          1,969
   Increase (decrease) in other assets ..................       1,030           (683)         2,130             --          2,477
                                                            ---------      ---------      ---------      ---------      ---------
        Net cash provided by (used in) investing
         activities .....................................       1,030         (5,545)         3,215             --         (1,300)
                                                            ---------      ---------      ---------      ---------      ---------

EFFECT OF CURRENCY EXCHANGE RATE CHANGE .................         266             --            266           (266)           266
                                                            ---------      ---------      ---------      ---------      ---------

INCREASE (DECREASE) IN CASH .............................          --         (2,272)           684             --         (1,588)

CASH, beginning of year .................................          --          9,035          1,252             --         10,287
                                                            ---------      ---------      ---------      ---------      ---------

CASH, end of year .......................................   $      --      $   6,763      $   1,936      $      --      $   8,699
                                                            =========      =========      =========      =========      =========
</TABLE>

                                       77
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                         PARENT       GUARANTORS   NON-GUARANTORS   ELIMINATING    CONSOLIDATED
                                                        ---------     ----------   --------------   -----------    ------------
<S>                                                     <C>           <C>          <C>              <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net loss ..........................................   $(101,273)     $ (76,135)     $  (9,194)     $  85,329      $(101,273)
  Adjustments to reconcile net loss to cash provided
   by (used in) operations--
    Write-off of assets included in restructuring
      charge ........................................          --         28,873             --             --         28,873
    Extraordinary loss ..............................          --             --          1,200             --          1,200
    Cumulative effect of a change in accounting
      principle .....................................          --            541             --             --            541
    Depreciation and amortization ...................          --         28,288          5,408             --         33,696
    Amortization of gain on sale of real estate .....          --           (104)            --             --           (104)
    (Gain) loss on sale of property and equipment ...          --            (71)            (9)            --            (80)
    Provision for doubtful accounts .................          --        145,823         14,800             --        160,623
    Undistributed earnings of minority shareholder ..          --             --             --         (2,890)        (2,890)
    Amortization of discount on Senior Notes ........          26             --             --             --             26
  Change in assets and liabilities--
    Increase in accounts receivable .................          --       (107,911)       (11,308)            --       (119,219)
    (Increase) decrease in inventories ..............          --         (3,451)            81             --         (3,370)
    Decrease in prepaid expenses and other ..........          --          2,077            424             --          2,501
    (Increase) decrease in due to/from affiliates ...      64,300         10,932          7,167        (82,399)            --
    Decrease in accounts payable ....................          --            822         (2,491)            --         (1,669)
    Decrease in accrued liabilities and other
     liabilities ....................................       2,162          1,707         (4,758)            --           (889)
    Increase (decrease) in nonrefundable subscription
     income .........................................          --             81             (1)            --             80
    Decrease in deferred income taxes ...............          --         (9,198)          (240)            --         (9,438)
                                                        ---------      ---------      ---------      ---------      ---------
         Net cash provided by (used in) operating
          activities ................................     (34,785)        22,274          1,079             40        (11,392)
                                                        ---------      ---------      ---------      ---------      ---------

CASH FLOW FROM FINANCING ACTIVITIES
  Borrowings on revolving credit facility, net ......      33,307             --             --             --         33,307
  Repayment of debt and capital lease obligations ...          --         (3,993)        (1,711)            --         (5,704)
  Issuance of common stock ..........................         655             --             --             --            655
                                                        ---------      ---------      ---------      ---------      ---------
         Net cash provided by (used in) financing
          activities ................................      33,962         (3,993)        (1,711)            --         28,258
                                                        ---------      ---------      ---------      ---------      ---------

CASH FLOW FROM INVESTING ACTIVITIES
  Proceeds from expropriation of Canadian ambulance
   service licenses .................................          --             --          2,191             --          2,191
  Capital expenditures ..............................          --        (15,174)        (1,957)            --        (17,131)
  Proceeds from the sale of property and equipment ..          --          1,300             --             --          1,300
  Increase in other assets ..........................         783           (751)          (191)            --           (159)
                                                        ---------      ---------      ---------      ---------      ---------
         Net cash provided by (used in) investing
          activities ................................         783        (14,625)            43             --        (13,799)
                                                        ---------      ---------      ---------      ---------      ---------

EFFECT OF CURRENCY EXCHANGE RATE CHANGE .............          40             --             40            (40)            40
                                                        ---------      ---------      ---------      ---------      ---------

INCREASE (DECREASE) IN CASH .........................          --          3,656           (549)            --          3,107

CASH, beginning of year .............................          --          5,379          1,801             --          7,180
                                                        ---------      ---------      ---------      ---------      ---------

CASH, end of year ...................................   $      --      $   9,035      $   1,252      $      --      $  10,287
                                                        =========      =========      =========      =========      =========
</TABLE>

                                       78
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             RURAL/METRO CORPORATION

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

<TABLE>
<CAPTION>
                                                                PARENT     GUARANTORS   NON-GUARANTORS   ELIMINATING    CONSOLIDATED
                                                               ---------   ----------   --------------   -----------    ------------
<S>                                                            <C>         <C>          <C>              <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net income ..............................................    $  15,464    $  22,622      $   4,448      $ (27,070)     $  15,464
  Adjustments to reconcile net income to cash provided by
   (used in) operations--
   Depreciation and amortization ..........................          214       28,831          4,343             --         33,388
   Amortization of deferred compensation ..................           80           --             --             --             80
   Amortization of gain on sale of real estate ............           --         (103)            --             --           (103)
   (Gain) lose on sale of property and equipment ..........           --          281           (138)            --            143
   Provision for doubtful accounts ........................           --       75,743          5,484             --         81,227
   Undistributed earnings of minority shareholder .........           --           --             --             70             70
   Amortization of discount on Senior Notes ...............           26           --             --             --             26
  Change in assets and liabilities, net of effect of
   businesses acquired--
   Increase in accounts receivable ........................           --     (100,770)       (11,260)            --       (112,030)
   Increase in inventories ................................           --       (3,089)          (155)            --         (3,244)
   Decrease in prepaid expenses and other .................           --        1,328          1,007             --          2,335
   (Increase) decrease in due to/from affiliates ..........      (45,103)        (948)        15,087         30,964             --
   Increase in accounts payable ...........................           --        2,273            419             --          2,692
   Increase (decrease) in accrued liabilities and other
   liabilities ............................................          228        2,509         (5,767)            --         (3,030)
   Increase (decrease) in non-refundable
   subscription income ....................................           --        1,286            (59)            --          1,227
   Increase in deferred income taxes ......................           --        3,198            504             --          3,702
                                                               ---------    ---------      ---------      ---------      ---------
         Net cash provided by (used in) operating
         activities .......................................      (29,091)      33,161         13,913          3,964         21,947
                                                               ---------    ---------      ---------      ---------      ---------

CASH FLOW FROM FINANCING ACTIVITIES
  Borrowings on revolving credit facility, net ............       27,500           --             --             --         27,500
  Repayment of debt and capital lease obligations .........           --       (6,573)        (1,221)            --         (7,794)
  Issuance of common stock ................................        1,785           --          4,429         (4,429)         1,785
                                                               ---------    ---------      ---------      ---------      ---------
         Net cash provided by (used in) financing
         activities .......................................       29,285       (6,573)         3,208         (4,429)        21,491
                                                               ---------    ---------      ---------      ---------      ---------

CASH FLOW FROM INVESTING ACTIVITIES
  Cash paid for businesses acquired .......................           --         (445)       (12,220)            --        (12,665)
  Capital expenditures ....................................           --      (20,219)        (4,266)            --        (24,485)
  Proceeds from the sale of property and equipment ........           --          401              2             --            403
  Increase in other assets ................................          271       (3,863)        (1,965)            --         (5,557)
                                                               ---------    ---------      ---------      ---------      ---------
         Net cash provided by (used in) investing
         activities .......................................          271      (24,126)       (18,449)            --        (42,304)
                                                               ---------    ---------      ---------      ---------      ---------

EFFECT OF CURRENCY EXCHANGE RATE CHANGE ...................         (465)          --           (465)           465           (465)
                                                               ---------    ---------      ---------      ---------      ---------

INCREASE (DECREASE) IN CASH ...............................           --        2,462         (1,793)            --            669

CASH, beginning of year ...................................           --        2,917          3,594             --          6,511
                                                               ---------    ---------      ---------      ---------      ---------

CASH, end of year .........................................    $      --    $   5,379      $   1,801      $      --      $   7,180
                                                               =========    =========      =========      =========      =========

SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITIES
  Fair market value of stock issued to employee
  benefit plan ............................................    $   1,933    $      --      $      --      $      --      $   1,933
                                                               =========    =========      =========      =========      =========
</TABLE>

                                       79
<PAGE>
                             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 of $143.0  million as of June 30,  2001,  which was  previously
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.

     The Company has received a compliance  waiver,  as amended,  regarding  the
financial covenants contained in its revolving credit facility which covered the
period  December  31, 1999  through  December 3, 2001.  The waiver,  as amended,
covers the representations and warranties related to no material adverse changes
as well as the following  financial  covenants:  total debt leverage ratio,  the
total debt to  capitalization  ratio and the fixed charge  coverage  ratio.  The
waiver, as amended,  covers,  among other things, that no additional  borrowings
will be available through the end of the waiver period,  December 3, 2001. There
is no assurance that the Company is in compliance  with all of the conditions of
the waiver.  The Company has discussed  with the Lenders its failure to maintain
positive operating income (net of restructuring  charges),  at June 30, 2001, as
required under the waiver and the Lenders have not asserted that the Company has
failed to comply with any  requirements  under the waiver.  Although the Company
believes  no Event of  Default  is  continuing  either  under  the  terms of the
revolving credit facility (as a result of the waiver agreement) or the Company's
$150  million  7 7/8%  Senior  Notes due 2008,  and  although  there has been no
acceleration of the repayment of the revolving credit facility or the Notes, the
entire balance of these instruments has been reclassified as a current liability
in the accompanying financial statements at June 30, 2001.

     As LIBOR  contracts  expired in March 2000, all  outstanding  borrowings at
June 30, 2001 and 2000 were priced at prime rate plus 0.25 percentage points and
interest  is  payable  monthly.  During the period  covered  by the  waiver,  as
amended,  the Company will accrue additional  interest expense at a rate of 2.0%
per  annum  on  the  outstanding  balance  on  the  revolving  credit  facility.
Approximately $143.0 million was outstanding on the revolving credit facility at
June 30, 2001. The weighted average interest rate, including the additional 2.0%
on the revolving credit facility, was 9.0% and 11.75% at June 30, 2001 and 2000,
respectively.

     DEBT MATURITIES

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

                                          NOTES PAYABLE   CAPITAL LEASES
                                          -------------   --------------
                                                  (IN THOUSANDS)

2002 ..................................     $ 293,417        $   1,191
2003 ..................................           343              515
2004 ..................................           143               21
2005 ..................................           150               20
2006 ..................................            82               10
Thereafter ............................           112               --
                                            ---------        ---------
                                            $ 294,247        $   1,757
                                            =========
Less: Amounts representing interest ...                           (279)
                                                             ---------
                                                             $   1,478
                                                             =========

     The  Company  incurred  interest  expense  of  approximately   $30,537,000,
$26,474,000  and  $21,498,000  and paid interest of  approximately  $29,001,000,
$24,169,000  and  $21,669,000  in the years ended June 30, 2001,  2000 and 1999,
respectively.

                                       80
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The  Company  had  outstanding  letters  of credit  totaling  approximately
$6,515,000  at June  30,  2001  and  2000 for  insurance  and  guarantees  under
contracts.

(6)  OTHER CHARGES

     During the fiscal  years ended June 30, 2001 and 2000 the Company  recorded
the following non-recurring or unusual charges:

                                          FISCAL YEAR ENDED JUNE 30,
                                          --------------------------
                                              2001          2000
                                            -------       -------

Argentine Operations                          8,512       $    --
Supply Inventory                              8,442            --
Joint Venture Put Obligation                  4,045            --
Other Charges                                 3,079         4,088
Paid Time Off for Field Personnel             3,010            --
Employee Medical Benefits                     5,429         2,596
Amount Due from Former Owner                    962            --
Medicare/Medicaid Audits                      1,300         3,900
Restructuring Consultants                        --         1,110
Investment Write-Offs                            --         2,937
Write-Off of Disputed Refunds                    --         1,796
                                            -------       -------

                                            $34,779       $16,427
                                            =======       =======

     ARGENTINE OPERATIONS

     The  Company  recorded  charges  totaling  $8.5  million  related  to asset
write-offs and reserve  adjustments.  The Company's  Argentine  subsidiaries had
been  effected by  escalating  political  and  economic  instability  as well as
changes in local management during fiscal 2001. The charge was recorded in other
operating expenses in the consolidated statement of operations.

     SUPPLY INVENTORY

     Medical,  fleet and fire supplies are  maintained  in a central  warehouse,
numerous regional  warehouses,  and multiple stations,  lockers and vehicles.  A
physical  inventory of all  locations at June 30, 2001  revealed a shortage from
recorded levels. Shrinkage, obsolescence and losses due to service area closures
accounted  for the  shortage.  The Company  recorded a charge of $8.4 million to
write-down  its  inventory  balances  to  amounts  determined  by  the  physical
inventory.   The  charge  was  recorded  in  other  operating  expenses  in  the
consolidated statement of operations.

                                       81
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     JOINT VENTURE PUT OBLIGATION

     As described in Note 3, pursuant to the provisions of the underlying  joint
venture agreement, the Company is obligated to purchase the minority interest in
the joint venture from the minority shareholder. In connection with negotiations
with the minority  shareholder  during the fourth  quarter of fiscal  2001,  the
Company  recorded a $4.0 million  charge for the estimated  amount  necessary to
satisfy its obligations  under the agreement.  The Company reflected this charge
as an increase in other expense in the consolidated  statement of operations and
as an increase in minority interest in the consolidated balance sheet.

     OTHER CHARGES

     The Company  recorded  charges  totaling  $3.1 million in fiscal 2001 for a
number of items related to its domestic  operations,  the largest of which was a
$0.7  million  charge  relating  to  administrative  costs paid on behalf of the
Company's  employee benefit plans. These charges were a result of adjustments to
certain estimates for prepaid expenses, accrued liabilities and other items that
were resolved in the fourth quarter of fiscal 2001.

     The Company  recorded  charges  totaling  $4.1 million in fiscal 2000 for a
number of estimates that were resolved related to its domestic operations. These
items included the write-off of capitalized  acquisition  costs for transactions
that were terminated ($0.9 million),  write-off of costs related to unsuccessful
proposals ($0.6 million),  write-off of costs capitalized in connection with the
re-branding of vehicles ($1.0  million),  and  capitalized  costs related to the
Company's vehicle  refurbishment center which was closed in the third quarter of
fiscal 2000 ($1.0  million).  These  charges were  reflected in other  operating
expenses in the consolidated statement of operations.

     PAID-TIME-OFF FOR FIELD PERSONNEL

     During  the  fourth  quarter  of fiscal  2001,  the  Company  analyzed  its
paid-time-off  liabilities and determined that its paid-time-off policy had been
inconsistently  applied in certain  service areas. As a result of this analysis,
the Company  recorded a charge of $3.0 million to bring the liability  into line
with the amount  required under the policy.  This charge was recorded in payroll
and employee benefits in the consolidated statement of operations.

     EMPLOYEE MEDICAL BENEFITS

     The  Company  self-insures  its  employee  medical  coverage.   Based  upon
information  obtained  from its third party claims  administrator  in the fourth
quarter  of fiscal  2001,  the  Company  recorded  a charge of $5.4  million  to
increase its reserve for incurred but not reported employee medical claims.  The
increased reserve was required as a result of continuing increases in healthcare
costs,  including  prescription  drugs.  The charge was reflected in payroll and
employee benefits in the consolidated statement of operations.

     During the second half of fiscal 2000, the Company recorded charges of $2.6
million related to increased usage of employee  medical  benefits  following the
announcement  of its decision to close or downsize  certain  service areas.  The
charges represent the incremental  increase in claims  submissions that occurred
during that  period.  These  charges  were  reflected  in payroll  and  employee
benefits in the consolidated statement of operations.

     AMOUNT DUE FROM FORMER OWNER

     In  connection  with a February 1998  ambulance  company  acquisition,  the
seller indemnified the collection of certain accounts receivable.  In connection
with the settlement of litigation involving the seller during the fourth quarter
of fiscal 2001,  the Company  agreed to release the seller from his  obligations
under the indemnification.  The Company recorded a charge of $1.0 million, which
was  reflected  in other  operating  expenses in the  consolidated  statement of
operations, related to this settlement.

                                       82
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     MEDICARE/MEDICAID AUDITS

     The Company  recorded a charge of $1.3 million for the expected  settlement
of a Medicare  audit of an acquired  ambulance  company for periods prior to the
Company's  acquisition.  This charge,  which was  reflected  in other  operating
expenses  in the  consolidated  statement  of  operations,  was taken based upon
information  obtained  during the fourth quarter of fiscal 2001,  which included
correspondence with the Medicare intermediary.

     The Company recorded charges totaling $3.9 million in the second quarter of
fiscal  2000  for the  expected  settlement  of two  specific  Medicare/Medicaid
audits.  This charge,  which was  reflected in other  operating  expenses in the
consolidated statement of operations,  was taken based upon information obtained
from and negotiations  with the  intermediaries  that occurred during the second
quarter of fiscal 2000.

     RESTRUCTURING CONSULTANTS

     During the second half of the fiscal year ended June 30, 2000,  the Company
incurred costs totaling $1.1 million relating to  restructuring  consultants and
attorneys  representing  both the  Company and its  lenders in  connection  with
resolving  violations of certain financial  covenants contained in the Company's
revolving  credit  agreement.  These  activities  began in the third  quarter of
fiscal  2000.  These costs were  reflected  in other  operating  expenses in the
consolidated statement of operations.

     INVESTMENT WRITE-OFFS

     During  the third  quarter of the fiscal  year  ended  June 30,  2000,  the
Company  wrote-off a $1.3 million  investment in a domestic health care business
as a result of the settlement of related  litigation  which occurred during that
quarter.  Additionally,  the Company  wrote-off a $1.6 million  investment  in a
domestic  alternative  transportation  business during the fourth quarter on the
basis of financial information received from the entity during the quarter. Such
information   indicated  that  the  carrying  value  of  the  Company's  related
investment would not be recoverable.

     WRITE-OFF OF DISPUTED REFUNDS

     The Company  wrote-off  amounts  totaling  $1.8  million  during the fourth
quarter of the fiscal  year ended June 30, 2000  related to amounts  refunded to
Medicare  carriers  that were  expected to be returned to the Company  after the
exhaustion of administrative and appeals processes.  The determination was made,
based on information  received  through the appellate  process during the fourth
quarter,  that the Company was not  reasonably  assured of receiving the amounts
recorded.   This  charge  was  recorded  in  other  operating  expenses  in  the
consolidated statement of operations.

(7)  FINANCIAL INSTRUMENTS

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

     In November 1998, the Company  entered into an interest rate swap agreement
that originally expired in November 2003 and effectively converted $50.0 million
of variable rate borrowings to fixed rate  borrowings.  The Company paid a fixed
rate of 4.72% and received a LIBOR-based  floating  rate.  The weighted  average
floating  rate for the year  ended June 30,  1999 was 5.2%.  As a result of this
swap agreement  interest expense was reduced during the year ended June 30, 1999
by  approximately  $106,000.  In June 1999, the Company  terminated the interest

                                       83
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rate swap agreement and received a termination fee of $604,000.  Such amount was
amortized  against  interest on a  straight-line  basis  beginning  in July 1999
through November 2000.

(8)  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 approximately  $12,077,000  $13,160,000 and $12,769,000 for the years
ended June 30, 2001, 2000 and 1999, respectively.

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

               2002...............................       $  7,120
               2003...............................          5,932
               2004...............................          5,219
               2005...............................          4,578
               2006...............................          3,812
               Thereafter.........................          7,641

     LEGAL PROCEEDINGS

     From time to time,  the  Company is subject to  litigation  and  regulatory
investigations  arising  in the  ordinary  course of  business.  There can be no
assurance  that our  insurance  coverage  will be  adequate  to  cover  all such
liabilities  arising  out of such claims and could  potentially  have a material
adverse effect on the consolidated financial statements.

     On August 25,  1998 and  September  2,  1998,  the  Company  was named as a
defendant  in  two  purported   class  action   lawsuits   (Haskell  and  Ruble,
respectively).  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, Warren S. Rustand, our former Chairman of the Board and Chief Executive
Officer of the Company, James H. Bolin, our former Vice Chairman of the Board of
Directors,  and Robert E. Ramsey,  Jr., our former  Executive Vice President and
former director issued certain false and misleading statements regarding certain
aspects  of the  financial  status  of the  Company  and that  these  statements
allegedly  caused the  Company's  common  stock to be traded at an  artificially
inflated  price. On May 25, 1999 the Arizona state court granted our request for
a stay of the Haskell  action  until the Ruble action is finally  resolved.  The
Company and the individual defendants have moved to dismiss the Ruble action. On
January 25,  2001,  the Court  granted  the motion to  dismiss,  but granted the
plaintiffs  leave to replead.  On March 31, 2001, the plaintiffs  filed a second
amended  complaint.  The Company  and the  individual  defendants  have moved to
dismiss the second amended complaint.  The Court is currently  scheduled to hear
oral argument on that motion in December  2001. If the lawsuits were  ultimately
determined  adversely to the Company, it could have a material adverse effect on
its business, financial condition, cash flows and results of operations.

     OTHER DISPUTES

     In 1994,  the Company  entered  into a  management  agreement  with another
corporation to manage the operations of one of the Company's  subsidiaries  that
does not provide ambulance or fire protection services. The Company also entered
into an option agreement  whereby the corporation had the option to purchase the
assets of the  subsidiary  and the  Company had the option to sell the assets of
this subsidiary. The Company settled this dispute during the year ended June 30,

                                       84
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2000. Losses relating to this dispute totaled approximately $1.3 million and are
included in  restructuring  charges and other in the  consolidated  statement of
operations for the year ended June 30, 2000.

     OPTION AGREEMENT

     During the year ended June 30,  1999,  the Company  entered  into an option
agreement  whereby  the  Company  may  elect  to be  issued a  debenture  in the
principal  amount of $25.0  million by a company  providing  ambulance and other
services in certain areas of Brazil.  In June 2000, the Company  terminated this
option.

     HEALTHCARE COMPLIANCE

     The  healthcare  industry is subject to numerous  laws and  regulations  of
federal,  state, and local governments.  These laws and regulations include, but
are not  necessarily  limited  to,  matters  such as  licensure,  accreditation,
government  healthcare  program  participation  requirements,  reimbursement for
patient  services,   and  Medicare  and  Medicaid  fraud  and  abuse.  Recently,
government activity has increased with respect to investigations and allegations
concerning  possible  violations of fraud and abuse statutes and  regulations by
healthcare  providers.  Violations of these laws and regulations could result in
expulsion from government  healthcare  programs  together with the imposition of
significant fines and penalties,  as well as significant  repayments for patient
services  previously  billed.  The Company  believes that it is substantially in
compliance with fraud and abuse statutes as well as their applicable  government
review and interpretation as well as regulatory actions unknown or unasserted at
this time.

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

                                       85
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9)  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. No discretionary contributions
were approved for the years ended June 30, 2001,  2000 and 1999.  The ESOP held,
for the benefit of all participants, approximately 5% and 6% as of June 30, 2001
and 2000, 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.

     In July 1999,  the  Company's  Board of Directors  approved an amendment to
"freeze" the ESOP,  effective June 30, 1999 with respect to all employees  other
than members of collective  bargaining  agreements that include participation in
the ESOP. All participants'  accounts were fully vested as of June 30, 1999. The
Company does not intend to make any contributions to the ESOP in the future.

     Due to the  decrease  in stock price in the year ended June 30,  2000,  the
ESOP assets were  insufficient  to cover  participant  balances,  therefore  the
Company made an additional contribution of $250,000.

     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  1,150,000 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 Small Cap Market.

     As of June 30, 2001,  617,164 shares of common stock have been issued under
the ESPP.

     1992 STOCK OPTION PLAN

     The  Company's  1992 Stock  Option Plan was  adopted in  November  1992 and
provides  for the  granting of options to acquire  common  stock of the Company,
direct granting of the common stock of the Company (Stock Awards),  the granting
of stock appreciation  rights (SARs), or the granting of other cash awards (Cash
Awards) (Stock Awards, SARs and Cash Awards are collectively  referred to herein
as  Awards).  At June 30,  2001,  the maximum  number of shares of common  stock
issuable  under the 1992 Plan was 6.0  million  of which  approximately  800,000
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.

                                       86
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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.

     2000 NON-QUALIFIED STOCK OPTION PLAN

     The Company's  2000  Non-Qualified  Stock Option Plan was adopted in August
2000 and  provides  for the  granting of options to acquire  common stock of the
Company.  At the time of adoption,  the maximum number of shares of common stock
issuable  under  the Plan  was 2.0  million.  Options  may  only be  granted  as
non-qualified stock options. The 2000 Plan will remain in force until August 11,
2010.

     Options may be granted  only to persons who at the time of grant are either
regular  employees,  not  including  Directors  and  Officers  who  are  regular
employees or Directors who are not employees,  or persons who provide consulting
or other services as independent contractors to the Company.

     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 Committee upon
grant of the options.  Options  granted to date vest over periods not  exceeding
three years.  The exercise price of options will be determined by the Committee,
but may not be less than the par value per share.

                                       87
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                               YEAR ENDED JUNE 30, 2001
                                                               ----------------------------------------------------------
                                                                 NUMBER OF         EXERCISE PRICE        WEIGHTED AVERAGE
                                                                  SHARES              PER SHARE           EXERCISE PRICE
                                                               ------------        --------------        ----------------
<S>                                                            <C>                 <C>                   <C>
Options outstanding at beginning of year...................       3,581,992        $1.25 - $36.00             $  17.35
   Granted.................................................       1,582,750        $1.50 - $ 2.00             $   1.57
   Canceled................................................        (723,074)       $1.25 - $32.25             $  17.10
   Exercised...............................................              --              --                         --
                                                               ------------                                   --------
Options outstanding at end of year.........................       4,441,668        $1.25 - $36.00             $  11.77
                                                               ============                                   ========
Options exercisable at end of year.........................       3,190,462                                   $  14.79
                                                               ============                                   ========
Options available for grant at end of year.................       2,788,361
                                                               ============
 Weighted average fair value per share of options granted..                                                   $   0.72
                                                                                                              ========

                                                                               YEAR ENDED JUNE 30, 2000
                                                               ----------------------------------------------------------
                                                                 NUMBER OF         EXERCISE PRICE        WEIGHTED AVERAGE
                                                                  SHARES              PER SHARE           EXERCISE PRICE
                                                               ------------        --------------        ----------------
Options outstanding at beginning of year..................        3,575,170        $1.25 - $36.00             $  20.99
   Granted................................................          929,109        $1.38 - $ 8.00             $   7.16
   Canceled...............................................         (921,408)       $1.25 - $32.56             $  21.20
   Exercised..............................................             (879)           $1.25                  $   1.25
                                                               ------------                                   --------
Options outstanding at end of year........................        3,581,992        $1.25 - $36.00             $  17.35
                                                               ============
Options exercisable at end of year........................        2,804,758        $1.25 - $36.00             $  18.04
                                                               ============
Options available for grant at end of year................        1,648,037
                                                               ============
Weighted average fair value per share of options granted..                                                    $   3.01
                                                                                                              ========

                                                                               YEAR ENDED JUNE 30, 1999
                                                               ----------------------------------------------------------
                                                                 NUMBER OF         EXERCISE PRICE        WEIGHTED AVERAGE
                                                                  SHARES              PER SHARE           EXERCISE PRICE
                                                               ------------        --------------        ----------------
Options outstanding at beginning of year..................        3,093,905        $1.25 - $36.00             $  26.26
   Granted................................................        1,004,497        $6.63 - $11.81             $   7.45
   Canceled...............................................         (513,590)       $7.13 - $35.00             $  26.90
   Exercised..............................................           (9,642)       $1.25 - $ 7.13             $   6.64
                                                               ------------                                   --------
Options outstanding at end of year........................        3,575,170        $1.25 - $36.00             $  20.99
                                                               ============
Options exercisable at end of year........................        2,520,828        $1.25 - $36.00             $  21.46
                                                               ============
Options available for grant at end of year................        1,655,738
                                                               ============
Weighted average fair value per share of options granted..                                                    $   2.55
                                                                                                              ========
</TABLE>

                                       88
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                     --------------------------------       -----------------------------------------------------
                                     WEIGHTED AVERAGE
   RANGE OF            OPTIONS          REMAINING           WEIGHTED AVERAGE       OPTIONS       WEIGHTED AVERAGE
EXERCISE PRICES      OUTSTANDING     CONTRACTUAL LIFE        EXERCISE PRICE      EXERCISABLE      EXERCISE PRICE
---------------      -----------     ----------------        --------------      -----------      --------------
<S>                  <C>             <C>                    <C>                  <C>             <C>
$ 1.25 - $1.375          12,760            7.91                 $  1.33               12,760         $  1.33
$ 1.50                1,221,250            9.14                 $  1.50              312,108         $  1.50
$ 1.53 - $ 6.63         496,750            7.63                 $  3.68              368,418         $  4.28
$ 6.92 - $ 7.56         451,334            6.86                 $  7.12              451,334         $  7.12
$ 7.69                   17,500            8.22                 $  7.69               13,333         $  7.69
$ 7.81                  484,336            8.08                 $  7.81              372,352         $  7.81
$ 8.00 - $17.25         489,939            5.64                 $ 11.44              473,273         $ 11.47
$18.25 - $24.25         464,709            4.20                 $ 23.57              464,709         $ 23.57
$29.00 - $32.25         679,517            5.70                 $ 30.51              598,602         $ 30.64
$32.50 - $36.00         123,573            6.32                 $ 33.82              123,573         $ 33.82
                     ----------           -----                 -------           ----------         -------
$ 1.25 - $36.00       4,441,668            7.11                 $ 11.77            3,190,462         $ 14.79
                     ==========           =====                 =======           ==========         =======
</TABLE>

     ACCOUNTING FOR STOCK-BASED COMPENSATION

     SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  which defines a
fair value based  method of  accounting  for employee  stock  options or similar
equity  instruments.  SFAS No. 123 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  2001,  2000  and  1999,  using  the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED JUNE 30,
                                                   ------------------------------------------------------------------
                                                         2001                     2000                     1999
                                                   -----------------        -----------------        ----------------
                                                   OPTIONS      ESPP        OPTIONS      ESPP        OPTIONS     ESPP
                                                   -------      ----        -------      ----        -------     ----
<S>                                                <C>         <C>          <C>         <C>          <C>        <C>
Risk-free interest rate.....................        3.74%       2.55%        6.03%       6.32%        5.92%      5.43%
Expected dividend yield.....................        0.00%       0.00%        0.00%       0.00%        0.00%      0.00%
Expected lives in years (after vesting for
 options)...................................        1.35        0.50         1.35        0.50         1.33       0.50
Expected volatility.........................       72.66%      96.75%       67.51%      99.78%       57.66%     85.20%
</TABLE>

                                       89
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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:

                                               OPTIONS      ESPP
                                               -------      ----
For the year ended June 30, 2001 .........     $ 1,134      $188
For the year ended June 30, 2000 .........     $ 2,724      $137
For the year ended June 30, 1999 .........     $ 2,564      $340

     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:

                                               YEAR ENDED JUNE 30,
                                      -----------------------------------
                                         2001         2000         1999
                                      ---------    ---------    ---------
                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss):
   Historical .....................   $(226,781)   $(101,273)   $  15,464
   Pro forma ......................   $(227,606)   $(101,762)   $  11,939
Diluted earnings per share:
   Historical .....................   $  (15.38)   $   (6.94)   $    1.06
   Pro forma ......................   $  (15.44)   $   (6.97)   $    0.82

     The effects of applying SFAS 123 for providing  pro forma  disclosures  for
2001,  2000 and 1999 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.

     During  March 2000,  the FASB issued  Interpretation  44,  "Accounting  for
Certain  Transactions  Involving  Stock  Compensation-an  Interpretation  of APB
Opinion No. 25 (FIN 44), which among other issues, addresses repricing and other
modifications  made to previously issued stock options.  The Company adopted FIN
44 in the first  quarter of its fiscal year end June 30,  2001.  The Company has
not experienced any material impact resulting from the adoption of FIN 44.

     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 has accrued a matching contribution of approximately  $1,712,000 for the
401(k)  Plan  year  ended  December  31,  2000.  The  Company  made  a  matching
contribution to the 401(k) Plan of approximately  $1,906,000 for the 401(k) Plan
year ended December 31, 1999.

                                       90
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) STOCKHOLDERS' EQUITY

     SHAREHOLDER RIGHTS PLAN

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

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

(11) RELATED PARTY TRANSACTIONS

     The Company  incurred  legal fees of  approximately  $130,000,  $96,000 and
$113,000 for the years ended June 30, 2001, 2000 and 1999, respectively,  with a
law firm in which a member of the Board of Directors is a partner.

     The Company incurred rental expense of  approximately  $89,000 and $114,000
in the years  ended June 30, 2001 and 2000,  respectively,  related to leases of
fire and ambulance  facilities with a director of the Company and with employees
that were previously owners of businesses  acquired by the Company.  The Company
incurred rental expense of  approximately  $1,895,000 in the year ended June 30,
1999,  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.

     The Company incurred  consulting fees of approximately  $99,000 and $85,000
in the years ended June 30, 2001 and 2000, respectively,  with a director of the
Company. The Company incurred consulting fees of $213,000 in the year ended June
30, 1999, with two directors of the Company.

(12) 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.

                                       91
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The sources of income (loss) before income taxes were as follows:

                                               YEAR ENDED JUNE 30,
                                       -----------------------------------
                                          2001         2000         1999
                                       ---------    ---------    ---------
                                                 (IN THOUSANDS)

United States ......................   $(177,571)   $(133,641)   $  19,189
Foreign ............................     (47,285)        (861)       7,506
                                       ---------    ---------    ---------
Income (loss) before income taxes ..   $(224,856)   $(134,502)   $  26,695
                                       =========    =========    =========

     The  components of the  provision  for (benefit  from) income taxes were as
follows:

                                                      YEAR ENDED JUNE 30,
                                                -------------------------------
                                                  2001       2000        1999
                                                --------   --------    --------
                                                       (IN THOUSANDS)
Current
   U.S. Federal .............................   $     --   $     --    $     58
   State ....................................        637        750         128
   Foreign ..................................         48      1,560       1,532
                                                --------   --------    --------
        Total current provision .............        685      2,310       1,718
                                                --------   --------    --------
Deferred
   U.S. Federal .............................        500    (33,179)      9,064
   Foreign ..................................        690     (2,360)        449
                                                --------   --------    --------
        Total deferred provision (benefit) ..     1,190    (35,539)      9,513
                                                --------   --------    --------

        Total provision (benefit) ...........   $  1,875   $(33,229)   $ 11,231
                                                ========   ========    ========

     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.

                                       92
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of net deferred taxes were as follows:

                                                               JUNE 30,
                                                       ----------------------
                                                          2001         2000
                                                       ---------    ---------
                                                           (IN THOUSANDS)
Deferred tax liabilities
   Amortization and accelerated depreciation .....     $  (1,024)   $ (19,157)
   Accounts receivable valuation .................       (15,093)     (16,273)
   Accounting method changes .....................        (1,350)      (1,350)
   Other .........................................            --       (1,421)
                                                       ---------    ---------
                                                         (17,467)     (38,201)
Deferred tax assets
   Restructuring charge ..........................        11,882        6,634
   Compensation accruals .........................         1,671          828
   Insurance reserves ............................        14,157        6,314
 Net operating loss benefits .....................        86,398       35,108
 Alternative minimum tax credit carryforwards ....         1,115        1,115
   Business tax credits ..........................           505          505
   Foreign reserves ..............................         2,300          690
 Other ...........................................           625           79
 Valuation allowance .............................      (102,136)     (12,832)
                                                       ---------    ---------
                                                          16,517       38,441
 Net deferred asset/(liability)tax liability .....          (950)         240
 Less current portion ............................            --         (240)
                                                       ---------    ---------
 Net long term deferred tax liability ............     $    (950)   $      --
                                                       =========    =========

     For the year  ended June 30,  1999  income tax  benefits  of  approximately
$8,000 were allocated to additional paid-in capital for tax benefits  associated
with the exercise of nonqualified  stock options and vesting of stock grants. No
income tax  benefits  were  provided for the years ended June 30, 2001 and 2000,
respectively.

                                       93
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The provision  (benefit) 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>
                                                                 JUNE 30,
                                                     --------------------------------
                                                       2001        2000        1999
                                                     --------    --------    --------
                                                              (IN THOUSANDS)
<S>                                                  <C>         <C>         <C>
Federal income tax provision at statutory rate ...   $(78,700)   $(47,076)   $  9,343
State taxes, net of federal benefit ..............     (3,886)     (3,230)        568
Amortization of nondeductible goodwill ...........      5,660       3,792       1,590
Change in valuation allowance ....................     77,853      12,832          --
Other, net .......................................        948         453        (270)
                                                     --------    --------    --------
Provision for (benefit from) income taxes ........   $  1,875    $(33,229)   $ 11,231
                                                     ========    ========    ========
</TABLE>

     The Company has provided a valuation allowance because it believes that the
realizability  of the  deferred tax asset does not meet the more likely than not
criteria  under  SFAS  No.  109.  The  Company  has  net  operating   losses  of
approximately  $220  million  which expire in varying  amounts  between 2002 and
2021.

     Cash  payments  for  income  taxes  (net  of  refunds)  were  approximately
$1,927,000  and  $2,397,000  during  the  years  ended  June 30,  2001 and 2000,
respectively.  The Company  received  income tax refunds  (net of  payments)  of
approximately $2,050,000 during the year ended June 30, 1999.

(13) SEGMENT REPORTING

     The  Company  adopted  SFAS No.  131,  "Disclosures  about  Segments  of an
Enterprise and Related  Information",  during the fourth quarter of fiscal 1999.
SFAS No. 131  established  standards for reporting  information  about operating
segments in annual financial  statements and requires selected information about
operating  segments  in  interim  financial  statements.   It  also  established
standards for related  disclosures  about  products and services and  geographic
areas.  Operating  segments are defined as components  of a business,  for which
separate financial information is available, that management regularly evaluates
in deciding how to allocate resources and assess performance.

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

     The EMS segment includes  emergency  medical  ambulance  services  provided
pursuant to contracts with counties, fire districts and municipalities,  as well
as  non-emergency  ambulance  services  provided  to patients  requiring  either
advanced or basic levels of medical  supervision during the transfer to and from
residences and health care  facilities.  The EMS segment also includes  critical
care transport  services for medically  unstable  patients who require  critical
care while being transported  between health care facilities,  as well as urgent
home  medical care and  ambulance  services  provided  under  capitated  service
arrangements in Argentina.

     The Fire and Other segment includes fire protection  services consisting of
fire prevention and fire suppression, as well as hazardous material containment,
underwater  search and recovery,  mountain and confined  space rescue and public
education.  This segment also includes the following  services:  industrial fire
training, alarm monitoring,  non-medical  transportation for the handicapped and
certain non-ambulatory persons, dispatch, fleet and billing.

                                       94
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The  accounting  policies of the  operating  segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements.

     Information by operating segment is set forth below:

<TABLE>
<CAPTION>
                                                                    FIRE
                                                     AMBULANCE    AND OTHER    CORPORATE      TOTAL
                                                     ---------    ---------    ---------    ---------
                                                                     (IN THOUSANDS)
<S>                                                  <C>          <C>          <C>          <C>
YEAR ENDED JUNE 30, 2001
   Net revenues from external customers ..........   $ 402,833    $ 101,483    $      --    $ 504,316
   Depreciation and amortization .................      21,298        5,981        1,882       29,161
   Interest expense, net .........................      25,622        4,322           57       30,001
   Equity in net income of equity method investees         780           --           --          780
   Segment profit (loss) .........................    (178,906)      11,301      (24,848)    (192,453)
   Segment assets ................................     151,396       21,769        1,267      174,432
   Capital expenditures ..........................       2,938        1,725        1,111        5,774
   Investment in equity-method investees .........   $     893    $      --    $      --    $     893

                                                                    FIRE
                                                     AMBULANCE    AND OTHER    CORPORATE      TOTAL
                                                     ---------    ---------    ---------    ---------
                                                                     (IN THOUSANDS)
YEAR ENDED JUNE 30, 2000
   Net revenues from external customers ..........   $ 467,741    $ 102,333    $      --    $ 570,074
   Depreciation and amortization .................      22,247       10,087        1,362       33,696
   Interest expense, net .........................      21,057        4,595          286       25,938
   Equity in net income of equity method investees         988           (8)          --          980
   Segment profit (loss) .........................    (128,455)      11,122      (17,926)    (135,259)
   Segment assets ................................     209,810       37,069        2,015      248,894
   Capital expenditures ..........................       6,831        8,599          481       15,911
   Investment in equity-method investees .........   $   1,011    $   1,100    $      --    $   2,111

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

                                       95
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Information concerning principal geographic areas is set forth below:

<TABLE>
<CAPTION>
                                           2001                      2000                      1999
                                 -----------------------   -----------------------   -----------------------
                                 REVENUE    NET PROPERTY   REVENUE    NET PROPERTY   REVENUE    NET PROPERTY
                                 --------   ------------   --------   ------------   --------   ------------
<S>                              <C>        <C>            <C>        <C>            <C>        <C>
     (IN THOUSANDS)
United States and Canada ......  $461,227     $ 57,682     $517,315     $ 79,257     $506,817     $ 87,441
Latin America .................    43,089          317       52,759        6,662       54,549        7,591
                                 --------     --------     --------     --------     --------     --------
       Total ..................  $504,316     $ 57,999     $570,074     $ 85,919     $561,366     $ 95,032
                                 ========     ========     ========     ========     ========     ========
</TABLE>

                                       96
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     Selected quarterly  financial data for the fiscal years ended June 30, 2001
and 2000 is as follows:

                                                      2001
                               -------------------------------------------------
                                 FIRST        SECOND       THIRD        FOURTH
                                QUARTER     QUARTER(1)   QUARTER(2)   QUARTER(3)
                               ---------    ----------   ----------   ----------
                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue ....................   $ 128,238    $ 125,209    $ 126,722    $ 124,147
Operating income (loss) ....       3,213      (13,770)     (16,034)    (165,862)
Net income (loss) ..........      (4,085)     (21,574)     (23,646)    (177,426)
Loss per share .............   $   (0.28)   $   (1.47)   $   (1.60)   $  (11.91)

                                                      2000
                               -------------------------------------------------
                                 FIRST        SECOND       THIRD        FOURTH
                                QUARTER     QUARTER(4)   QUARTER(5)   QUARTER(6)
                               ---------    ----------   ----------   ----------
                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue ....................   $ 141,200    $ 147,107    $ 146,398    $ 135,369
Operating income (loss) ....       9,581      (57,978)     (18,002)     (42,921)
Net income (loss) ..........       1,884      (42,386)     (16,615)     (44,156)
Earnings (loss) per share ..   $    0.13    $   (2.91)   $   (1.14)   $   (3.02)

----------
(1)  In the second  quarter of fiscal 2001,  the Company  recorded a $10 million
     additional  provision for doubtful accounts related to the uncollectibility
     of  receivables  in service  areas closed in fiscal 2000.  The Company also
     recorded a $5.2  million  charge  related to the loss of an  exclusive  911
     contract in Lincoln, Nebraska.

(2)  In the third  quarter of fiscal 2001,  the Company  recorded a $5.0 million
     charge  related to increased  claims  experience  in workers  compensation.
     Additionally,  the Company recorded a $15.0 million charge for increases in
     reserves  for reported  claims as well as to establish  reserves for claims
     incurred but not reported.

(3)  In the fourth  quarter of fiscal  2001,  the  Company  recorded  additional
     provisions for doubtful  accounts of $16.2 million,  $94.4 million of asset
     impairment  charges,  $9.4  million  related to the  disposition  of clinic
     operations in Argentina, $9.1 million of restructuring and other charges, a
     $4.1 million  charge  related to the loss of an  exclusive  911 contract in
     Arlington  Texas,  $5.4  million  related to increased  claim  estimates on
     employee health insurance, $3.0 million related to the accrual of paid time
     off for field personnel, $8.4 million related to inventory write-offs, $1.3
     million  related to Medicaid  audit,  $1.0 million  related to write-off of
     amounts due from a former seller,  $8.5 million related to asset write-offs
     and reserve adjustments at its various Argentine subsidiaries, $3.1 million
     of other asset  write-offs,  and $4.0 million related to the put provisions
     contained in a joint venture agreement.

(4)  In the second quarter of fiscal 2000, the Company  recorded a $65.0 million
     additional  provision  for  doubtful  accounts  related  to a change in its
     methodology of determining its allowance for doubtful accounts.

(5)  In the third quarter of fiscal 2000, the Company recorded restructuring and
     other  charges of $25.1  million  related to the closure or  downsizing  of
     certain non-emergency service areas and the reduction of corporate overhead
     and a $3.0 million  additional  provision for doubtful  accounts related to
     uncollectible  accounts  in those  service  areas that are being  closed or
     downsized.

(6)  In the fourth  quarter of fiscal 2000, the Company  recorded  restructuring
     and other charges of $18.2 million  related to the closure or downsizing of
     certain   non-emergency  service  areas  and  the  reduction  of  corporate
     overhead,  a $12.2 million  charge to establish  reserves for both reported
     and unreported workers  compensation  claims, and a $6.8 million additional
     provision for doubtful accounts related to uncollectible  accounts in those
     service areas that are being closed or downsized.

                                       97
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                   SCHEDULE II

                             RURAL/METRO CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

                                                      JUNE 30,
                                        -------------------------------------
                                           2001          2000          1999
                                        ---------     ---------     ---------
                                                    (IN THOUSANDS)
Allowance for doubtful accounts
Balance at beginning of year ........   $  87,752     $  43,392     $  69,552
Provision charged to expense ........     102,470       160,623        81,227
Write-offs ..........................    (124,993)     (116,263)     (107,387)
                                        ---------     ---------     ---------
Balance at end of year ..............   $  65,229     $  87,752     $  43,392
                                        =========     =========     =========

                                                      JUNE 30,
                                        -------------------------------------
                                           2001          2000          1999
                                        ---------     ---------     ---------
                                                    (IN THOUSANDS)
Restructuring allowances
Balance at beginning of year ........   $   8,132     $   1,328     $   5,407
Provision ...........................       9,091        34,047         2,500
Payments/usage ......................     (11,054)      (27,243)       (6,579)
                                        ---------     ---------     ---------
Balance at end of year ..............   $   6,169     $   8,132     $   1,328
                                        =========     =========     =========

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

Not applicable.

                                       98
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     NAME                AGE              POSITIONS WITH THE COMPANY
     ----                ---              --------------------------

Cor J. Clement, Sr.      53       Chairman of the Board and Director (3)

Jack E. Brucker          49       President, Chief Executive Officer and
                                  Director

John S. Banas III        39       Senior Vice President and General Counsel

Randall L. Harmsen       50       Vice President - Finance, Chief Accounting
                                  Officer

Mary Anne Carpenter      56       Director (1) (4)

Louis G. Jekel           60       Vice Chairman of the Board, Secretary and
                                  Director (3)

William C. Turner        72       Director (1) (2) (3) (4)

Henry G. Walker          54       Director (1) (3) (4)

Louis A. Witzeman        76       Director (2)

(1)  Member of the Human Resource/Compensation/Organization Committee.

(2)  Member of the Nominating Committee.

(3)  Member of the Executive Committee.

(4)  Member of the Audit Committee.

     COR J. CLEMENT,  SR. has served as Chairman of our Board of Directors since
August  1998 and as a member of our  Board of  Directors  since  May  1992.  Mr.
Clement  served as Vice  Chairman of the Board of Directors  from August 1994 to
August 1998. Mr. Clement served as the President and Chief Executive  Officer of
NVD, an  international  provider  of security  and  industrial  fire  protection
services  headquartered  in  the  Netherlands,  from  February  1980  until  his
retirement in January 1997.

     JACK E. BRUCKER has served as our  President  and Chief  Executive  Officer
since  February  2000 and has  been a member  of our  Board of  Directors  since
February  2000.  Mr.  Brucker  served as our  Senior  Vice  President  and Chief
Operating  Officer from December 1997 until February  2000. 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.

     JOHN S. BANAS III has  served as our  Senior  Vice  President  and  General
Counsel since  September  1999. Mr. Banas served as General Counsel at SpinCycle
Inc.,  a nationwide  chain of branded  coin-operated  laundromats,  from 1998 to
September  1999.  From 1995 to 1998,  he was  Senior  Corporate  Counsel  to Lam
Research  Corporation  in Fremont,  California;  and from 1992 to 1995 served as
corporate,  real estate,  and  environmental  counsel at the law firm of Wilson,
Sonsini,  Goodrich  & Rosati  in Palo  Alto,  California.  Mr.  Banas  served as
litigation counsel from 1989 to 1992 at the law firm of Thelen,  Marrin, Johnson
& Bridges (now Thelen, Reid & Priest) in San Francisco, California.

                                       99
<PAGE>
     RANDALL  L.  HARMSEN  has  served  as  Vice  President  of  Finance,  Chief
Accounting Officer, and Corporate Controller since July 2000. Mr. Harmsen served
as Vice President of Network  Management and Chief Financial  Officer for United
Healthcare  of Arizona  Inc.  in Phoenix,  Arizona,  from 1997 until the time he
joined our  company.  From 1994 to 1997,  he was Vice  President  of Finance for
Carondelet  Health Care Corporation in Tucson,  Arizona.  From 1989 to 1994, Mr.
Harmsen served as Chief Financial Officer for Presbyterian  Healthcare  Services
in  Albuquerque,  New  Mexico;  and from 1977 to 1989,  he was  Chief  Financial
Officer for St. Luke's Hospital in Davenport, Iowa.

     MARY  ANNE  CARPENTER  has been a member of our  Board of  Directors  since
January 1998.  Ms.  Carpenter  served as Executive  Vice President and Executive
Committee  member of First Health Group Corp., a publicly  traded managed health
care company,  from January 1993 until her retirement in May 2001.  From October
1991 until January 1993, Ms. Carpenter served as Senior Vice President, and from
July 1986 through  October 1991,  as Vice  President of First Health Group Corp.
Ms.  Carpenter  has served on panels for  several  other  national  health  care
organizations.

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

     WILLIAM  C.  TURNER  has been a member  of our  Board  of  Directors  since
November  1993. Mr. Turner is currently  Chairman and Chief  Executive of Argyle
Atlantic   Corporation,   an  international   merchant  banking  and  management
consulting  firm;  a trustee  of the United  States  Council  for  International
Business;  a  trustee  and past  Chairman  of the  American  Graduate  School of
International  Management  (Thunderbird);  a Board member and former Chairman of
the Board of Directors of Mercy Ships International,  Incorporated; and Chairman
of the Board of Directors of WorldWide  Talk. Mr. Turner is also a former United
States Ambassador and permanent  representative to the Organization for Economic
Cooperation and Development.

     HENRY G. WALKER has been a member of our Board of Directors since September
1997.  Since April 1997, he has served as President and Chief Executive  Officer
of the Sisters of Providence  Health System,  comprised of hospitals,  long-term
care facilities,  physician practices,  managed care plans, and other health and
social  services.  From 1996 to March 1997,  Mr.  Walker served as President and
Chief Executive Officer of Health Partners of Arizona, a state-wide managed care
company.  From 1992 to 1996, he served as President and Chief Executive  Officer
of Health Partners of, a healthcare  delivery system.  Mr. Walker is a member of
the National  Advisory  Council of the  Healthcare  Forum,  and also serves as a
director of Consolidated Catholic Healthcare a private non-profit company.

     LOUIS A. WITZEMAN is the founder of our company. Mr. Witzeman has served as
a member  of our  Board of  Directors  since our  formation  in 1948,  currently
serving as  Chairman of the Board  Emeritus.  Mr.  Witzeman  served as our Chief
Executive Officer until his retirement in 1980.

                                      100
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires our directors and officers,  and
persons who own more than 10% of a registered class of our equity  securities to
file  reports of  ownership  and changes in ownership  with the  Securities  and
Exchange Commission.  Officers,  directors and greater than 10% stockholders are
required by  Securities  and Exchange  Commission  regulation to furnish us with
copies of all Section 16(a) forms they file.

     Based  solely on our  review of the  copies of such  forms  received  by us
during the fiscal year ended June 30, 2001, and written  representations that no
other  reports were  required,  except as set forth below,  we believe that each
person who, at any time during  such  fiscal  year,  was a director,  officer or
beneficial  owner of more than 10% of our common stock complied with all Section
16(a) filing  requirements  during such fiscal year.  Cor Clement,  Louis Jekel,
Mary Anne  Carpenter,  William  Turner,  Henry Walker and Louis Witzeman did not
timely  file Forms 5 for the fiscal year ended June 30,  2000  reporting  annual
option grants under the 1992 Stock Option Plan. The late reportings were made on
Forms 5 for the fiscal year ended June 30, 2001. In addition,  (i) amended Forms
5 for the fiscal  years  ended June 30, 1999 and June 30, 2001 were filed by Cor
Clement  to  correct  the  reported  annual  option  grant and to  disclose  the
disposition of shares of common stock, respectively;  and (ii) an amended Form 5
for the fiscal  year ended June 30,  2001 was filed by Louis  Jekel to  disclose
disposition  of shares of common  stock.  We  attribute  these late and  amended
filings to an oversight due to errors in our internal procedures which have been
rectified.  In making  these  disclosures,  we have  relied  solely  on  written
representations  of our  directors  and  executive  officers,  and copies of the
reports that they have filed with the Commission.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND OTHER COMPENSATION

     The following table sets forth the total compensation received for services
rendered to us in all capacities for the fiscal years ended June 30, 1999, 2000,
and 2001 by our Chief  Executive  Officer and our three most highly  compensated
executive  officers  who were in office at June 30,  2001.  The table  also sets
forth this information for one other executive officer who is no longer with our
company at June 30, 2001, whose aggregate cash compensation exceeded $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     LONG TERM
                                                                                 COMPENSATION AWARDS
                                                                               ------------------------
                                                ANNUAL COMPENSATION            RESTRICTED    SECURITIES      ALL OTHER
NAME AND PRINCIPAL                      ---------------------------------        STOCK       UNDERLYING    COMPENSATION
POSITION AT YEAR-END                    YEAR     SALARY($)(1)    BONUS($)      AWARD(S)($)   OPTIONS(#)       ($)(2)
--------------------                    ----     ------------    --------      -----------   ----------       ------
<S>                                     <C>       <C>            <C>           <C>            <C>            <C>
Jack E. Brucker                         2001      $ 447,077      $ 43,600      $     --       200,000        $  3,200
Chief Executive Officer                 2000      $ 314,246      $     --      $     --        21,000        $  3,200
and President(3)                        1999      $ 250,000      $ 25,000      $ 45,000(4)     39,000        $ 65,559(5)

Dr. Michel Sucher                       2001      $ 201,923      $ 19,500      $     --        75,000        $  3,200
Former Senior Vice President and        2000      $ 184,231      $     --      $     --        12,500        $  3,200
Chief Medical Officer(6)                1999      $ 175,000      $     --      $     --        21,600        $  3,200

Robert B. Hillier                       2001      $ 215,385      $ 20,000      $     --        75,000        $  2,008
Former Senior Vice President and        2000      $ 170,385      $     --      $     --        12,500        $  2,008
Chief Administrative Officer(6)         1999      $ 137,500      $     --      $     --        21,600        $  2,600

John S. Banas III                       2001      $ 207,800      $ 18,020      $     --       150,000        $     --
Senior Vice President and General       2000      $ 126,438      $     --      $     --        17,500        $     --
Counsel(6)

Randall L. Harmsen (6)                  2001      $ 182,577      $     --      $     --            --        $     --
Vice President of Finance               2000      $      --      $     --      $     --        20,000        $     --
                                        1999      $      --      $     --      $     --            --        $     --
</TABLE>

                                      101
<PAGE>
----------
(1)  Other  annual  compensation  did not exceed the lesser of $50,000 or 10% of
     the total salary and bonus for any of the officers listed.

(2)  Unless otherwise indicated,  consists of company-matching  contributions to
     our 401(k) plan paid in cash.

(3)  Mr.  Brucker became our President and Chief  Executive  Officer in February
     2000.  From December 1997 until  February  2000,  Mr. Brucker served as our
     Senior Vice President and Chief Operating Officer.

(4)  Represents  fair market  value of  restricted  stock  grants that vested in
     December 1998.

(5)  We paid Mr. Brucker $62,359 in fiscal 1999 for relocation costs,  including
     moving expenses and closing costs on the sale of his former residence.

(6)  Dr. Sucher and Mr. Hillier became executive  officers of our Company during
     February  2000.  Mr.  Hillier  joined our company  during October 1997. Mr.
     Hillier's employment terminated in January 2001 and Dr. Sucher's employment
     terminated in July 2001. Mr. Banas joined our Company in September 1999 and
     Mr. Harmsen joined our Company in July 2000.

OPTION GRANTS

     The following  table  represents the options granted to the listed officers
in the last fiscal year and the value of the options.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                    INDIVIDUAL GRANTS
                      ------------------------------------------
                        NUMBER OF      PERCENT OF
                       SECURITIES     TOTAL OPTIONS
                       UNDERLYING      GRANTED TO    EXERCISE OR                GRANT DATE
                         OPTIONS      EMPLOYEES IN   BASE PRICE    EXPIRATION  PRESENT VALUE
                      GRANTED(#)(1)    FISCAL YEAR     ($/SH)         DATE          $(2)
                      -------------    -----------     ------         ----          ----
<S>                     <C>               <C>          <C>           <C>  <C>    <C>
John S. Banas III       150,000(3)        9.5%         $ 1.50        8/21/10     $  97,155
Jack E. Brucker         200,000(4)       12.6%         $ 2.00        4/20/10     $ 187,995
Randall L. Harmsen            0            --%         $   --             --     $      --
Robert B. Hillier        75,000(5)        4.7%         $ 1.50        8/21/10     $  48,578
Dr. Michel Sucher        75,000(6)        4.7%         $ 1.50        8/21/10     $  48,578
</TABLE>

----------
(1)  Except  as  otherwise  indicated,  all  of  the  options  vest  and  become
     exercisable as follows:  one-third at grant date in August 2000,  one-third
     in August 2001, and one-third in August 2002.

(2)  The  hypothetical  present  value of the  options  at the date of grant was
     determined using the Black-Scholes  option pricing model. The Black-Scholes
     model  estimates the present value of an option by  considering a number of
     factors,  including the exercise price of the option, the volatility of our
     common stock,  the dividend  rate,  the term of the option,  the time it is
     expected to be outstanding,  and interest rates. The  Black-Scholes  values
     were calculated using the following  assumptions:  (a) a risk-free interest
     rate of 4.74%;  (b) a dividend yield of 0.00%;  (c) an expected life of the
     option  after  vesting of 2.35  years;  and (d) an expected  volatility  of
     72.66%.

(3)  Mr. Banas'  options vest and become  exercisable  as follows:  one-third at
     grant date in August  2000,  one-third  in August  2001,  and  one-third in
     August 2002.

(4)  Mr. Brucker's options vest and become exercisable as follows: one-fourth at
     grant date in April 2000,  one-fourth  in April 2001,  one-fourth  in April
     2002, and one-fourth in April 2003.

(5)  Mr. Hillier resigned in January 2001, at which time 50,000 of these options
     were canceled pursuant to the terms of the options.

(6)  Dr.  Sucher was  terminated in July 2001,  and all of the unvested  options
     will  expire  October  8,  2002  pursuant  to the  terms  of his  severance
     agreement.

                                      102
<PAGE>
OPTION HOLDINGS

     The following table represents certain  information  respecting the options
held by the listed  officers as of June 30, 2001.  None of the  officers  listed
exercised options during fiscal 2001.

                          FISCAL YEAR-END OPTIONS HELD

                                                    NUMBER OF SECURITIES
                                                   UNDERLYING UNEXERCISED
                                                         OPTIONS AT
                                                    FISCAL YEAR-END(#)(1)
                                                 ---------------------------
NAME                                             EXERCISABLE   UNEXERCISABLE
----                                             -----------   -------------
Jack E. Brucker                                    174,000        107,000
John S. Banas III                                   63,333        104,167
Randall L. Harmsen                                  13,334          6,666
Robert B. Hillier                                   72,934             --
Dr. Michel Sucher                                  118,920         54,166

----------
(1)  None of the  unexercised  options listed had any value at fiscal  year-end,
     because  the  exercise  price  of all of the  options  held  by the  listed
     officers was greater than $0.90,  which was the closing  sales price of our
     common stock as quoted on the Nasdaq SmallCap Market on June 29, 2001.

EMPLOYMENT AGREEMENTS

     In February 2000,  Jack E. Brucker became our President and Chief Executive
Officer. In April 2001, we entered into an employment agreement with Mr. Brucker
for a two-year term  expiring  April 19, 2003,  renewable  for one-year  periods
thereafter.  Under this  employment  agreement,  he  received  a base  salary of
$460,000. Effective July 1, 2001, we entered into a new employment agreement for
a five-year term expiring July 1, 2006, which automatically  renews for one-year
periods  thereafter.  Under  Mr.  Brucker's  current  employment  agreement,  he
receives a base salary of $600,000,  and  participates in our stock option plans
and other  generally  available  benefit  programs.  Mr. Brucker also received a
signing bonus of $200,000,  50% of which was payable to him on July 1, 2001, and
50% of which is payable by July 1, 2002. In addition,  Mr. Brucker  participates
in our management  incentive program that provides bonuses to executive officers
and other members of management based upon our achieving  certain  financial and
operating goals as well as the achievement of individual objectives  established
for each participant.  Mr. Brucker's current employment  agreement provides that
should we terminate his employment  agreement without cause, should he terminate
his  employment  agreement for good reason,  should we not renew his  employment
agreement without cause,  should he not renew his employment  agreement for good
reason,  or should we  propose to modify his  employment  agreement  in a manner
which gives him good  reason to  terminate  the  employment  agreement,  he will
receive  his then  effective  base  salary and other  benefits  provided  by the
employment agreement  immediately following the effective date of termination of
employment  for a period  equal to the  greater of (i) two  years,  or (ii) five
years minus the number of days between July 1, 2001,  and the effective  date of
termination of employment.  If Mr. Brucker  terminates his employment  agreement
without good reason (and for reasons other than health considerations),  he will
not receive any  severance  benefits and will pay us a sum equal to the net base
salary  received by him during the period  equal to the greater of (i) two years
preceding termination of employment, or (ii) five years minus the number of days
between July 1, 2001 and the effective date of the termination of employment.

     Under the  employment  agreement,  Mr.  Brucker  has  agreed not to compete
against us after the termination of the employment  agreement for a period equal
to the  greater  of (i) two years,  or (ii) five years  minus the number of days
between July 1, 2001 and the effective  date of the  termination  of employment.
Mr.  Brucker may elect to shorten  such  non-compete  period to not less than 12
months.  Upon such election we will no longer be required to pay Mr. Brucker any
severance benefits.  In addition, if Mr. Brucker is receiving severance benefits
under the employment agreement and he elects to solicit clients,  employees,  or

                                      103
<PAGE>
otherwise  competes with us at any time after his  termination  of employment or
discloses  confidential  information,  we will no longer be obligated to pay Mr.
Brucker any severance benefits.

     In April 2001, we entered into an employment  agreement with Mr. John Banas
to become our Senior  Vice  President  and General  Counsel for a two-year  term
expiring  April 23,  2003,  which  automatically  renews  for  one-year  periods
thereafter.  Under Mr.  Banas'  employment  agreement,  he is to  receive a base
salary of $240,000, and is entitled to participate in our stock option plans and
our other generally  available benefit  programs.  Mr. Banas is also entitled to
participate  in our  management  incentive  program  that  provides  bonuses  to
executive  officers and other  members of  management  based upon our  achieving
certain  financial and operating  goals as well as the achievement of individual
objectives  established for each participant.  Mr. Banas'  employment  agreement
provides that should we terminate his employment agreement without cause, should
he terminate his employment  agreement for good reason,  should we not renew his
employment agreement without cause, should he not renew his employment agreement
for good reason,  or should we propose to modify his  employment  agreement in a
manner which gives him good reason to terminate  the  employment  agreement,  he
will receive his then effective  base salary and other benefits  provided by the
employment agreement  immediately following the effective date of termination of
employment  for a period of  twenty-four  months.  If Mr. Banas  terminates  his
employment  agreement  without  good reason,  he will not receive any  severance
benefits.

     Under the employment agreement, Mr. Banas has agreed not to compete against
us after the  termination of the employment  agreement for a period of 24 months
after the effective date of the  termination of employment.  Mr. Banas may elect
to shorten such non-compete  period to 12 months.  Upon such election we will no
longer be required to pay Mr. Banas any severance benefits.  In addition, if Mr.
Banas is receiving  severance  benefits  under the  employment  agreement and he
elects to solicit clients,  employees, or otherwise competes with us at any time
after his termination of employment or discloses  confidential  information,  we
will no longer be obligated to pay Mr. Brucker any severance benefits.

     Employment  agreements  with Mr. Hillier and Dr. Sucher expired in December
2000.  Due to Mr.  Hillier's  termination  on January  13,  2001 and Dr.  Sucher
termination on July 12, 2001, Mr. Hillier and Dr. Sucher are entitled to receive
certain severance benefits, including base salary and other benefits provided by
the agreements for one year from the date of termination.

     In addition, each of the employment agreements provides for us to indemnify
each  executive  for certain  liabilities  arising from actions taken within the
scope of employment.

     Change of  control  agreements  entered  into by Messrs.  Brucker,  Sucher,
Hillier,  and Banas  provide  that in the event of a change of  control  and the
surviving entity or individuals in control do not offer such persons employment,
terminate  their  employment  without  cause,  or such persons  terminate  their
employment  for good  reason,  such persons will receive a lump sum equal to (A)
150%  (200% in the case of Mr.  Brucker)  of (i) their  applicable  annual  base
salary,  and (ii) the amount of incentive  compensation  paid or payable to them
during the calendar  year  preceding  the  calendar  year in which the change of
control  occurs,  plus  (B) the full  amount  of any  payments  due  under  such
employees employment agreement. In addition, each executive would be entitled to
receive certain benefits,  including the acceleration of exercisability of their
stock  options or the  payment  of the value of such stock  options in the event
they are not  accelerated or replaced with comparable  options.  Pursuant to the
terms of the  change of  control  agreements,  the  health  and  other  benefits
received under the change of control agreement by such executive will be reduced
or  eliminated to the extent such  benefits are received  under the  executive's
employment  agreement.  In addition,  the change of control  agreements  place a
ceiling on the aggregate  amount of benefits any executive may receive under the
agreement.  Each executive will receive an amount equal to 2.99 times the amount
of annualized  includable  compensation  received by the executive as determined
under the  Internal  Revenue  Code.  Any payments  received  under the change of
control  agreement may be reduced by amounts we pay such  executive  under their
respective employment agreements.

     For purposes of the change of control agreements,  "good reason" includes a
reduction of their  respective  duties and/or  salary or the surviving  entity's
failure to assume their respective  employment and change of control agreements.
For purposes of the change of control agreements, a "change of control" includes
(i) the acquisition of beneficial ownership by certain persons,  acting alone or

                                      104
<PAGE>
in concert with others,  of 30% or more of the combined voting power of our then
outstanding  voting  securities;  (ii)  during any  two-year  period,  our Board
members at the  beginning of such period cease to constitute at least a majority
thereof (except that any new Board member approved by at least two-thirds of the
Board members then still in office,  who were directors at the beginning of such
period, is considered to be a member of the current Board); or (iii) approval by
our   stockholders   of  certain   reorganizations,   mergers,   consolidations,
liquidations,  or sales of all or substantially all of our assets. Mr. Hillier's
and Dr. Sucher's change of control agreements terminated upon their termination.

     During  January  2000,  John  Furman  resigned as our  President  and Chief
Executive Officer. Pursuant to the terms of his employment agreement, Mr. Furman
will receive a severance  benefit  equivalent to his then  existing  annual base
salary of $420,000  through  January  2002. In  connection  with the  employment
agreement,  during July 1999 we granted  Mr.  Furman  stock  options to purchase
100,000  shares of our common  stock.  These stock options were fully vested and
exercisable on the date of grant,  and will remain  exercisable  through January
2003. In addition,  all unvested options held by Mr. Furman upon his resignation
immediately vested and will remain exercisable through January 2002.

DIRECTOR COMPENSATION AND OTHER INFORMATION

     Officers  who  serve  on the  Board  of  Directors  receive  no  additional
compensation.  We paid a  director's  fee in  fiscal  2001 to Mr.  Clement,  our
Chairman of the Board of Directors,  of $45,000 plus  reimbursement for expenses
for each Board or committee meeting he attended.  We pay all other  non-employee
Board  members,  with the  exception  of Mr.  Witzeman,  an annual  retainer  of
$15,000.  Non-employee directors,  with the exception of Mr. Jekel, also receive
$1,000 for each Board meeting attended, $500 for each Board meeting participated
in telephonically,  $500 for each committee meeting attended,  and $250 for each
committee meeting participated in telephonically. We also pay $2,500 annually to
any  non-employee  chairman of each of the committees of the Board of Directors.
Under the terms of our 1992 Stock Option Plan,  non-employee  directors  receive
(i) stock  options to purchase  10,000  shares upon their first  election to the
Board of  Directors  and options to purchase  2,500 shares at the meeting of the
Board of Directors held  immediately  after the annual  meeting of  stockholders
(except that the Chairman of the Board  receives  stock options to acquire 5,000
shares),  and (ii) each year  each  non-employee  Board  member  receives  stock
options  to  acquire a number of shares  equal to 1,000  shares  for each  $0.05
increase in our earnings per share over the previous  fiscal year,  subject to a
maximum of 5,000 shares of stock per non-employee  Board member.  Messrs.  Jekel
and Witzeman  receive  compensation  for  consulting  services,  which  includes
serving  on the Board of  Directors.  See  "Certain  Relationships  and  Related
Transactions." In fiscal 2001, we granted to the following  individuals  options
to purchase the following  shares of common stock as consideration to serve as a
director:  5,000 to Mr.  Clement,  and 2,500 to each of Messrs.  Jekel,  Turner,
Walker, Witzeman, and Ms. Carpenter. The options have an exercise price of $2.00
per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During   the   fiscal    year    ended   June   30,    2001,    our   Human
Resource/Compensation/Organization   Committee  consisted  of  Messrs.   Walker,
Turner, and Witzeman and Ms. Carpenter,  currently directors of the Company. The
heading "Certain  Relationships and Related  Transactions"  below also describes
certain  other  relationships  and  transactions  with  current or former  board
members.

ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS, AND OFFICERS

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership  of our  common  stock  on  October  29,  2001 by (i) each
director;  (ii) the  executive  officers  set forth in the Summary  Compensation
Table  under the section  entitled  "Executive  Compensation;"  (iii) all of our
directors and executive officers as a group; and (iv) each person known by us to
be the beneficial owner of more than 5% of our common stock.

                                      105
<PAGE>
                                                       AMOUNT
                                                    BENEFICIALLY
                                                        OWNED
NAME OF BENEFICIAL OWNER                              (1)(2)(3)     PERCENT(2)
------------------------                            -----------     ----------
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Jack E. Brucker                                       306,000 (4)       2.0
John S. Banas III                                     131,979 (4)        *
Mary Anne Carpenter                                    22,500 (4)        *
Cor J. Clement, Sr.                                    38,250 (4)        *
Randall L. Harmsen.                                    24,445 (4)        *
Robert B. Hillier                                      72,934 (4)        *
Louis G. Jekel                                        134,963 (5)        *
Dr. Michel Sucher                                     153,005 (4)       1.0
William C. Turner                                      38,000 (4)        *
Henry G. Walker                                        25,500 (4)        *
Louis A. Witzeman                                     140,273 (6)        *
Executive officers and directors as a group (9
persons)                                              861,410           5.5

5% STOCKHOLDERS:
ESOP                                                  816,617 (7)       5.4
Ernst Matthijs Hendrik Van der Lee, Ernst-Willem
Van der Lee, Nicolaas P. Monteban, Mark J.
Rosman, Mark S. Howells and Bruce W. Derrick        2,057,923 (8)      13.6

----------
*    Less than 1%

(1)  Except  as  indicated,   and  subject  to  community   property  laws  when
     applicable,  the  persons  named in the table  above  have sole  voting and
     investment  power  with  respect  to all  shares of common  stock  shown as
     beneficially owned by them.

(2)  The percentages shown are calculated based upon 15,100,180 shares of common
     stock  outstanding  on October 29, 2001. The number and  percentages  shown
     include the shares of common  stock  actually  owned as of October 29, 2001
     and the shares of common  stock that the  identified  person or group had a
     right to acquire within 60 days after October 29, 2001. In calculating  the
     percentage  of  ownership,  shares  are  deemed to be  outstanding  for the
     purpose of computing the percentage of shares of common stock owned by such
     person,  but are not deemed to be outstanding  for the purpose of computing
     the percentage of shares of common stock owned by any other stockholders.

(3)  Excludes the following fully vested shares of common stock held by the ESOP
     for the benefit of the following  individuals:  four shares for Mr. Brucker
     and 1,097 shares for Dr. Sucher.  These persons have sole voting power with
     respect to the shares held in their account by the ESOP.

(4)  Represents  shares of common stock  issuable upon exercise of stock options
     with respect to the following  persons:  Mr. Brucker,  306,000 shares;  Mr.
     Banas,  117,500 shares; Ms. Carpenter,  20,000 shares; Mr. Clement,  21,250
     shares; Mr. Harmsen, 13,334 shares; Mr. Hillier, 72,934 shares; Dr. Sucher,
     118,920 shares; Mr. Turner, 27,500 shares; and Mr. Walker, 22,500 shares.

(5)  Includes  52,500  shares of common stock  issuable  upon  exercise of stock
     options; 3,175 shares held by the Louis G. Jekel Charitable Remainder Trust
     UA dated March 1, 1996;  5,664 shares held by an IRA for the benefit of Mr.
     Jekel;  and 71,124 shares held by a  partnership  of which Mr. Jekel is the
     beneficial owner.

(6)  Includes 85,273 shares held by the Louis A. Witzeman, Jr. Family Investment
     Limited  Partnership,  of which  6,650  shares are held for the  benefit of
     other family members.  Also includes 52,500 shares of common stock issuable
     upon the exercise of stock options.

                                      106
<PAGE>
(7)  Represents  816,617  shares  of  common  stock  owned  by  the  Rural/Metro
     Corporation Employee Stock Ownership Plan. Participants under the ESOP have
     voting power as to shares  allocated to their  account and the ESOP trustee
     has voting  power as to  unallocated  shares and as to any shares for which
     participants  have chosen not to vote. The ESOP has sole dispositive  power
     over all of these shares of common  stock.  The address of the  Rural/Metro
     Corporation  Employee Stock Ownership Plan is c/o Rural/Metro  Corporation,
     8401 East Indian School Road, Scottsdale, Arizona 85251.

(8)  Represents  2,057,923 shares of common stock  beneficially owned by a group
     consisting of Ernst Matthijs Hendrik Van der Lee, Ernst-Willem Van der Lee,
     Nicolaas P. Monteban, Mark J. Rosman, Mark S. Howells and Bruce W. Derrick.
     Messrs.  Van der Lee, Van der Lee,  Monteban,  Rosman,  Howells and Derrick
     have sole voting and dispositive  power of all of such shares.  The address
     of Messrs. Van der Lee, Van der Lee, Monteban,  Rosman, Howells and Derrick
     is c/o P.  Robert  Moya,  Esq.,  Quarles & Brady  Streich  Lang,  Two North
     Central Avenue, Phoenix,  Arizona 85004. Information is based solely on the
     group's  Schedule 13D/A filed with the  Securities and Exchange  Commission
     dated August 24, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     We paid  approximately  $130,000  during the year  ended June 30,  2001 for
legal  services to Jekel & Howard,  of which Mr. Jekel, a member of our Board of
Directors,  is a principal.  Mr. Jekel is a participant in our ESOP. We paid Mr.
Jekel  $30,000  during  the year  ended June 30,  2001 for  additional  services
rendered in connection with our forestry fire fighting services.

     We paid approximately  $46,000 during the year ended June 30, 2001 to Louis
A. Witzeman, a member of our Board of Directors,  under leases for five fire and
ambulance  stations.  These  leases  may be  cancelled  by us at any  time.  Mr.
Witzeman  received  $98,000  during the fiscal year ended June 30, 2001 for fire
protection and EMS advisory and consulting services and for serving on the Board
of Directors. We also provide Mr. Witzeman with an automobile for personal use.

     We believe  that all of the related  party  transactions  listed above were
provided on terms no less  favorable  to us than could have been  obtained  from
unrelated  firms or third parties.  All future  transactions  between us and our
officers,  directors,  and principal stockholders are expected to be on terms no
less favorable to us than could be obtained from  unaffiliated  persons and will
require the approval of our independent directors.

                                      107
<PAGE>
                                     PART IV

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

     (a)  Financial Statements and Schedules

                                                                            PAGE
                                                                            ----
          (i)   Financial Statements
                (1) Report of Independent Public Accountants..................48
                (2) Consolidated Financial Statements Consolidated Balance
                    Sheets at June 30, 2001 and 2000..........................49
                    Consolidated Statements of Operations for the Years
                    Ended June 30, 2001, 2000, and 1999.......................50
                    Consolidated Statements of Changes in Stockholders'
                    Equity for the Years Ended June 30, 2001, 2000, and 1999..51
                    Consolidated Statements of Cash Flows for the Years
                    Ended June 30, 2001, 2000, and 1999.......................52
                    Consolidated Statements of Comprehensive Income (Loss)
                    for the Years Ended June 30, 2001, 2000 and 1999..........53
                    Notes to Consolidated Financial Statements................54

          (ii)  Financial Statement Schedule
                    Schedule II Valuation and Qualifying Accounts.............87
                    All other schedules have been omitted on the basis of
                    immateriality or because such schedules are not
                    otherwise applicable

          (iii) Exhibits
                    See index to exhibits below.

     (b)  Reports on Form 8-K:

          We filed the  following  report on Form 8-K during the  quarter  ended
          June 30, 2001:

          Report  on Form 8-K  filed  with the  Commission  on  April  16,  2001
          relating  to  the  Fifth  Amendment  to  the  Provisional  Waiver  and
          Standstill Agreement dated as of April 23, 2001.

     (c)  Exhibits

EXHIBIT
  NO.                         DESCRIPTION OF EXHIBIT
  ---                         ----------------------
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)

                                       108
<PAGE>
EXHIBIT
  NO.                         DESCRIPTION OF EXHIBIT
  ---                         ----------------------
4.1      Specimen  Certificate  representing  shares of Common Stock,  par value
         $.01 per share(1)

4.2      Indenture  dated as of March 16, 1998,  by and among the  Company,  the
         subsidiaries acting as Guarantors thereto,  and the First National Bank
         of Chicago, as Trustee(12)

4.3      Form of Global Note (included in Exhibit 4.2)(12)

4.4      Registration  Rights  Agreement dated March 11, 1998, by and among Bear
         Stearns & Co. Inc., Salomon Brothers Inc, SBC Warburg Dillon Reed Inc.,
         First Union Capital Markets,  the Company,  and certain subsidiaries of
         the Company, as Guarantors(12)

10.3(a)  1989 Employee Stock Option Plan of Registrant, adopted August 10, 1989,
         as amended(1)

10.3(b)  Third  Amendment to the 1989 Employee  Stock Option Plan of Registrant,
         dated February 4, 1994(2)

10.3(c)  Fourth  Amendment to 1989 Employee Stock Option Plan,  dated August 25,
         1994(3)

10.4     Form of Stock Option  Agreement  pursuant to 1989 Employee Stock Option
         Plan of Registrant(1)

10.5     Amended and  Restated  1992 Stock  Option Plan of  Registrant,  amended
         through October 15, 1998(15)

10.6     Forms of Stock Option  Agreements  pursuant to the Amended and Restated
         1992 Stock Option Plan of Registrant(15)

10.7     2000 Non-Qualified Stock Option Plan, adopted August 11, 2000(25)

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 Mark E.
         Liebner, effective January 1, 1998(14)

10.16(c) Form of Change of Control  Agreement  by and  between  Mark E.  Liebner
         dated March 4, 1998(14)

10.16(d) Form of Change of Control  Agreement by and between the  Registrant and
         the following executive officers:  (i) Jack E. Brucker,  dated November
         24, 1997, (ii) R. Bruce Hillier,  effective October 28, 1997, (iii) Dr.
         Michel A. Sucher,  effective  December 1, 1995,  and (iv) John S. Banas
         III, effective March 10, 2000(14)

10.16(f) Employment  Agreement  by and between  Registrant  and Robert E. Ramsey
         Jr., dated June 30, 1997(9)

10.16(g) Employment  Agreement  by and  between  Registrant  and John B.  Furman
         effective July 29, 1999(17)

10.16(h) Change of  Control  Agreement  by and  between  Registrant  and John B.
         Furman, effective November 1, 1999(17)

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

                                      109
<PAGE>
EXHIBIT
  NO.                         DESCRIPTION OF EXHIBIT
  ---                         ----------------------

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

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

10.16(l) Employment Agreement by and between the Registrant and Jack E. Brucker,
         effective April 19, 2001(24)

10.16(m) Form of Employment  Agreement by and between the Registrant and each of
         the following executive officers:  (i) Dr. Michel A. Sucher,  effective
         November  7, 1997,  and (ii) R. Bruce  Hillier,  effective  October 20,
         1997(18)

10.16(n) Employment  Agreement by and between the  Registrant  and John S. Banas
         III, effective April 23, 2001(24)

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

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

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

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

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

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

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

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

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

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

10.51    Agreement  of Purchase  and Sale between  Rural/Metro  Corporation  and
         Robert E. Ramsey, Jr., Patrick McGroder,  Barry Landon and Gary Ramsey,
         the vendors,  with respect to the stock of Southwest  General Services,
         Inc., as amended(8)

                                      110
<PAGE>
EXHIBIT
  NO.                         DESCRIPTION OF EXHIBIT
  ---                         ----------------------

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

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

10.55    Provisional  Waiver  and  Standstill  Agreement  dated as of March  14,
         2000(19)

10.56    First Amendment to Provisional Waiver and Standstill Agreement dated as
         of April 13, 2000(19)

10.57    Second Amendment to Provisional  Waiver and Standstill  Agreement dated
         as of July 14, 2000(20)

10.58    Press Release dated as of October 18, 2000(21)

10.59    Third Amendment to Provisional Waiver and Standstill Agreement dated as
         of October 16, 2000(21)

10.60    Fourth Amendment to Provisional  Waiver and Standstill  Agreement dated
         as of January 31, 2001(22)

10.61    Fifth Amendment to Provisional Waiver and Standstill Agreement dated as
         of April 23, 2001(23)

10.62    Sixth Amendment to Provisional Waiver and Standstill Agreement dated as
         of August 1, 2001 (26)

21       Subsidiaries of Registrant*

23       Consent of Arthur Andersen LLP*

----------
*    Filed herewith.
(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.

                                      111
<PAGE>
(8)  Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with  the  Commission  on or  about  July  15,  1997,  as  amended  by  the
     Registrant's  Form 8-K/A Current  Report filed with  Commission on or about
     August 12, 1997.
(9)  Incorporated  by  reference  to the  Registrant's  Form 10-K filed with the
     Commission on or about September 29, 1997.
(10) Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about February 17, 1998.
(11) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with  the  Commission  on or  about  April  1,  1998,  as  amended  by  the
     Registrant's Form 8-K/A Current Report filed on or about June 5, 1998.
(12) Incorporated by reference to the Registration  Statement on Form S-4 of the
     Registrant  (Registration  No. 333-51455) filed April 30, 1998 and declared
     effective on May 14, 1998.
(13) Incorporated by reference to Amendment No. 1 to the Registration  Statement
     on Form  S-4 of the  Registrant  (Registration  No.  333-51455)  filed  May
     11,1998 and declared effective on May 14, 1998.
(14) Incorporated  by  reference  to the  Registrant's  Form 10-K filed with the
     Commission on or about September 29, 1998.
(15) Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about November 10, 1998.
(16) Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about February 11, 1999.
(17) Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about November 15, 1999.
(18) Incorporated by reference to the  Registrant's  Form 10-K Annual Report for
     the year  ended  June  30,  1996  filed  with  the  Commission  on or about
     September 30, 1996 (originally filed in that Report as Exhibit 10.16(a)).
(19) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on April 14, 2000.
(20) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on July 28, 2000.
(21) Incorporated  by reference  to the  Registrant's  Form 10-Q Current  Report
     filed with the Commission on October 16, 2000.
(22) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on February 2, 2001.
(23) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on May 2, 2001.
(24) Incorporated  by  reference  to the  Registrant's  Form 10-Q filed with the
     Commission on May 15, 2001.
(25) Incorporated  by  reference  to  the  Registrant's  Form  S-8  Registration
     Statement filed with the Commission on May 21, 2001.
(26) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on August 9, 2001.

                                      112
<PAGE>
                                   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

April 30, 2002                         By: /s/ JACK E. BRUCKER
                                           -------------------------------------
                                           Jack E. Brucker
                                           President and Chief Executive Officer

     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.

      SIGNATURE                         TITLE                         DATE
      ---------                         -----                         ----

/s/ COR J. CLEMENT          Chairman of the Board of Directors    April 30, 2002
------------------------
Cor J. Clement


/s/ LOUIS G. JEKEL          Vice Chairman of the                  April 30, 2002
------------------------    Board of Directors
Louis G. Jekel


/s/ JACK E. BRUCKER         President, Chief Executive            April 30, 2002
------------------------    Officer and Director
Jack E. Brucker             (Principal Executive Officer)


/s/ RANDALL L. HARMSEN      Vice President of Finance             April 30, 2002
------------------------    (Principal Financial Officer and
Randall L. Harmsen          Principal Accounting Officer)


/s/ MARY ANNE CARPENTER     Director                              April 30, 2002
------------------------
Mary Anne Carpenter


/s/ WILLIAM C. TURNER       Director                              April 30, 2002
------------------------
William C. Turner


/s/ HENRY G. WALKER         Director                              April 30, 2002
------------------------
Henry G. Walker


/s/ LOUIS A. WITZEMAN       Director                              April 30, 2002
------------------------
Louis A. Witzeman

                                      113