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SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



FORM 10-K



x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended June 30, 2006



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
                     to



Commission file number 0-22056



Rural/Metro Corporation

(Exact Name of Registrant as Specified in its Charter)



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



9221 East Via de
Ventura, Scottsdale, Arizona 85258

(Address of Principal Executive Offices) (Zip Code)



Registrants telephone number, including area code:
(480) 606-3886



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

(Title of Class)



Preferred Stock Purchase Rights

(Title of Class)



Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ̈No  x



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



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



Indicate by check mark whether registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



Large accelerated filer ̈Accelerated filer  x                    Non-accelerated filer ̈



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



The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $218,240,579 as of December 31, 2005.



There were 24,546,295 shares of the registrants Common Stock outstanding on September 11, 2006.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the registrants definitive proxy statement for the registrants 2006
Annual Meeting of Stockholders are incorporated by reference into Part III of this report.



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TABLE OF CONTENTS



|                                                               |  |                                                                                                                 |  |    
|-------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ---
|FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS |  | 3                                                                                                              
|                                                               | 
|PART I                                                         |  |                                                                                                                
|ITEM 1.                                                        |  | BUSINESS                                                                                                        |  | 4  
|ITEM 1A.                                                       |  | RISK FACTORS                                                                                                    |  | 20 
|ITEM 1B.                                                       |  | UNRESOLVED STAFF COMMENTS                                                                                       |  | 27 
|ITEM 2.                                                        |  | PROPERTIES                                                                                                      |  | 27 
|ITEM 3.                                                        |  | LEGAL PROCEEDINGS                                                                                               |  | 28 
|ITEM 4.                                                        |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 28 
|                                                               | 
|PART II                                                        |  |                                                                                                                
|ITEM 5.                                                        |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 29 
|ITEM 6.                                                        |  | SELECTED FINANCIAL DATA                                                                                         |  | 30 
|ITEM 7.                                                        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION    AND RESULTS OF OPERATIONS                        |  | 33 
|ITEM 7A.                                                       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                      |  | 69 
|ITEM 8.                                                        |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                     |  | 69 
|ITEM 9.                                                        |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING    AND FINANCIAL DISCLOSURE                         |  | 122
|ITEM 9A.                                                       |  | CONTROLS AND PROCEDURES                                                                                         |  | 122
|ITEM 9B.                                                       |  | OTHER INFORMATION                                                                                               |  | 123
|                                                               | 
|PART III                                                       |  |                                                                                                                
|ITEM 10.                                                       |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                              |  | 124
|ITEM 11.                                                       |  | EXECUTIVE COMPENSATION                                                                                          |  | 124
|ITEM 12.                                                       |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND    MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 124
|ITEM 13.                                                       |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 124
|ITEM 14.                                                       |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          |  | 124
|                                                               | 
|PART IV                                                        |  |                                                                                                                
|ITEM 15.                                                       |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                      |  | 125
|                                                               | 
|SIGNATURES                                                     |  | 130                                                                                                            



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FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS



Statements in this report that are not historical facts are hereby identified as forward-looking statements as that term is used in Section 21E of the Securities Exchange Act of 1934, as amended. We
caution readers that such forward looking statements, including those relating to our future business prospects, working capital, accounts receivable collection, cash flow, insurance coverage and claim reserves, capital needs, operating
results and compliance with debt facilities, 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 Business 
Introduction, Business  Market Reform and Changing Reimbursement Regulations, Business  Other Governmental Regulations, Business  Shared Services, 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 in Part I  Item 1A
 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 the Company, 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. The website for Rural/Metro Corporation is located at www.ruralmetro.com. The information in our website is not
incorporated in, and is not a part of, this report.



For a discussion of
certain risks associated with our business, see Risk Factors in Item 1A of this report and Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this report.



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PART I



|ITEM 1. | Business
|------- | --------



Introduction



Founded in 1948, we are a leading provider of medical transportation services, which consist primarily of emergency and non-emergency medical transportation services. We believe we are the only multi-state provider of
both medical transportation and fire protection services in the United States and that we rank among the largest private-sector providers of medical transportation and fire protection services in the world. We currently provide services to
approximately 400 communities in 23 states, including many of the fastest-growing states in the nation such as Arizona, Florida, Oregon, Utah and Georgia. As of June 30, 2006, we have approximately 95 contracts to provide 911 emergency medical
transportation services and approximately 610 contracts to provide non-emergency medical transportation services and other medical transportation services. In addition, we provide non-emergency medical transportation services to a broad customer
base, including a significant number of hospitals, nursing homes and specialized healthcare facilities on a non-contractual basis. We provided 1.2 million transports during fiscal year ended June 30, 2006. Our commitment is to provide our
patients and the communities we serve with high-quality care and efficient and reliable response times. Our common stock is traded on the NASDAQ Capital Market under the symbol RURL.



In pursuit of achieving our commitment, we provide medical transportation services under
contracts with governmental entities, hospitals, nursing homes and other healthcare facilities and organizations. Approximately half of our medical transports are initiated by 911 calls, with the remainder consisting of a variety of non-emergency
medical transports, such as medical transports between hospitals, nursing homes and specialized healthcare facilities. We believe that providing a mix of emergency and non-emergency medical transportation services diversifies our revenue base and
permits us to utilize our workforce and medical transportation vehicles more efficiently. We derive revenue from our medical transportation services through reimbursements we receive from commercial insurance companies and government-funded
healthcare programs such as Medicare and Medicaid and, to a lesser extent, from fees paid to us directly by our individual patients and from government subsidies paid to us under our 911 contracts. During fiscal 2006, 88 percent of our net revenue
was generated from our medical transportation and related services.



We are
also a provider of private fire protection and related services, and offer such services on a subscription-fee basis to residential and commercial property owners in three states and under long-term contracts with fire districts, industrial sites
and airports at 13 sites located in 10 states. Our fire protection services consist primarily of fire suppression, fire prevention and first responder medical care, which represented 12 percent of our fiscal 2006 net revenue.



Industry Overview



Medical Transportation Business



We estimate that expenditures for medical transportation services in the United States were
in the range of $8.0 billion to $10.0 billion for 2006. Medical transportation services are provided by governmental entities, private companies, hospitals and volunteer organizations. According to the Journal of Emergency Medical
Services 2005 Annual 200-City Survey, 52 percent of the nations largest 200 cities outsourced emergency medical transportation to private service providers. Non-emergency services are primarily provided by private companies. There
are a limited number of multi-state medical transportation providers and we are one of only two national providers of medical transportation services. We believe that the remaining private medical transportation providers are primarily regional or
local organizations serving one or a limited number of markets.



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We believe the following are key factors affecting the medical transportation business:



| |  |  | Aging U.S. population. According to the U.S. Census Bureau, about 72 million Americans, or 20 percent of the U.S. population, will be age 65 or older in 2030 compared to
36 million, or 12 percent, today. As the population continues to age, it is expected that demand for medical transportation will increase because people over the age of 65 years generally require medical transportation services more frequently
than the general population;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Stable Medicare reimbursement environment. The reimbursement for medical transportation services through Medicare has stabilized over the past several years, reflecting the
implementation of a revised Medicare pricing schedule. Historically, Medicare reimbursement rates were based on various complex methodologies under which rates varied widely among communities. The Medicare fee schedule implemented in 2002 simplified
and stabilized Medicare reimbursement. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 modified the Medicare fee schedule by providing for a one percent increase in reimbursement for urban transports and a two
percent increase for rural transports through 2006. Other fee adjustments will be fully phased by January 1, 2010;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increased use of medical transportation services.The increased availability and use of emergency medical services, together with increased patient travel between specialized
treatment healthcare facilities and greater use of outpatient care facilities, nursing homes and home care have contributed to greater demand for medical transportation services; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increase in public/private partnerships. We believe the complexities associated with the emergency medical transportation business, including the exacting and time-consuming
claim submission requirements of third-party payers such as Medicare and Medicaid, are leading many public providers of emergency medical transportation services to consider partnerships with private medical transportation companies. An example from
our experience is that some local fire departments have entered into collaborations with private medical transportation companies in which the fire department provides first responder services and the private company transports the patient and
handles billing. These partnerships benefit both parties  they allow public entities to be reimbursed for certain costs while relieving them of the billing and collection obligations associated with delivering emergency services.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Private 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 a limited number of communities, private companies provide subscription fire protection services to residential and commercial property owners. Typically, these
are emerging communities or unincorporated areas where neither a public sector nor volunteer fire department operates. A small number of private companies also provide such services to industrial sites, airports and other self-contained facilities
on a national basis.



We believe the most significant growth areas for
subscription fire protection services will come from emerging communities, principally in Arizona, that have no public sector or volunteer fire protection services.



Our Services



Medical Transportation and Related Services



We generally provide two primary levels of medical transportation services  Advanced Life Support (ALS) and Basic Life Support (BLS). We
staff our ALS ambulances with either two paramedics or one paramedic and an Emergency Medical Technician (EMT) and equip them with ALS equipment (such as cardiac monitors/defibrillators, advanced airway equipment and oxygen delivery
systems) as well as pharmaceuticals and medical supplies. We staff our BLS ambulance with two EMTs and equip them with medical supplies and equipment necessary to administer first aid and basic medical treatment.



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Emergency Medical Transportation Services



We generally provide our 911 emergency medical transportation services pursuant to long-term, exclusive agreements with counties,
municipalities, fire districts and other governmental entities. Our agreements require that we respond to all 911 emergency calls in a designated area within a specified response time. Generally, we respond to all emergency calls with ALS ambulances
unless otherwise specified by contract.



Under most of our agreements, the
local fire department is the first responder to an emergency scene. In these situations, the fire department typically begins stabilization of the patient. Upon arrival, our ALS crew members deploy portable life support equipment, ascertain the
patients medical condition and, if required, administer ALS interventions, including tracheal intubation, cardiac monitoring, defibrillation of certain cardiac dysrhythmias and the administration of medications and intravenous solutions under
the direction of a physician. The crew also may perform BLS services, including cardiopulmonary resuscitation (CPR), basic airway management and basic first aid. As soon as medically appropriate, the patient is placed on a portable
gurney and transferred into the ambulance. While one crew member monitors and treats the patient, the other crew member drives the ambulance to a hospital designated either by the patient or applicable medical protocol. While on scene or en route,
the ambulance crew alerts the hospital regarding the patients medical condition and, if necessary, the attending ambulance crew member consults an emergency physician as to treatment. Upon arrival at the hospital, the patient generally is
taken to the emergency department where care is transferred to the emergency department staff.



In certain communities, we seek to develop public/private partnerships with the fire department to provide emergency medical transportation services. These partnerships emphasize collaboration with the fire
departments and afford us the opportunity to provide 911 emergency medical transportation services in communities that, for a variety of reasons, may not otherwise have outsourced this service to a private provider. In most instances, the provision
of emergency medical transportation services under our partnerships closely resembles that of our usual 911 emergency medical transportation contracts.



We provide emergency medical transportation services on a fee-for-service basis and record revenue based on the level of medical service we provide. Additionally, our
fee-for service revenue may be supplemented by the communities we serve in the form of a subsidy, which further supports the level of medical services we provide.



Non-Emergency Medical Transportation Services



We provide non-emergency medical transportation services and critical care transports, often as a contracted preferred provider, with
governmental entities, hospitals, nursing homes and other healthcare facilities, or at the request of a patient. Non-emergency medical transportation services may be scheduled in advance or provided on an as-needed basis.



We utilize either ALS or BLS ambulance units to provide non-emergency medical transports,
depending on the patients medical condition, to and from residences, hospitals, nursing homes, long-term care centers and other healthcare facilities. These services may be provided when a home-bound patient requires examination or treatment
at a healthcare facility or when a hospital patient requires tests or treatments (such as MRI testing, CAT scans, dialysis and chemotherapy) at another facility. These services are administered by a licensed emergency medical technician or
paramedic.



We also provide critical care transport services to medically
unstable patients (such as cardiac patients and neonatal patients) who require critical care while being transported between healthcare facilities. Critical care services differ from ALS or BLS services in that the ambulance may be equipped with
additional medical equipment and may be staffed by a medical specialist provided by us or by a healthcare facility. Staffing may also include registered nurses, respiratory therapists, neo-natal nurse specialists and/or specially trained paramedics.



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Fire Protection and Other Services



Residential and Commercial Fire Protection Services



We generally provide our residential and commercial fire protection services, consisting primarily of fire suppression and first responder
medical care, on a subscription-fee basis to property owners in unincorporated areas who do not receive services through municipal fire departments, volunteer fire departments or fire protection districts.



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



We provide the majority of our residential and commercial fire protection services on a subscription basis. Generally, subscription fees are
billed annually to individual residential or commercial property owners. We also provide fire protection services to emerging communities where the subscription fee may be included in the homeowners association assessment. Property owners in
areas where we provide our fire protection services on a subscription basis may, but are not required to, subscribe for our services. We provide services to property owners in our service areas who do not subscribe for our fire protection service on
a fee-for-service basis. We also provide fire protection services under master agreements with governing entities, rather than on a subscription basis.



As of June 30, 2006, we provided residential and commercial fire protection services in four states. Based on historical and projected housing and development
trends, we believe these states will continue to experience population increases and offer the greatest growth potential for our private fire protection business.



Aircraft Rescue and Fire Fighting Services



We provide aircraft rescue and firefighting services (ARFF) on a limited basis under exclusive contracts at regional airports
throughout the United States. In addition to aircraft rescue and fire fighting services, we also provide emergency medical response for certain of these regional airports. Our ARFF firefighters have completed comprehensive professional training
programs and are cross-trained as EMTs or paramedics, as well as in hazardous materials response. Our capabilities include value-added services such as co-responder medical service in support of local fire departments for on-site medical
emergencies, safety training for fuel handlers and other airport personnel, fire prevention activities, security services and testing and maintenance of fire suppression equipment.



Industrial Fire Protection Services



We provide fire protection services and, on a limited basis, unarmed security services under exclusive contracts to five large industrial complexes, including a
petrochemical plant and other self-contained facilities in four states. Our contracts range up to three years in duration and expire at various dates through fiscal 2008. Industrial fire protection services contracts provide for reimbursement under
master contracts with the facilities we serve.



Other Services



We provide other services which include home healthcare services,
dispatch services, billing services and other miscellaneous services to our customers.



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Our Service Areas



We currently provide our services in approximately 400 communities in the following 23 states:



|           |  |             |  |              |  |              |  |           
|---------- |  | ----------- |  | ------------ |  | ------------ |  | ----------
|Alabama    |  | Georgia     |  | Nebraska     |  | Ohio         |  | Utah      
|Arizona    |  | Indiana     |  | New Jersey   |  | Oregon       |  | Washington
|California |  | Kentucky    |  | New Mexico   |  | Pennsylvania |  | Wisconsin 
|Colorado   |  | Louisiana   |  | New York     |  | South Dakota |  |           
|Florida    |  | Mississippi |  | North Dakota |  | Tennessee    |  |           



We provide medical transportation
services in 19 states and fire protection services in 12 states. There are eight states in which we provide both medical transportation services and fire protection services.



Our Contracts



We enter into contracts with various governmental entities and private parties to provide emergency and non-emergency medical transportation services and fire protection
services. No contract accounted for more than 10 percent of our annual net revenue during fiscal 2006, 2005 or 2004. As of June 30, 2006, we had approximately 95 exclusive contracts with counties, municipalities, fire districts and other
governmental entities to provide 911 emergency medical transportation services. These contracts, which are similar to licenses, grant us the right to provide 911 emergency medical transportation services. The contracts typically specify rates that
we may charge and set forth performance criteria, such as response times, staffing levels, types of vehicles and equipment, quality assurance, indemnity and insurance coverage. In certain instances, we are required by contract or by law to post a
surety bond or other assurance of financial or performance responsibility. The rates that we may charge under a contract for 911 emergency medical transportation services depend largely on:



| |  |  | patient mix;
| | - |  | ------------



| |  |  | the nature of services rendered;
| | - |  | --------------------------------



| |  |  | the local political climate;
| | - |  | ----------------------------



| |  |  | the amount of subsidy, if any; and
| | - |  | ----------------------------------



| |  |  | any federal, state or county authority to regulate rates.
| | - |  | ---------------------------------------------------------



Our 911 emergency medical transportation services contracts generally extend for terms of three to five years. Generally, these contracts may be terminated by either
party upon notice ranging from 30 to 180 days. Counties, fire districts and municipalities generally award contracts to provide emergency medical transportation services either through requests for competitive proposals or bidding processes. In some
instances in which we are the incumbent provider, the county or municipality may elect to renegotiate our existing contract rather than re-bid the contract. We will continue to seek to enter into public/private alliances to compete for new business.
Our contracts often contain options for earned extensions or for automatic renewal provisions.



As of June 30, 2006, we had approximately 610 contracts to provide non-emergency medical transportation services and other medical transportation services with governmental entities, hospitals, nursing homes and
other facilities. These contracts typically designate us as the preferred provider of medical transportation services to those facilities and permit us to charge a base fee, mileage and other additional fees for the use of particular medical
equipment and supplies.



We offer fire protection services on a
subscription-fee basis to residential and commercial property owners in four states and under long-term contracts with fire districts, industrial complexes and airports at 13 sites located in 10 states. Our residential and commercial subscription
fire protection services may be provided pursuant to contracts with the governmental entity, such as a county, in which we provide such services. We provide fire



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protection services on a subscription basis in areas where no governmental entity has assumed the financial responsibility for providing fire protection.
Fire subscription rates are not generally regulated by any governmental agency in our service areas. 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.



Prior to the scheduled termination of a contract, we may determine that a contract is no
longer favorable and may seek to modify or terminate the contract. When making such a determination, we may consider many factors including, whether the contract continues to further our business strategy, transport volume, response time
requirements, changes in payer mix, geographical issues adversely affecting response times and delays in implementing technology upgrades. We continuously review our contracts in order to maximize operational and financial performance. From time to
time, we may determine that a contract no longer meets our operational and financial performance standards and may seek to modify or exit the contract. We face risks in attempting to exit unfavorable contracts, including the possibility of
performance bond forfeiture, difficulty in collecting receivables in an exited market, severance costs, real estate lease obligations and adverse political and public relations consequences.



Insurance Coverage



Many of our contracts and certain provisions of local law require us to carry specified amounts of insurance coverage. As is common for our
industry, we carry a broad range of comprehensive general liability, automobile, property damage, professional, workers compensation and other liability insurance policies. As a result of the nature of our services and the day-to-day operation
of our vehicle fleet, we are subject to accident, injury and professional claims in the ordinary course of business. We operate in some states that adhere to a gross negligence standard for the delivery of emergency medical care, which reduces our
potential exposure for tort judgments.



Based upon historical claim trends, we
consider our insurance program to be adequate for the protection of our assets and operations. Our insurance policies are either occurrence or claims-made policies and are subject to deductibles and self-insured retention limits that we believe are
typical for the industry. We have attempted to minimize our claims exposure by implementing enhanced workplace health and safety programs, and increasing the utilization of experts in connection with our legal, risk management and safety programs.



Surety Bonding



In certain instances, we are required by contract to provide a surety bond or other
assurance of financial and performance responsibility. As a result, we have a portfolio of surety bonds that is renewed annually. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Insurance
Programs for additional information.



Shared Services



We support our various service areas with integrated information
systems and standardized procedures that enable us to efficiently manage the treasury and financial support functions, payroll processing, disbursements, tax and risk management. Our technology solutions include real-time operating statistics,
electronic purchasing and inventory management solutions.



Our centralized
systems are designed to significantly augment local processes and permit managers to direct their attention to the performance and growth of their operations. The centralized billing and collection system provides for efficient tracking and
collection of accounts receivable. Centralized purchasing permits us to achieve discounts in the purchase of medical equipment and supplies. Other centralized infrastructure



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components such as treasury, risk management, compliance, legal, payroll and accounts payable provide us the capability to purchase related products and
services on a national basis, identify and respond to national trends and provide internal support and administrative services in a more cost-effective, efficient and consistent manner across all of our operations. We provide services and allocate
costs for these centralized systems pursuant to administrative services agreements with each of our direct and indirect wholly owned subsidiaries.



Management Information Systems



We believe our management information systems have significantly enhanced our operations. Among the most significant of these systems are the following:



| |  |  | Proprietary Billing System. We have developed a proprietary medical transportation billing and collections system which is operated from a single, nationwide platform
that allows for standardized procedures and training, thereby minimizing duplication and maximizing collections. This information technology is designed to improve our ability to collect outstanding claims on a timely basis.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rural/Metro Electronic Patient Care Reporting System (R/M ePCR). Our R/M ePCR technology initiative is designed to enhance and expedite the process of
capturing clinical patient data, transferring the data to our proprietary billing system and submitting claims for reimbursement of our medical transportation services. Upon implementation, electronic patient care reports will replace paper patient
care reports and provide ambulance crews with clinical flow charts to fully document each patient assessment and procedure performed.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Internet-Based Scheduling Software. In an effort to minimize unscheduled overtime among field personnel, we implemented Internet-based scheduling software designed to
maximize efficiencies in crew staffing. We believe this software has resulted in an overall reduction of labor costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | DriveCam Technology. In an effort to reduce insurance costs and improve safety, we have begun installing on-board monitoring systems in our ambulances. These systems
monitor operator performance against safe driving standards. We expect that this technology will be installed in the majority of our fleet by the end of calendar year 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that our investment in management information systems and our effective use of these systems represent key components of our
success. Process and personnel improvements in these areas are continuing. We are committed to further strengthening the productivity and efficiency of our business and believe that our management systems have the capability to support future
growth.



Dispatch and Communications



Most of our emergency transportation communications centers utilize sophisticated
communications systems to direct fleet deployment and utilization 24 hours a day, seven days a week. We communicate with our vehicles over dedicated radio frequencies licensed by the Federal Communications Commission. We use system status plans and
flexible deployment systems to position our ambulances within a designated service area because effective fleet deployment represents a key factor in reducing response times and efficiently using our resources. We analyze data on traffic patterns,
demographics, usage frequency and other factors to determine optimal ambulance deployment and selection through the use of our computer-aided dispatch systems. The center that controls the deployment and dispatch of ambulances in response to
emergency medical calls may be owned and operated either by the applicable county or municipality or by us.



Depending on the emergency medical dispatch system used in a designated service area, the public authority that receives 911 emergency medical transportation calls either dispatches our ambulances directly from the
public communication center or communicates information regarding the location and type of medical emergency to our communication center, which in turn dispatches ambulances to the scene while the call taker communicates with



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the caller. Substantially all of our call takers and dispatchers are trained EMTs or Emergency Medical Dispatchers with additional training that enables them
to instruct a caller on pre-arrival emergency medical procedures, if necessary. In our larger communication centers, a computer assists the dispatcher by analyzing a number of factors, such as time of day, ambulance location and historical traffic
patterns in order to recommend optimal ambulance selection. In all cases, a dispatcher selects and dispatches the ambulance. While the ambulance is en route to the scene, the emergency medical team receives information concerning the patients
condition. Also, in many operations across the country, we use automated vehicle locator technology in the vehicles to enhance our dispatch system.



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



Prompt deployment and dispatch are also important components of non-emergency medical transportation services. Requests for non-emergency medical transports are made by physicians, nurses, case managers and hospital discharge coordinators
who require prompt ambulance arrival at the prescheduled pick-up time. We also offer online, web-enabled transportation ordering to certain facilities. We implement system status plans for these services designed to ensure appropriate response times
to non-emergency calls and use our computer-aided dispatch software to track and manage requests for medical transportation services for large healthcare facilities and managed care companies. We have developed extensive customer service models,
based on patient medical condition, level of care and specialized equipment that will be required by the patient, to enable our communications centers to meet the needs of our customers.



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



Billing and Collections



We currently maintain five regional billing and payment processing centers as well as a centralized private-pay collection system located near our corporate headquarters
in Scottsdale, Arizona. All invoices are generated at the regional level and an account is forwarded to our centralized collection system for private-pay accounts only if payment is not received in a timely manner. Regional centers provide customer
services. All medical transportation revenue is billed and collected through our integrated billing and collection system. We derive a substantial portion of our medical transportation fee collections from reimbursements by third-party payers,
including commercial insurance companies and government-funded healthcare programs such as Medicare and Medicaid. We typically invoice and collect payments directly from those third-party payers.



The composition of our medical transportation collections is as follows:



|                    |  |             |   |  |      |   |  |      |  
|------------------- |  | ----------- | - |  | ---- | - |  | ---- | -
|                    |  | Collections |  
|                    |  | 2006        |   |  | 2005 |   |  | 2004 |  
|Medicare            |  | 27          | % |  | 28   | % |  | 28   | %
|Medicaid            |  | 15          | % |  | 15   | % |  | 14   | %
|Commercial insurers |  | 48          | % |  | 47   | % |  | 48   | %
|Patients            |  | 10          | % |  | 10   | % |  | 10   | %
|                    |  |             |   |  |      |   |  |      |  
|                    |  | 100         | % |  | 100  | % |  | 100  | %
|                    |  |             |   |  |      |   |  |      |  



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We also receive subsidies from certain governmental entities, which further supports the level of medical services we
provide. These subsidies, which are included in net revenue, totaled $9.1 million, $8.9 million and $8.4 million for the fiscal years ended June 30, 2006, 2005 and 2004, respectively.



Companies in the emergency medical transportation service industry recognize significant
provisions for doubtful accounts compared to companies in other industries. Collection of complete and accurate patient billing information during an emergency service call is sometimes difficult and incomplete information hinders post-service
collection efforts. As a result, we often receive partial or no compensation for services provided to patients who are not covered by Medicare, Medicaid or commercial insurance. Our allowance for doubtful accounts generally is higher with respect to
revenue derived directly from patients than for revenue derived from third-party payers, and generally is higher for transports resulting from emergency medical transportation calls than for non-emergency medical transportation requests.



We have substantial experience in processing claims to third-party payers and employ a
billing staff trained in third-party coverage and reimbursement procedures. Our integrated billing and collection system uses proprietary software to tailor the submission of claims to Medicare, Medicaid and other third-party payers and has the
capability to electronically submit claims to the extent third-party payers systems permit. Our integrated billing and collection system provides for tracking of accounts receivable and status pending payment, which facilitates the utilization
of specially trained billing personnel. When collecting from individuals, we sometimes use an automated predictive dialer that pre-selects and dials accounts based on their status within the billing and collection cycle. We believe the automated
predictive dialer enhances the efficiency of the collection staff. For further discussion, see Managements Discussion and Analysis of Financial Condition and Results of Operations.



Sales and Marketing



We primarily utilize Division General Managers, Market General Managers, Marketing Directors
and EMS Healthcare Account Executives in our sales and marketing efforts. Division General Managers have overall responsibility, while Market General Managers, Marketing Directors and EMS Healthcare Account Executives are responsible for daily
interaction with our various customer constituencies, ranging from governing authorities that oversee emergency medical transportation contracts to regional and local healthcare and nursing facilities.



Our Division General Managers generally oversee all sales and marketing efforts in their
assigned markets, as well as establish and maintain relationships with potential and existing customers. Our sales and marketing teams focus primarily on targeting new business relationships and leveraging existing contacts to grow market share. Our
Division General Managers are also the primary lead on requests for proposals to provide medical transportation services and the preparation of the related responses.



Market General Managers and Operations Managers oversee marketing and sales activities within their markets and are responsible for
operational decisions and, in certain areas, handle hospital and government contracts and focus on relationships with larger healthcare systems within the communities.



Healthcare Account Executives are responsible for new business development, maintaining positive relationships with existing customers,
coordinating community and public relations events in their respective areas and responding to customer service concerns when they arise.



In three states, our fire operations employ subscription sales and marketing representatives who are responsible for fire subscription sales to residential and commercial
property owners. These employees are responsible for direct mail campaigns, customer service, renewal notices and invoicing fees for service to non-subscribers. We also provide specialized sales and marketing to large commercial customers such as
industrial parks, apartment complexes and other commercial centers.



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Risk Management



We have consistently placed workplace health and safety among our highest priorities and that effort has proven effective in controlling our insurance costs. We
believe in creating a culture among our work force that encourages and demonstrates a committed approach to workplace health and safety.



Our programs include enhanced facility audits, additional accident reporting guidelines, the introduction of an employee/risk-management hotline and an in-depth loss data
report that can be utilized by regional managers to identify trends in their areas. We will continue to search out and implement innovative ways to reduce our insurance costs and improve the overall safety of our work environment.



We train and educate all emergency response personnel about our safety programs including,
among others, emergency vehicle operations, medical protocols, use of equipment and patient focused care and advocacy. Our safety training also involves continuing education programs and safety awareness campaigns.



Our safety and risk management team executed a strategic initiative focused on mitigating the
factors that drive losses in our operations. We aggressively investigate and respond to all incidents we believe may result in a claim. Operations supervisors promptly submit documentation of such incidents to the third-party administrator handling
the claim. We have a dedicated liability unit with our third-party administrator, which actively engages with our staff to gain valuable information for closure of claims. Information from the claims database is an important resource for identifying
trends and developing future safety initiatives.



Our Driver Development
Program (DDP) is based on the Coaching Emergency Vehicle Operator (CEVO) program, a nationally recognized drivers training program for emergency services vehicle operators endorsed by the National Safety Council. DDP
combines classroom and field training and its curriculum includes instruction on staging, proper inspection of vehicles and driving in emergency situations. We modified and enhanced the CEVO program based on our analysis of more than 10 years of
vehicle incidents as well as drivers experiences.



We are implementing an
on-board monitoring system, DriveCam, which measures operator performance against our safe driving standards. The system is designed to capture digital images and audio files of any driving performance that is outside of acceptable protocols,
including excessive speed, unsafe turns and rapid stops. We expect that this technology will be installed in the majority of our fleet by the end of calendar year 2006.



Competition



The medical transportation service industry is highly competitive. The principal providers of medical transportation services include governmental entities, other
national medical transportation service providers, large regional medical transportation service providers, hospitals and numerous local and volunteer private providers. Counties, municipalities, fire districts, hospitals or healthcare organizations
that presently contract for medical transportation services may choose to provide medical transportation services directly in the future. We experience continuing competition from municipal fire departments in providing emergency medical
transportation service. However, we believe that the non-emergency medical transportation services market currently is unattractive to the majority of municipal fire departments due to their primary role as emergency first responders in the
communities they serve.



We believe that counties, fire districts and
municipalities consider quality of care, historical response time performance and cost to be among the most important factors in awarding a contract, although other factors, such as customer service, financial stability, personnel policies and
practices and managerial strength, also may be considered. Commercial providers, including our largest national competitor, American Medical Response, often compete intensely for business within a particular community.



We believe it is generally difficult to displace a provider that has a history of satisfying
the quality of care and response time performance criteria established within a service area. Moreover, significant start-up costs,



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together with the long-term nature of the contracts under which services are provided and the relationships many providers have within their communities,
create barriers for entry into new markets other than through acquisition. We further believe that our status as an emergency medical transportation service provider in a service area increases our visibility and stature and enhances our ability to
compete for non-emergency services within such areas.



In the fire protection
industry, services for residential and commercial properties are provided primarily by municipal fire departments, tax-supported fire districts and volunteer departments. Private sector companies, such as ours, represent a small portion of the total
fire protection market and generally provide fire protection services where a tax-supported municipality or fire district 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. In the case of industrial or airport fire
protection contracts, our customers may elect to put a contract out to competitive bid. Our key competitors for the provision of fire protection services to airports and industrial sites, respectively, include Pro-tec Fire Services, Ltd. and
Wackenhut Services, Inc.



Personnel



Employees



At June 30, 2006, we employed approximately 7,800 full-time and part-time employees of which approximately 5,700 are emergency care
professionals, including paramedics, EMTs and firefighters. Approximately 400 of our employees are involved in billing and collections and approximately 1,700 are involved in field support services, including dispatch/communications, fleet services,
home medical care, administrative and clerical.



We are party to a total of 14
collective bargaining agreements in the following locations:



|                            |  |                      |  |                             
|--------------------------- |  | -------------------- |  | ----------------------------
|Three agreements in Arizona |  | Gadsden, Alabama     |  | Two agreements in California
|Four agreements in New York |  | Knoxville, Tennessee |  | Seattle, Washington         
|Orlando, Florida            |  | Youngstown, Ohio     |  |                             



Five of these agreements, covering
approximately 720 employees, are scheduled to expire at various times over the next two years. We consider our relations with our employees to be good and we continue to work at fostering solid, mutually rewarding work environments.



Medical Personnel and Quality Assurance



Paramedics and EMTs must be state certified in order to perform emergency care services.
Certification as an EMT requires completion of a minimum of 164 hours of training in a program designated by the U.S. Department of Transportation and supervised by state authorities. EMTs also may complete advanced training courses to become
certified to provide certain additional emergency care services such as administration of intravenous fluids and advanced airway management. Certification as a paramedic requires the completion of more than 800 hours of training in advanced patient
care assessment, pharmacology, cardiology and other clinical skills in addition to completion of the EMT training program. Many of the paramedics currently employed by us served as EMTs for us prior to their certification as paramedics. We are
subject to market specific shortages of qualified EMTs and paramedics. We compete with hospitals, municipal fire departments and other healthcare providers for these valued individuals. We have undertaken efforts to minimize the effect of these
shortages and have implemented a number of programs to attract and retain a quality workforce, such as providing training programs, flexible work schedules, recruitment bonuses, moving allowances and various other



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



Local physician advisory boards and medical directors develop medical protocols to be followed by paramedics and EMTs in our service areas. Instructions are conveyed on a
case-by-case basis through direct communications between the ambulance crew and hospital emergency room physicians during the administration of advanced life support procedures. In each location in which we provide services, a medical director, who
usually is a physician associated with a hospital we serve, monitors adherence to medical protocol and conducts periodic audits of the care provided. In addition, we conduct retrospective patient care report audits with our employees to evaluate
compliance with medical and performance standards.



We are a member of a number
of professional organizations, such as the American Ambulance Association, National Emergency Number (911) Association, International Association of Fire Chiefs and National Association of EMS Physicians. In those states where we provide
service, we are involved in the state ambulance association, if one exists, and in many instances our involvement includes holding elected positions. In addition, we also are involved in the Commission on Accreditation of Ambulance Services
(CAAS), the National Registry of Emergency Medical Technicians and the National Fire Protection Association. Also, many of our employees are members of the National Association of EMTs, National Association of EMS Educators and other
industry organizations.



Our commitment to quality is reflected in the fact
that eight of our operations across the country are accredited by CAAS. The process is voluntary and evaluates numerous qualitative factors in the delivery of services. Municipalities and managed care providers often consider accreditation as one of
the criteria in awarding contracts.



Fire Protection Personnel



Fire protection personnel consist of full-time firefighters as well as
trained reservists who work on an as-needed basis. All of our full-time and reserve firefighters undergo extensive training, which exceeds the standards recommended by the National Fire Protection Association, and must qualify for state
certification before being eligible for full-time employment by us. Because approximately 75 percent of our fire response activity consists of emergency medical response, all of our full-time firefighters are trained EMTs or paramedics and are
subject to the training and continued education described above. Our ongoing training includes instruction in new fire service tactics and fire fighting techniques as well as physical conditioning.



Regulation



Market Reform and Changing Reimbursement Regulations



Market reform and various regulatory changes have impacted and reshaped the healthcare delivery system in the United States and, by
extension, the medical transportation industry. As with all other healthcare providers, we must comply with various requirements in order to participate in Medicare and Medicaid. Medicare is a federal health insurance program for the elderly and for
chronically disabled individuals, which, among other things, pays for medical transportation services when medically necessary. Medicaid is a combined federal-state program for medical assistance to impoverished individuals who are aged, blind, or
disabled or members of families with dependent children. Medicaid programs or a state equivalent exist in all states in which we operate. Although Medicaid programs differ in certain respects from state to state, all are subject to federal
requirements. State Medicaid agencies have the authority to set levels of reimbursement within federal guidelines. We receive only the reimbursement permitted by Medicaid and are not permitted to collect any difference between our customary charge
and the amount reimbursed by Medicaid.



We have a national corporate compliance
department that works closely with senior management, local managers, billing and collections personnel and both the human resources and legal departments, as well as



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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 percent compliance at all times, particularly in light of the complicated and ever-changing nature of the reimbursement regulations and the high volume of daily transports that we provide nationwide. Failure to
comply may lead to significant penalties or lower levels of reimbursement, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. From time to time, we have taken corrective action to
address billing inconsistencies, which we have identified through our periodic internal reviews of billing procedures or which have been brought to our attention through governmental examination of our records and procedures. These matters cover
periods prior to and after our acquisition of operations. As part of our commitment to working with those governmental agencies responsible for enforcement of Medicare and Medicaid compliance, in the past we have voluntarily self-disclosed billing
issues identified at certain operations. Due to the nature of our business and our participation in the Medicare and Medicaid reimbursement programs, we are routinely subject to regulatory reviews and/or inquiries by governmental agencies. We expect
these regulatory agencies to continue their practice of performing periodic reviews related to our industry. We fully cooperate with such federal and state agencies to provide requested information and incorporate any recommended modifications of
our existing compliance programs.



Government funding for healthcare programs
is subject to statutory and regulatory changes, administrative rulings, interpretations of policy and determinations by intermediaries and governmental funding restrictions, all of which could materially impact program reimbursements for medical
transportation services. The Balanced Budget Act of 1997 established the creation of a national fee schedule for payment of medical transportation services that would control increases in expenditures under Part B of the Medicare program,
established definitions for medical transportation services that linked payments to the type of services furnished, considered appropriate regional and operational differences and considered adjustments to account for inflation, among other
provisions that were enacted.



The Medicare Ambulance Fee Schedule Final Rule
(the Final Rule), which became effective on April 1, 2002, categorizes seven levels of ground medical transportation services, ranging from basic life support to specialty care transport, and two categories of air medical
transportation services. The base rate conversion factor (the rate for BLS non-emergency service, the lowest fee of the seven service levels) for calendar 2006 is $186.40, following the application of the 2006 ambulance inflation factor rate of 2.5
percent, plus separate mileage. Adjustments also were included to recognize differences in relative practice costs among geographic areas, and higher transportation costs that may be incurred by medical transportation service providers in rural
areas with low population density. The Final Rule requires medical transportation service providers to accept assignment on Medicare claims, which means a provider must accept Medicares allowed reimbursement rate as full payment. Medicare
reimburses 80 percent of that rate and the remaining 20 percent is the responsibility of the patient or their secondary insurance. We cannot balance bill the difference between the Medicare allowable and our standard rate.



With the passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003,
modifications were made to the original five year phase-in of the ambulance fee schedule. Effective July 1, 2004, a regional fee schedule component of reimbursement is being phased in with the original national fee schedule and will be fully
phased in on January 1, 2010. Under the new rules, the Medicare allowable reimbursement rate will be the greater of (a) the national fee schedule or (b) a blend of the national fee schedule and the regional fee schedule. For 2004,
that blended rate was 20 percent of the national fee schedule and 80 percent of the regional fee schedule. For each succeeding year through 2007, the percentages will increase 20 percent for the national fee schedule and decrease 20 percent for the
regional fee schedule portions of the blended rate. For 2008 and 2009, the fee schedule will remain at the 2007 mix of 80 percent national and 20 percent regional. In addition to the fee schedule phase-in changes, a provision for additional
reimbursement for medical transportation services was provided to Medicare patients. Among other relief, the Act provides for a one percent increase in reimbursement for urban transports and a two percent increase for rural transports for the
remainder of the original phase-in



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period of the national ambulance fee schedule, or through calendar year 2006. We believe the final impact on our results of operations will be favorable,
primarily due to the geographic diversity of our operations.



Reimbursement by
Medicare accounted for 27 percent, 28 percent and 28 percent of our medical transportation collections for fiscal 2006, 2005 and 2004, respectively.



While we believe that the Medicare Ambulance Fee Schedule will have a favorable impact on our medical transportation revenue at incremental and full phase-in periods,
these rules could, however, result in contract renegotiations or other actions by us to offset any negative impact at the regional level that could have a material adverse effect on our business, financial condition, results of operations and cash
flows. Changes in reimbursement policies, or other governmental action, together with the financial challenges of some private, third-party payers and budget pressures on other payer sources could influence the timing and, potentially, the receipt
of payments and reimbursements. A reduction in coverage or reimbursement rates by third-party payers or an increase in our cost structure relative to the rate of increase in the CPI could have a material adverse effect on our business, financial
condition, results of operations and cash flows.



Federal False Claims Act



We are subject to the Federal False Claims Act that imposes civil and
criminal liability on individuals or entities that submit false or fraudulent claims for payment to the government. Government agencies continue civil and criminal enforcement efforts in connection with investigations of healthcare companies and
their executives and managers, many of which enforcement actions involve the Federal False Claims Act. The Federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly
or recklessly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. In addition, private parties may initiate
qui tamwhistleblower lawsuits against any person or entity under the False Claims Act in the name of the government and share in the proceeds of the lawsuit. Although we intend and endeavor to conduct our business in compliance
with all applicable fraud and abuse laws, we cannot ensure that our arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.



Federal Anti-Kickback Statute



We are subject to the Federal Anti-Kickback Statute which is broadly worded and prohibits
the knowing and willful offering, payment, solicitation or receipt of any form of remuneration in return for, or to induce (1) the referral of a person, (2) the furnishing or arranging for the furnishing of items or services reimbursable
under Medicare, Medicaid or other governmental programs or (3) the purchase, lease or order, or arranging or recommending purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental
programs.



In light of the breadth of the anti-kickback statute, many of our
business arrangements with hospitals and other healthcare entities could be subject to government investigation and prosecution. Noncompliance with the anti-kickback statute can result in exclusion from Medicare, Medicaid or other governmental
programs as well as civil and criminal penalties, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.



Other Federal Healthcare Fraud and Abuse Laws



We are also subject to other federal healthcare fraud and abuse laws. Under the Health Insurance Portability and Accountability Act of 1996
(HIPAA), there are two additional federal crimes that could have an impact on our business: Healthcare Fraud and False Statements Relating to Healthcare Matters. The Healthcare Fraud provision prohibits knowingly
and recklessly executing a scheme or artifice to defraud any healthcare benefit



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program, including private payers. A violation of this provision is a felony and may result in fines, imprisonment and/or exclusion from government-sponsored
programs. The False Statements Relating to Healthcare Matters provision prohibits knowingly and willfully falsifying, concealing or covering up a material fact by any trick, scheme or device or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this provision is a felony and may result in fines and/or imprisonment. Although we intend and endeavor to conduct our business in
compliance with all applicable fraud and abuse laws, we cannot ensure that our arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.



Administrative Simplification Provisions of the Health Insurance Portability and
Accountability Act of 1996



The Administrative Simplification Provisions
of HIPAA required the Department of Health and Human Services (the HHS) to adopt standards to protect the privacy and security of health-related information. All healthcare providers were required to be compliant with the new federal
privacy requirements enacted by the HHS no later than April 14, 2003. The HIPAA privacy requirements contain detailed requirements regarding the use and disclosure of individually identifiable health information. Improper use or disclosure of
identifiable health information covered by HIPAA privacy regulations can result in civil and criminal penalties. We believe we are in compliance with HIPAA requirements.



In addition to enacting the foregoing privacy requirements, the HHS issued a final rule creating security requirements for healthcare
providers and other covered entities on February 20, 2003. The final security rule required covered entities to meet specified standards by April 20, 2005. The security standards contained in the final rule do not require the use of
specific technologies (e.g.,no specific hardware or software is required), but instead require healthcare providers and other covered entities to comply with certain minimum security procedures in order to protect data integrity,
confidentiality and availability. We believe we are in compliance with the security regulations.



HIPAA also required the HHS to adopt national standards establishing electronic transaction standards that all healthcare providers must use when submitting or receiving certain healthcare transactions electronically.
We believe we are in compliance with these standards.



Fair Debt Collection
Practices Act



Some of our operations may be subject to compliance with
certain provisions of the Fair Debt Collection Practices Act and comparable statutes in many states. Under the Fair Debt Collection Practices Act, a third-party collection company is restricted in the methods it uses to contact consumer debtors and
elicit payments with respect to placed accounts. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the Fair Debt Collection Practices Act. We believe we are in compliance with the
Fair Debt Collection Practices Act and comparable state statutes where applicable.



Occupational Safety and Health Administration



At the federal
level, we are subject to regulations under the Occupational Safety and Health Administration (OSHA) designed to protect our employees. We endeavor to protect the health and safety of our employees and we believe we are in compliance with
the requirements of the OSHA regulations.



State Fraud and Abuse Provisions



We are subject to state fraud and abuse statutes and regulations. Most of
the states in which we operate have adopted a form of anti-kickback law, almost all of those states also have adopted self-referral laws and some have adopted separate false claims or insurance fraud provisions. The scope of these laws and the
interpretations



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of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Generally, state laws cover all
healthcare services and not just those covered under a federally-funded healthcare program. A determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.



Although we intend and endeavor to conduct our business in compliance with all
applicable fraud and abuse laws, we cannot ensure that our arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.



Corporate Compliance Program



In an effort to monitor compliance with federal and state laws and regulations applicable to
healthcare entities, we have developed a program to ensure that we maintain high standards of conduct in the operation of our business and to implement policies and procedures so that employees act in compliance with all applicable laws, regulations
and company policies. The programs focus is to prevent, detect and mitigate regulatory risks. We strive to achieve this mission through:



| |  |  | providing guidance, education and proper controls based on the regulatory risks associated with our business model and strategic plan;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | providing training;
| | - |  | -------------------



| |  |  | conducting internal audits;
| | - |  | ---------------------------



| |  |  | resolving regulatory matters; and,
| | - |  | ----------------------------------



| |  |  | enhancing the ethical culture and leadership of the organization.
| | - |  | -----------------------------------------------------------------



Our compliance program has been structured in accordance with the guidance provided by the Office of the Inspector General (OIG) of the HHS. The primary
recommended standards, all of which we have implemented, include:



| |  |  | formal policies and written procedures;
| | - |  | ---------------------------------------



| |  |  | designation of a Compliance Committee and Compliance Officer;
| | - |  | -------------------------------------------------------------



| |  |  | education and training programs;
| | - |  | --------------------------------



| |  |  | internal monitoring and reviews;
| | - |  | --------------------------------



| |  |  | responding appropriately to alleged misconduct;
| | - |  | -----------------------------------------------



| |  |  | open lines of communication; and,
| | - |  | ---------------------------------



| |  |  | discipline and accountability.
| | - |  | ------------------------------



The compliance program is based on the overall goal of promoting a culture that encourages employees to conduct activities with integrity, dignity and care for those we
serve. Notwithstanding the foregoing, our compliance program examines compliance with carious policies and regulations on a sample basis. Although such an approach reflects a reasonable and accepted approach in the industry, we cannot ensure that
our program will detect and rectify all compliance issues in all service areas and for all time periods.



Other Governmental Regulations



Our
business is also subject to other governmental regulations at the federal, state and local levels. The federal government recommends standards for ambulance design and construction, medical training curricula, designation of appropriate trauma
facilities and regulates our radio licenses. Various state agencies may modify these standards or require additional standards.



Each state where we operate regulates various aspects of ambulance and fire businesses. These regulations may vary widely from state to state. State requirements govern
the licensing or certification of ambulance service



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providers, training and certification of medical personnel, the scope of services that may be provided by medical personnel, staffing requirements, medical
control, medical procedures, communication systems, vehicles and equipment. State or local government regulations or administrative policies regulate rate structures in certain states in which we conduct medical transportation 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 regulates the rates for emergency medical transportation services pursuant to a master contract, as well as establishes the rates for non-emergency medical transportation services that we are permitted to charge.



Applicable federal, state and local laws and regulations are subject to change. We believe we
are in 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  Some state and local governments regulate our rate structures and may limit our ability to increase our rates or maintain a satisfactory rate structure,  Our business is subject to laws, rules and
regulations,  Our business is subject to substantial regulations and  HIPAA regulations could have a material adverse effect on our business for further discussion.



Available Information



Our annual, quarterly and current reports, proxy statements and other information, including the amendments to those reports, are available,
without charge, on our website, www.ruralmetro.com, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (SEC). In addition, our SEC filings are available over the
internet at the SECs website at http://www.sec.gov.



You may also
read and copy any document that we file at the SECs public reference room at:



Public Reference Room

100 F Street, N.E.

Washington, D.C. 20549

1-800-SEC-0330



Please call the SEC at 1-800-SEC-0330 for more information on the public reference room and
their copy charges.



|ITEM 1A. | Risk Factors
|-------- | ------------



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



We may fail to receive reimbursements from third-party payers.



We provide our medical transportation services on a fee-for-service basis and collect a
substantial portion of our revenue from reimbursements from third-party payers, including government-funded healthcare programs such as Medicare and Medicaid and private insurance programs. We recognize revenue when we provide medical transportation
services; however, the reimbursement process is complex and there can be lengthy delays before we receive payment. In addition, third-party payers may disallow, in whole or in part, requests for reimbursement based on assertions that certain amounts
and services are not reimbursable or that additional supporting documentation is necessary. Retroactive adjustments made by third-party payers may change amounts realized from them. We received approximately 90 and 91 percent of our medical
transportation fee collections from third-party payers during fiscal 2006 and 2005, respectively, including approximately 27 percent and 28 percent from Medicare during fiscal 2006 and 2005, respectively, and approximately 15 percent from Medicaid
for both



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fiscal years. To the extent our claims are not reimbursed or allowed, it could have a material adverse effect on our financial condition, results of
operations and cash flows.



We may not be able to successfully collect
amounts billed directly to individual patients.



We are required to
provide emergency medical transportation service regardless of the ability or willingness of the patient to pay. We face the risk of not being paid by individuals that require emergency medical transportation service and the risk of increased rates
of non-payment should the number of such individuals using our services increase in our service areas. Our failure to receive payments from a significant number of individual patients could result in a material adverse effect on our business,
financial condition, results of operations or cash flows.



Claims against
us could exceed our insurance coverage; we may not have coverage for certain claims.



We are subject to a significant number of accident, injury and patient care incident lawsuits as a result of the nature of our business and day-to-day operations. Some of these lawsuits may involve large claim amounts
and substantial defense costs. In order to minimize the risk of our exposure, we maintain insurance coverage for workers compensation, general liability, automobile liability and professional liability claims. In certain limited instances we
may not have coverage for certain claims. When we do have coverage, the coverage limits of our policies may not be adequate. Liabilities in excess of our insurance coverage could have a material adverse effect on our business, financial condition,
results of operations or cash flows. Claims against us, regardless of their merit or outcome, also may have an adverse effect on our reputation and business.



We may experience future increases in the cost of our insurance programs that could adversely affect our business, financial condition, results of operations or
cash flows.



An increase in our claim experience may result in
increases in our insurance premiums. If we experience increases in our premiums, it could have a material adverse effect on our business, financial condition, results of operations or cash flows.



Two insurance companies with which we have previously done business are in liquidation
proceedings and we may be required to cover a portion of claims covered by these insurers or lose deposits we have with them.



Two of our previous workers compensation and general liability programs insurers, Reliance Insurance Company (Reliance), from whom we purchased coverage
for policy years 1992 through 2000, and Legion Insurance Company (Legion), from whom we purchased coverage in 2001 and 2002, are currently in liquidation proceedings in Pennsylvania. In the event that we incur workers compensation
or general liability claims for the policy years covered by these insurers and they are not covered by the applicable insurer or state guaranty fund, we may be required to fund any losses related to such claims. As of June 30, 2006, we had
letters of credit totaling $3.7 million issued on behalf of Reliance along with $1.3 million of cash on deposit with Mutual Indemnity, a Legion affiliate. The liquidation proceedings may result in the loss of all or part of the collateral and/or
funds currently held by these insurers, and may result in restricted access to both insurance and reinsurance proceeds relating to our general liability program. A requirement to fund significant claims or the loss of some or all of the amounts
posted as collateral could have a material adverse effect on our business, financial condition, result of operations and cash flows.



Our revenues may decline if Medicare reduces the reimbursements it pays to us or changes its programs.



Our revenues may decline if Medicare reduces its reimbursement rates or otherwise changes
its current Medicare fee schedule. We received approximately 27 percent and 28 percent of our medical transportation fee collections from Medicare during fiscal 2006 and 2005, respectively. Any reductions in reimbursement rates or other



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changes to the Medicare fee schedule could result in a reduction in reimbursements we receive for our medical transportation services.



Some state and local governments regulate our rate structures and may limit our ability
to increase our rates or maintain a satisfactory rate structure.



State or local government regulations or administrative policies regulate the rates we can charge in some states for medical transportation services. For example, the State of Arizona establishes the rates we may charge in the various
communities we serve in that state. Medical transportation services revenue generated in Arizona accounted for approximately 32 percent and 30 percent of net revenue for fiscal 2006 and 2005, respectively. In some service areas in other states in
which we are the exclusive provider of services, the municipality or fire district sets the rates for emergency medical transportation services pursuant to a master contract and establishes the rates for general medical transportation services that
we are permitted to charge. In areas where we are regulated, there is no assurance that we will receive medical transportation service rate increases on a timely basis, or at all.



Due to budget deficits in many states, significant decreases in state funding for Medicaid programs have occurred or are proposed. Some
states have reduced the scope of Medicaid eligibility and coverage. For example, patients covered by Medicare are required to make a 20 percent co-payment for medical transports. In most states, Medicaid makes this co-payment on behalf of its
insureds (this is called a cross-over payment). Indiana recently passed legislation eliminating crossover payments by Medicaid and prohibiting medical transportation providers from collecting the 20 percent co-payment from patients.
Other states have proposed taking similar steps.



If we are not able to charge
satisfactory rates in one or more of the communities in which we operate it could have a material adverse effect on our revenues, results of operations or cash flows.



Our business is subject to laws, rules and regulations that can impose fines, penalties or other liabilities, revoke necessary
licenses or otherwise cause material adverse effects.



Numerous laws,
rules and regulations govern the medical transportation and fire fighting service business covering matters such as licensing, rates, employee certification, environmental matters and radio communications. Certificates of Need that certain states
may employ to award market rights to geographic areas may change. Master contracts from governmental authorities are subject to risks of cancellation or unenforceability as a result of budgetary and other factors and may subject us to certain
liabilities or restrictions.



Any failure to comply with all, or any changes
in, applicable laws, rules and regulations could result in the revocation of contracts or licenses to conduct business in the relevant jurisdictions, fines or cause other material adverse effects. Federal and state laws also can require the owner or
operator of real property to clean up historic contamination (or pay for that cleanup), without regard to fault.



Changes to existing programs also can create unanticipated risks.



Certain governmental actions could:



| |  |  | change existing laws, rules or regulations;
| | - |  | -------------------------------------------



| |  |  | adopt new laws, rules or regulations that increase our cost of doing business;
| | - |  | ------------------------------------------------------------------------------



| |  |  | lower reimbursement levels; or,
| | - |  | -------------------------------



| |  |  | otherwise adversely affect our business, financial condition, results of operations or cash flows.
| | - |  | --------------------------------------------------------------------------------------------------



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Our business is subject to substantial regulation and, if we fail to comply with all applicable laws and government
regulations, we could suffer penalties or be required to make significant changes to our operations.



We are subject to extensive regulation at both the federal and state levels. The laws that directly or indirectly affect our ability to operate our business include the following:



| |  |  | federal laws (including the Federal False Claims Act) that prohibit entities and individuals from knowingly or recklessly making claims to Medicare, Medicaid and other government
programs, as well as third-party payers, that contain false or fraudulent information;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a provision of the Social Security Act, commonly referred to as the anti-kickback statute, that prohibits the knowing and willful offering, payment, solicitation or
receipt of any bribe, kickback, rebate or other remuneration in return for the referral or recommendation of patients for items and services covered, in whole or in part, by federal healthcare programs, such as Medicare and Medicaid;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a provision of the Social Security Act that imposes criminal penalties on healthcare providers who fail to disclose or refund known overpayments;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | similar state law provisions pertaining to anti-kickback, self-referral and false claims issues which typically are not limited to relationships with federal payers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) that prohibit knowingly and willfully executing a scheme or artifice to defraud any
healthcare benefit program or falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | federal laws that impose civil administrative sanctions for, among other violations, inappropriate billing of services to federally funded healthcare programs, and employing
individuals who are excluded from participation in federally funded healthcare programs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare and Medicaid programs and some other
payers programs and some other payers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provisions of HIPAA limiting how healthcare providers may use and disclose individually identifiable health information and the security measures taken in connection with that
information and related systems, as well as similar state laws; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | federal and state laws governing medical transport services, including the licensing or certification of medical transportation service providers, training and certification of
medical personnel, the scope of services that may be provided by medical personnel, staffing requirements, medical control, medical procedures, communications systems, vehicles and equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If our operations are found to be in violation of any of the laws and regulations described
above or the other laws and regulations which govern our activities, we may be subject to penalties, including civil and criminal penalties, exclusion from federal healthcare programs, damages, fines and the curtailment of our operations. Any
material penalties, individually or in the aggregate, would adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws and regulations is increased by the fact that many of
them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are sometimes open to a variety of interpretations. Any action against us for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business.



Healthcare laws and regulations may change significantly in the future. We monitor these developments and modify our operations from time to time where we perceive a need
to do so in response to the regulatory changes.



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However, we cannot assure you that any new healthcare laws or regulations will not materially adversely affect our business. We cannot assure you that a
review of our business by judicial, law enforcement, or regulatory authorities will not result in a determination that could adversely affect our operations or that healthcare regulation will not change in a way that may have a material adverse
effect on our business, financial condition, results of operations or cash flows.



HIPAA regulations could have a material adverse effect on our business either if we fail to comply with the regulations or as a result of the costs associated with compliance.



The privacy standards under HIPAA took effect April 14, 2001 and cover all individually
identifiable health information used or disclosed by a healthcare provider. HIPAA establishes standards concerning the privacy, security and the electronic transmission of patients health information. Under the statute, there are civil
penalties of up to $100 per violation (not to exceed $25,000 per calendar year for each type of violation) and criminal penalties for knowing violations of up to $250,000 per violation. The enforcing agency, the Office of Civil Rights (the
OCR) of the Department of Health and Human Services, has announced a compliance-based and compliance improvement type of enforcement program. We believe there is not sufficient basis to understand OCRs enforcement posture and the
potential for fines which may result from OCRs finding of a violation of the privacy regulations. The significant costs associated with compliance and the potential penalties as a result of our failure to comply with the rule could result in a
material adverse effect on our business, financial condition, results of operations or cash flows.



HIPAA also mandates compliance with the approved HIPAA format when we submit claims electronically. We are filing claims in the approved HIPAA format with all of our Medicare plans. In addition, we await announcements
from the commercial insurers regarding their compliance with the electronic claims submission requirements.



The final security rule, which became effective April 20, 2005, requires healthcare suppliers and other entities to set security standards for health information and to maintain reasonable and appropriate
safeguards to ensure the integrity and confidentiality of this information. It also requires that we protect health information against unauthorized use or disclosure. We believe we have developed the appropriate policies and procedures to comply
with the final security rule. Failure to do so could result in a material adverse effect on our business, financial condition, results of operations or cash flows.



We could experience a material adverse effect on our business, financial condition, results of operations, or cash flows due to:
(i) significant costs associated with continued compliance under HIPAA or related legislative enactments, (ii) potential fines from our noncompliance, (iii) adverse affects on our collection cycle arising from non-compliance or
delayed HIPAA compliance by our payers, customers and other constituents or (iv) impacts to the healthcare industry as a whole that may directly or indirectly cause a material adverse affect on our business.



Providers and suppliers in the health care industry, such as us, are the subject of
federal and state investigations related to billing and other matters.



Both federal and state government agencies have pursued civil and criminal enforcement efforts related to billing and other matters as part of numerous ongoing investigations of healthcare companies and their executives and managers.
Although there are a number of civil and criminal statutes that can be applied to healthcare providers, a significant number of these investigations involve the Federal False Claims Act. These investigations can be initiated not only by the
government but also by a private party asserting direct knowledge of fraud. These qui tam whistleblower lawsuits may be initiated against any person or entity alleging such person or entity has knowingly or recklessly presented, or
caused to be presented, a false or fraudulent request for payment from the federal government, or has made a false statement or used a false record to get a claim approved. Penalties for False Claims Act violations include fines ranging from $5,500
to $11,000 for each false claim, plus up to three times the amount of damages sustained by the federal government. A False Claims Act violation may provide the basis for exclusion from the federally-funded healthcare programs. In addition, some
states have adopted similar insurance fraud, whistleblower and false claims provisions.



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From time to time, we receive requests and subpoenas for information from government agencies in connection with their
regulatory and investigative authority, and are likely to be subject to such requests and subpoenas for information in the future. We review such requests and subpoenas and attempt to take appropriate action. We are also subject to requests and
subpoenas for information in independent investigations. A determination by a regulatory or investigative authority in any of these investigations that we have violated the Federal False Claims Act or another civil or criminal statute could result
in significant penalties or exclusion from federally-funded healthcare programs, which could result in a material adverse effect on our business, financial condition, results of operations or cash flows.



We are the subject of certain lawsuits, which if determined adversely to us, could harm
our business.



We are a party to, or otherwise involved in, lawsuits,
claims, proceedings and other legal matters that have arisen in the ordinary course of conducting our business. We cannot predict with certainty the ultimate outcome of any of these lawsuits, claims, proceedings and other legal matters to which we
are a party to, or otherwise involved in, due to, among other things, the inherent uncertainties of litigation, government investigations and proceedings and legal matters generally. An unfavorable outcome in any of the lawsuits pending against us,
including those described above, could result in substantial potential liabilities and have a material adverse effect on our business, consolidated financial condition and results of operations, our liquidity, our operations, and/or our ability to
comply with any debt covenants. Further, these proceedings, and our actions in response to these proceedings, could result in substantial potential liabilities, additional defense and other costs, increase our indemnification obligations, divert
managements attention, and/or adversely affect our ability to execute our business and financial strategies.



We are dependent on maintaining our business relationships.



We depend to a great extent on contracts with municipalities or fire districts to provide emergency medical transportation services. Contracts or other agreements with
municipalities, counties or fire districts may have certain budgetary approval constraints. Failure to allocate funds for a contract may adversely affect our ability to continue to perform services without suffering significant losses. In addition,
most of our contracts are terminable by either party upon agreed notice periods or upon the occurrence of certain events of default. We may not be successful in retaining our existing contracts or in obtaining new contracts for emergency medical
transportation or other services. The loss or cancellation of several of these contracts could have a material adverse effect on our business, financial condition, results of operations or cash flows.



Areas in which we provide subscription fire protection services may be converted to
tax-supported fire districts or annexed by municipalities.



We provide
residential and commercial fire protection services on a subscription-fee basis to property owners in unincorporated areas who do not receive services through municipal fire departments, volunteer fire departments, or fire protection districts. If
several of the areas in which we provide subscription services were to convert to tax-supported fire districts or be annexed by municipalities, the loss of those arrangements could have a material adverse effect on our business, financial condition,
results of operations or cash flows.



We may not accurately assess the
costs of or revenues generated by new contracts, which could adversely affect our business, financial conditions, results of operations or cash flows.



Our new contracts increasingly involve a competitive bidding process. When we obtain new contracts, we must accurately assess the costs we will incur in providing
services, as well as other factors such as expected transport volume, geographical issues affecting response time and the implementation of technology upgrades, in order to realize adequate profit margins or otherwise meet our financial and
strategic objectives. Increasing pressures from healthcare payers to restrict or reduce reimbursement rates at a time when the costs of providing medical services continue to increase make assessing the costs associated with the pricing of new
contracts, as well as



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maintenance of existing contracts, more difficult. In addition, integrating new contracts, particularly those in new geographic locations, could prove more
costly, and could require more management time, than we anticipate. Our failure to accurately predict costs or to negotiate an adequate profit margin could have a material adverse effect on our business, financial condition, results of operations or
cash flows. We face risks in attempting to terminate unfavorable contracts prior to their stated termination date because of the possibility of forfeiting performance bonds and the potential material adverse effect on our public relations, business,
financial condition, results of operations or cash flows.



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



The medical transportation service industry is highly competitive. We compete to provide our emergency medical transportation services with governmental entities,
hospitals, local and volunteer private providers and private providers, including national and regional providers such as American Medical Response. In order to compete successfully, we must make continuing investments in our fleet, facilities, and
operating systems. We believe that counties, fire districts and municipalities and health-care institutions consider the following factors in awarding a contract:



| |  |  | quality of medical care;
| | - |  | ------------------------



| |  |  | historical response time performance;
| | - |  | -------------------------------------



| |  |  | customer service;
| | - |  | -----------------



| |  |  | financial stability;
| | - |  | --------------------



| |  |  | personnel policies and practices;
| | - |  | ---------------------------------



| |  |  | managerial strength; and
| | - |  | ------------------------



| |  |  | cost.
| | - |  | -----



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



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



Private providers, such as Wackenhut Services, Inc., also provide fire protection services to
airports and industrial sites. We cannot assure you that:



| |  |  | we will be able to continue to maintain current contracts or subscriptions or to obtain additional fire protection business on a contractual or subscription-fee basis;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | we will be able to successfully compete with private providers of fire protection services.
| | - |  | -------------------------------------------------------------------------------------------



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The departure of our key management could adversely affect our business, financial condition, results of operations
or cash flows.



Our success depends upon our ability to recruit and
retain key management personnel. We could experience difficulty in retaining our current key management personnel or in attracting and retaining necessary additional key management personnel. We have entered into employment agreements with some, but
not all of our executive officers and certain other key management personnel. Failure to retain or replace our key management may have an adverse effect on our business, financial condition, results of operations or cash flows.



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



Our
ability to recruit and retain healthcare professionals significantly affects our business. Medical personnel shortages in some of our market areas currently make the recruiting, training and retention of full-time and part-time personnel more
difficult and costly. Our internal growth will require the addition of new personnel. Failure to retain or replace our medical personnel or to attract new personnel may have an adverse effect on our business, financial condition, results of
operations or cash flows.



We may not pay dividends.



We have never paid any cash dividends on our common stock. We currently plan to retain
any earnings for use in our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by
our Board of Directors. Our senior subordinated notes due 2015, senior discount notes due 2016 and our credit facilities contain restrictions on our ability to pay cash dividends, and any future borrowings may contain similar restrictions.



It may be difficult for a third party to acquire us and this could
depress our stock price.



We are a Delaware company which has adopted
a Shareholder Rights Plan pursuant to which we issued one preferred stock purchase right, or a Right, for each outstanding share of common stock (See Description of Capital Stock  Preferred Stock and Description of Capital
Stock  Shareholder Rights Plan). Our Shareholder Rights Plan could make it difficult for a third party to acquire us, even if doing so would benefit security holders. The rights issued under the plan have certain anti-takeover effects.
The rights will cause substantial dilution to a person or group that attempts to acquire us in a manner or on terms not approved by our Board of Directors. Anti-takeover provisions in Delaware law, certain provisions of our charter and the
Shareholder Rights Plan could depress our stock price and may result in entrenchment of existing management, regardless of their performance.



|ITEM 1B. | Unresolved Staff Comments
|-------- | -------------------------



None.



|ITEM 2. | Properties
|------- | ----------



Facilities



In January 2005, we relocated our corporate headquarters within Scottsdale, Arizona under a lease agreement with an initial term expiring in 2015. In those areas where we provide medical transportation and fire
services, we also lease facilities at which we base and maintain ambulances and fire apparatus operations. We also own 14 facilities within our service areas. Rent expense totaled $12.1 million, $10.8 million and $10.1 million for fiscal 2006, 2005
and 2004, respectively.





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Equipment



At June 30, 2006, we owned approximately 1,300 ambulances and alternative transportation vehicles, 200 fire vehicles and 300 other vehicles. We also operate various
non-owned vehicles in the ordinary course of our business. 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.



|ITEM 3. | Legal Proceedings
|------- | -----------------



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



The Companys subsidiary, Sioux Falls Ambulance Inc. (Sioux Falls) had been conducting settlement discussions with the OIG of the HHS regarding alleged
improper billing practices in South Dakota. Although Sioux Falls did not admit any liability with respect to the OIGs claims, Sioux Falls, the United States of America and the OIG entered into a settlement agreement, effective October 25,
2005. Under the terms of the settlement agreement, the government agreed to release Sioux Falls from any civil or administrative monetary claims the government may have had against Sioux Falls relating to the alleged improper practices. In exchange
for such release, Sioux Falls paid the United States $0.5 million on October 28, 2005.



The U.S. government is conducting an investigation into alleged discounts made in violation of the federal Anti-Kickback Statute in connection with certain of the Companys contracts that were in effect when the
Company had operations in the State of Texas. The Company is currently negotiating a settlement with the government regarding these allegations. Although there can be no assurances that a settlement agreement will be reached, any such settlement
agreement may require the Company to make a substantial payment to the government and enter into a Corporate Integrity Agreement. Management believes that the $2.5 million charge recorded during the three months ended March 31, 2006 is adequate
to cover any potential losses relating to this matter. If a settlement is not reached, the government has indicated that it will pursue further civil action. There can be no assurances that this matter will be fully resolved by settlement or that
other investigations or legal action related to these matters will not be pursued against the Company in other jurisdictions or for different time frames.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



Not applicable.



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PART II



|ITEM 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------



Our common stock has traded on the Nasdaq Capital Market (Nasdaq) since
August 4, 2000 with the exception of the period from July 13, 2004 through December 26, 2004 when it was traded on the Over the Counter Bulletin Board. On December 27, 2004, our common stock resumed trading on the Nasdaq under
the symbol RURL. For further discussion, see Managements Discussion and Analysis of Financial Condition and Results of Operations.



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, 2006 |  |      |       |     |   |     
|First quarter            |  | $    | 10.25 |     | $ | 6.64
|Second quarter           |  | $    | 9.88  |     | $ | 8.15
|Third quarter            |  | $    | 9.55  |     | $ | 7.52
|Fourth quarter           |  | $    | 8.15  |     | $ | 6.33
|                         |  |     
|Year Ended June 30, 2005 |  |      |       |     |   |     
|First quarter            |  | $    | 2.25  |     | $ | 1.10
|Second quarter           |  | $    | 5.19  |     | $ | 2.10
|Third quarter            |  | $    | 7.81  |     | $ | 4.71
|Fourth quarter           |  | $    | 8.74  |     | $ | 4.05



On September 11, 2006, the closing
sale price of our common stock was $7.17 per share. On September 11, 2006, there were approximately 2,960 holders of record of our common stock.



Dividend Policy



We have never paid cash dividends on our common stock and currently plan to retain our earnings, if any, for use in our business rather than to pay cash dividends. Payments of cash dividends in the future will depend
on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our Board of Directors. Our 2005 Credit Facility Agreement, Senior Subordinated Notes and Senior Discount Notes contain
restrictions on our ability to pay cash dividends and any future borrowings may contain similar restrictions. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital
Resources for further discussion.



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|ITEM 6. | Selected Financial Data
|------- | -----------------------



The following selected financial data are derived from our audited historical consolidated financial statements. The selected financial data should be read in conjunction
with Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and notes appearing elsewhere in this Report (in thousands, except per share amounts):



|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                        |  | Years Ended June 30, |        
|                                                                                                                                        |  | 2006                 |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|Statement of Operations Data:                                                                                                           |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net revenue                                                                                                                             |  | $                    | 548,501 |   |      | $ | 501,514 |      |  | $ | 462,546 |   |  | $    | 422,355 |   |  | $ | 392,304 |  
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating expenses:                                                                                                                     |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Payroll and employee benefits                                                                                                           |  |                      | 268,491 |   |      |   | 257,737 |      |  |   | 240,241 |   |  |      | 228,533 |   |  |   | 215,802 |  
|Provision for doubtful accounts                                                                                                         |  |                      | 98,929  |   |      |   | 82,016  |      |  |   | 79,996  |   |  |      | 70,743  |   |  |   | 63,423  |  
|Depreciation and amortization                                                                                                           |  |                      | 11,197  |   |      |   | 10,608  |      |  |   | 10,471  |   |  |      | 11,090  |   |  |   | 12,698  |  
|Other operating expenses                                                                                                                |  |                      | 119,588 |   |      |   | 112,543 |      |  |   | 105,910 |   |  |      | 97,406  |   |  |   | 87,530  |  
|(Gain) loss on sale of assets                                                                                                           |  |                      | (1,311  | ) |      |   | 72      |      |  |   | 32      |   |  |      |        |   |  |   | 9       |  
|Restructuring and other                                                                                                                 |  |                      |        |   |      |   |        |      |  |   |        |   |  |      | (100    | ) |  |   | (626    | )
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating expenses                                                                                                                |  |                      | 496,894 |   |      |   | 462,976 |      |  |   | 436,650 |   |  |      | 407,672 |   |  |   | 378,836 |  
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating income                                                                                                                        |  |                      | 51,607  |   |      |   | 38,538  |      |  |   | 25,896  |   |  |      | 14,683  |   |  |   | 13,468  |  
|Interest expense                                                                                                                        |  |                      | (31,025 | ) |      |   | (29,567 | )    |  |   | (29,243 | ) |  |      | (28,012 | ) |  |   | (25,462 | )
|Interest income                                                                                                                         |  |                      | 548     |   |      |   | 293     |      |  |   | 97      |   |  |      | 197     |   |  |   | 644     |  
|Loss on early extinguishment of debt (1)                                                                                                |  |                      |        |   |      |   | (8,170  | )    |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from continuing operations before income taxes, minority interest and cumulative effect of change in accounting
principle |  |                      | 21,130  |   |      |   | 1,094   |      |  |   | (3,250  | ) |  |      | (13,132 | ) |  |   | (11,350 | )
|Income tax (provision) benefit (2)                                                                                                      |  |                      | (10,907 | ) |      |   | 83,816  |      |  |   | 225     |   |  |      |        |   |  |   | 2,531   |  
|Minority interest                                                                                                                       |  |                      | (759    | ) |      |   | (102    | )    |  |   | 475     |   |  |      | (1,507  | ) |  |   | (750    | )
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from continuing operations before cumulative effect of change in accountingprinciple                                      |  |                      | 9,464   |   |      |   | 84,808  |      |  |   | (2,550  | ) |  |      | (14,639 | ) |  |   | (9,569  | )
|Income (loss) from discontinued operations (3)(4)                                                                                       |  |                      | (5,947  | ) |      |   | 3,523   |      |  |   | 8,761   |   |  |      | 23,605  |   |  |   | 10,918  |  
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income before cumulative effect of change in accounting principle                                                                       |  |                      | 3,517   |   |      |   | 88,331  |      |  |   | 6,211   |   |  |      | 8,966   |   |  |   | 1,349   |  
|Cumulative effect of change in accounting principle (5)                                                                                 |  |                      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (49,513 | )
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                                                                                       |  |                      | 3,517   |   |      |   | 88,331  |      |  |   | 6,211   |   |  |      | 8,966   |   |  |   | (48,164 | )
|Less: Net income allocated to redeemable nonconvertible participating preferred stock under the two-class method                        |  |                      |        |   |      |   |        |      |  |   | (1,262  | ) |  |      |        |   |  |   |        |  
|Less: Accretion of redeemable nonconvertible participating preferred stock                                                              |  |                      |        |   |      |   |        |      |  |   | (6,320  | ) |  |      | (3,604  | ) |  |   |        |  
|Add: Credit related to settlement of redeemable nonconvertible participating preferred stock with common stock                          |  |                      |        |   |      |   |        |      |  |   | 10,066  |   |  |      |        |   |  |   |        |  
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) applicable to common stock                                                                                            |  | $                    | 3,517   |   |      | $ | 88,331  |      |  | $ | 8,695   |   |  | $    | 5,362   |   |  | $ | (48,164 | )
|                                                                                                                                        |  |                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



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|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------ |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                                                                                               |  | Years Ended June 30, |        
|                                                                                                                               |  | 2006                 |         |   | 2005 |   |         | 2004 |  |   | 2003     |   |  | 2002 |         
|EPS Data                                                                                                                       |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Basic earnings per share:                                                                                                      |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income (loss) from continuing operations applicable to common stock before cumulative effect of change in accounting principle |  | $                    | 0.39    |   |      | $ | 3.74    |      |  | $ | 0.10     |   |  | $    | (1.13    | ) |  | $ | (0.63    | )
|Income (loss) from discontinued operations applicable to common stock (3)(4)                                                   |  |                      | (0.25   | ) |      |   | 0.16    |      |  |   | 0.42     |   |  |      | 1.46     |   |  |   | 0.72     |  
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income before cumulative effect of change in accounting principle                                                              |  |                      | 0.14    |   |      |   | 3.90    |      |  |   | 0.52     |   |  |      | 0.33     |   |  |   | 0.09     |  
|Cumulative effect of change in accounting principle (5)                                                                        |  |                      |        |   |      |   |        |      |  |   |         |   |  |      |         |   |  |   | (3.26    | )
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net income (loss)                                                                                                              |  | $                    | 0.14    |   |      | $ | 3.90    |      |  | $ | 0.52     |   |  | $    | 0.33     |   |  | $ | (3.17    | )
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Diluted earnings per share:                                                                                                    |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income (loss) from continuing operations applicable to common stock before cumulative effect of change in accounting principle |  | $                    | 0.38    |   |      | $ | 3.52    |      |  | $ | (0.12    | ) |  | $    | (1.13    | ) |  | $ | (0.63    | )
|Income (loss) from discontinued operations applicable to common stock (3)(4)                                                   |  |                      | (0.24   | ) |      |   | 0.14    |      |  |   | 0.40     |   |  |      | 1.46     |   |  |   | 0.72     |  
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Income before cumulative effect of change in accounting principle                                                              |  |                      | 0.14    |   |      |   | 3.66    |      |  |   | 0.28     |   |  |      | 0.33     |   |  |   | 0.09     |  
|Cumulative effect of change in accounting principle (5)                                                                        |  |                      |        |   |      |   |        |      |  |   |         |   |  |      |         |   |  |   | (3.26    | )
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net income (loss)                                                                                                              |  | $                    | 0.14    |   |      | $ | 3.66    |      |  | $ | 0.28     |   |  | $    | 0.33     |   |  | $ | (3.17    | )
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Weighted average number of common shares outstanding:                                                                          |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Basic                                                                                                                          |  |                      | 24,359  |   |      |   | 22,674  |      |  |   | 16,645   |   |  |      | 16,116   |   |  |   | 15,190   |  
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Diluted                                                                                                                        |  |                      | 24,842  |   |      |   | 24,105  |      |  |   | 21,817   |   |  |      | 16,116   |   |  |   | 15,190   |  
|                                                                                                                               |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                                                                                                               | 
|                                                                                                                               |  | As of June 30,       |        
|                                                                                                                               |  | 2006                 |         |   | 2005 |   |         | 2004 |  |   | 2003     |   |  | 2002 |         
|Balance Sheet Data:                                                                                                            |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total assets                                                                                                                   |  | $                    | 299,192 |   |      | $ | 314,128 |      |  | $ | 215,207  |   |  | $    | 198,971  |   |  | $ | 200,708  |  
|Current portion of long-term debt                                                                                              |  |                      | 37      |   |      |   | 1,497   |      |  |   | 1,495    |   |  |      | 1,329    |   |  |   | 1,633    |  
|Long-term debt, net of current portion                                                                                         |  |                      | 291,337 |   |      |   | 305,478 |      |  |   | 304,057  |   |  |      | 305,310  |   |  |   | 298,529  |  
|Redeemable nonconvertible participating preferred stock (6)                                                                    |  |                      |        |   |      |   |        |      |  |   |         |   |  |      | 7,793    |   |  |   |         |  
|Stockholders deficit                                                                                                          |  |                      | (93,472 | ) |      |   | (98,643 | )    |  |   | (192,226 | ) |  |      | (210,160 | ) |  |   | (205,752 | )
|                                                                                                                               | 
|                                                                                                                               |  | Years Ended June 30, |        
|                                                                                                                               |  | 2006                 |         |   | 2005 |   |         | 2004 |  |   | 2003     |   |  | 2002 |         
|Cash Flow Data:                                                                                                                |  |                      |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net cash flow provided by operating activities                                                                                 |  | $                    | 27,097  |   |      | $ | 24,855  |      |  | $ | 14,501   |   |  | $    | 13,146   |   |  | $ | 9,634    |  
|Net cash flow used in investing activities                                                                                     |  |                      | (20,569 | ) |      |   | (12,372 | )    |  |   | (8,421   | ) |  |      | (7,582   | ) |  |   | (5,832   | )
|Net cash flow used in financing activities                                                                                     |  |                      | (21,175 | ) |      |   | (11,167 | )    |  |   | (2,269   | ) |  |      | (3,659   | ) |  |   | (3,170   | )



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---

|(1) | During fiscal 2005, we recorded $8.2 million of early debt extinguishment costs. These costs included non-cash charges of $5.6 million related to the write-off of debt issuance
costs associated with the retired debt and $0.1 million related to unamortized discounts as well as cash redemption premiums of $2.5 million. See Note 9 to our consolidated financial statements for further discussion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During fiscal 2005, we reversed $86.4 million of deferred tax asset valuation allowances. Such reversals were reflected as a deferred tax benefit in continuing operations of $83.9
million, a credit to additional paid in capital of $2.1 million, a reduction in goodwill of $1.5 million and a deferred tax charge in discontinued operations of $1.1 million. See Note 10 to our consolidated financial statements for further
discussion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | During fiscal 2006, we ceased operating in two medical transportation service areas. One service area was closed primarily due to our limited future potential to obtain 911
emergency transportation contracts in that area. We ceased operating in the other service area upon expiration of our exclusive contract after we elected not to pursue renewal of this contract. During fiscal 2005 and 2004, we ceased operating in
four and ten medical transportation service areas, respectively, as a result of these service areas not meeting internal operational and profitability measures. We also ceased operating in one and three fire and other service areas during fiscal
2005 and 2004, respectively, due to various reasons including a customer filing Chapter 11, our continued disposal of non-core businesses and a city converting the service area to a fire district. (See Note 18 to our consolidated financial
statements for further discussion.) During fiscal 2003, we sold our Latin American operations to local management in exchange for the assumption of such operations net liabilities. The gain on the disposition totaled $12.5 million. For
financial reporting purposes, the results of the aforementioned discontinued service areas and our former Latin American operations have been included in income (loss) from discontinued operations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | During the third quarter of fiscal 2006, we recorded a $2.5 million charge relating to a U.S. government investigation into alleged discounts made in violation of the federal
Anti-Kickback Statute in connection with certain of our contracts that were in effect when we had operations in the State of Texas. See Note 15 to our consolidated financial statements for further discussion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Effective July 1, 2001, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Intangible Assets (SFAS
142). In connection with the adoption of SFAS 142, we ceased amortizing goodwill effective July 1, 2001. Additionally, we recognized an approximate $49.5 million transitional impairment charge (both before and after tax), which has been
reflected as the cumulative effect of change in accounting principle in fiscal 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | In connection with an amendment to our previous credit agreement, we issued 211,549 shares of our Series B redeemable nonconvertible participating preferred stock (Series B
Shares) on September 30, 2002. We settled the Series B Shares, along with 283,979 shares of our Series C redeemable nonconvertible participating preferred stock, on June 30, 2004 in exchange for 4,955,278 shares of our common stock. See Note
11 to our consolidated financial statements for further discussion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



This discussion and analysis should be read in conjunction with our Selected Financial Data
and our consolidated financial statements and notes appearing elsewhere herein.



Executive Summary



We provide medical transportation
services, which consist primarily of emergency and non-emergency medical transportation services, to approximately 400 communities in 23 states. We provide these medical transportation services under contracts with governmental entities, hospitals,
nursing homes and other healthcare facilities and organizations. As of June 30, 2006, we had approximately 95 exclusive contracts to provide 911 emergency medical transportation services and approximately 610 contracts to provide non-emergency
medical transportation services and other medical transportation services.



Approximately half of our medical transports are initiated by 911 calls, with the remainder primarily consisting of a variety of non-emergency medical transports, such as medical transports between hospitals, nursing homes and specialized
healthcare facilities. We believe that providing a mix of emergency and non-emergency medical transportation services diversifies our revenue base and permits us to utilize our labor force more efficiently. We derive revenue based on the level of
medical service we provide through reimbursements we receive from commercial insurance companies and government-funded healthcare programs such as Medicare and Medicaid and, to a lesser extent, from fees paid to us directly by individual patients
and from government subsidies paid to us under 911 emergency medical transportation contracts.



Medical transportation revenue depends on various factors, including the mix of payers, the mix of rates, the acuity of the patients we transport and the mix of activity between emergency medical transportation
services and non-emergency transportation services, as well as other competitive and market factors. The medical transportation portion of our business represented 88.0 percent of our fiscal 2006 net revenue.



We also provide private fire protection and related services, and offer such services on a
subscription-fee basis to residential and commercial property owners in three states and under long-term contracts with fire districts, industrial sites and airports at 13 sites located in 10 states. Our fire protection services consist primarily of
fire suppression, fire prevention and first responder medical care and represented 12.0 percent of our fiscal 2006 net revenue.



Business Overview



Our Strengths



We believe we are well positioned to take advantage of industry trends and believe our strong competitive position is attributable to a number of factors, including the following:



Broad Presence in Attractive Markets



We operate in geographically diverse markets with favorable demographics. 63 percent of our
net revenues are generated in states with population growth in excess of the national average, such as Arizona, Florida, Oregon, Utah and Georgia. A key driver of the rapid population growth in many of the states we serve has been the migration of
the elderly seeking to retire or vacation in warmer climates. As a result, approximately 43 percent of the patients we transported during fiscal 2006 were 65 years or older. This affects us because the elderly require a greater amount of emergency
and non-emergency medical transports on average than the general population.



Competitively Well-Positioned



We are a party to
approximately 95 contracts granting us the exclusive right to provide 911 emergency medical transportation services for a particular city or county. We have 33 Certificates of Need, or the equivalent, in eight



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states. In those states that issue them, a Certificate of Need is required to bid on 911 emergency medical transportation service contracts. Typically, a
limited number of Certificates of Need are granted by a state or county. Our experience has been that obtaining a Certificate of Need is a significant barrier to entry because a prospective provider of emergency medical services must establish that
existing services in a particular area of the state are inadequate to meet the communitys medical transportation needs. We are often able to use the visibility created by our status as the communitys 911 emergency medical transportation
service provider to win non-emergency medical transportation business. We believe that we are well-positioned to capitalize on the needs of our local markets due to our emphasis on providing an effective, quality care service model, enhanced by
response time reliability and cost efficiencies.



Decentralized Operating
Structure with National Efficiencies



Medical transportation and fire
protection are locally-delivered services, and strong local operations are critical to providing these services successfully. We grant our regional executives and local operations managers significant authority to make key decisions regarding the
day-to-day operations in our service areas, and consequently, we have built strong, efficient operations at the regional and local levels. We have combined our local operations with a centralized national platform of shared services, including
treasury functions, insurance and safety programs, information services, benefits, purchasing and corporate compliance. This operating structure has allowed us to optimize cost savings while at the same time maintain effective field operations.



Billing and Collections Capability



Over the past several years, we began the implementation of a number of initiatives to
improve our billing and collections capability. These initiatives included consolidating our billing operations and streamlining our overall medical transportation billing processes by expediting the timely filing of claims and creating added
controls over the day-to-day flow of aging claims. Additionally, we have improved the quality of data gathering and entry by emergency and non-emergency medical transportation personnel to ensure compliance with medical necessity standards set by
third-party payers. We have implemented quality assurance controls and procedures for review of claim submissions prior to submitting the claims to third-party payers and for following up on any denials of claims by third-party payers. We have also
placed a high priority on submitting medical transportation claims electronically in order to expedite payment and maximize the efficiencies afforded by such systems, and we currently submit the majority of our bills electronically.



Experienced Management Team



We believe that the disciplined approach of our senior management team has been the key
reason for our growth in net revenue and EBITDA. Our senior management team is supported by 22 front-line division general managers who have an average of 19 years of industry experience and who manage the day-to-day provision of service in, and our
relationships with, the communities we serve. Our management combines extensive knowledge of medical transportation and fire protection services with operations, finance, billing and collections, insurance, risk and safety and federal affairs
expertise. A significant portion of the compensation of our senior management and division general managers comes from an incentive program that ties bonuses to achieving financial and operating goals and other individual objectives established for
each participant.



Our Business Strategy



Our business strategy is to expand our non-emergency medical services within existing and
contiguous markets, selectively enter into new 911 emergency markets with favorable demographics, invest in technology to improve operating efficiencies and workplace safety and maximize cash flow while providing the highest possible quality of
medical transportation, fire protection and related services for the customers and patients we serve. The key elements of our business strategy are the following:



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Expand Within Existing and Contiguous Service Areas



We believe we can maximize our return on the infrastructure we have built in our existing
operating areas by continuing to expand the non-emergency medical transportation services. In areas where we are the 911 emergency medical transportation provider, we seek to leverage this visibility to compete for non-emergency medical
transportation business. We also seek to expand our 911 emergency medical transportation services in locations that are contiguous to our existing service areas. This strategy increases the utilization of our work force through balanced growth of
emergency and non-emergency medical transportation services. Our strategy also enables us to gain operational efficiencies and effectively manage our costs and assets by leveraging our fleet, communications systems and management within our existing
service areas. Our efforts contributed to same-service area revenue growth in the medical transportation and related service business of 6.3 percent and 7.7 percent for fiscal 2006 and fiscal 2005, respectively.



Selectively Enter New Markets



We continue to pursue contracts and alliances with municipalities, other governmental
entities, hospital-based emergency providers and fire districts in select new markets. Among the criteria we set for entering a new market are whether there is an opportunity to provide both 911 emergency and non-emergency medical transportation
services, geographic proximity to existing operations, expected revenues and margins, payer mix, medical transportation demands, competitive profiles and demographic trends. During fiscal 2006, we began providing exclusive emergency and
non-emergency medical transportation services to the cities of Salem, Oregon, Roswell, New Mexico and Salt Lake City, Utah. Additionally, we began providing medical transportation services to the Orlando Regional Medical Center health system.



Invest in Technology to Improve Operating Efficiencies



We have developed proprietary technology systems to create operating
efficiencies and improve the overall quality of service. In addition, we invest in and utilize technology to improve the performance of operations and utilization of our fleet, including the following specific initiatives:



| |  |  | Proprietary Billing System.We have developed a proprietary medical transportation billing and collections system which is operated from a single, nationwide platform that
allows for standardized procedures and training, thereby minimizing duplication and maximizing collections. This information technology is designed to improve our ability to collect outstanding claims on a timely basis.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rural/Metro Electronic Patient Care Reporting System (R/M ePCR). Our R/M ePCR technology initiative is designed to enhance and expedite the process of capturing
clinical patient data, transferring the data to our proprietary billing system and submitting claims for reimbursement of our medical transportation services. Upon implementation, electronic patient care reports will replace paper patient care
reports and provide ambulance crews with clinical flow charts to fully document each patient assessment and procedure performed.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Internet-based scheduling software. In an effort to minimize unscheduled overtime among field personnel, we implemented Internet-based scheduling software designed to
maximize efficiencies in crew staffing. We believe this software has resulted in an overall reduction of labor costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | DriveCam technology. In an effort to reduce insurance costs and improve safety, we have begun installing on-board monitoring systems in our ambulances. These systems monitor
operator performance against safe driving standards. We expect that this technology will be installed in the majority of our fleet by the end of calendar year 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Improve Workplace Health and Safety and Reduce Insurance Costs



We have consistently placed workplace health and safety among our highest priorities due, in part, to escalating insurance costs. Our
management, risk management and quality assurance staffs conduct risk management



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programs for quality assurance, loss prevention and early intervention. We believe in creating a culture among our work force that encourages and
demonstrates a committed approach to workplace health and safety. Over the past several years, we have implemented a variety of safety initiatives that support this commitment, including enhanced facility audits, additional accident reporting
guidelines, introduction of an employee risk-management hotline and an in-depth loss data report that can be utilized by regional managers to identify trends in their areas. We have developed an extensive claims database that we use to manage our
business and identify risks and trends, thereby allowing us to focus our programs and training on identifying and minimizing risk exposure. We actively promote early reporting, evaluation and resolution of incidents that may evolve into claims.



Maximize Cash Collections



We continue to focus on maximizing cash collections by improving billing practices,
implementing or negotiating rate increases to meet the escalating costs of delivering high-quality services and seeking subsidies to further support the level of medical services we provide.



Operating Statistics



In evaluating our business, we monitor a number of key operating and financial statistics including net/net EMS Average Patient Charge,
(net/net EMS APC), Average Days Sales Outstanding (DSO, see further discussion in Results of Operations), Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA, see further discussion
in Liquidity and Capital Resources) and medical transport volume (see further discussion in Results of Operations), among others.



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



|                       |  |                      |           |      |   |           |  |   |        
|---------------------- |  | -------------------- | --------- | ---- | - | --------- |  | - | -------
|                       |  | Years Ended June 30,
|                       |  | 2006                 |           | 2005 |   | 2004     
|Net/net EMS APC (1)    |  | $                    | 341       |      | $ | 329       |  | $ | 313    
|DSO (2)                |  |                      | 52        |      |   | 45        |  |   | 44     
|EBITDA (3)             |  | $                    | 54,173    |      | $ | 47,558    |  | $ | 47,924 
|Medical Transports (4) |  |                      | 1,045,722 |      |   | 1,006,697 |  |   | 964,520

---

|(1) | Net/Net EMS APC is defined as gross medical transport revenue less provisions for discounts applicable to Medicare, Medicaid and other third-party payers and doubtful accounts
divided by emergency and non-emergency transports from continuing operations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | See discussion of EBITDA along with a reconciliation of EBITDA to net cash provided by operating activities at Liquidity and Capital ResourcesEBITDA.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Medical transports from continuing operations are defined as actual emergency and non-emergency patient transports.
|--- | -------------------------------------------------------------------------------------------------------------------



Factors Affecting Operating Results



Fiscal 2006 results reflect our continued focus on growing and strengthening core
operations. We continued emphasis on expanding service areas that we have identified for future long-term growth, seeking targeted new contract opportunities and improving operating efficiencies.



We have observed the following trends and events that have affected or are likely to affect
our financial condition and results of operations in the future.



Transport Volume



We depend on requests for emergency
and non-emergency medical transportation services to support our primary source of revenue. Increases or decreases in transport volume are influenced by a number of factors. These



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factors include population growth, a change in the demographics of the communities we serve (for example, aging of the overall population), and seasonal or
one-time factors that may affect the number of people requiring medical transportation. Our transport volume is affected by entry into new markets and exit of discontinued markets or non-renewed contracts. The strength and number of our
non-emergency medical transportation competitors in any given service area also affects our ability to expand market share in that location.



Provision for Doubtful Accounts



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



Our methodology for reserving for bad debt expense is based on a standardized procedure that includes periodic reviews of subsequent historical receipts to determine actual historical collection percentages. These
percentages are used to determine current anticipated collection percentages, which are applied to gross revenue in order to calculate net revenue and the provision for doubtful accounts.



The provision for doubtful accounts can be affected by a variety of factors, including the following:



| |  |  | The number of patients we transport that do not pay us for the medical services we provide;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Rate increases applied to certain insurance payers may not be realized by us with respect to certain patients that require our medical services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A sustained disruption in collections, and,
| | - |  | -------------------------------------------



| |  |  | The quality of our billing documentation and procedures.
| | - |  | --------------------------------------------------------



Work Force Management



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



Insurance Programs



Throughout fiscal 2006 we have continued to close workers compensation and general
liability claims. We have also worked to minimize future insurance-related losses through proactive risk management and work place safety initiatives. These programs include the implementation of DriveCam technology in the ambulance fleet; ergonomic
safety programs designed to reduce on-the-job injuries and complementary return to work, fit for duty, and wellness programs. See the Insurance section of Liquidity and Capital Resources for further discussion of our insurance programs.



Contract Activity



New Contracts



We were awarded several new contracts during fiscal 2006, including the:



| |  |  | Five-year contract for exclusive emergency and non-emergency medical transportation services to the City of Salem, Oregon, which became effective July 1, 2005;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Two-year contract as the exclusive emergency and non-emergency medical transportation services provider for the City of Roswell, New Mexico and surrounding Chaves County on
July 1, 2005;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Three-year contract as the non-emergency medical transportation services provider for the Orlando Regional Healthcare System, one of Central Floridas largest healthcare
providers that commenced September 10, 2005; and,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Four-year exclusive contract to provide emergency medical transportation services in Salt Lake City, Utah. which commenced on April 3, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



These four new contracts generated combined annual net revenue totaling $12.9 million during
fiscal 2006.



Contract Renewals



We were awarded various contract renewals awarded throughout our operations during fiscal
2006 including the:



| |  |  | Two-year renewal of our long-standing contract as the 911 medical transportation services provider in Aurora, Colorado;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Five-year renewal of our contract to provide 911 medical transportation services in Blount County, Tennessee;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Three-year extension to continue as the exclusive 911 emergency medical transportation provider in Knox County, Tennessee;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Five-year renewal contract to continue providing exclusive emergency and non-emergency ambulance services in Louden County, Tennessee;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Four-year contract renewal to continue as the exclusive provider of 911 emergency ambulance services in Youngstown, Ohio; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Two-year option renewal to continue to provide exclusive 911 emergency medical transportation services in the City of Rochester, New York.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



These contracts generated combined net revenue totaling approximately $55.6 million during
fiscal 2006.



Contract Non-Renewals



In an effort to strengthen our base of core operations, we regularly perform financial
reviews of contracts for profitability. Based upon such a review, we made a strategic decision to exit our Augusta, Georgia 911 emergency medical services contract upon its expiration on December 31, 2005. This contract generated approximately
$8.9 million and $0.8 million in net revenue and income from discontinued operations, respectively, during fiscal 2005, the last full year of its operations. Income (loss) from discontinued operations excludes the allocation of certain shared
services costs such as human resources, financial services, risk management and legal services, among others.



During the second quarter of fiscal 2006, we were not selected in a competitive bidding process to continue as the 911 emergency medical transportation provider to the City of Scottsdale, Arizona. Our contract ended
on February 17, 2006; however, due to our continuing involvement in the City of Scottsdales non-emergency medical transportation services market and our role as the back-up 911 emergency medical transportation provider, this service area
remains a continuing operation. This contract generated approximately $6.0 million and ($0.4) million in net revenue and operating loss, respectively, during fiscal 2005, the last full year of its operations.



Our exclusive 911 emergency medical services contract with the City of Chandler, Arizona
expired on December 17, 2005. Prior to the expiration, we were notified by the Chandler City Council that it had voted to continue our services in approximately half of the city. This contract, in its entirety, generated approximately $5.2
million and $0.4 million in net revenue and income from continuing operations, respectively, during fiscal 2005, the last full year of its operations. As a result of this change, we have re-deployed certain of our emergency medical transportation
resources to expand our non-emergency medical transportation market share.



38



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New Accounting Standards



SFAS 123R



On July 1, 2005, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards Board (SFAS) Statement No. 123 (revised 2004), Share-Based Payment
(SFAS 123R) using the modified prospective method. As a result of the adoption, we recognized approximately $28,000 of stock based compensation expense in the statement of operations for fiscal 2006. See Note 1 to the consolidated
financial statements for additional information.



In November 2005, the
Financial Accounting Standards Board (the FASB) issued Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (FSP 123(R)-3). Under the
provisions of FSP 123(R)-3, entities may follow either the transition guidance for the additional-paid-in-capital pool as prescribed by SFAS 123(R), or elect to use the alternative transition method as described in the FSP. An entity that adopts
SFAS 123(R) using the modified prospective application method may make a one-time election to adopt the transition method described in the FSP. We are currently evaluating the available transition alternatives and have until November 2006, which is
one year from the effective date of the FSP, to finalize our one-time election.



FIN 48



In June 2006, the FASB issued Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), which prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact, if any, the adoption of FIN 48 will have on our consolidated financial statements and related disclosures.



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##### Table of Contents

Results of Operations



Fiscal 2006 Compared To Fiscal 2005  Consolidated



Overview



The following table sets forth a comparison of certain items from our consolidated statements of operations for fiscal 2006 and 2005. The comparison includes the line
items expressed as a percentage of net revenue as well as the dollar value and percentage change in each line item (in thousands, except per share amounts):



|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|--------------------------------------------------------------------------- |  | -------------------- | ------- | - | -------------- | ----- | -- | ---- | - | ------- | -------------- |  | ----- | ------ |  | - | ------- | - |  | ------ | --
|                                                                            |  | Years Ended June 30, |        
|                                                                            |  | 2006                 |         |   | % ofNetRevenue |       |    | 2005 |   |         | % ofNetRevenue |  |       | Change |  |   | %Change |  
|Net revenue                                                                 |  | $                    | 548,501 |   |                | 100.0 | %  |      | $ | 501,514 |                |  | 100.0 | %      |  | $ | 46,987  |   |  | 9.4    | % 
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Operating expenses:                                                         |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Payroll and employee benefits                                               |  |                      | 268,491 |   |                | 48.9  | %  |      |   | 257,737 |                |  | 51.4  | %      |  |   | 10,754  |   |  | 4.2    | % 
|Provision for doubtful accounts                                             |  |                      | 98,929  |   |                | 18.0  | %  |      |   | 82,016  |                |  | 16.4  | %      |  |   | 16,913  |   |  | 20.6   | % 
|Depreciation and amortization                                               |  |                      | 11,197  |   |                | 2.0   | %  |      |   | 10,608  |                |  | 2.1   | %      |  |   | 589     |   |  | 5.6    | % 
|Other operating expenses                                                    |  |                      | 119,588 |   |                | 21.8  | %  |      |   | 112,543 |                |  | 22.4  | %      |  |   | 7,045   |   |  | 6.3    | % 
|(Gain) loss on sale of assets                                               |  |                      | (1,311  | ) |                | (0.2  | %) |      |   | 72      |                |  |      |        |  |   | (1,383  | ) |  | #      |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Total operating expenses                                                    |  |                      | 496,894 |   |                | 90.6  | %  |      |   | 462,976 |                |  | 92.3  | %      |  |   | 33,918  |   |  | 7.3    | % 
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Operating income                                                            |  |                      | 51,607  |   |                | 9.4   | %  |      |   | 38,538  |                |  | 7.7   | %      |  |   | 13,069  |   |  | 33.9   | % 
|Interest expense                                                            |  |                      | (31,025 | ) |                | (5.7  | %) |      |   | (29,567 | )              |  | (5.9  | %)     |  |   | (1,458  | ) |  | 4.9    | % 
|Interest income                                                             |  |                      | 548     |   |                | 0.1   | %  |      |   | 293     |                |  | 0.1   | %      |  |   | 255     |   |  | 87.0   | % 
|Loss on early extinguishment of debt                                        |  |                      |        |   |                |      |    |      |   | (8,170  | )              |  | (1.6  | %)     |  |   | 8,170   |   |  | (100.0 | %)
|Income from continuing operations before income taxes and minority interest |  |                      | 21,130  |   |                | 3.9   | %  |      |   | 1,094   |                |  | 0.2   | %      |  |   | 20,036  |   |  | #      |   
|Income tax (provision) benefit                                              |  |                      | (10,907 | ) |                | (2.0  | %) |      |   | 83,816  |                |  | 16.7  | %      |  |   | (94,723 | ) |  | #      |   
|Minority interest                                                           |  |                      | (759    | ) |                | (0.1  | %) |      |   | (102    | )              |  |      |        |  |   | (657    | ) |  | #      |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Income from continuing operations                                           |  |                      | 9,464   |   |                | 1.7   | %  |      |   | 84,808  |                |  | 16.9  | %      |  |   | (75,344 | ) |  | (88.8  | %)
|Income (loss) from discontinued operations, net of income taxes             |  |                      | (5,947  | ) |                | (1.1  | %) |      |   | 3,523   |                |  | 0.7   | %      |  |   | (9,470  | ) |  | #      |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Net income                                                                  |  | $                    | 3,517   |   |                | 0.6   | %  |      | $ | 88,331  |                |  | 17.6  | %      |  | $ | (84,814 | ) |  | (96.0  | %)
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Income per share                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Basic                                                                      |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Income from continuing operations applicable to common stock                |  | $                    | 0.39    |   |                |       |    |      | $ | 3.74    |                |  |       |        |  | $ | (3.35   | ) |  |        |   
|Income (loss) from discontinued operations applicable to common stock       |  |                      | (0.25   | ) |                |       |    |      |   | 0.16    |                |  |       |        |  |   | (0.40   | ) |  |        |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Net income                                                                  |  | $                    | 0.14    |   |                |       |    |      | $ | 3.90    |                |  |       |        |  | $ | (3.75   | ) |  |        |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Diluted                                                                    |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Income from continuing operations applicable to common stock                |  | $                    | 0.38    |   |                |       |    |      | $ | 3.52    |                |  |       |        |  | $ | (3.14   | ) |  |        |   
|Income (loss) from discontinued operations applicable to common stock       |  |                      | (0.24   | ) |                |       |    |      |   | 0.14    |                |  |       |        |  |   | (0.38   | ) |  |        |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Net income                                                                  |  | $                    | 0.14    |   |                |       |    |      | $ | 3.66    |                |  |       |        |  | $ | (3.52   | ) |  |        |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Average number of common shares outstandingBasic                           |  |                      | 24,359  |   |                |       |    |      |   | 22,674  |                |  |       |        |  |   | 1,685   |   |  |        |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|Average number of common shares outstandingDiluted                         |  |                      | 24,842  |   |                |       |    |      |   | 24,105  |                |  |       |        |  |   | 737     |   |  |        |   
|                                                                            |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   
|                                                                            |  |                      |         |   |                |      
|#Variances over 100% not displayed.                                        |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |        |   



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##### Table of Contents

Net revenue growth of $47.0 million, or 9.4 percent, resulted from a $41.3 million, or 9.4 percent increase in medical
transportation and related services revenue and a $5.7 million, or 9.3 percent increase in fire and other services revenue.



As a percentage of net revenue, operating expenses were 170 basis points lower in fiscal 2006 compared to the prior year primarily due to a 250 basis point decrease in
payroll and employee benefits and a 60 basis point decrease in other operating expenses, both as a percentage of net revenue, partially offset by a 160 basis point increase in the provision for doubtful accounts as a percentage of net revenue. These
fluctuations are described in further detail below.



Income from continuing
operations per diluted share of $0.38 for fiscal 2006 includes an increase in the average number of diluted shares outstanding during the period from 24.1 million shares at June 30, 2005 to 24.8 million shares at June 30, 2006
due to common shares issued as a result of stock option exercises.



Net
Revenue



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



|                                            |  |                      |         |      |   |          |  |          |        |  |     |  
|------------------------------------------- |  | -------------------- | ------- | ---- | - | -------- |  | -------- | ------ |  | --- | -
|                                            |  | Years Ended June 30, |        
|                                            |  | 2006                 |         | 2005 |   | $ Change |  | % Change |       
|Medical transportation and related services |  | $                    | 481,094 |      | $ | 439,838  |  | $        | 41,256 |  | 9.4 | %
|Fire and other services                     |  |                      | 67,407  |      |   | 61,676   |  |          | 5,731  |  | 9.3 | %
|                                            |  |                      |         |      |   |          |  |          |        |  |     |  
|Total net revenue                           |  | $                    | 548,501 |      | $ | 501,514  |  | $        | 46,987 |  | 9.4 | %
|                                            |  |                      |         |      |   |          |  |          |        |  |     |  



Medical Transportation and Related
Services



Same service area revenue accounted for $27.6 million of the
increase in medical transportation and related services revenue while the remaining $13.7 million resulted from revenues generated under new contracts in Tacoma, Washington, Salem, Oregon, Roswell, New Mexico, Salt Lake City, Utah and the Orlando
Regional Healthcare System. Approximately $20.9 million of the increase in same-service area revenue related to increased rates and the balance of $6.7 million was due to increased transports.



A comparison of transports is included in the table below:



|                                            |  |                      |  |           |  |                 |  |          |  
|------------------------------------------- |  | -------------------- |  | --------- |  | --------------- |  | -------- | -
|                                            |  | Years Ended June 30, | 
|                                            |  | 2006                 |  | 2005      |  | TransportChange |  | % Change |  
|Medical transportation                      |  | 1,045,722            |  | 1,006,697 |  | 39,025          |  | 3.9      | %
|Alternative transportation                  |  | 80,781               |  | 70,499    |  | 10,282          |  | 14.6     | %
|                                            |  |                      |  |           |  |                 |  |          |  
|Total transports from continuing operations |  | 1,126,503            |  | 1,077,196 |  | 49,307          |  | 4.6      | %
|                                            |  |                      |  |           |  |                 |  |          |  



Medical transports in areas that we
served in both fiscal 2006 and 2005 increased by approximately 6,000 transports as a result of an overall aging population, increase in population density where we have significant operations and increased patient travel between specialized
treatment health care facilities. Medical transports related to new contracts totaled approximately 33,000 for fiscal 2006. The 14.6 percent increase in transports for our alternative transportation services business can be directly attributed to
growth in our non-emergency medical transportation business.



Consolidated
net/net EMS APC for fiscal 2006 was $341 compared to $329 for fiscal 2005. The 3.5 percent increase in net/net EMS APC is primarily a result of rate escalators and other general rate increases that are contained or allowed in certain contracts to
provide EMS services as well as a change in payer mix in select markets.



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Discounts applicable to Medicare, Medicaid and other third-party payers (contractual allowances) related to
continuing operations, which are reflected as a reduction of gross medical transportation revenue, totaled $249.7 million and $214.5 million for fiscal 2006 and 2005, respectively. Such discounts represented 35.3 percent and 34.0 percent of gross
medical transportation and alternative transportation fees for fiscal 2006 and 2005, respectively. The increase of 130 basis points is primarily a result of rate increases and a change in payer mix in certain markets. Such rate increases are
applicable to commercial insurance and private pay patients. We are unable to pass on these rate increases to Medicare, Medicaid and certain other payers.



Fire and Other Services



The increase in fire and other services revenue is primarily due to fire subscription revenue growth totaling $4.4 million, or 11.2 percent, of which $3.0 million was related to higher subscription rates and $1.4
million was related to an increase in the number of subscribers. Additionally, master fire fees increased by $1.4 million due to increases in various master fire contract rates.



Operating Expenses



Payroll and Employee Benefits



The overall increase in payroll and employee benefits is primarily due to greater medical transport activity and general wage rate increases which resulted in higher
salary expense of $18.3 million. Approximately $4.8 million of this increase related to the impact of new service areas. These increases were partially offset by a $4.9 million year over year reduction in workers compensation expense due to
improved claims history and continuing overall favorable insurance trends and a $3.5 million decline in management incentive expense due in part to bonuses of $4.5 million paid during fiscal 2005 associated with our debt refinancing activities.
Payroll and employee benefits as a percentage of net revenue decreased from 51.4 percent to 48.9 percent primarily due to the reduction in workers compensation expense and management incentive expense described above.



Provision for Doubtful Accounts



The provision for doubtful accounts as a percentage of total net revenue was 18.0 percent
and 16.4 percent for fiscal 2006 and 2005, respectively. As a percentage of net medical transportation and related services revenue, the provision was 21.6 percent and 19.8 percent for fiscal 2006 and 2005, respectively. The increase in the
provision is primarily a result of rate increases, many of which are not allowable under government-funded healthcare programs such as Medicare and Medicaid and the related growth in medical transportation revenue across all payer classes. During
the second half of fiscal 2006 we experienced a disruption in collections caused by Medicare patients transition to Medicare Advantage (MA) plans. We also continue to experience a disruption of collections related to Medicaid
managed care payers in Arizona.



Our bad debt reserve methodology is based on a
standardized procedure that includes periodic reviews of subsequent historical receipts to determine actual historical collection percentages. These percentages are used in the determination of current anticipated collection percentages that are
applied to gross revenues in calculating net revenue and the provision for doubtful accounts. In accordance with our provisioning methodology, we recorded additional reserves until such time that subsequent receipts reflect improved collections
results.



Depreciation and Amortization



The increase in depreciation and amortization is primarily due to higher depreciation
expense as a result of increased capital expenditures during fiscal 2006 and 2005, partially offset by a $0.4 million write-off of a non-compete covenant in the prior year.



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Other Operating Expenses



The increase in other operating expenses was principally due to a $2.6 million increase in fuel expense primarily driven by an overall increase in the cost of fuel,
higher professional fees of $2.4 million which include legal expenses related to market share protection efforts in certain markets and a fee related to an amendment of our credit facility, a $2.0 million increase in contractual service and
management fees related to the increased number of transports and increases in other miscellaneous operating expenses, none of which were individually significant. These increases were partially offset by a $3.2 million reduction in general
liability insurance costs resulting from favorable historical claims experience in recent years.



Gain on Sale of Assets



We recognized a
$1.3 million pre-tax gain on the sale of real estate located in Arizona during the first quarter of fiscal 2006. Cash proceeds from this transaction totaled $1.6 million.



Interest Expense



The increase in interest expense is primarily due to a higher average effective interest rate including a $4.8 million increase in non-cash interest expense related to
the accretion of our 12.75 percent Senior Discount Notes as well as a $0.4 million increase in the write-off of debt issuance costs associated with unscheduled Term Loan B principal payments made during fiscal 2006. This increase is partially offset
by interest savings stemming from the lower average Term Loan B principal balance.



Loss on Early Extinguishment of Debt



During fiscal
2005, net proceeds from our March 2005 refinancing transaction were used to repay approximately $302.6 million of existing indebtedness. In connection therewith, we recorded $8.2 million of debt extinguishment costs in fiscal 2005. These costs
included non-cash charges of $5.6 million related to the write-off of debt issuance costs associated with the retired debt and $0.1 million related to unamortized discounts as well as cash redemption premiums of $2.5 million.



Minority Interest



The change in minority interest expense is due to increased net income in our joint venture
with the City of San Diego in fiscal 2006 as compared to fiscal 2005. Income was generated in fiscal 2006 as a result of rate increases, while the income generated in fiscal 2005 was a result of both rate increases and increases in transports.



Income Tax Provision



During fiscal 2005, we recorded an $83.8 million income tax benefit related to continuing
operations, of which $83.9 million was the result of the release of valuation allowances relating to a portion of our net operating loss carryforwards. This amount was partially offset by state income taxes. Beginning in fiscal 2006, we are
primarily recognizing deferred income tax expense, as we utilize net operating loss carryforwards to reduce federal and state taxes currently payable and the associated deferred tax benefits are realized. As a result, minimal current cash payments
are required.



We still maintain a valuation allowance of $36.4 million against
deferred tax assets that we do not believe will be realized. The valuation allowance includes $14.0 million related to capital loss carryforwards, $10.8 million related to federal net operating loss carryforwards, and $11.6 million related to state
net operating loss carryforwards.



During fiscal 2006, we recorded a $10.9
million income tax provision related to continuing operations. This provision includes $9.7 million of deferred income tax expense, which does not require a current cash payment.



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The deferred income tax expense results primarily from utilization of tax benefits, primarily resulting from net operating loss carryforwards, generated in
prior years.



The continuing operations tax provision results in an effective
tax rate of 51.6 percent. This rate differs from the federal statutory rate of 35.0 percent as a result of recurring expenses that are not deductible for income tax purposes, such as certain executive compensation and a portion of non-cash interest
related to our 12.75% Senior Discount Notes. These items increased our effective tax rate by 5.7 percent Additionally, the effective tax rate reflects $0.8 million of adjustments to prior year tax provisions, which increased the effective tax rate
by 4.0 percent. The effective income tax rate applicable to continuing operations also includes 6.9 percent related to state income taxes (net of federal benefit). This is significantly higher than the 3.5 percent state tax effective rate we expect
based on our current operations and structure. This current year increase in the state tax effective rate relates primarily to managements assessment of the realizability of certain state net operating loss carryforwards.



Discontinued Operations



During the third quarter of fiscal 2006, we discontinued all medical transportation services
provided in the State of New Jersey. We based this decision on the fact that our business primarily consisted of non-emergency medical transportation services and the limited future potential to obtain 911 emergency transportation contracts in that
specific area. The financial results of this service area for fiscal 2006 and 2005 are included in income (loss) from discontinued operations.



Effective December 31, 2005 we ceased operating in the City of Augusta, Georgia upon expiration of our exclusive contract to provide medical transportation services
to that area. We elected not to pursue renewal of this contract based upon the one-year contract term and stipulations that would have been less beneficial to us. The financial results of this service area for fiscal 2006 and 2005 are included in
income (loss) from discontinued operations.



Additionally, the results of
operations for service areas where we have ceased operations during fiscal 2005 have been included in income (loss) from discontinued operations for fiscal 2005.



For fiscal 2006 and 2005, net revenue associated with these discontinued service areas totaled $16.0 million and $61.2 million,
respectively. Loss from discontinued operations for fiscal 2006 was $5.9 million, which includes an income tax benefit of $3.1 million. Income from discontinued operations for fiscal 2005 was $3.5 million, which includes an income tax provision of
$2.1 million. The loss from discontinued operations in fiscal 2006 included $0.9 million of closure-related costs, primarily severance and lease termination charges, an additional $3.4 million in provision for doubtful accounts and a $1.0 million
goodwill write-off related to the closure of the New Jersey operation. The additional provisions were recorded based upon the Companys experience with accounts receivable collections for discontinued operations compared to historical levels.
Income (loss) from discontinued operations excludes the allocation of certain shared services costs such as human resources, financial services, risk management and legal services, among others. These ongoing services and associated costs will be
redirected to support new markets or for the expansion of existing service areas.



During fiscal 2006, we also recorded a charge of $2.5 million related to an ongoing government investigation into certain of our former operations in the State of Texas which is included in loss from discontinued operations. See Note 15 to
the Consolidated Financial Statements for additional information.



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Fiscal 2006 Compared To Fiscal 2005  Segments



Overview



We provide emergency and non-emergency medical transportation services, private fire protection services, primarily on a subscription fee basis, and a variety of other
services. We have four regionally-based reporting segments which correspond with the manner in which the associated operations are managed and evaluated by our senior management. These segments comprise operations within the following areas:



|        |  |                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Segment |  | States                                                                                                                                                                         
|A       |  | Georgia, New York, Northern Ohio, Pennsylvania                                                                                                                                 
|        | 
|B       |  | Alabama, California (fire), Indiana, Kentucky, Louisiana, Mississippi, North Dakota, Northern Florida, New Jersey (fire), Southern Florida, Southern Ohio, Tennessee,
Wisconsin
|        | 
|C       |  | Arizona, New Mexico, Oregon (fire), Utah                                                                                                                                       
|        | 
|D       |  | California (medical transportation), Central Florida, Colorado, Oregon (medical transportation), Nebraska, South Dakota, Washington                                            



Each reporting segment provides
medical transportation services while fire services are predominantly centered in Segments B and C.



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



The key drivers that impact net medical transportation revenues include rates charged for such services, payer mix, number of transports and government subsidies. These factors can vary significantly from market to market and also can
change over time. The main drivers of fire and other revenue are fire subscription rates and the number of subscribers.



Segment A



The following table presents financial results and key operating statistics for Segment A for fiscal 2006 and 2005 (in thousands, except medical transports, net/net EMS APC and DSO):



|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ---- | --
|                                            |  | 2006 |         |   | 2005 |   |         | $ Change |  |   | % Change |  
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Medical transportation and related services |  | $    | 112,701 |   |      | $ | 110,579 |          |  | $ | 2,122    |   |  | 1.9  | % 
|Other services                              |  |      | 3,788   |   |      |   | 3,526   |          |  |   | 262      |   |  | 7.4  | % 
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Total net revenue                           |  | $    | 116,489 |   |      | $ | 114,105 |          |  | $ | 2,384    |   |  | 2.1  | % 
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Segment profit                              |  | $    | 16,271  |   |      | $ | 13,820  |          |  | $ | 2,451    |   |  | 17.7 | % 
|Operating margin                            |  |      | 14.0    | % |      |   | 12.1    | %        |  |   |          |   |  |      |   
|Medical transports                          |  |      | 288,648 |   |      |   | 294,739 |          |  |   | (6,091   | ) |  | (2.1 | %)
|Net/net EMS APC                             |  | $    | 302     |   |      | $ | 296     |          |  | $ | 6        |   |  | 2.0  | % 
|DSO                                         |  |      | 48      |   |      |   | 48      |          |  |   |         |   |  |     |   



Medical transportation rate increases
contributed to a $4.4 million increase in net medical transportation revenue while a decline in the number of medical transports contributed to a $2.3 million decrease in net medical transportation revenue. Segment As net revenue increased
primarily as a result of a change in payer mix in



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certain markets. The decrease in transports can be attributed to increased competition for non-emergency medical transportation services, specifically in our
Alliance and Columbus, Ohio markets as well as a decline in hospital patient census.



Operating margins improved principally due to effective management of payroll-related costs in relation to transport volume, partially offset by higher provisions for doubtful accounts and other operating expenses.



Payroll-related expense as a percentage of net revenue decreased from 51.6 percent during
fiscal 2005 to 48.6 percent during fiscal 2006 primarily due to reductions in temporary staffing, health insurance costs and workers compensation expense. Provision for doubtful accounts as a percentage of net revenue increased from 14.2
percent during fiscal 2005 to 16.0 percent during fiscal 2006 primarily due to a change in collection patterns stemming from the consolidation of regional billing locations to Syracuse and Buffalo, New York. Other operating expenses as a percentage
of revenue grew from 17.4 percent during fiscal 2005 to 18.8 percent during the fiscal 2006 primarily driven by a $1.5 million increase in general liability insurance costs and a $0.6 million increase in fuel costs partially offset by declines in
other miscellaneous operating costs, none of which were individually significant.



Net/net EMS APC increased slightly due to rate increases and the change in payer mix in certain markets.



Segment B



The following table presents financial results and key operating statistics for Segment B for fiscal 2006 and 2005 (in thousands, except medical transports, net/net EMS APC, fire subscriptions and DSO):



|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ---- | --
|                                            |  | 2006 |         |   | 2005 |   |         | $ Change |  |   | % Change |  
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Medical transportation and related services |  | $    | 80,686  |   |      | $ | 78,084  |          |  | $ | 2,602    |   |  | 3.3  | % 
|Fire and other services                     |  |      | 21,692  |   |      |   | 20,765  |          |  |   | 927      |   |  | 4.5  | % 
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Total net revenue                           |  | $    | 102,378 |   |      | $ | 98,849  |          |  | $ | 3,529    |   |  | 3.6  | % 
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Segment profit                              |  | $    | 9,400   |   |      | $ | 7,816   |          |  | $ | 1,584    |   |  | 20.3 | % 
|Operating margin                            |  |      | 9.2     | % |      |   | 7.9     | %        |  |   |          |   |  |      |   
|Medical transports                          |  |      | 233,335 |   |      |   | 235,011 |          |  |   | (1,676   | ) |  | (0.7 | %)
|Net/net EMS APC                             |  | $    | 255     |   |      | $ | 257     |          |  | $ | (2       | ) |  | (0.7 | %)
|Fire subscriptions                          |  |      | 34,740  |   |      |   | 35,155  |          |  |   | (415     | ) |  | (1.2 | %)
|DSO                                         |  |      | 61      |   |      |   | 52      |          |  |   | 9        |   |  | 17.3 | % 



Medical transportation rate increases
contributed to a $3.2 million increase in net medical transportation revenue while a decline in the number of medical transports contributed to a $0.6 million decrease in net medical transportation revenue. Higher master fire contract fees and fire
subscription rates also contributed to net revenue growth despite a slight decline in the number of fire subscriptions. The decrease in transports can be attributed to increased competition for non-emergency medical transportation services in
Cincinnati, Ohio and Lexington, Kentucky, as well as a decline in hospital patient census in Memphis, Tennessee.



Operating margins increased due to operational efficiencies, primarily lower other operating expenses as a percentage of net revenue.



Payroll related expense as a percentage of net revenue decreased from 53.0 percent during
fiscal 2005 to 52.8 percent during fiscal 2006 primarily due to a $0.5 million reduction in workers compensation expense partially offset by higher scheduled overtime, fill-in wages and temporary staffing due to market-specific shortages of
paramedics and EMTs. Provision for doubtful accounts as a percentage of net revenue increased from 13.6 percent during fiscal 2005 to 16.4 percent during fiscal 2006 primarily due to a change in collection patterns



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stemming from the consolidation of regional billing locations to Indiana, which disrupted collections, and an increase in private pay patients with lower
receivable collectibility in certain sectors of Tennessee, Florida and Indiana. Additionally, this segment experienced a change in billing center management that caused a disruption in collections. Other operating expenses as a percentage of revenue
declined from 20.0 percent during fiscal 2005 to 18.8 percent during fiscal 2006 primarily driven by a $1.1 million decrease in general liability insurance costs and declines in other miscellaneous operating costs, none of which were individually
significant, partially offset by a $0.5 million increase in fuel costs.



Segment C



The following table presents financial
results and key operating statistics for Segment C for fiscal 2006 and 2005 (in thousands, except medical transports, net/net EMS APC, fire subscriptions and DSO):



|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | -------- | ------ |  | ---- | -
|                                            |  | 2006 |         |   | 2005 |   |         | $ Change |  | % Change |       
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Medical transportation and related services |  | $    | 156,081 |   |      | $ | 135,302 |          |  | $        | 20,779 |  | 15.4 | %
|Fire and other services                     |  |      | 41,252  |   |      |   | 36,102  |          |  |          | 5,150  |  | 14.3 | %
|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Total net revenue                           |  | $    | 197,333 |   |      | $ | 171,404 |          |  | $        | 25,929 |  | 15.1 | %
|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Segment profit                              |  | $    | 26,977  |   |      | $ | 21,904  |          |  | $        | 5,073  |  | 23.2 | %
|Operating margin                            |  |      | 13.7    | % |      |   | 12.8    | %        |  |          |        |  |      |  
|Medical transports                          |  |      | 260,464 |   |      |   | 241,446 |          |  |          | 19,018 |  | 7.9  | %
|Net/net EMS APC                             |  | $    | 496     |   |      | $ | 473     |          |  | $        | 23     |  | 5.0  | %
|Fire subscriptions                          |  |      | 83,080  |   |      |   | 78,619  |          |  |          | 4,461  |  | 5.7  | %
|DSO                                         |  |      | 47      |   |      |   | 32      |          |  |          | 15     |  | 46.9 | %



Same service area revenue accounted
for $17.8 million of the increase in medical transportation and related services revenue while the remaining $3.0 million resulted from our new service areas in Salt Lake City, Utah and Roswell, New Mexico. Approximately $11.2 million of the
increase in same service area net medical transportation revenue was a result of increased rates while the remainder was due to increased transports. The increase in the number of medical transports was primarily a result of the significant
population growth experienced in the states in which Segment C operates. The increase in fire and other services revenue is primarily due to 5.7 percent growth in the number of fire subscriptions, higher fire subscription rates, increased master
fire rates, increased forestry fees and one-time Hurricane Rita relief revenue of $0.5 million recorded during the second quarter of fiscal 2006.



The increase in Segment Cs profit includes a $1.3 million gain on the sale of real estate located in Arizona during the first quarter of fiscal 2006. Excluding the
gain on the sale of real estate, operating margins remained relatively flat during fiscal 2006 compared to fiscal 2005.



Payroll-related expense as a percentage of net revenue increased 30 basis points, from 50.0 percent during fiscal 2005 to 50.3 percent during fiscal 2006 primarily due to
the growth in transports which has placed constraints on the recruitment and retention of qualified personnel, resulting in increased utilization of overtime and temporary staffing. Provision for doubtful accounts as a percentage of net revenue
increased from 11.1 percent during fiscal 2005 to 12.4 percent during fiscal 2006 primarily due to a disruption in collections caused by Medicare patients transition to MA plans and an extension of the payment cycle related to Medicaid payers
in Arizona. In addition, rate increases that are not recoverable from private pay accounts have affected the provision in this segment. Other operating expenses as a percentage of revenue increased from 21.3 percent during fiscal 2005 to 21.9
percent during fiscal 2006 primarily driven by a $1.2 million increase in professional fees associated with contract negotiations and franchise protection efforts, a $1.0 million increase in vehicle maintenance expense due to an increase in the
number of vehicles year over year to support additional transports, a $1.0 million increase in fuel costs and a $0.8 million increase in operating supplies partially offset by a slight decrease in insurance costs and declines in other miscellaneous
operating costs, none of which were individually significant.



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The increase in net/net EMS APC is a result of rate increases in certain markets partially offset by increased provision
for doubtful accounts as a percentage of net revenue.



Segment D



The following table presents financial results and key operating
statistics for Segment D for fiscal 2006 and 2005 (in thousands, except medical transports, net/net EMS APC and DSO):



|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ----- | --
|                                            |  | 2006 |         |   | 2005 |   |         | $ Change |  |   | % Change |  
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|Medical transportation and related services |  | $    | 131,626 |   |      | $ | 115,873 |          |  | $ | 15,753   |   |  | 13.6  | % 
|Other services                              |  |      | 675     |   |      |   | 1,283   |          |  |   | (608     | ) |  | (47.4 | %)
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|Total net revenue                           |  | $    | 132,301 |   |      | $ | 117,156 |          |  | $ | 15,145   |   |  | 12.9  | % 
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|Segment profit                              |  | $    | 10,156  |   |      | $ | 5,605   |          |  | $ | 4,551    |   |  | 81.2  | % 
|Operating margin                            |  |      | 7.7     | % |      |   | 4.8     | %        |  |   |          |   |  |       |   
|Medical transports                          |  |      | 263,275 |   |      |   | 235,501 |          |  |   | 27,774   |   |  | 11.8  | % 
|Net/net EMS APC                             |  | $    | 306     |   |      | $ | 296     |          |  | $ | 10       |   |  | 3.4   | % 
|DSO                                         |  |      | 55      |   |      |   | 57      |          |  |   | (2       | ) |  | (3.5  | %)



Same service area revenue accounted
for $5.1 million of the increase in medical transportation and related services revenue while the remaining $10.7 million resulted from our new service areas in Salem, Oregon, Tacoma, Washington and our new Orlando Regional contract. Approximately
$4.1 million of the increase in same service area net medical transportation revenue was due to increased rates while the remainder was due to increased transports. Our new service areas in Salem, Oregon, Tacoma, Washington and our new Orlando
Regional contract resulted in approximately 25,800 additional transports for fiscal 2006. The decline in other services revenue is primarily due to consulting fees recognized in the prior year.



The increase in Segment Ds profit was primarily driven by reductions in other operating
expenses as a percentage of net revenue partially offset by an increase in the provision for doubtful accounts as a percentage of net revenue. The new Orlando Regional contract contributed to the increase in operating margin as a result of economies
of scale associated with higher utilization and redeployment of existing resources.



On a same service area basis, payroll-related expense as a percentage of net revenue increased slightly from 37.9 percent during fiscal 2005 to 38.4 percent during fiscal 2006 primarily due to an increase in fill-in wages and health
insurance expense due to growth in transport volume. Provision for doubtful accounts as a percentage of net revenue increased from 28.5 percent during fiscal 2005 to 29.5 percent during fiscal 2006 primarily due to rate increases and a change in
payer mix in certain markets. Other operating expenses as a percentage of revenue decreased from 26.0 percent during fiscal 2005 to 23.5 percent during fiscal 2006 primarily driven by a $1.1 million decrease in general liability insurance costs and
decreases in other miscellaneous operating costs, none of which were individually significant. This was partially offset by a $1.6 million increase in reimbursements to local ambulance companies that provide services to patients covered under
capitated contracts with certain of our hospital customers. We also experienced a $0.6 million increase in fuel costs.



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Results of Operations



Fiscal 2005 Compared To Fiscal 2004  Consolidated



Overview



The following table sets forth a comparison of certain items from our consolidated statements of operations for fiscal 2005 and 2004. The comparison includes the line
items expressed as a percentage of net revenue as well as the dollar value and percentage change in each line item (in thousands, except per share amounts):



|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|---------------------------------------------------------------------------------- |  | -------------------- | ------- | - | -------------- | ----- | -- | ---- | - | ------- | -------------- |  | ----- | ------ |  | - | ------- | - |  | ----- | --
|                                                                                   |  | Years Ended June 30, |        
|                                                                                   |  | 2005                 |         |   | % ofNetRevenue |       |    | 2004 |   |         | % ofNetRevenue |  |       | Change |  |   | %Change |  
|Net revenue                                                                        |  | $                    | 501,514 |   |                | 100.0 | %  |      | $ | 462,546 |                |  | 100.0 | %      |  | $ | 38,968  |   |  | 8.4   | % 
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Operating expenses:                                                                |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Payroll and employee benefits                                                      |  |                      | 257,737 |   |                | 51.4  | %  |      |   | 240,241 |                |  | 51.9  | %      |  |   | 17,496  |   |  | 7.3   | % 
|Provision for doubtful accounts                                                    |  |                      | 82,016  |   |                | 16.4  | %  |      |   | 79,996  |                |  | 17.3  | %      |  |   | 2,020   |   |  | 2.5   | % 
|Depreciation and amortization                                                      |  |                      | 10,608  |   |                | 2.1   | %  |      |   | 10,471  |                |  | 2.3   | %      |  |   | 137     |   |  | 1.3   | % 
|Other operating expenses                                                           |  |                      | 112,543 |   |                | 22.4  | %  |      |   | 105,910 |                |  | 22.9  | %      |  |   | 6,633   |   |  | 6.3   | % 
|Loss on sale of assets                                                             |  |                      | 72      |   |                |      |    |      |   | 32      |                |  |      |        |  |   | 40      |   |  | #     |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Total operating expenses                                                           |  |                      | 462,976 |   |                | 92.3  | %  |      |   | 436,650 |                |  | 94.4  | %      |  |   | 26,326  |   |  | 6.0   | % 
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Operating income                                                                   |  |                      | 38,538  |   |                | 7.7   | %  |      |   | 25,896  |                |  | 5.6   | %      |  |   | 12,642  |   |  | 48.8  | % 
|Interest expense                                                                   |  |                      | (29,567 | ) |                | (5.9  | %) |      |   | (29,243 | )              |  | (6.3  | %)     |  |   | (324    | ) |  | 1.1   | % 
|Interest income                                                                    |  |                      | 293     |   |                | 0.1   | %  |      |   | 97      |                |  |      |        |  |   | 196     |   |  | #     |   
|Loss on early extinguishment of debt                                               |  |                      | (8,170  | ) |                | (1.6  | %) |      |   |        |                |  |      |        |  |   | (8,170  | ) |  | #     |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Income (loss) from continuing operations before income taxes and minority interest |  |                      | 1,094   |   |                | 0.2   | %  |      |   | (3,250  | )              |  | (0.7  | %)     |  |   | 4,344   |   |  | #     |   
|Income tax benefit                                                                 |  |                      | 83,816  |   |                | 16.7  | %  |      |   | 225     |                |  |      |        |  |   | 83,591  |   |  | #     |   
|Minority interest                                                                  |  |                      | (102    | ) |                |      |    |      |   | 475     |                |  | 0.1   | %      |  |   | (577    | ) |  | #     |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Income (loss) from continuing operations                                           |  |                      | 84,808  |   |                | 16.9  | %  |      |   | (2,550  | )              |  | (0.6  | %)     |  |   | 87,358  |   |  | #     |   
|Income from discontinued operations, net of income taxes                           |  |                      | 3,523   |   |                | 0.7   | %  |      |   | 8,761   |                |  | 1.9   | %      |  |   | (5,238  | ) |  | (59.8 | %)
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Net income                                                                         |  | $                    | 88,331  |   |                | 17.6  | %  |      | $ | 6,211   |                |  | 1.3   | %      |  | $ | 82,120  |   |  | #     |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Income per share                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Basic                                                                             |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Income from continuing operations applicable to common stock                       |  | $                    | 3.74    |   |                |       |    |      | $ | 0.10    |                |  |       |        |  | $ | 3.64    |   |  |       |   
|Income from discontinued operations applicable to common stock                     |  |                      | 0.16    |   |                |       |    |      |   | 0.42    |                |  |       |        |  |   | (0.26   | ) |  |       |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Net income                                                                         |  | $                    | 3.90    |   |                |       |    |      | $ | 0.52    |                |  |       |        |  | $ | 3.38    |   |  |       |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Diluted                                                                           |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Income (loss) from continuing operations applicable to common stock                |  | $                    | 3.52    |   |                |       |    |      | $ | (0.12   | )              |  |       |        |  | $ | 3.64    |   |  |       |   
|Income from discontinued operations applicable to common stock                     |  |                      | 0.14    |   |                |       |    |      |   | 0.40    |                |  |       |        |  |   | (0.26   | ) |  |       |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Net income                                                                         |  | $                    | 3.66    |   |                |       |    |      | $ | 0.28    |                |  |       |        |  | $ | 3.38    |   |  |       |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Average number of common shares outstandingBasic                                  |  |                      | 22,674  |   |                |       |    |      |   | 16,645  |                |  |       |        |  |   | 6,029   |   |  |       |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|Average number of common shares outstandingDiluted                                |  |                      | 24,105  |   |                |       |    |      |   | 21,817  |                |  |       |        |  |   | 2,288   |   |  |       |   
|                                                                                   |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   
|                                                                                   |  |                      |         |   |                |      
|#Variances over 100% not
displayed.                                               |  |                      |         |   |                |       |    |      |   |         |                |  |       |        |  |   |         |   |  |       |   



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Net revenue growth of $39.0 million, or 8.4 percent, resulted from a $33.4 million, or 8.2 percent increase in medical
transportation and related services revenue and a $5.6 million, or 10.0 percent increase in fire and other services revenue.



As a percentage of net revenue, operating expenses were 210 basis points lower in fiscal 2005 compared to the prior year primarily due to a 90 basis point decrease in
provision for doubtful accounts and a 50 basis point reduction in both payroll and employee benefits and other operating expenses, all as a percentage of net revenue. These fluctuations are described in further detail below.



Income from continuing operations per diluted share of $3.52 for fiscal 2005 includes an
increase in the average number of diluted shares outstanding during the period from 21.8 million shares at June 30, 2004 to 24.1 million shares at June 30, 2005 due to common shares issued as a result of stock option exercises as
well as an increase in the number of unexercised stock options which were in the money at the end of the period. These results reflect revenue and operating margin growth as well as an $83.9 million, or $3.48 per diluted share, reversal of tax
valuation allowances and an $8.2 million, or $0.34 per diluted share, loss on early extinguishment of debt as discussed in further detail below.



Net Revenue



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



|                                            |  |                      |         |      |   |          |  |          |        |  |      |  
|------------------------------------------- |  | -------------------- | ------- | ---- | - | -------- |  | -------- | ------ |  | ---- | -
|                                            |  | Years Ended June 30, |        
|                                            |  | 2005                 |         | 2004 |   | $ Change |  | % Change |       
|Medical transportation and related services |  | $                    | 439,838 |      | $ | 406,484  |  | $        | 33,354 |  | 8.2  | %
|Fire and other services                     |  |                      | 61,676  |      |   | 56,062   |  |          | 5,614  |  | 10.0 | %
|                                            |  |                      |         |      |   |          |  |          |        |  |      |  
|Total net revenue                           |  | $                    | 501,514 |      | $ | 462,546  |  | $        | 38,968 |  | 8.4  | %
|                                            |  |                      |         |      |   |          |  |          |        |  |      |  



Medical Transportation and Related
Services



Same service area revenue accounted for $31.3 million of the
increase in medical transportation and related services revenue while the remaining $2.1 million resulted from revenues generated under the new contract in Tacoma, Washington. Approximately $16.4 million of the increase in same-service area revenue
related to increased transports and the balance of $14.9 million was due to an increase in rates.



The following table shows a comparison of consolidated transport volumes:



|                                            |  |                      |  |           |  |                 |  |          |  
|------------------------------------------- |  | -------------------- |  | --------- |  | --------------- |  | -------- | -
|                                            |  | Years Ended June 30, | 
|                                            |  | 2005                 |  | 2004      |  | TransportChange |  | % Change |  
|Medical transportation                      |  | 1,006,697            |  | 964,520   |  | 42,177          |  | 4.4      | %
|Alternative transportation                  |  | 70,499               |  | 65,761    |  | 4,738           |  | 7.2      | %
|                                            |  |                      |  |           |  |                 |  |          |  
|Total transports from continuing operations |  | 1,077,196            |  | 1,030,281 |  | 46,915          |  | 4.6      | %
|                                            |  |                      |  |           |  |                 |  |          |  



Medical transports in areas that we
served in both fiscal 2005 and 2004 increased by approximately 36,700 transports, while medical transports related to our new contract in Tacoma, Washington totaled approximately 5,500 for fiscal 2005. The 7.2 percent increase in transports for our
alternative transportation services business can be directly attributed to growth in our non-emergency medical transportation business.



Consolidated net/net EMS APC for fiscal 2005 was $329 compared to $313 for fiscal 2004. The 5.3 percent increase in net/net EMS APC is primarily a result of rate
escalators and other general rate increases that are contained or allowed in certain contracts to provide EMS services as well as a favorable change in payer mix in select markets.



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Discounts applicable to Medicare, Medicaid and other third-party payers (contractual allowances) related to
continuing operations, which are reflected as a reduction of gross medical transportation revenue, totaled $214.5 million and $167.3 million for fiscal 2005 and 2004, respectively. Such discounts represented 34.0 percent and 30.3 percent of gross
medical transportation and alternative transportation fees for fiscal 2005 and 2004, respectively. The increase of 370 basis points is primarily a result of an overall increase in rates, which we are unable to pass on to Medicare, Medicaid and
certain payers, as well as a shift in the allocation between contractual discounts and bad debt expense.



Fire and Other Services



The increase
in fire and other services revenue is primarily due to fire subscription revenue growth totaling $3.6 million, or 10.2 percent, of which $2.0 million was related to higher subscription rates and $1.6 million was related to an increase in the number
of subscribers. Additionally, master fire contract revenue, which primarily relates to fire protection services at regional airports, grew $1.2 million or 9.9 percent over the previous year primarily as a result of rate increases in various fire
contracts.



Operating Expenses



Payroll and Employee Benefits



The overall increase in payroll and employee benefits is related to higher management
incentive expenses and increased salary expense partially offset by lower workers compensation expense. Management incentives for fiscal 2005 include a one-time bonus of $1.8 million paid to certain members of management in conjunction with
our debt refinancing, $1.1 million related to an amendment to our CEOs employment agreement which allows him to participate in the fiscal 2005 management incentive program, and $1.6 million of increased incentive pay as a result of meeting
certain fiscal 2005 operational and profitability goals. In addition, we paid bonuses of $1.35 million each to the CEO and CFO during fiscal 2005 related to the officers successfully completing the operational goals contemplated in the debt
refinancing. These operational goals included the reduction of insurance costs, entry into new markets, the positioning of the Company relative to covenants set forth in our new credit arrangements and other matters as the Board deemed relevant.
Further consideration was given to an unscheduled principal payment on our Term Loan B in May 2005 as allowed under the provisions of the 2005 Credit Facility.



Salary expense for the year ended June 30, 2005 increased primarily due to greater medical transport activity, additional scheduled overtime and general wage rate
increases.



During fiscal 2005, we incurred a $0.2 million premium adjustment
related to a retrospective payroll audit for workers compensation insurance for the policy year ended April 30, 2004. During fiscal 2004, we received a refund of $1.2 million related to a premium payroll audit for workers compensation
insurance for the policy year ended April 30, 2003.



Over the past several
years we have worked diligently to close workers compensation claims as soon as possible. We have also worked to minimize future insurance-related losses through proactive risk management and workplace safety initiatives. These programs include the
implementation of ergonomic safety programs designed to reduce on-the-job injuries; and complementary return to work, fit for duty, and wellness programs. The progress toward these initiatives has given rise to favorable historical claims
experience, which, in part, resulted in a decrease to workers compensation expense of $3.0 million during fiscal 2005. Additionally, we recorded a $0.9 million receivable related to a retrospective rating adjustment for policy years ended
April 30, 2003 and 2004. These adjustments are reflected as reductions in payroll and employee benefits for year ended June 30, 2005.



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Provision for Doubtful Accounts



The provision for doubtful accounts as a percentage of total net revenue was 16.4 percent and 17.3 percent for fiscal 2005 and 2004,
respectively. As a percentage of net medical transportation and related services revenue, the provision was 19.8 percent and 20.9 percent for fiscal 2005 and 2004, respectively. The 110 basis point decrease primarily resulted from a shift in the
allocation between contractual discounts and bad debt expense as a result of billing rate increases and historical collection patterns and the termination of lower rate contracts.



Other Operating Expenses



The increase in other operating expenses was principally due to higher professional fees of $3.0 million primarily related to our efforts to comply with Section 404
of the Sarbanes-Oxley Act and increases of $2.0 million and $1.1 million in fuel expense and vehicle maintenance, respectively, driven by increases in the number of transports and the cost of fuel. These increases were partially offset by a $5.3
million reduction in general liability insurance expense resulting from favorable historical claims experience during fiscal 2005.



Interest Expense



The increase in interest expense is primarily due to a higher average effectiveinterest rate including a $2.1 million increase in non-cash interest expense related to the accretion of our 12.75% Senior
Discount Notes partially offset by $0.8 million of penalty interest accrued during fiscal 2004 due to non-compliance with covenants contained in our old credit facility agreement. See Liquidity and Capital Resources  Refinancing Activities for
further discussion of our new financing structure.



Loss on Early
Extinguishment of Debt



During fiscal 2005, net proceeds from our
March 2005 refinancing transaction were used to repay approximately $302.6 million of existing indebtedness. In connection therewith, we recorded $8.2 million of debt extinguishment costs in fiscal 2005. These costs included non-cash charges of $5.6
million related to the write-off of debt issuance costs associated with the retired debt and $0.1 million related to unamortized discounts as well as cash redemption premiums of $2.5 million.



Minority Interest



The change in minority interest expense is due to net income in our joint venture with the
City of San Diego in fiscal 2005 compared to a net loss in fiscal 2004. Income was generated in the current year compared to the loss in the previous year primarily due to growth in net revenue as a result of increases in both rates and transports.



Income Tax Provision



During fiscal 2005, we recorded an $83.8 million income tax benefit related to continuing
operations, of which $83.9 million was the result of the release of valuation allowances relating to a portion of our net operating loss carryforwards. This amount was partially offset by state income taxes.



Discontinued Operations



We ceased operating in two and four medical transportation service areas during 2006 and
2005, respectively, as a result of our determination that these service areas no longer met our internal operational and profitability measures. We also ceased operating in one fire service area during fiscal 2005 as part of our strategic decision
for our planned exit as the contracted provider of fire protection services in this service area. The results of these service areas for fiscal 2005 and 2004 are included in income from discontinued operations as well as the results of service areas
in which we ceased operating during fiscal 2004 as described below. Additionally, the results of operations for service areas where we have ceased operations during fiscal 2004 have been included in income (loss) from discontinued operations for
fiscal 2004.



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Net revenue for discontinued service areas totaled $61.2 million and $80.9 million for the fiscal 2005 and 2004,
respectively. Excluding the allocation of certain fixed overhead costs, these service areas generated income of $3.5 million and $8.8 million, net of income tax provision of $2.1 million and $0.5 million, in fiscal 2005 and 2004, respectively.



Fiscal 2005 Compared To Fiscal 2004  Segments



Segment A



The following table presents financial results and key operating statistics for Segment A for fiscal 2005 and 2004 (in thousands, except
medical transports and net/net EMS APC):



|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ----- | --
|                                            |  | 2005 |         |   | 2004 |   |         | $ Change |  |   | % Change |  
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|Medical transportation and related services |  | $    | 110,579 |   |      | $ | 112,216 |          |  | $ | (1,637   | ) |  | (1.5  | %)
|Other services                              |  |      | 3,526   |   |      |   | 3,916   |          |  |   | (390     | ) |  | (10.0 | %)
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|Total net revenue                           |  | $    | 114,105 |   |      | $ | 116,132 |          |  | $ | (2,027   | ) |  | (1.7  | %)
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |       |   
|Segment profit                              |  | $    | 13,820  |   |      | $ | 10,644  |          |  | $ | 3,176    |   |  | 29.8  | % 
|Operating margin                            |  |      | 12.1    | % |      |   | 9.2     | %        |  |   |          |   |  |       |   
|Medical transports                          |  |      | 294,739 |   |      |   | 293,231 |          |  |   | 1,508    |   |  | 0.5   | % 
|Net/net EMS APC                             |  | $    | 296     |   |      | $ | 290     |          |  | $ | 6        |   |  | 2.0   | % 



Segment As net revenue decreased
primarily as a result of increased contractual allowances due to a change in payer mix in certain markets slightly offset by increased transports.



Operating margins improved principally due to lower payroll-related costs as a percentage of net revenue partially offset by higher other operating expenses, as a
percentage of net revenue. Payroll-related expense as a percentage of net revenue decreased from 53.2 percent during fiscal 2004 to 51.6 percent during fiscal 2005 primarily due to reductions in health insurance costs and workers compensation
expense partially offset by higher fill-in wages. Provision for doubtful accounts as a percentage of net revenue decreased from 16.8 percent during fiscal 2004 to 14.2 percent during fiscal 2005 primarily due to a shift in the allocation between
contractual discounts and bad debt expense as a result of billing rate increases and historical collection patterns. Other operating expenses as a percentage of net revenue grew from 16.6 percent during fiscal 2004 to 17.4 percent during the fiscal
2005 primarily driven by a $0.5 million increase in fuel costs and increases other miscellaneous operating costs, none of which were individually significant, partially offset by a reduction in general liability insurance costs of $1.0 million.



Net/net EMS APC increased slightly due to rate increases and the change in
payer mix in certain markets.



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Segment B



The following table presents financial results and key operating statistics for Segment B for fiscal 2005 and 2004 (in thousands, except medical transports, net/net EMS
APC and fire subscriptions):



|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | -------- | ------ |  | ---- | -
|                                            |  | 2005 |         |   | 2004 |   |         | $ Change |  | % Change |       
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Medical transportation and related services |  | $    | 78,084  |   |      | $ | 74,106  |          |  | $        | 3,978  |  | 5.4  | %
|Fire and other services                     |  |      | 20,765  |   |      |   | 19,059  |          |  |          | 1,706  |  | 9.0  | %
|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Total net revenue                           |  | $    | 98,849  |   |      | $ | 93,165  |          |  | $        | 5,684  |  | 6.1  | %
|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Segment profit                              |  | $    | 7,816   |   |      | $ | 6,293   |          |  | $        | 1,523  |  | 24.2 | %
|Operating margin                            |  |      | 7.9     | % |      |   | 6.8     | %        |  |          |        |  |      |  
|Medical transports                          |  |      | 235,011 |   |      |   | 224,915 |          |  |          | 10,096 |  | 4.5  | %
|Net/net EMS APC                             |  | $    | 257     |   |      | $ | 249     |          |  | $        | 8      |  | 3.2  | %
|Fire subscriptions                          |  |      | 35,155  |   |      |   | 35,063  |          |  |          | 92     |  | 0.3  | %



The increase in the number of medical
transports contributed to a $3.3 million increase in net medical transportation revenue while medical transportation rate increases contributed to a $0.7 million increase in net medical transportation revenue. Higher master fire contract fees and
fire subscription rates combined with growth in the number of fire subscriptions also contributed to net revenue growth.



Operating margins increased slightly due to lower provision for doubtful accounts as a percentage of net revenue and slightly lower payroll related costs.



Payroll related expense as a percentage of net revenue decreased from 53.6 percent during
fiscal 2004 to 53.0 percent during fiscal 2005 primarily due to a $0.3 million reduction in workers compensation expense partially offset by higher scheduled overtime, vacation and management incentive expense. Provision for doubtful accounts
as a percentage of net revenue decreased from 15.0 percent during fiscal 2004 to 13.6 percent during fiscal 2005 primarily due to a shift in the allocation between contractual discounts and bad debt expense as a result of billing rate increases and
historical collection patterns. Other operating expenses as a percentage of revenue increased from 19.8 percent during fiscal 2004 to 20.0 percent during fiscal 2005 primarily driven by a $0.6 million increase in fuel costs and increased
first-responder fees partially offset by a $0.5 million decrease in general liability insurance costs.



Segment C



The following table
presents financial results and key operating statistics for Segment C for fiscal 2005 and 2004 (in thousands, except net/net medical transports, net/net EMS APC and fire subscriptions):



|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | -------- | ------ |  | ---- | -
|                                            |  | 2005 |         |   | 2004 |   |         | $ Change |  | % Change |       
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Medical transportation and related services |  | $    | 135,302 |   |      | $ | 112,857 |          |  | $        | 22,445 |  | 19.9 | %
|Fire and other services                     |  |      | 36,102  |   |      |   | 32,699  |          |  |          | 3,403  |  | 10.4 | %
|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Total net revenue                           |  | $    | 171,404 |   |      | $ | 145,556 |          |  | $        | 25,848 |  | 17.8 | %
|                                            |  |      |         |   |      |   |         |          |  |          |        |  |      |  
|Segment profit                              |  | $    | 21,904  |   |      | $ | 16,079  |          |  | $        | 5,825  |  | 36.2 | %
|Operating margin                            |  |      | 12.8    | % |      |   | 11.0    | %        |  |          |        |  |      |  
|Medical transports                          |  |      | 241,446 |   |      |   | 224,600 |          |  |          | 16,846 |  | 7.5  | %
|Net/net EMS APC                             |  | $    | 473     |   |      | $ | 422     |          |  | $        | 51     |  | 12.1 | %
|Fire subscriptions                          |  |      | 78,619  |   |      |   | 73,784  |          |  |          | 4,835  |  | 6.6  | %



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Approximately $14.0 million of the increase in net medical transportation revenue is a result of an increase in rates and
approximately $8.4 million is a result of a greater number of medical transports. The increase in the number of medical transports was primarily a result of the significant population growth experienced in the states in which Segment C operates. The
increase in fire and other services revenue is primarily due to the 6.6 percent growth in the number of fire subscriptions as well as higher fire subscription rates.



Payroll related expense as a percentage of net revenue decreased 210 basis points from 52.1 percent during fiscal 2004 to 50.0 percent
during fiscal 2005 primarily due to payroll efficiencies achieved while servicing a greater number of transports. Provision for doubtful accounts as a percentage of net revenue decreased slightly from 11.3 percent during fiscal 2004 to 11.1 percent
during fiscal 2005 primarily due to a shift in the allocation between contractual discounts and bad debt expense as a result of billing rate increases and historical collection patterns. Other operating expenses as a percentage of net revenue
remained flat year over year.



The increase in net/net EMS APC is a result of
rate increases in certain markets in which Segment C operates.



Segment D



The following table presents financial results and key operating
statistics for Segment D for fiscal 2005 and 2004 (in thousands, except medical transports and net/net EMS APC):



|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  | ---- | --
|                                            |  | 2005 |         |   | 2004 |   |         | $ Change |  |   | % Change |  
|Net Revenue                                 |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Medical transportation and related services |  | $    | 115,873 |   |      | $ | 107,305 |          |  | $ | 8,568    |   |  | 8.0  | % 
|Other services                              |  |      | 1,283   |   |      |   | 388     |          |  |   | 895      |   |  | #    |   
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Total net revenue                           |  | $    | 117,156 |   |      | $ | 107,693 |          |  | $ | 9,463    |   |  | 8.8  | % 
|                                            |  |      |         |   |      |   |         |          |  |   |          |   |  |      |   
|Segment profit                              |  | $    | 5,605   |   |      | $ | 3,351   |          |  | $ | 2,254    |   |  | 67.3 | % 
|Operating margin                            |  |      | 4.8     | % |      |   | 3.1     | %        |  |   |          |   |  |      |   
|Medical transports                          |  |      | 235,501 |   |      |   | 221,774 |          |  |   | 13,727   |   |  | 6.2  | % 
|Net/net EMS APC                             |  | $    | 296     |   |      | $ | 298     |          |  | $ | (2       | ) |  | (0.7 | %)

---

#Variances
over 100% not displayed.



The increase in Segment Ds net revenue is
primarily due to 6.2 percent growth in the number of transports and higher revenue from master contracts with hospitals and healthcare facilities. Our new service area in Tacoma, Washington resulted in 5,500 additional transports and contributed to
higher net revenue in fiscal 2005. The increase in other services revenue is primarily due to consulting fees recognized during fiscal 2005.



Payroll-related expense as a percentage of net revenue decreased from 38.7 percent during fiscal 2004 to 37.9 percent during fiscal 2005 primarily due payroll
efficiencies achieved while providing a greater number of transports. Provision for doubtful accounts as a percentage of net revenue increased from 27.7 percent during fiscal 2004 to 28.5 percent during fiscal 2005 primarily due to rate increases
and a change in payer mix in certain markets. Other operating expenses as a percentage of revenue decreased from 27.6 percent during fiscal 2004 to 26.0 percent during fiscal 2005 primarily driven by a $1.3 million decrease in general liability
insurance costs and decreases in other miscellaneous operating costs, none of which were individually significant. This was partially offset by a $0.9 million increase in reimbursements to local ambulance companies that provide services to patients
covered under capitated contracts with certain of our hospital customers and a $0.4 million increase in fuel costs.



Critical Accounting Policies



Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States. The preparation of our financial statements requires management to make estimates and judgments that



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affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, general liability and workers compensation claim reserves and deferred tax asset recoverability. We base our estimates on historical
experience and various assumptions we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.



We have identified the following accounting policies as critical to understanding our results of operations. The discussion below is not intended to represent a comprehensive list of our accounting policies. For a detailed discussion on the
application of these and other accounting policies, see Note 1 to our consolidated financial statements.



Medical Transportation and Related Services Revenue Recognition



Medical transportation and related services fees are recognized when services are provided and are recorded net of discounts applicable to Medicare, Medicaid and other third-party payers. Because of the length of the
collection cycle with respect to medical transportation and related services fees, it is necessary to estimate the amount of these discounts at the time revenue is recognized. The collectibility of these fees is analyzed using historical collection
experience within each service area. Using collection data resident in our billing system, we estimate the percentage of gross medical transportation and related services fees that will not be collected and record provisions for both discounts and
doubtful accounts. The portion of the provision allocated to discounts is based on historical write-offs relating to such discounts as a percentage of the related gross revenue recognized for each service area. The ratio is then applied to current
period gross medical transportation and related services fees to determine the portion of the provision that will be recorded as a reduction in revenue. The remaining amount of the provision is classified as provision for doubtful accounts. If the
historical data used to calculate these estimates does not properly reflect the ultimate collectibility of the current revenue stream, revenue could be overstated or understated. Discounts applicable to Medicare, Medicaid and other third-party
payers related to continuing operations, which are reflected as a reduction of medical transportation and related services revenue, totaled $249.7 million, $214.5 million and $167.3 million for fiscal 2006, 2005 and 2004, respectively. As a
percentage of gross medical transportation and related services revenue, contractual discounts were 35.3 percent, 34.0 percent and 30.3 percent for fiscal 2006, 2005 and 2004, respectively.



Based on the allocation of provisions between discounts and doubtful accounts, a one percent
change in our estimated collection percentage would change net revenue by $5.1 million for fiscal 2006.



Provision for Doubtful Accounts for Medical Transportation Revenue



As discussed above, discounts applicable to Medicare, Medicaid and other third-party payers are recorded as reductions of gross revenue. We also estimate provisions related to the potential uncollectibility of amounts
billed to other payers based on historical collection data and historical write-off activity within each service area. The provision for doubtful accounts can be affected by a variety of factors, including the number of patients we transport that do
not pay us for the medical services we provide, a sustained disruption in collections, and, the quality of our billing documentation and procedures. The provision for doubtful accounts percentage that is applied to gross medical transportation and
related services fee revenue is calculated as the difference between the total expected collection percentage less contractual discounts described above. If historical data used to calculate these estimates do not properly reflect the ultimate
collectibility of the current revenue stream, the provision for doubtful accounts may be overstated or understated. The provision for doubtful accounts on medical transportation and related services revenue from continuing operations totaled $98.9
million, $82.0 million and $80.0 million for fiscal 2006, 2005 and 2004, respectively. The provision for doubtful accounts as a percentage of net medical transportation and related services fees was 21.6 percent, 19.8 percent and 20.9 percent for
fiscal 2006, 2005 and 2004, respectively.



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Based on the allocation of provisions between discounts and doubtful accounts, a one percent change in our estimated
collections percentage would change the provision for doubtful accounts by $2.0 million for fiscal 2006.



Insurance Claim Reserves



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



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



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



Reserves related to workers compensation claims totaled $12.6 million and $12.8 million at June 30, 2006 and 2005, respectively. Reserves related to general liability claims totaled $19.5 million and $21.6
million at June 30, 2006 and 2005, respectively.



Deferred Tax Assets
and Liabilities



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



Asset Impairment



We review our property and equipment for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable by comparing the carrying amount of such assets to the
estimated undiscounted future cash flows associated with them. In cases where the estimated undiscounted cash flows are less than the related carrying amount, an impairment loss is recognized for the amount by which the



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carrying amount exceeds the fair value of the assets. The fair value is determined based on the present value of estimated future cash flows using a discount
rate commensurate with the risks involved.



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



Liquidity and Capital Resources



Our liquidity needs are primarily to service long-term debt, working capital requirements,
capital expenditures and business development activities. Our ability to generate cash from operating activities is subject to, among other things, our operating performance as well as general economic, financial, competitive, legislative,
regulatory and other conditions, some of which may be beyond our control.



We
believe that cash flow from operations coupled with existing cash balances and funds available through our $20.0 million Revolving Credit Facility and $45.0 million Letter of Credit Facility will be adequate to fund our operating and capital needs
through June 30, 2007. To the extent that actual results or events differ from our financial projections or business plans, our liquidity may be adversely impacted.



Cash Flow



Throughout the year, we experience significant periodic outflows of cash for debt service, capital expenditures, workers compensation and general liability insurance
premium deposits, 401(k) matching contributions and management bonuses. These outflows include $6.2 million in semi-annual interest payments on our 9.875% Senior Subordinated Notes payable on September 15 and March 15, as well as estimated
quarterly interest payments on our Term Loan B of approximately $2.0 million.



Deposits on our annual workers compensation and general liability insurance programs are typically paid in the fourth quarter of the fiscal year. These deposits totaled $2.6 million and $5.8 million in fiscal 2006 and 2005,
respectively. The decrease in our insurance deposits was primarily due to a delay in funding our excess general liability program negotiated and effective June 2006. In May 2006, Reliance Insurance Company returned $1.2 million of cash collateral
representing the remaining balance of our workers compensation cash insurance deposits held by this carrier, and in May 2006, we received $4.4 million of refunds related to our retrospective workers compensation policy for the policy
year ended April 30, 2005 in the third and fourth quarter, respectively.



During fiscal 2006, we made unscheduled principal payments on our Term Loan B totaling $21.0 million, made payments totaling $16.2 million for capital expenditures, made payments under the 2005 Management Incentive Program of $4.0 million
and funded the calendar 2004 employer match 401(k) liability of $1.6 million. The Term Loan B unscheduled principal payments discussed above satisfy the excess cash flow sweep requirement under the Term Loan B facility as of September 2006.



During fiscal 2005, we made a $7.0 million unscheduled principal payment on
our Term Loan B which was applied to the 1 percent annual principal payment requirement; therefore, no principal payments are required until maturity in March 2011. Additionally, we made a one-time payment of $1.5 million to our CEO under the



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terms of his employment agreement, paid bonuses to certain members of management totaling $1.8 million associated with the refinancing of our debt in fiscal
2005 and paid bonuses of $1.35 million each to the CEO and CFO during fiscal 2005 related to the successful completion of operational goals contemplated in the debt refinancing.



The table below summarizes cash flow information for fiscal 2006, 2005 and 2004 (in thousands):



|                                          |  |                      |         |   |      |   |         |      |  |   |        |  
|----------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                          |  | Years Ended June 30, |        
|                                          |  | 2006                 |         |   | 2005 |   |         | 2004 | 
|Net cash provided by operating activities |  | $                    | 27,097  |   |      | $ | 24,855  |      |  | $ | 14,501 |  
|Net cash used in investing activities     |  |                      | (20,569 | ) |      |   | (12,372 | )    |  |   | (8,421 | )
|Net cash used in financing activities     |  |                      | (21,175 | ) |      |   | (11,167 | )    |  |   | (2,269 | )



Operating Activities



Net cash provided by operating activities totaled $27.1 million in
fiscal 2006 compared with $24.9 million in fiscal 2005. The $2.2 million or 8.8% increase is primarily attributable to the net impact of an $84.8 million decrease in net income and a $15.0 million increase in net operating assets offset by a $102.0
million increase in non-cash charges. The decrease in net income is primarily attributable to the recognition of $83.9 million of deferred tax benefits in fiscal 2005 due to managements determination that the related deferred tax assets,
primarily those relating to the Companys net operating loss carryovers, would be realized in the future. The increase in net operating assets is primarily attributable to an increase in accounts receivable due to growth in medical
transportation revenue and slowdown in collections from patients covered by certain forms of government insurance offset by reductions in amounts on deposit with the Companys insurers. The increase in non-cash expenses is primarily
attributable to the recognition in fiscal 2005 of the previously mentioned deferred tax benefits, an increase in the provision for doubtful accounts caused by the previously mentioned growth in medical transportation revenue and lengthening of the
collection cycle and the increase in non-cash interest accrued on the Companys 12.75% Senior Discount Notes during fiscal 2006 which were issued in March 2005 offset by the absence in fiscal 2006 of the non-cash portion of the debt
extinguishment charge recognized in fiscal 2005 and the classification of tax benefits from stock option exercises in operating activities in fiscal 2005; as a result of the adoption of SFAS 123(R) effective July 1, 2005, such tax benefits are now
classified within financing activities.



We had working capital of $45.0
million at June 30, 2006, including cash, cash equivalents and short-term investments of $9.2 million, compared to working capital of $44.0 million, including cash and cash equivalents of $17.7 million, at June 30, 2005. The increase in
working capital as of June 30, 2006 is primarily related to higher net accounts receivable combined with lower accrued liabilities partially offset by lower cash balances related to unscheduled principal payments made during the year.



Net cash provided by operating activities was higher in fiscal 2005 than
fiscal 2004, as net income in 2005 included the accretion of our 12.75% Senior Discount Notes and the related amortization of deferred financing costs which represent non-cash interest expense that is included in net income but does not require cash
payments during the current period and $5.7 million related to the loss on early extinguishment of debt discussed in the refinancing activities section below. In addition, net cash was provided by fluctuations in other operating assets and
liabilities. In the normal course of business, these accounts can vary significantly due to the amount and timing of various payments.



Investing Activities



Cash used in investing activities includes the net purchase of short-term investments, capital expenditures and proceeds from the sale of property and equipment. During
fiscal 2006, we began investing excess funds in highly liquid, short-term auction rate securities with net purchases totaling $6.2 million during the period. We had



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capital expenditures totaling $16.2 million and $12.5 million for fiscal 2006 and 2005, respectively. The $3.7 million increase in current year capital
expenditures is primarily due to entry into the Salt Lake City, Utah market. Additionally, we received proceeds from the sale of real estate of $1.6 million primarily due to the sale of real estate in Arizona.



We had capital expenditures totaling $12.5 million and $8.6 million for the years ended
June 30, 2005 and 2004, respectively. The $3.9 million increase in fiscal 2005 was comprised of $2.6 million related to purchases of additional ambulances and related equipment and $0.6 million related to the purchase of fire trucks and related
equipment. Ambulances purchased to serve the new Tacoma, Washington and Salem, Oregon 911 contracts comprised approximately $2.0 million of these expenditures.



Financing Activities



Financing activities include the issuance and repayment of debt, tax benefit from the exercise of options, proceeds from the issuance of common stock, minority
shareholder distributions and cash paid for debt issuance costs. During fiscal 2006, we made unscheduled principal payments on our Term Loan B totaling $21.0 million. We anticipate annual interest savings of approximately $1.6 million as a result of
these payments. Additionally, we made $0.3 million in distributions to the City of San Diego, the minority shareholder in our medical services joint venture. The reduction in current year stock option exercises contributed to a $2.3 million decrease
in cash provided by the issuance of common stock, which was offset by $0.9 million of tax benefits from the exercise of such options; prior to the adoption of SFAS 123(R), such amounts were included in net cash provided by operating activities.



During fiscal 2005, cash used in financing activities increased compared to
fiscal 2004 primarily due to a $7.0 million unscheduled principal payment on our Term Loan B. We had repayments of our prior Senior Notes and prior credit facility totaling $302.6 million offset by net proceeds of $310.2 million received in
connection with our 2005 refinancing transaction. These net proceeds are comprised of $125.0 million from our Senior Subordinated Notes offering, $50.2 million from our Senior Discount Notes offering and $135.0 million under our 2005 Credit
Facility. In addition, we paid $13.5 million in costs associated with securing the new debt which have been capitalized and will be amortized to interest expense over the term of the debt. See further discussion under Refinancing Activities below.
Also, increased stock option exercises during fiscal 2005 contributed to a $2.6 million increase in cash provided by the issuance of common stock.



Fiscal 2005 Refinancing Activities



During March 2005, we completed a refinancing transaction whereby our newly formed wholly owned subsidiary, Rural/Metro Operating Company, LLC (Rural/Metro
LLC), entered into new senior secured credit facilities (collectively, the 2005 Credit Facility) in an aggregate amount of up to $190.0 million, comprised of a $135.0 million Term Loan B facility due March 2011 (the Term Loan
B), a $20.0 million revolving credit facility due March 2010 (the Revolving Credit Facility) and a $35.0 million prefunded letter of credit facility (the Letter of Credit Facility). In addition, Rural/Metro LLC and its
newly formed wholly owned subsidiary, Rural/Metro (Delaware) Inc. (Rural/Metro Inc.) issued $125.0 million aggregate principal amount 9.875% senior subordinated notes due 2015 (the Senior Subordinated Notes) and we issued
$93.5 million aggregate principal amount at maturity (gross proceeds of $50.2 million) 12.75% senior discount notes due 2016 (the Senior Discount Notes). The Senior Subordinated Notes and the Senior Discount Notes were sold in private
placement transactions and have been subsequently registered under the Securities Act of 1933, as amended.



During fiscal 2005, net proceeds from our March 2005 refinancing transaction were used to repay approximately $302.6 million of existing indebtedness. In connection therewith, we recorded $8.2 million of debt
extinguishment costs in fiscal 2005. These costs included non-cash charges of $5.6 million related to the write-off of debt issuance costs associated with the retired debt and $0.1 million related to unamortized discounts as well as cash redemption
premiums of $2.5 million.



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Credit Facility Amendments



Effective June 30, 2005, the Company executed an amendment to the 2005 Credit Facility (Amendment No. 1) whereby the
definition of the term Fixed Charges was modified to exclude unscheduled principal payments. Additionally, the limitation on capital expenditures for fiscal year 2005 was increased from $12.25 million to $13.25 million.



On December 27, 2005, we amended certain terms, conditions and covenants contained in
our 2005 Credit Facility (Amendment No. 2). Specifically, Amendment No. 2 permits us to use net proceeds from the issuance of qualified equity to repurchase our 12.75% Senior Discount Notes due March 2016 (the Senior
Discount Notes) issued by Rural/Metro Corporation and/or our 9.875% Senior Subordinated Notes due March 2015 (the Senior Subordinated Notes) issued by Rural/Metro LLC and its subsidiary, Rural/Metro (Delaware) Inc. (collectively
referred to as the Senior Subordinated Notes Issuers), and further allows us to use up to $10.0 million of cash on hand to purchase any remaining Senior Discount Notes in their entirety. Following any redemption of the Senior Discount
Notes, our total leverage ratio may not exceed 4.0 to 1.0.



In addition,
Amendment No. 2 modified the existing covenant regarding permitted acquisitions by increasing the aggregate limit for acquisitions to $40.0 million and the individual limit for permitted acquisitions to $10.0 million, subject to an exception to
allow us flexibility to exercise an existing option to acquire a medical transportation services entity in Las Vegas, Nevada within the next two years. The purchase option first becomes exercisable in 2006 for a one-year period at a purchase price
that is the greater of $12.0 million or 6.9 times the entitys EBITDA for the 12-month period preceding the purchase date. Amendment No. 2 also modified certain other 2005 Credit facility covenants including an increase in the permitted
level of annual capital expenditures.



On May 5, 2006, we amended certain
terms and conditions contained in our 2005 Credit Facility (Amendment No. 3). Specifically, Amendment No. 3 reduced the interest rate payable on our Term Loan B from LIBOR plus 2.50 percent to LIBOR plus 2.25 percent.
Additionally, Amendment No. 3 reduced the interest rate payable on our Letter of Credit Facility from 2.50 percent to 2.25 percent. As permitted under the original Credit Facility Agreement, we also expanded our Letter of Credit Facility from
$35.0 million to $45.0 million. We anticipate that these modifications will result in annual interest savings of approximately $0.4 million.



Debt Covenants



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



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



We were in compliance with all of our covenants under our 2005 Credit Facility at June 30, 2006.



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|                                   |  |                             |                   |                                    |                  |                          |               |        |              |        |  |                
|---------------------------------- |  | --------------------------- | ----------------- | ---------------------------------- | ---------------- | ------------------------ | ------------- | ------ | ------------ | ------ |  | ---------------
|Financial Covenant                 |  | Level Specifiedin Agreement |                   | Level Achieved forSpecified Period |                  | Levels to be Achieved at
|                                   |  |                             | September 30,2006 |                                    | December 31,2006 |                          | March 31,2007 |        | June 30,2007
|Debt leverage ratio                |  | < 5.25                      |                   | 4.19                               |                  | < 4.50                   |               | < 4.25 |              | < 4.25 |  | < 4.00         
|Interest expense coverage ratio    |  | > 2.25                      |                   | 2.32                               |                  | > 2.25                   |               | > 2.25 |              | > 2.50 |  | > 2.50         
|Fixed charge coverage ratio        |  | > 1.10                      |                   | 1.29                               |                  | > 1.15                   |               | > 1.15 |              | > 1.20 |  | > 1.20         
|Maintenance capital expenditure(1) |  | < $20.0 million             |                   | $14.5 million                      |                  | N/A                      |               | N/A    |              | N/A    |  | < $22.0 million
|New business capital expenditure   |  | < $4.0 million              |                   | $1.7 million                       |                  | N/A                      |               | N/A    |              | N/A    |  | < $4.0 million 

---

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



Contractual Obligations and Other Commitments



We have certain contractual obligations related to our debt instruments and lease obligations that come due at various times over the
periods presented below. In addition we have other commitments in the form of standby letters of credit and surety bonds. The following table illustrates the expiration of our contractual obligations as well as other commitments as of June 30,
2006 (in thousands):



|                                                |  |                                           |         |               |   |           |  |           |        |              |   |         |  |   |        
|----------------------------------------------- |  | ----------------------------------------- | ------- | ------------- | - | --------- |  | --------- | ------ | ------------ | - | ------- |  | - | -------
|                                                |  | Payments Due By Period                   
|Contractual Obligations                         |  | Total                                     |         | 1 Yearor less |   | 2-3 Years |  | 4-5 Years |        | After5 Years
|12.75% Senior Discount Notes due March 2016     |  | $                                         | 93,500  |               | $ |          |  | $         |       |              | $ |        |  | $ | 93,500 
|9.875% Senior Subordinated Notes due March 2015 |  |                                           | 125,000 |               |   |          |  |           |       |              |   |        |  |   | 125,000
|Senior Secured Term Loan B due March 2011       |  |                                           | 107,000 |               |   |          |  |           |       |              |   | 107,000 |  |   |       
|Interest payments                               |  |                                           | 219,933 |               |   | 21,428    |  |           | 42,856 |              |   | 38,861  |  |   | 116,788
|Purchase obligations                            |  |                                           | 10,563  |               |   | 7,424     |  |           | 2,365  |              |   | 774     |  |   |       
|Operating leases                                |  |                                           | 64,954  |               |   | 9,594     |  |           | 16,866 |              |   | 13,265  |  |   | 25,229 
|Other debt obligations                          |  |                                           | 204     |               |   | 37        |  |           | 82     |              |   | 44      |  |   | 41     
|                                                |  |                                           |         |               |   |           |  |           |        |              |   |         |  |   |        
|Total contractual cash obligations              |  | $                                         | 621,154 |               | $ | 38,483    |  | $         | 62,169 |              | $ | 159,944 |  | $ | 360,558
|                                                |  |                                           |         |               |   |           |  |           |        |              |   |         |  |   |        
|                                                | 
|Other Commitments                               |  | Amount of Commitment Expiration By Period
|Letters of Credit                               |  | $                                         | 39,863  |               | $ | 39,863    |  | $         |       |              | $ |        |  | $ |       
|                                                |  |                                           |         |               |   |           |  |           |        |              |   |         |  |   |        
|Surety bonds                                    |  | $                                         | 8,556   |               | $ | 8,556     |  | $         |       |              | $ |        |  | $ |       
|                                                |  |                                           |         |               |   |           |  |           |        |              |   |         |  |   |        



In the table above, interest payments
have been calculated using the following interest assumptions; Senior Discount Notes at 12.75% per year beginning in 2010, Senior Subordinated Notes at 9.875% per year, $97.0 million of the Term Loan B at 7.50% per year, $10.0 million
of the Term Loan B at 7.40% per year, Revolving Credit Facility commitment fee at 0.50% per year, Letter of Credit participation fee at 2.65% per year and Letter of Credit fronting fee at 0.125% per year.



As discussed in Note 13 to the consolidated financial statements, we make annual
contributions to our defined benefit pension plan as determined to be required by the plans independent actuary. We expect to contribute $2.2 million to our defined benefit pension plan during fiscal 2007. We are currently unable to estimate
our expected future contributions in excess of one year.



Additionally, as
discussed in Note 8 to the consolidated financial statements, we are subject to accident, injury and professional liability claims as a result of the nature of our business and the day-to-day operation of our vehicle fleet. The related future claims
payments are estimated on a semi-annual basis by our independent actuaries. Actuarial projected loss payments have been determined to be $7.6 million during fiscal 2007, $5.2 million during fiscal 2008, $3.4 million during fiscal 2009 and $6.3
million thereafter.



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EBITDA



EBITDA is a key indicator that management uses to evaluate our operating performance. While EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be considered as an indicator of operating performance or an alternative to cash flow as a measure of liquidity, we believe this measure is useful to investors in assessing our ability to meet
our future debt service, capital expenditure and working capital requirements. This calculation may differ in method of calculation from similarly titled measures used by other companies. The following table sets forth our EBITDA for the fiscal
years ended June 30, 2006, 2005 and 2004, as well as a reconciliation to cash provided by operating activities, the most directly comparable financial measure under generally accepted accounting principles (in thousands):



|                                                         |  |                      |          |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | -------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | Years Ended June 30, |         
|                                                         |  | 2006                 |          |   | 2005 |   |         | 2004 | 
|Net income                                               |  | $                    | 3,517    |   |      | $ | 88,331  |      |  | $ | 6,211   |  
|Add back:                                                |  |                      |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                            |  |                      | 12,412   |   |      |   | 11,632  |      |  |   | 12,256  |  
|Interest expense                                         |  |                      | 31,025   |   |      |   | 29,567  |      |  |   | 29,243  |  
|Interest income                                          |  |                      | (548     | ) |      |   | (298    | )    |  |   | (97     | )
|Income tax (benefit) provision                           |  |                      | 7,767    |   |      |   | (81,674 | )    |  |   | 311     |  
|                                                         |  |                      |          |   |      |   |         |      |  |   |         |  
|EBITDA                                                   |  |                      | 54,173   |   |      |   | 47,558  |      |  |   | 47,924  |  
|                                                         |  |                      |         
|Increase (decrease):                                     |  |                      |          |   |      |   |         |      |  |   |         |  
|Interest expense                                         |  |                      | (31,025  | ) |      |   | (29,567 | )    |  |   | (29,243 | )
|Interest income                                          |  |                      | 548      |   |      |   | 298     |      |  |   | 97      |  
|Income tax benefit (provision)                           |  |                      | (7,767   | ) |      |   | 81,674  |      |  |   | (311    | )
|Provision for doubtful accounts                          |  |                      | 105,403  |   |      |   | 88,030  |      |  |   | 91,477  |  
|Non-cash adjustments to insurance claims reserves        |  |                      | (8,440   | ) |      |   | (6,725  | )    |  |   | (722    | )
|Accretion of 12.75% Senior Discount Notes                |  |                      | 6,895    |   |      |   | 2,066   |      |  |   |        |  
|Deferred income taxes                                    |  |                      | 5,893    |   |      |   | (84,155 | )    |  |   |        |  
|Amortization of deferred financing costs                 |  |                      | 2,367    |   |      |   | 2,604   |      |  |   | 2,753   |  
|(Gain) loss on sale of property and equipment            |  |                      | (1,412   | ) |      |   | 454     |      |  |   | 39      |  
|Earnings (losses) of minority shareholder                |  |                      | 759      |   |      |   | 102     |      |  |   | (475    | )
|Stock based compensation                                 |  |                      | 28       |   |      |   |        |      |  |   |        |  
|Non-cash portion of loss on early extinguishment of debt |  |                      |         |   |      |   | 5,668   |      |  |   |        |  
|Tax benefit from the exercise of stock options           |  |                      |         |   |      |   | 2,202   |      |  |   |        |  
|Amortization of debt discount                            |  |                      |         |   |      |   | 17      |      |  |   | 26      |  
|Changes in operating assets and liabilities              |  |                      | (100,325 | ) |      |   | (85,371 | )    |  |   | (97,064 | )
|                                                         |  |                      |          |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                |  | $                    | 27,097   |   |      | $ | 24,855  |      |  | $ | 14,501  |  
|                                                         |  |                      |          |   |      |   |         |      |  |   |         |  



Fiscal 2006 consolidated EBITDA
increased over fiscal 2005 by $6.6 million due to the negative impact of an $8.2 million loss on early extinguishment of debt in fiscal 2005. Additionally, a gain on the sale of real estate located in Arizona contributed $1.3 million to EBITDA in
fiscal 2006.



For fiscal 2005, consolidated EBITDA of $47.6 million decreased
$0.3 million, from $47.9 million in fiscal 2004. The decrease can be primarily attributed to the loss on early extinguishment of debt of $8.2 million, of which $5.7 million was non-cash.



Insurance Programs



Many of our operational contracts, as well as laws in certain of the areas where we operate, require that we carry specified amounts of insurance coverage. Additionally,
in the ordinary course of our business, we are subject to



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accident, injury and professional liability claims as a result of the nature of our business and the day-to-day operation of our vehicle fleet. In order to
minimize our risk of exposure, and to comply with such legal and contractual requirements, we carry a broad range of insurance policies, including comprehensive general liability, automobile, property damage, professional, workers compensation
and other lines of coverage. We typically renew each of these policies annually and purchase limits of coverage at levels we believe are appropriate, taking into account historical and projected claim trends, reasonable protection of our assets and
operations and the economic conditions in the insurance market. Depending upon the specific line of coverage, the total limits of insurance maintained by us may be achieved through a combination of primary policies, excess policies and
self-insurance. See Risk Factors  Claims against us could exceed our insurance coverage and we may not have coverage for certain claims.



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



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



In prior years, certain insurers required us to deposit cash into designated loss funds in
order to fund claim payments within our retention limits. Total cash deposits relating to our insurance programs were $3.8 million and $11.1 million at June 30, 2006 and 2005, respectively. As of June 30, 2005, we replaced collateral
previously held by the insurers with letters of credit in support of our fiscal 2006 policies which began on May 1, 2005. Letters of credit in support of our insurance programs issued under our Credit Facility discussed in Note 9 totaled $39.5
million and $32.8 million at June 30, 2006 and 2005, respectively.



General Liability



We have historically maintained
insurance policies for comprehensive general liability, automobile liability and professional liability. Throughout this report, these three types of policies are referred to collectively as the general liability policies. These policies
are typically renewed annually. We engage independent actuaries to assist us with our evaluation of the adequacy of our general liability claim reserves. If the ultimate development of these claims is significantly different than has been estimated,
the reserves for general liability claims could be overstated or understated. See Risk Factors  Our claim reserves may prove inadequate.



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A summary of activity in our general liability claim reserves, the current portion of which is included in accrued
liabilities and the non-current portion of which is included in other liabilities on the consolidated balance sheet, is as follows (in thousands):



|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|-------------------------------------------- |  | ------------------ | ------ | - | ------------------------------ | - | ------ | ---------------- |  | - | ------ | -
|                                             |  | GrossClaimReserves |        |   | AccountsReceivableFromInsurers |   |        | NetClaimReserves | 
|Balance June 30, 2003                        |  | $                  | 16,036 |   |                                | $ | 2,101  |                  |  | $ | 13,935 |  
|Provision charged to other operating expense |  |                    | 7,020  |   |                                |   |       |                  |  |   | 7,020  |  
|Claim payments charged against the reserve   |  |                    | (5,219 | ) |                                |   |       |                  |  |   | (5,219 | )
|Increase in estimated recoverable claims     |  |                    | 7,564  |   |                                |   | 7,564  |                  |  |   |       |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|Balance June 30, 2004                        |  |                    | 25,401 |   |                                |   | 9,665  |                  |  |   | 15,736 |  
|Provision charged to other operating expense |  |                    | 3,553  |   |                                |   |       |                  |  |   | 3,553  |  
|Claim payments charged against the reserve   |  |                    | (5,334 | ) |                                |   |       |                  |  |   | (5,334 | )
|Decrease in estimated recoverable claims     |  |                    | (2,014 | ) |                                |   | (2,014 | )                |  |   |       |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|Balance June 30, 2005                        |  |                    | 21,606 |   |                                |   | 7,651  |                  |  |   | 13,955 |  
|Provision charged to other operating expense |  |                    | 3,840  |   |                                |   |       |                  |  |   | 3,840  |  
|Claim payments charged against the reserve   |  |                    | (4,741 | ) |                                |   |       |                  |  |   | (4,741 | )
|Decrease in estimated recoverable claims     |  |                    | (1,159 | ) |                                |   | (1,159 | )                |  |   |       |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|Balance June 30, 2006                        |  | $                  | 19,546 |   |                                | $ | 6,492  |                  |  | $ | 13,054 |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  



Over the past two years we have worked
diligently to close our outstanding general liability claims. We have also worked to minimize future losses through proactive risk management and workplace safety initiatives, including the implementation of Drivecam technology in the ambulance
fleet. The progress towards these initiatives has given rise to favorable historical claims experience, which, in part, resulted in a reduction in our reserves by $2.8 million and $3.4 million for the years ended June 30, 2006 and 2005,
respectively.



Workers Compensation



We have historically maintained insurance policies for workers compensation liability.
We are required by law and by most of our operational contracts to maintain minimum statutory limits of workers compensation insurance. These policies are typically renewed annually. We engage independent actuaries to assist with our
evaluation of the adequacy of our workers compensation claim reserves. If the ultimate development of these claims is significantly different than has been estimated, the reserves for workers compensation claims could be overstated or
understated. See Risk Factors  Our claim reserves may prove inadequate.



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The following is a summary of activity in our workers compensation claim reserves, the current portion of which is
included in accrued liabilities and the non-current portion of which is included in other liabilities on the consolidated balance sheet (in thousands):



|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ------------------------------ | - | ----- | ---------------- |  | - | ------ | -
|                                                   |  | GrossClaimReserves |        |   | AccountsReceivableFromInsurers |   |       | NetClaimReserves | 
|Balance June 30, 2003                              |  | $                  | 11,959 |   |                                | $ | 704   |                  |  | $ | 11,255 |  
|Claim payments charged against the reserve         |  |                    | (3,165 | ) |                                |   |      |                  |  |   | (3,165 | )
|Decrease in estimated recoverable claims           |  |                    | (403   | ) |                                |   | (403  | )                |  |   |       |  
|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  
|Balance June 30, 2004                              |  |                    | 8,391  |   |                                |   | 301   |                  |  |   | 8,090  |  
|Provision charged to payroll and employee benefits |  |                    | 1,415  |   |                                |   |      |                  |  |   | 1,415  |  
|Increase in deposits                               |  |                    | 7,630  |   |                                |   |      |                  |  |   | 7,630  |  
|Retrospective-rated premium refunds                |  |                    | (2,134 | ) |                                |   | 939   |                  |  |   | (3,073 | )
|Claim payments charged against the reserve         |  |                    | (2,533 | ) |                                |   |      |                  |  |   | (2,533 | )
|Decrease in estimated recoverable claims           |  |                    | (17    | ) |                                |   | (17   | )                |  |   |       |  
|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  
|Balance June 30, 2005                              |  |                    | 12,752 |   |                                |   | 1,223 |                  |  |   | 11,529 |  
|Provision charged to payroll and employee benefits |  |                    | 3,869  |   |                                |   |      |                  |  |   | 3,869  |  
|Decrease in deposits                               |  |                    | (1,205 | ) |                                |   |      |                  |  |   | (1,205 | )
|Retrospective-rated premium refunds                |  |                    | (1,272 | ) |                                |   | 807   |                  |  |   | (2,079 | )
|Claim payments charged against the reserve         |  |                    | (1,556 | ) |                                |   |      |                  |  |   | (1,556 | )
|Decrease in estimated recoverable claims           |  |                    | (10    | ) |                                |   | (10   | )                |  |   |       |  
|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  
|Balance June 30, 2006                              |  | $                  | 12,578 |   |                                | $ | 2,020 |                  |  | $ | 10,558 |  
|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  



For annual policy years prior to
May 1, 2002 and subsequent to May 1, 2005, our workers compensation policies include a deductible obligation with no annual aggregate limit. Loss provisions relating to reported claims as well as for claims incurred but not reported
applicable to these policy years are based on currently available information as well as our historical claims experience. Amounts receivable from insurers for losses in excess of our deductible obligation are also recorded.



In each of the policy years ended April 30, 2003, 2004 and 2005, we purchased workers
compensation coverage under retrospectively rated policies whereby the related premiums are subject to adjustment at certain intervals based on subsequent reviews of actual losses incurred as well as payroll amounts. We determined that the policies
for the policy years ended April 30, 2003 and 2004 effectively transferred the risk of loss to the insurer. As a result, the cost applicable to those policy years consisted entirely of the related premium expense. During fiscal 2004, a premium
refund applicable to the policy year ended April 30, 2003 was received in the amount of $1.2 million and was recognized as a reduction of workers compensation expense. Additionally, during fiscal 2005, a payroll audit applicable to the policy
year ended April 30, 2004 was completed and resulted in additional premiums and related workers compensation expense of $0.2 million. Finally, during fiscal 2006 and 2005, we reduced our estimated premium refunds by $1.1 million and $0.9
million, respectively, relating to these policy years based upon an updated loss assessment prepared by our independent actuaries.



With respect to our workers compensation policy for the policy year ended April 30, 2005, we determined that the risk of loss was not effectively transferred to the
insurer. As a result, we recorded a deposit for amounts paid to the insurer during the policy period in excess of the insurers identified premiums along with a corresponding insurance claim reserve. These amounts are periodically revalued as claims
are paid under the policy. During May 2006, we received a partial refund of our deposit in the amount of $4.4 million as a result of our improved claims experience. Such improved claims experience also resulted in a $1.3 million reduction in our
related claim reserves during fiscal 2006. As of June 30, 2006 and 2005, our deposit balances for the retrospective policy year ended April 30, 2005 were $2.5 million and $7.6 million, respectively. At June 30, 2006 and 2005, our
claim reserves for this policy were $3.0 million and $5.5 million, respectively.



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Reliance and Legion



During fiscal years 1992 through 2002, we purchased certain portions of our workers compensation coverage from Reliance Insurance Company and Legion Insurance
Company. See Risk Factors  Two insurance companies with which we have previously done business are in financial distress as well as Note 8 to the consolidated financial statements.



Indemnifications



We are a party to a variety of agreements entered into in the ordinary course of business pursuant to which we may be obligated to indemnify
the other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by us require us to indemnify the other party against losses due to property damage including
environmental contamination, personal injury, failure to comply with applicable laws, our negligence or willful misconduct or breach of representations and warranties and covenants.



Additionally, some of our agreements with customers require us to provide certain assurances related to the performance of our services.
Such assurances, from time to time, obligate us to; (i) pay penalties for failure to meet response times or other requirements, (ii) lease, sell or assign equipment or facilities (either temporarily or permanently) in the event of uncured
material defaults or other certain circumstances, or (iii) provide surety bonds or letters of credit issued in favor of the customer to cover costs resulting, under certain circumstances, from an uncured material default or transition to a new
service provider. With respect to such surety bonds, we are also required to indemnify the surety company for losses paid as a result of any claims made against such bonds.



We provide for indemnification of directors, officers and other persons in accordance with limited liability agreements, certificates of
incorporation, bylaws, articles of association or similar organizational documents, as the case may be. We maintain directors and officers insurance which should enable us to recover a portion of any future amounts paid.



In addition to the above, from time to time we provide standard representations and
warranties to counterparties in contracts in connection with sales of our securities and the engagement of financial advisors and also provide indemnities that protect the counterparties to these contracts in the event they suffer damages as a
result of a breach of such representations and warranties or in certain other circumstances relating to the sale of securities or their engagement by us.



While our future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under
such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made
by us under any of these indemnities have not had a material effect on our business, financial condition, results of operations or cash flows. Additionally, we do not believe that any amounts that we may be required to pay under these indemnities in
the future will be material to our business, financial condition, results of operations or cash flows.



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Quarterly Results



The following table summarizes our unaudited quarterly operating results for each quarter of fiscal 2006 and 2005 (in thousands, except per share amounts). Net revenue
and operating income included in the table relate to our continuing operations and exclude service areas classified as discontinued operations.



|                                                                                      |  |              |         |               |   |         |              |  |   |               |      |  |   |         |    
|------------------------------------------------------------------------------------- |  | ------------ | ------- | ------------- | - | ------- | ------------ |  | - | ------------- | ---- |  | - | ------- | ---
|                                                                                      |  | 2006         |        
|                                                                                      |  | FirstQuarter |         | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |     
|Net revenue                                                                           |  | $            | 134,130 |               | $ | 137,304 |              |  | $ | 137,917       |      |  | $ | 139,150 |    
|Operating income                                                                      |  | $            | 14,211  |               | $ | 13,319  | (a)          |  | $ | 9,615         |      |  | $ | 14,462  | (a)
|Income from continuing operations                                                     |  | $            | 3,190   |               | $ | 3,226   |              |  | $ | 594           |      |  | $ | 2,454   |    
|Income (loss) from discontinued operations                                            |  | $            | 389     |               | $ | (459    | )            |  | $ | (4,636        | )(b) |  | $ | (1,241  | )  
|Net income (loss)                                                                     |  | $            | 3,579   |               | $ | 2,767   |              |  | $ | (4,042        | )    |  | $ | 1,213   |    
|Basic income from continuing operations applicable to common stock per share          |  | $            | 0.13    |               | $ | 0.13    |              |  | $ | 0.02          |      |  | $ | 0.10    |    
|Basic income (loss) per share                                                         |  | $            | 0.15    |               | $ | 0.11    |              |  | $ | (0.16         | )    |  | $ | 0.05    |    
|Diluted income from continuing operations applicable to common stock per share        |  | $            | 0.13    |               | $ | 0.13    |              |  | $ | 0.02          |      |  | $ | 0.10    |    
|Diluted income (loss) per share                                                       |  | $            | 0.14    |               | $ | 0.11    |              |  | $ | (0.16         | )    |  | $ | 0.05    |    
|                                                                                      | 
|                                                                                      |  | 2005         |        
|                                                                                      |  | FirstQuarter |         | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |     
|Net revenue                                                                           |  | $            | 120,976 |               | $ | 121,553 |              |  | $ | 129,081       |      |  | $ | 129,904 |    
|Operating income                                                                      |  | $            | 10,389  |               | $ | 8,930   | (a)          |  | $ | 10,405        |      |  | $ | 8,814   | (a)
|Income (loss) from continuing operations                                              |  | $            | 2,827   |               | $ | 1,555   |              |  | $ | (4,846        | )(c) |  | $ | 85,272  | (d)
|Income (loss) from discontinued operations                                            |  | $            | 1,590   |               | $ | 1,502   |              |  | $ | 1,861         |      |  | $ | (1,430  | )  
|Net income (loss)                                                                     |  | $            | 4,417   |               | $ | 3,057   |              |  | $ | (2,985        | )(c) |  | $ | 83,842  | (d)
|Basic income (loss) from continuing operations applicable to common stock per share   |  | $            | 0.13    |               | $ | 0.07    |              |  | $ | (0.21         | )    |  | $ | 3.63    |    
|Basic income (loss) per share                                                         |  | $            | 0.20    |               | $ | 0.14    |              |  | $ | (0.13         | )    |  | $ | 3.57    |    
|Diluted income (loss) from continuing operations applicable to common stock per share |  | $            | 0.12    |               | $ | 0.06    |              |  | $ | (0.21         | )    |  | $ | 3.42    |    
|Diluted income (loss) per share                                                       |  | $            | 0.19    |               | $ | 0.13    |              |  | $ | (0.13         | )    |  | $ | 3.37    |    

---

|(a) | Operating income for the second quarters of 2006 and 2005 and the fourth quarters of 2006 and 2005 included $2.4 million, $0.4 million, $8.0 million and $6.1 million, respectively,
of non-cash reductions of our insurance claim reserves due to favorable loss experience.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Loss from discontinued operations includes a $2.5 million charge relating to a U.S. government investigation into alleged discounts made in violation of the federal
Anti-Kickback Statute in connection with certain of our contracts that were in effect when we had operations in the State of Texas.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Loss from continuing operations and net loss for the third quarter of 2005 include an $8.2 million loss on early extinguishment of debt.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(d) | Income from continuing operations and net income for the fourth quarter of 2005 include an $83.9 million and an $82.8 million, respectively, reversal of deferred tax asset valuation
allowances.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subsequent Events



On July 25, 2006, we were notified by the Town of Paradise Valley that it desired to
terminate its contract for fire protection services effective June 30, 2007. The Town cited its location in the center of a growing urban area and its desire to transition services to the City of Phoenix Fire Department as primary reasons for
its decision. We currently provide fire protection services on a subscription-fee basis to individual property owners in Paradise Valley. This business generated net revenue of $2.3 million, $1.9 million and $2.0 million in the fiscal years ended
June 30, 2006, 2005 and 2004, respectively.



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|ITEM 7A.Quantitative | and Qualitative Disclosures About Market Risks
|-------------------- | ----------------------------------------------



Our primary exposure to market risk consists of changes in interest rates on our borrowing activities. Under our 2005 Credit Facility, amounts outstanding under Term Loan
B bear interest at LIBOR plus 2.25 percent and amounts drawn under our Revolving Credit Facility bear interest at LIBOR plus 3.25 percent. Based on current amounts outstanding under Term Loan B, a 1 percent increase in the LIBOR rate would increase
our interest expense on an annual basis by approximately $1.1 million. The remainder of our debt is primarily at fixed interest rates. We monitor the risk associated with interest rate changes and may enter into hedging transactions, such as
interest rate swap agreements, to mitigate the related exposure.



|ITEM 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



|                                                                                                                                              |  |   
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                                                                       |  | 70
|Consolidated Balance Sheet as of June 30, 2006 and 2005                                                                                       |  | 72
|Consolidated Statement of Operations for the Years Ended June 30, 2006, 2005 and 2004                                                         |  | 73
|Consolidated Statement of Changes in Stockholders Equity (Deficit) and Comprehensive Income for the Years Ended June 30, 2006, 2005 and 2004 |  | 74
|Consolidated Statement of Cash Flows for the Years Ended June 30, 2006, 2005 and 2004                                                         |  | 75
|Notes to Consolidated Financial Statements                                                                                                    |  | 76



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of Rural/Metro Corporation:



We have completed integrated audits of Rural/Metro Corporations 2006 and 2005 consolidated financial statements and of its internal
control over financial reporting as of June 30, 2006, and an audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.



Consolidated
financial statements



In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in all material respects, the financial position of Rural/Metro Corporation and its subsidiaries at June 30, 2006 and 2005, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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 of financial statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.



Internal control over
financial reporting



Also, in our opinion, managements assessment,
included in Managements Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of June 30, 2006, based on criteria established
in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control  Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit
of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made



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only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



PricewaterhouseCoopers LLP

Phoenix, Arizona

September 21, 2006



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RURAL/METRO CORPORATION



CONSOLIDATED BALANCE SHEET

(in thousands)



|                                                                                                                                                             |  |                |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | -------- | - | ---- | - | -------- | -
|                                                                                                                                                             |  | As of June 30, |         
|                                                                                                                                                             |  | 2006           |          |   | 2005 |  
|ASSETS                                                                                                                                                       |  |                |          |   |      |   |          |  
|Current assets:                                                                                                                                              |  |                |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                    |  | $              | 3,041    |   |      | $ | 17,688   |  
|Short-term investments                                                                                                                                       |  |                | 6,201    |   |      |   |         |  
|Accounts receivable, net                                                                                                                                     |  |                | 83,367   |   |      |   | 71,986   |  
|Inventories                                                                                                                                                  |  |                | 13,135   |   |      |   | 12,743   |  
|Deferred tax assets                                                                                                                                          |  |                | 9,461    |   |      |   | 10,110   |  
|Prepaid expenses and other                                                                                                                                   |  |                | 3,702    |   |      |   | 9,449    |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Total current assets                                                                                                                                         |  |                | 118,907  |   |      |   | 121,976  |  
|Property and equipment, net                                                                                                                                  |  |                | 45,970   |   |      |   | 41,402   |  
|Goodwill                                                                                                                                                     |  |                | 38,362   |   |      |   | 39,344   |  
|Deferred tax assets                                                                                                                                          |  |                | 69,657   |   |      |   | 75,551   |  
|Insurance deposits                                                                                                                                           |  |                | 2,842    |   |      |   | 9,037    |  
|Other assets                                                                                                                                                 |  |                | 23,454   |   |      |   | 26,818   |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Total assets                                                                                                                                                 |  | $              | 299,192  |   |      | $ | 314,128  |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                            |  |                |          |   |      |   |          |  
|Current liabilities:                                                                                                                                         |  |                |          |   |      |   |          |  
|Accounts payable                                                                                                                                             |  | $              | 13,957   |   |      | $ | 14,738   |  
|Accrued liabilities                                                                                                                                          |  |                | 38,594   |   |      |   | 42,327   |  
|Deferred revenue                                                                                                                                             |  |                | 21,342   |   |      |   | 19,429   |  
|Current portion of long-term debt                                                                                                                            |  |                | 37       |   |      |   | 1,497    |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Total current liabilities                                                                                                                                    |  |                | 73,930   |   |      |   | 77,991   |  
|Long-term debt, net of current portion                                                                                                                       |  |                | 291,337  |   |      |   | 305,478  |  
|Other liabilities                                                                                                                                            |  |                | 25,332   |   |      |   | 27,846   |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Total liabilities                                                                                                                                            |  |                | 390,599  |   |      |   | 411,315  |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Minority interest                                                                                                                                            |  |                | 2,065    |   |      |   | 1,456    |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Stockholders equity (deficit):                                                                                                                              |  |                |          |   |      |   |          |  
|Preferred stock, $0.01 par value, 2,000,000 shares authorized, zero shares issued and outstanding at both June 30, 2006 and
2005                             |  |                |         |   |      |   |         |  
|Common stock, $0.01 par value, 40,000,000 shares authorized, 24,495,518 and 24,117,499 shares issued and outstanding at June 30, 2006 and
2005, respectively |  |                | 245      |   |      |   | 241      |  
|Additional paid-in capital                                                                                                                                   |  |                | 153,955  |   |      |   | 152,305  |  
|Treasury stock, 96,246 shares at both June 30, 2006 and 2005                                                                                                 |  |                | (1,239   | ) |      |   | (1,239   | )
|Accumulated deficit                                                                                                                                          |  |                | (246,433 | ) |      |   | (249,950 | )
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Total stockholders equity (deficit)                                                                                                                         |  |                | (93,472  | ) |      |   | (98,643  | )
|                                                                                                                                                             |  |                |          |   |      |   |          |  
|Total liabilities, minority interest and stockholders equity (deficit)                                                                                      |  | $              | 299,192  |   |      | $ | 314,128  |  
|                                                                                                                                                             |  |                |          |   |      |   |          |  



See accompanying notes



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RURAL/METRO CORPORATION



CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share amounts)



|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                 |  | Years Ended June 30, |        
|                                                                                                                 |  | 2006                 |         |   | 2005 |   |         | 2004 | 
|Net revenue                                                                                                      |  | $                    | 548,501 |   |      | $ | 501,514 |      |  | $ | 462,546 |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Operating expenses:                                                                                              |  |                      |         |   |      |   |         |      |  |   |         |  
|Payroll and employee benefits                                                                                    |  |                      | 268,491 |   |      |   | 257,737 |      |  |   | 240,241 |  
|Provision for doubtful accounts                                                                                  |  |                      | 98,929  |   |      |   | 82,016  |      |  |   | 79,996  |  
|Depreciation and amortization                                                                                    |  |                      | 11,197  |   |      |   | 10,608  |      |  |   | 10,471  |  
|Other operating expenses                                                                                         |  |                      | 119,588 |   |      |   | 112,543 |      |  |   | 105,910 |  
|(Gain) loss on sale of assets                                                                                    |  |                      | (1,311  | ) |      |   | 72      |      |  |   | 32      |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                                                         |  |                      | 496,894 |   |      |   | 462,976 |      |  |   | 436,650 |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Operating income                                                                                                 |  |                      | 51,607  |   |      |   | 38,538  |      |  |   | 25,896  |  
|Interest expense                                                                                                 |  |                      | (31,025 | ) |      |   | (29,567 | )    |  |   | (29,243 | )
|Interest income                                                                                                  |  |                      | 548     |   |      |   | 293     |      |  |   | 97      |  
|Loss on early extinguishment of debt                                                                             |  |                      |        |   |      |   | (8,170  | )    |  |   |        |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Income (loss) from continuing operations before income taxes and minority interest                               |  |                      | 21,130  |   |      |   | 1,094   |      |  |   | (3,250  | )
|Income tax (provision) benefit                                                                                   |  |                      | (10,907 | ) |      |   | 83,816  |      |  |   | 225     |  
|Minority interest                                                                                                |  |                      | (759    | ) |      |   | (102    | )    |  |   | 475     |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Income (loss) from continuing operations                                                                         |  |                      | 9,464   |   |      |   | 84,808  |      |  |   | (2,550  | )
|Income (loss) from discontinued operations, net of income taxes                                                  |  |                      | (5,947  | ) |      |   | 3,523   |      |  |   | 8,761   |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                       |  |                      | 3,517   |   |      |   | 88,331  |      |  |   | 6,211   |  
|Less: Net income allocated to redeemable nonconvertible participating preferred stock under the two-class method |  |                      |        |   |      |   |        |      |  |   | (1,262  | )
|Less: Accretion of redeemable nonconvertible participating preferred stock                                       |  |                      |        |   |      |   |        |      |  |   | (6,320  | )
|Add: Credit related to settlement of redeemable nonconvertible participating preferred stock with common stock   |  |                      |        |   |      |   |        |      |  |   | 10,066  |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Net income applicable to common stock                                                                            |  | $                    | 3,517   |   |      | $ | 88,331  |      |  | $ | 8,695   |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Income per share                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Basic                                                                                                           |  |                      |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations applicable to common stock                                                     |  | $                    | 0.39    |   |      | $ | 3.74    |      |  | $ | 0.10    |  
|Income (loss) from discontinued operations applicable to common stock                                            |  |                      | (0.25   | ) |      |   | 0.16    |      |  |   | 0.42    |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                       |  | $                    | 0.14    |   |      | $ | 3.90    |      |  | $ | 0.52    |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                                                         |  |                      |         |   |      |   |         |      |  |   |         |  
|Income (loss) from continuing operations applicable to common stock                                              |  | $                    | 0.38    |   |      | $ | 3.52    |      |  | $ | (0.12   | )
|Income (loss) from discontinued operations applicable to common stock                                            |  |                      | (0.24   | ) |      |   | 0.14    |      |  |   | 0.40    |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                       |  | $                    | 0.14    |   |      | $ | 3.66    |      |  | $ | 0.28    |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Average number of common shares outstandingBasic                                                                |  |                      | 24,359  |   |      |   | 22,674  |      |  |   | 16,645  |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Average number of common shares outstandingDiluted                                                              |  |                      | 24,842  |   |      |   | 24,105  |      |  |   | 21,817  |  
|                                                                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  



See accompanying notes



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RURAL/METRO CORPORATION



CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

AND COMPREHENSIVE INCOME

(in thousands, except share amounts)



|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|---------------------------------------------------------------------------- |  | --------------- |  | ----------- | --- | ------------------------ | - | ------- | ------------- |  | - | ------------------ | - |  | ----- | -------- | - |  | - | -------- | -
|                                                                             |  | Number ofShares |  | CommonStock |     | AdditionalPaid-inCapital |   |         | TreasuryStock |  |   | AccumulatedDeficit |   |  | Total |         
|Balance at June 30, 2003                                                     |  | 16,314,591      |  | $           | 163 |                          | $ | 135,408 |               |  | $ | (1,239             | ) |  | $     | (344,492 | ) |  | $ | (210,160 | )
|Issuance of common stock under the Employee Stock Purchase Plan              |  | 341,430         |  |             | 3   |                          |   | 309     |               |  |   |                   |   |  |       |         |   |  |   | 312      |  
|Issuance of common stock due to options exercised under Stock Option Plans   |  | 278,741         |  |             | 3   |                          |   | 179     |               |  |   |                   |   |  |       |         |   |  |   | 182      |  
|Issuance of common stock upon settlement of redeemable preferred stock       |  | 4,955,278       |  |             | 50  |                          |   | 7,433   |               |  |   |                   |   |  |       |         |   |  |   | 7,483    |  
|Accretion of redeemable preferred stock                                      |  |                 |  |             |    |                          |   | (6,320  | )             |  |   |                   |   |  |       |         |   |  |   | (6,320   | )
|Credit related to settlement of redeemable preferred stock with common stock |  |                 |  |             |    |                          |   | 10,066  |               |  |   |                   |   |  |       |         |   |  |   | 10,066   |  
|Comprehensive income, net of tax:                                            |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Net income                                                                   |  |                 |  |             |    |                          |   |        |               |  |   |                   |   |  |       | 6,211    |   |  |   | 6,211    |  
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Comprehensive income                                                         |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   | 6,211    |  
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Balance at June 30, 2004                                                     |  | 21,890,040      |  |             | 219 |                          |   | 147,075 |               |  |   | (1,239             | ) |  |       | (338,281 | ) |  |   | (192,226 | )
|Issuance of common stock under the Employee Stock Purchase Plan              |  | 67,853          |  |             | 1   |                          |   | 86      |               |  |   |                   |   |  |       |         |   |  |   | 87       |  
|Issuance of common stock due to options exercised under Stock Option Plans   |  | 2,159,606       |  |             | 21  |                          |   | 2,942   |               |  |   |                   |   |  |       |         |   |  |   | 2,963    |  
|Tax benefit from options exercised under Stock Option Plans                  |  |                 |  |             |    |                          |   | 2,202   |               |  |   |                   |   |  |       |         |   |  |   | 2,202    |  
|Comprehensive income, net of tax:                                            |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Net income                                                                   |  |                 |  |             |    |                          |   |        |               |  |   |                   |   |  |       | 88,331   |   |  |   | 88,331   |  
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Comprehensive income                                                         |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   | 88,331   |  
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Balance at June 30, 2005                                                     |  | 24,117,499      |  |             | 241 |                          |   | 152,305 |               |  |   | (1,239             | ) |  |       | (249,950 | ) |  |   | (98,643  | )
|Issuance of common stock due to options exercised under Stock Option Plans   |  | 378,019         |  |             | 4   |                          |   | 727     |               |  |   |                   |   |  |       |         |   |  |   | 731      |  
|Tax benefit from options exercised under Stock Option Plans                  |  |                 |  |             |    |                          |   | 895     |               |  |   |                   |   |  |       |         |   |  |   | 895      |  
|Stock-based compensation expense                                             |  |                 |  |             |    |                          |   | 28      |               |  |   |                   |   |  |       |         |   |  |   | 28       |  
|Comprehensive income, net of tax:                                            |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Net income                                                                   |  |                 |  |             |    |                          |   |        |               |  |   |                   |   |  |       | 3,517    |   |  |   | 3,517    |  
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Comprehensive income                                                         |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   | 3,517    |  
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  
|Balance at June 30, 2006                                                     |  | 24,495,518      |  | $           | 245 |                          | $ | 153,955 |               |  | $ | (1,239             | ) |  | $     | (246,433 | ) |  | $ | (93,472  | )
|                                                                             |  |                 |  |             |     |                          |   |         |               |  |   |                    |   |  |       |          |   |  |   |          |  







See accompanying notes



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RURAL/METRO CORPORATION



CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)



|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                  |  | Years Ended June 30, |         
|                                                                                  |  | 2006                 |          |   | 2005 |   |          | 2004 | 
|Cash flows from operating activities:                                             |  |                      |          |   |      |   |          |      |  |   |         |  
|Net income                                                                        |  | $                    | 3,517    |   |      | $ | 88,331   |      |  | $ | 6,211   |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                      |          |   |      |   |          |      |  |   |         |  
|Provision for doubtful accounts                                                   |  |                      | 105,403  |   |      |   | 88,030   |      |  |   | 91,477  |  
|Depreciation and amortization                                                     |  |                      | 11,430   |   |      |   | 11,630   |      |  |   | 12,256  |  
|Non-cash adjustments to insurance claims reserves                                 |  |                      | (8,440   | ) |      |   | (6,725   | )    |  |   | (722    | )
|Accretion of 12.75% Senior Discount Notes                                         |  |                      | 6,895    |   |      |   | 2,066    |      |  |   |        |  
|Deferred income taxes                                                             |  |                      | 5,893    |   |      |   | (84,155  | )    |  |   |        |  
|Amortization of deferred financing costs                                          |  |                      | 2,367    |   |      |   | 2,604    |      |  |   | 2,753   |  
|(Gain) loss on sale of property and equipment                                     |  |                      | (1,412   | ) |      |   | 454      |      |  |   | 39      |  
|Goodwill impairment                                                               |  |                      | 982      |   |      |   |         |      |  |   |        |  
|Earnings (losses) of minority shareholder                                         |  |                      | 759      |   |      |   | 102      |      |  |   | (475    | )
|Stock based compensation                                                          |  |                      | 28       |   |      |   |         |      |  |   |        |  
|Non-cash portion of loss on early extinguishment of debt                          |  |                      |         |   |      |   | 5,668    |      |  |   |        |  
|Tax benefit from the exercise of stock options                                    |  |                      |         |   |      |   | 2,202    |      |  |   |        |  
|Amortization of debt discount                                                     |  |                      |         |   |      |   | 17       |      |  |   | 26      |  
|Change in assets and liabilities                                                 |  |                      |          |   |      |   |          |      |  |   |         |  
|Accounts receivable                                                               |  |                      | (116,784 | ) |      |   | (94,668  | )    |  |   | (96,397 | )
|Inventories                                                                       |  |                      | (392     | ) |      |   | (1,005   | )    |  |   | (234    | )
|Prepaid expenses and other                                                        |  |                      | 4,245    |   |      |   | (3,049   | )    |  |   | (1,001  | )
|Insurance deposits                                                                |  |                      | 3,744    |   |      |   | (5,311   | )    |  |   | (1,307  | )
|Other assets                                                                      |  |                      | 1,833    |   |      |   | 1,510    |      |  |   | (7,638  | )
|Accounts payable                                                                  |  |                      | (626     | ) |      |   | 750      |      |  |   | 55      |  
|Accrued liabilities                                                               |  |                      | 451      |   |      |   | 3,597    |      |  |   | (14,071 | )
|Deferred revenue                                                                  |  |                      | 1,913    |   |      |   | 1,888    |      |  |   | 1,227   |  
|Other liabilities                                                                 |  |                      | 5,291    |   |      |   | 10,919   |      |  |   | 22,302  |  
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Net cash provided by operating activities                                         |  |                      | 27,097   |   |      |   | 24,855   |      |  |   | 14,501  |  
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Cash flows from investing activities:                                             |  |                      |          |   |      |   |          |      |  |   |         |  
|Purchases of short-term investments                                               |  |                      | (62,351  | ) |      |   |         |      |  |   |        |  
|Sales of short-term investments                                                   |  |                      | 56,150   |   |      |   |         |      |  |   |        |  
|Capital expenditures                                                              |  |                      | (16,174  | ) |      |   | (12,521  | )    |  |   | (8,646  | )
|Proceeds from the sale of property and equipment                                  |  |                      | 1,806    |   |      |   | 149      |      |  |   | 225     |  
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Net cash used in investing activities                                             |  |                      | (20,569  | ) |      |   | (12,372  | )    |  |   | (8,421  | )
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Cash flows from financing activities:                                             |  |                      |          |   |      |   |          |      |  |   |         |  
|Repayment of debt                                                                 |  |                      | (22,496  | ) |      |   | (310,948 | )    |  |   | (2,248  | )
|Tax benefit from the exercise of stock options                                    |  |                      | 895      |   |      |   |         |      |  |   |        |  
|Issuance of common stock                                                          |  |                      | 731      |   |      |   | 3,050    |      |  |   | 494     |  
|Distributions to minority shareholders                                            |  |                      | (305     | ) |      |   |         |      |  |   |        |  
|Issuance of debt                                                                  |  |                      |         |   |      |   | 310,209  |      |  |   |        |  
|Cash paid for debt issuance costs                                                 |  |                      |         |   |      |   | (13,478  | )    |  |   | (515    | )
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Net cash used in financing activities                                             |  |                      | (21,175  | ) |      |   | (11,167  | )    |  |   | (2,269  | )
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Increase (decrease) in cash and cash equivalents                                  |  |                      | (14,647  | ) |      |   | 1,316    |      |  |   | 3,811   |  
|Cash and cash equivalents, beginning of year                                      |  |                      | 17,688   |   |      |   | 16,372   |      |  |   | 12,561  |  
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Cash and cash equivalents, end of year                                            |  | $                    | 3,041    |   |      | $ | 17,688   |      |  | $ | 16,372  |  
|                                                                                  |  |                      |          |   |      |   |          |      |  |   |         |  
|Supplemental cash flow information:                                               |  |                      |          |   |      |   |          |      |  |   |         |  
|Cash paid for interest                                                            |  | $                    | 21,359   |   |      | $ | 24,408   |      |  | $ | 25,564  |  
|Cash paid for income taxes, net                                                   |  |                      | 607      |   |      |   | 309      |      |  |   | 256     |  



See accompanying notes



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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 leading provider of medical transportation services,
which consist primarily of emergency and non-emergency medical transportation services. These medical transportation services are provided under contracts with governmental entities, hospitals, nursing homes and other healthcare facilities and
organizations. The Company also provides private fire protection and related services on a subscription fee basis to residential and commercial property owners and under long-term contracts with fire districts, industrial sites and airports. These
services consist primarily of fire suppression, fire prevention and first responder medical care.



Principles of Consolidation



The
accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and a majority-owned subsidiary which it controls. All material intercompany accounts and transactions have been eliminated.
Investments in companies that represent less than 20 percent of the related voting stock are carried at cost.



Use of Estimates



The preparation of
financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Significant estimates have been used by management in conjunction with the measurement of discounts applicable to Medicare, Medicaid and other third-party payers, the allowance for
doubtful accounts, the valuation allowance for deferred tax assets, workers compensation and general liability claim reserves, fair values of reporting units for purposes of goodwill impairment testing and future cash flows associated with
long-lived assets. Actual results could differ from these estimates.



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 monitors the amount of credit exposure with any one
institution. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers and their geographical dispersion.



Reclassifications of Financial Information



Certain financial information relating to prior years has been reclassified to conform to the current year presentation.



Net Revenue



Medical transportation and related services revenue includes emergency and non-emergency medical transportation and related services fees as
well as municipal subsidies and subscription fees. Medical transportation and related services fees are recognized as services are provided and are recorded net of estimated discounts applicable to Medicare, Medicaid and other third-party payers.
Such discounts applicable to continuing operations, which totaled $249.7 million, $214.5 million and $167.3 million in fiscal 2006, 2005 and 2004, respectively, are reflected as reductions to revenue in the accompanying consolidated statement of
operations.



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Ambulance subscription fees, which are generally received in advance, are deferred and recognized on a pro rata basis over the term of the subscription
agreement, which is generally one year.



Revenue generated under fire
protection service contracts is recognized over the life of the contract. Subscription fees, which are generally received in advance, are deferred and recognized on a pro rata basis over the term of the subscription agreement, which is generally one
year. Additionally, the Company charges an enrollment fee for new subscribers under its fire protection service contracts. Such fees are deferred and recognized over the estimated customer relationship period of nine years. Other revenue primarily
consists of dispatch, fleet, billing, training and home health care service fees, which are recognized when the services are provided.



Cash and Cash Equivalents



The Company considers all highly liquid financial instruments with original maturities of three months or less when purchased to be cash equivalents. Under the
Companys cash management practices, outstanding checks are netted against cash when there is a sufficient balance of cash available in the Companys bank accounts to cover the outstanding amount and the right of offset exists. Where there
is no right of offset against cash balances and a form of overdraft protection does not exist, outstanding checks are classified as accounts payable within the consolidated balance sheet and the change in the related balances is reflected in
operating activities on the consolidated statement of cash flows.



Overdraft
balances of $1.3 million were included in accounts payable in the Companys consolidated balance sheet at June 30, 2006. There were no overdraft balances at June 30, 2005.



Short-term Investments



The Companys short-term investments consist of taxable auction rate securities totaling $6.2 million at June 30, 2006. In accordance with Statement of
Financial Accounting Standards Board (SFAS) Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, these short-term investments are classified as available-for-sale and recorded at
cost, which approximates fair market value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 7 to 28 days.



Accounts receivable



Accounts receivable represents amounts due from customers and are recorded at the time that
the Companys services are provided. Accounts receivable balances are presented net of an allowance for doubtful accounts which is based on historical collection trends, credit risk assessments applicable to certain types of payers and other
relevant information. A summary of activity in the Companys allowance for doubtful accounts during fiscal 2006, 2005 and 2004 is as follows (in thousands):



|                                                        |  |                |          |   |      |   |         |      |  |   |         |  
|------------------------------------------------------- |  | -------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                        |  | As of June 30, |         
|                                                        |  | 2006           |          |   | 2005 |   |         | 2004 | 
|Balance at beginning of year                            |  | $              | 66,939   |   |      | $ | 59,430  |      |  | $ | 48,422  |  
|Provision for doubtful accountscontinuing operations   |  |                | 98,929   |   |      |   | 82,016  |      |  |   | 79,996  |  
|Provision for doubtful accountsdiscontinued operations |  |                | 6,474    |   |      |   | 6,014   |      |  |   | 11,481  |  
|Write-offs of uncollectible accounts                    |  |                | (101,080 | ) |      |   | (80,521 | )    |  |   | (80,469 | )
|                                                        |  |                |          |   |      |   |         |      |  |   |         |  
|Balance at end of year                                  |  | $              | 71,262   |   |      | $ | 66,939  |      |  | $ | 59,430  |  
|                                                        |  |                |          |   |      |   |         |      |  |   |         |  





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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Inventories



Inventories, consisting primarily of medical and fleet supplies, are recorded at the lower of cost or market with cost determined on a first-in, first-out basis.



Property and Equipment



Property and equipment is carried at cost less 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. Leasehold improvements are capitalized and depreciated using
the straight-line method over the shorter of the contractual lease terms or the estimated useful lives. Maintenance and repairs which do not improve or significantly extend the life of assets are expensed as incurred.



Goodwill



Goodwill represents the excess of the acquisition cost of an acquired company over the estimated fair value of assets acquired and
liabilities assumed. Goodwill is evaluated for impairment annually and whenever events or circumstances make it likely that impairment may have occurred. In determining whether impairment has occurred, the Company uses discounted future cash flows.
The Company performs its annual goodwill impairment test as of the end of its fiscal year. As a result of these tests, no impairment write-downs have been recorded.



Impairment of Other Long-Lived Assets



The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable, by
comparing the carrying amount of such assets to the undiscounted future cash flows associated with them. In cases where the undiscounted future cash flows are less than the related carrying amount, an impairment loss is recognized for the amount by
which the carrying amount exceeds the fair value of the assets. The fair value is determined based on the present value of future cash flows using a discount rate commensurate with the risks involved.



Income Taxes



Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for net
operating loss, capital loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred tax assets for which
realization of the related benefits is unlikely.



Stock Compensation



On July 1,
2005, the Company adopted the fair value recognition provisions of SFAS Statement No. 123 (revised 2004), Share-Based Payment(SFAS 123R) using the modified prospective method. Accordingly, results for prior
periods have not been restated. The Company recognized approximately $28,000 of stock based compensation expense in the statement of operations for fiscal 2006 applicable to unvested stock options as of July 1, 2005. At June 30, 2006,
there was unrecognized stock based compensation expense totaling approximately $6,000 related to unvested awards which will be recognized over the remaining weighted average



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vesting period of 10 months. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and
amortized to expense over the vesting period of the award.



Prior to
July 1, 2005, the Company accounted for stock based compensation under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), and related interpretations. Under APB 25, stock-based compensation expense was not reflected in the consolidated statement of operations for periods prior to July 1, 2005 as all options granted under the
Companys plans had exercise prices equal to the market value of the underlying common stock on the date of grant. The following table illustrates the pro forma effect on net income and income per share for the years ended June 30, 2005
and 2004 as if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123) (in thousands, except per share amounts):



|                                                                                                                                       |  |                      |        |   |      |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | - | ---- | - | ----- | -
|                                                                                                                                       |  | Years Ended June 30, |       
|                                                                                                                                       |  | 2005                 |        |   | 2004 |  
|Net income applicable to common stock                                                                                                  |  | $                    | 88,331 |   |      | $ | 8,695 |  
|Deduct: Stock based employee compensation determined under the fair value method for all awards applicable to common stock, net of
tax |  |                      | (115   | ) |      |   | (621  | )
|                                                                                                                                       |  |                      |        |   |      |   |       |  
|Proforma net income applicable to common stock                                                                                         |  | $                    | 88,216 |   |      | $ | 8,074 |  
|                                                                                                                                       |  |                      |        |   |      |   |       |  
|Income per share:                                                                                                                      |  |                      |        |   |      |   |       |  
|BasicAs reported                                                                                                                      |  | $                    | 3.90   |   |      | $ | 0.52  |  
|                                                                                                                                       |  |                      |        |   |      |   |       |  
|BasicPro forma                                                                                                                        |  | $                    | 3.89   |   |      | $ | 0.49  |  
|                                                                                                                                       |  |                      |        |   |      |   |       |  
|DilutedAs reported                                                                                                                    |  | $                    | 3.66   |   |      | $ | 0.28  |  
|                                                                                                                                       |  |                      |        |   |      |   |       |  
|DilutedPro forma                                                                                                                      |  | $                    | 3.66   |   |      | $ | 0.26  |  
|                                                                                                                                       |  |                      |        |   |      |   |       |  



The Company computed the preceding pro
forma disclosures for its stock option plans and Employee Stock Purchase Plan (ESPP) using the Black-Scholes option pricing model with the following weighted average assumptions:



|                        |  |                      |   |  |        |   |  |        |  
|----------------------- |  | -------------------- | - |  | ------ | - |  | ------ | -
|                        |  | Years Ended June 30, |  
|                        |  | 2005                 |   |  | 2004   |  
|                        |  | Option               |   |  | Option |   |  | ESPP   |  
|Risk-free interest rate |  | 3.79                 | % |  | 1.95   | % |  | 1.18   | %
|Expected dividend yield |  | 0.00                 | % |  | 0.00   | % |  | 0.00   | %
|Expected lives in years |  | 3.68                 |   |  | 1.20   |   |  | 0.5    |  
|Expected volatility     |  | 145.51               | % |  | 137.53 | % |  | 100.00 | %



The total estimated fair value of
options granted during fiscal 2005 and 2004 was $79,000 and $13,000, respectively. These amounts would have been amortized on a straight-line basis over the associated vesting period. There were no options granted during fiscal 2006. Additionally,
the estimated fair value of ESPP share discounts totaled $96,000 for the year ended June 30, 2004. As discussed in Note 13, the ESPP expired on June 30, 2004.



New Accounting Pronouncements



In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its consolidated financial
statements and related disclosures.



(2)    Liquidity



In March 2005, the Company completed a debt refinancing transaction which
is further described in Note 9. The Companys ability to service its long-term debt, working capital requirements, capital expenditures and business development activities will depend on its ability to generate cash from operating activities
which is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory and other conditions, some of which may be beyond its control.



If the Company fails to generate sufficient cash flow from operating activities, it may need
to borrow additional funds or issue additional debt or equity securities to achieve its longer-term business objectives. There can be no assurance that the Company can borrow such funds or issue such debt or equity securities or, if it can, that it
can do so at rates or prices acceptable to the Company. Management believes that cash flow from operating activities coupled with existing cash balances and amounts available under the Companys $20.0 million Revolving Credit Facility and $45.0
million Letter of Credit Facility will be adequate to fund the Companys operating and capital needs as well as enable it to maintain compliance with its various debt agreements through June 30, 2007. To the extent that actual results or
events differ from the Companys financial projections or business plans, its liquidity may be adversely impacted.



|(3) | Property and Equipment
|--- | ----------------------



Property and equipment consists of the following (in thousands):



|                               |  |                |          |   |      |   |          |  
|------------------------------ |  | -------------- | -------- | - | ---- | - | -------- | -
|                               |  | As of June 30, |         
|                               |  | 2006           |          |   | 2005 |  
|Equipment                      |  | $              | 61,717   |   |      | $ | 55,511   |  
|Vehicles                       |  |                | 80,482   |   |      |   | 78,324   |  
|Land and buildings             |  |                | 16,410   |   |      |   | 17,084   |  
|Leasehold improvements         |  |                | 6,316    |   |      |   | 6,239    |  
|                               |  |                |          |   |      |   |          |  
|                               |  |                | 164,925  |   |      |   | 157,158  |  
|Less: Accumulated depreciation |  |                | (118,955 | ) |      |   | (115,756 | )
|                               |  |                |          |   |      |   |          |  
|                               |  | $              | 45,970   |   |      | $ | 41,402   |  
|                               |  |                |          |   |      |   |          |  



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|(4) | Goodwill
|--- | --------



The following table presents changes in the carrying amount of goodwill during fiscal 2006, 2005 and 2004 (in thousands):



|                                            |  |           |        |   |           |   |       |           |  |   |           |   |       |   |     |  |   |        |  
|------------------------------------------- |  | --------- | ------ | - | --------- | - | ----- | --------- |  | - | --------- | - | ----- | - | --- |  | - | ------ | -
|                                            |  | Segment A |        |   | Segment B |   |       | Segment C |  |   | Segment D |   | Total |  
|Balance at June 30, 2003                    |  | $         | 12,823 |   |           | $ | 1,644 |           |  | $ | 26,541    |   |       | $ | 159 |  | $ | 41,167 |  
|Impairment write-down                       |  |           |       |   |           |   |      |           |  |   | (67       | ) |       |   |    |  |   | (67    | )
|                                            |  |           |        |   |           |   |       |           |  |   |           |   |       |   |     |  |   |        |  
|Balance at June 30, 2004                    |  |           | 12,823 |   |           |   | 1,644 |           |  |   | 26,474    |   |       |   | 159 |  |   | 41,100 |  
|Sale of business                            |  |           |       |   |           |   |      |           |  |   | (250      | ) |       |   |    |  |   | (250   | )
|Release of deferred tax valuation allowance |  |           | (355   | ) |           |   |      |           |  |   | (1,151    | ) |       |   |    |  |   | (1,506 | )
|                                            |  |           |        |   |           |   |       |           |  |   |           |   |       |   |     |  |   |        |  
|Balance at June 30, 2005                    |  |           | 12,468 |   |           |   | 1,644 |           |  |   | 25,073    |   |       |   | 159 |  |   | 39,344 |  
|Impairment write-down                       |  |           |       |   |           |   | (982  | )         |  |   |          |   |       |   |    |  |   | (982   | )
|                                            |  |           |        |   |           |   |       |           |  |   |           |   |       |   |     |  |   |        |  
|Balance at June 30, 2006                    |  | $         | 12,468 |   |           | $ | 662   |           |  | $ | 25,073    |   |       | $ | 159 |  | $ | 38,362 |  
|                                            |  |           |        |   |           |   |       |           |  |   |           |   |       |   |     |  |   |        |  



During fiscal 2006, the Company
recorded a goodwill impairment write-down totaling $1.0 million in Segment B as a result of the discontinuation of all medical transportation services in the State of New Jersey.



During fiscal 2005, the Company recorded goodwill reductions totaling $1.5 million as a result of the release of deferred tax asset
valuation allowances attributable to acquired net operating loss carryforwards. The related valuation allowances had been established at the time of acquisition.



During fiscal 2004, the Company entered into an agreement to sell one of the businesses included in Segment C. In connection with this sale,
the Company preformed a related goodwill impairment test and recorded an impairment write-down of $0.1 million. The sale was completed in fiscal 2005 at which time the remaining goodwill of $0.3 million was written-off.



|(5) | Other Assets
|--- | ------------



Other assets consist of the following (in thousands):



|                                               |  |                |        |      |   |       
|---------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                               |  | As of June 30,
|                                               |  | 2006           |        | 2005
|Debt issuance costs (see Note 9)               |  | $              | 10,783 |      | $ | 12,660
|Accounts receivable from insurers (see Note 8) |  |                | 8,512  |      |   | 8,874 
|Deposits                                       |  |                | 1,735  |      |   | 2,071 
|Intangible assets, net                         |  |                | 1,198  |      |   | 1,416 
|Retention bonus                                |  |                | 1,149  |      |   | 1,404 
|Other                                          |  |                | 77     |      |   | 393   
|                                               |  |                |        |      |   |       
|Total other assets                             |  | $              | 23,454 |      | $ | 26,818
|                                               |  |                |        |      |   |       



Intangible assets primarily consist of
non-compete agreements. The changes in the carrying amount of intangible assets are as follows (in thousands):



|                             |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                             |  | 2006 |       |   | 2005 |   |       | 2004 | 
|Balance at beginning of year |  | $    | 1,416 |   |      | $ | 425   |      |  | $ | 1,462 |  
|Additions                    |  |      |      |   |      |   | 1,500 |      |  |   |      |  
|Impairment write-downs       |  |      |      |   |      |   | (346  | )    |  |   | (799  | )
|Amortization                 |  |      | (218  | ) |      |   | (163  | )    |  |   | (238  | )
|                             |  |      |       |   |      |   |       |      |  |   |       |  
|Balance at end of year       |  | $    | 1,198 |   |      | $ | 1,416 |      |  | $ | 425   |  
|                             |  |      |       |   |      |   |       |      |  |   |       |  



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During fiscal 2005, the Company capitalized $1.5 million related to a non-compete agreement with its Chief Executive
Officer (CEO) which is being amortized to payroll and employee benefits on a straight-line basis over the seven year term of the agreement. Additionally, the Company wrote-off $0.3 million related to a non-compete agreement with a former
executive upon resolution of a contractual dispute during fiscal 2005. Such amount is included in depreciation and amortization expense in the consolidated statement of operations.



During fiscal 2004, the Company wrote off the remaining balance of a non-compete agreement in the amount of $0.4 million associated with one
of its discontinued medical transportation and related service areas. Additionally, the Company wrote off the remaining balance of a non-compete agreement for one of its medical transportation and related service areas in the amount of $0.4 million
upon the death of a related individual. This amount is included in depreciation and amortization expense in the consolidated statement of operations.



The following table shows the expected amortization of intangible assets for each of the fiscal years ending June 30 (in thousands):



|           |  |   |      
|---------- |  | - | -----
|2007       |  | $ | 218  
|2008       |  |   | 216  
|2009       |  |   | 215  
|2010       |  |   | 215  
|2011       |  |   | 215  
|Thereafter |  |   | 119  
|           |  |   |      
|           |  | $ | 1,198
|           |  |   |      



Effective January 1, 2004, the
Company entered into an employment agreement with its CEO, which was amended effective January 1, 2005, which expires in December 2010. Under the terms of this agreement, the CEO was paid a retention bonus of $1.5 million which is subject to
repayment should the Company terminate his employment without cause or should the CEO terminate his employment without good reason. The unamortized balance at June 30, 2006 was $1.1 million and is being amortized ratably over the term of the
agreement.



|(6) | Accrued Liabilities
|--- | -------------------



Accrued liabilities consist of the following (in thousands):



|                                                  |  |                |        |      |   |       
|------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                  |  | As of June 30,
|                                                  |  | 2006           |        | 2005
|Accrued employee benefits                         |  | $              | 12,310 |      | $ | 12,261
|Accrued interest                                  |  |                | 6,147  |      |   | 5,743 
|Accrued payroll and taxes                         |  |                | 4,626  |      |   | 11,206
|Workers compensation claim reserves (see Note 8) |  |                | 4,476  |      |   | 4,042 
|General liability claim reserves (see Note 8)     |  |                | 4,027  |      |   | 4,545 
|Other                                             |  |                | 7,008  |      |   | 4,530 
|                                                  |  |                |        |      |   |       
|Total accrued liabilities                         |  | $              | 38,594 |      | $ | 42,327
|                                                  |  |                |        |      |   |       



Accrued payroll and taxes decreased
$6.6 million from June 30, 2005 due to the timing of payroll funding. Other accrued liabilities increased by $2.5 million primarily due to a reserve related to an ongoing government investigation into certain of our former operations in the
State of Texas which is discussed in Note 15.



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|(7) | Other Liabilities
|--- | -----------------



Other liabilities consist of the following (in thousands):



|                                                  |  |                |        |      |   |       
|------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                  |  | As of June 30,
|                                                  |  | 2006           |        | 2005
|General liability claim reserves (see Note 8)     |  | $              | 15,519 |      | $ | 17,061
|Workers compensation claim reserves (see Note 8) |  |                | 8,102  |      |   | 8,710 
|Deferred revenue                                  |  |                | 1,454  |      |   | 1,266 
|Deferred rent                                     |  |                | 257    |      |   | 159   
|Deferred income taxes                             |  |                |       |      |   | 650   
|                                                  |  |                |        |      |   |       
|Total other liabilities                           |  | $              | 25,332 |      | $ | 27,846
|                                                  |  |                |        |      |   |       



|(8) | General Liability and Workers Compensation Programs
|--- | ----------------------------------------------------



Many of the Companys operational contracts, as well as laws in certain of the areas where the Company operates, require that specified amounts of insurance coverage
be maintained. Additionally, in the ordinary course of business, the Company is subject to accident, injury and professional liability claims as a result of the nature of its business and the day-to-day operation of its vehicle fleet. In order to
minimize the risk of exposure, and to comply with such legal and contractual requirements, the Company carries a broad range of insurance policies, including comprehensive general liability, automobile, property damage, professional, workers
compensation and other lines of coverage. The Company typically renews each of these policies annually and purchases limits of coverage at levels management believes are appropriate, taking into account historical and projected claim trends,
reasonable protection of Company assets and operations and the economic conditions in the insurance market. Depending upon the specific line of coverage, the total limits of insurance maintained may be achieved through a combination of primary
policies, excess policies and self-insurance.



The Company retains certain
levels of exposure with respect to its general liability and workers compensation programs and purchases 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 claims, both reported and incurred but not reported, on a gross basis using currently available information as well as its historical claims experience. The Company also recognizes a receivable
from its insurers for amounts expected to be recovered in excess of its retention. The Company regularly evaluates the financial capacity of its insurers to assess the recoverability of the related receivables.



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



In prior years, certain insurers required the Company to deposit cash into designated loss funds in order to fund claim payments within the Companys retention limits. Total cash deposits relating to the
Companys insurance programs totaled $3.8 million and $11.1 million at June 30, 2006 and 2005, respectively. As of June 30, 2005, we replaced collateral previously held by the insurers with letters of credit in support of our fiscal
2006 policies which began on May 1, 2005. Letters of credit in support of the Companys insurance programs issued under the Credit Facility discussed in Note 9 to the consolidated financial statements totaled $39.5 million and $32.8
million at June 30, 2006 and 2005, respectively.



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



General Liability



A summary of activity in the Companys general liability claim reserves, the current portion of which is included in accrued liabilities and the long-term portion of
which is included in other liabilities on the consolidated balance sheet, is as follows (in thousands):



|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|-------------------------------------------- |  | ------------------ | ------ | - | ------------------------------ | - | ------ | ---------------- |  | - | ------ | -
|                                             |  | GrossClaimReserves |        |   | AccountsReceivableFromInsurers |   |        | NetClaimReserves | 
|Balance June 30, 2003                        |  | $                  | 16,036 |   |                                | $ | 2,101  |                  |  | $ | 13,935 |  
|Provision charged to other operating expense |  |                    | 7,020  |   |                                |   |       |                  |  |   | 7,020  |  
|Claim payments charged against the reserve   |  |                    | (5,219 | ) |                                |   |       |                  |  |   | (5,219 | )
|Increase in estimated recoverable claims     |  |                    | 7,564  |   |                                |   | 7,564  |                  |  |   |       |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|Balance June 30, 2004                        |  |                    | 25,401 |   |                                |   | 9,665  |                  |  |   | 15,736 |  
|Provision charged to other operating expense |  |                    | 3,553  |   |                                |   |       |                  |  |   | 3,553  |  
|Claim payments charged against the reserve   |  |                    | (5,334 | ) |                                |   |       |                  |  |   | (5,334 | )
|Decrease in estimated recoverable claims     |  |                    | (2,014 | ) |                                |   | (2,014 | )                |  |   |       |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|Balance June 30, 2005                        |  |                    | 21,606 |   |                                |   | 7,651  |                  |  |   | 13,955 |  
|Provision charged to other operating expense |  |                    | 3,840  |   |                                |   |       |                  |  |   | 3,840  |  
|Claim payments charged against the reserve   |  |                    | (4,741 | ) |                                |   |       |                  |  |   | (4,741 | )
|Decrease in estimated recoverable claims     |  |                    | (1,159 | ) |                                |   | (1,159 | )                |  |   |       |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  
|Balance June 30, 2006                        |  | $                  | 19,546 |   |                                | $ | 6,492  |                  |  | $ | 13,054 |  
|                                             |  |                    |        |   |                                |   |        |                  |  |   |        |  



Over the past two years the Company
has worked diligently to close its outstanding general liability claims. The Company has also worked to minimize future losses through proactive risk management and workplace safety initiatives, including the implementation of Drivecam technology in
the ambulance fleet. The progress towards these initiatives has given rise to favorable historical claims experience, which, in part, resulted in a reduction in the Companys reserves by $2.8 million and $3.4 million for the years ended
June 30, 2006 and 2005, respectively.



Workers Compensation



A summary of activity in the Companys workers compensation
claim reserves, the current portion of which is included in accrued liabilities and the long-term portion of which is included in other liabilities on the consolidated balance sheet, is as follows (in thousands):



|                                                   |  |                    |        |   |                                |   |      |                  |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ------------------------------ | - | ---- | ---------------- |  | - | ------ | -
|                                                   |  | GrossClaimReserves |        |   | AccountsReceivableFromInsurers |   |      | NetClaimReserves | 
|Balance June 30, 2003                              |  | $                  | 11,959 |   |                                | $ | 704  |                  |  | $ | 11,255 |  
|Claim payments charged against the reserve         |  |                    | (3,165 | ) |                                |   |     |                  |  |   | (3,165 | )
|Decrease in estimated recoverable claims           |  |                    | (403   | ) |                                |   | (403 | )                |  |   |       |  
|                                                   |  |                    |        |   |                                |   |      |                  |  |   |        |  
|Balance June 30, 2004                              |  |                    | 8,391  |   |                                |   | 301  |                  |  |   | 8,090  |  
|Provision charged to payroll and employee benefits |  |                    | 1,415  |   |                                |   |     |                  |  |   | 1,415  |  
|Increase in deposits                               |  |                    | 7,630  |   |                                |   |     |                  |  |   | 7,630  |  
|Retrospective-rated premium refunds                |  |                    | (2,134 | ) |                                |   | 939  |                  |  |   | (3,073 | )
|Claim payments charged against the reserve         |  |                    | (2,533 | ) |                                |   |     |                  |  |   | (2,533 | )
|Decrease in estimated recoverable claims           |  |                    | (17    | ) |                                |   | (17  | )                |  |   |       |  
|                                                   |  |                    |        |   |                                |   |      |                  |  |   |        |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ------------------------------ | - | ----- | ---------------- |  | - | ------ | -
|                                                   |  | GrossClaimReserves |        |   | AccountsReceivableFromInsurers |   |       | NetClaimReserves | 
|Balance June 30, 2005                              |  |                    | 12,752 |   |                                |   | 1,223 |                  |  |   | 11,529 |  
|Provision charged to payroll and employee benefits |  |                    | 3,869  |   |                                |   |      |                  |  |   | 3,869  |  
|Decrease in deposits                               |  |                    | (1,205 | ) |                                |   |      |                  |  |   | (1,205 | )
|Retrospective-rated premium refunds                |  |                    | (1,272 | ) |                                |   | 807   |                  |  |   | (2,079 | )
|Claim payments charged against the reserve         |  |                    | (1,556 | ) |                                |   |      |                  |  |   | (1,556 | )
|Decrease in estimated recoverable claims           |  |                    | (10    | ) |                                |   | (10   | )                |  |   |       |  
|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  
|Balance June 30, 2006                              |  | $                  | 12,578 |   |                                | $ | 2,020 |                  |  | $ | 10,558 |  
|                                                   |  |                    |        |   |                                |   |       |                  |  |   |        |  



For annual policy years prior to
May 1, 2002 and subsequent to May 1, 2005, the Companys workers compensation policies include a deductible obligation with no annual aggregate limit. Loss provisions relating to reported claims as well as for claims incurred but not
reported applicable to these policy years are based on currently available information as well as the Companys historical claims experience. Amounts receivable from insurers for losses in excess of the Companys deductible obligation are
also recorded.



In each of the policy years ended April 30, 2003, 2004 and
2005, the Company purchased workers compensation coverage under retrospectively rated policies whereby the related premiums are subject to adjustment at certain intervals based on subsequent review of actual losses incurred as well as payroll
amounts. The Company determined that the policies for the policy years ended April 30, 2003 and 2004 effectively transferred the risk of loss to the insurer. As a result, the cost applicable to those policy years consisted entirely of the
related premium expense. During fiscal 2004, a premium refund applicable to policy year ended April 30, 2003 was received in the amount of $1.2 million and was recognized as a reduction of workers compensation expense. Additionally, during
fiscal 2005, a payroll audit applicable to the policy year ended April 30, 2004 was completed and resulted in additional premiums and related workers compensation expense of $0.2 million. Finally, during fiscal 2006 and 2005, we reduced our
estimated premium refunds by $1.1 million and $0.9 million, respectively, relating to these policy years based upon an updated loss assessment prepared by our independent actuaries.



With respect to its workers compensation policy for the policy year ended April 30, 2005, the Company determined that the risk of loss
was not effectively transferred to the insurer. As a result, the Company recorded a deposit for amounts paid to the insurer during the policy period in excess of the identified premiums along with a corresponding insurance claim reserve. These
amounts are periodically revalued as claims are paid under the policy. During May 2006, the Company received a partial refund of its deposit in the amount of $4.4 million as a result of its improved claims experience. Such improved claims experience
also resulted in a $1.3 million reduction in the Companys related claim reserves during fiscal 2006. As of June 30, 2006 and 2005, the Companys deposit balances for the retrospective policy year ended April 30, 2005 were $2.5
million and $7.6 million, respectively. At June 30, 2006 and 2005, the claim reserves for this policy were $3.0 million and $5.5 million, respectively.



Reliance



During fiscal years 1992 through 2001, the Company purchased certain portions of its workers compensation coverage from Reliance Insurance Company
(Reliance). At the time the Company purchased such coverage, Reliance was an A rated insurance company. In connection with this coverage, the Company provided Reliance with various amounts and forms of collateral to secure
its performance under the respective policies as was customary at the time.



On
October 3, 2003, the Pennsylvania Insurance Department (the Department) placed Reliance into liquidation. Reliances liquidation could put the Companys workers compensation insurance coverage at risk



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for the related policy years; however, based upon information currently available, the Company believes that either Reliance or the applicable state guaranty
funds will continue to pay claims. To the extent that such losses are not covered by either Reliance or the applicable state guaranty funds, the Company may be required to fund the related workers compensation claims for the applicable policy
years.



As of June 30, 2005, the Company had $1.3 million of cash on
deposit with Reliance, which is included in insurance deposits on the consolidated balance sheet. In March 2006, the Company received $1.2 million of cash collateral from Reliance which represented the remaining balance of workers compensation
cash insurance deposits. The Company also had deposits in the form of letters of credit with Reliance totaling $3.7 million as of June 30, 2006.



Legion



During fiscal 2002, the Company purchased certain portions of its workers compensation coverage from Legion Insurance Company (Legion). Legion required
assurances that the Company would fund its related retention obligations, which were estimated by Legion to approximate $6.2 million. The Company provided this assurance by purchasing a deductible reimbursement policy from Mutual Indemnity
(Bermuda), Ltd., a Legion affiliate. That policy required the Company to deposit $6.2 million with Mutual Indemnity and required Mutual Indemnity to utilize such funds to satisfy the Companys retention obligations under the Legion policy.



On July 25th, 2003, the Department placed Legion into liquidation. In January 2003, the Commonwealth Court of Pennsylvania (the Court) ordered the Legion
liquidator and Mutual Indemnity to establish segregated trust accounts to be funded by cash deposits held by Mutual Indemnity for the benefit of individual insureds such as the Company. It is the Companys understanding that the Legion
liquidator and Mutual Indemnity continue to negotiate the legal framework for the form and administration of these trust accounts and that no final agreement has yet been reached. Under Act 46 the Legion liquidator is required to first utilize the
cash deposits available with Mutual Indemnity before attempting to collect any amounts from the Company. Based on the information currently available, the Company believes that the amounts on deposit with Mutual Indemnity are fully recoverable and
will either be returned to the Company or used to pay claims on its behalf. In the event that the Company or the Legion liquidator are unable to access the funds on deposit with Mutual Indemnity, the Company may be required to fund the related
workers compensation claims for the applicable policy years, to the extent that such losses are not covered by the applicable state guaranty funds. In fiscal 2003 and 2004, the Legion liquidator ordered the Companys TPA to forward all
workers compensation claims related to fiscal year 2002 to the state guarantee funds that will be administering these claims. The Company has reserves in the amount of $1.5 million and $2.3 million as of June 30, 2006 and 2005,
respectively, relating to these claims as well as deposits with Mutual Indemnity totaling $1.3 million and $2.2 million, respectively. Since these claims are not in the Companys control, it may not be able to obtain current information as to
the settlement of these claims and to the use of their deposits to satisfy these claims.



|(9) | Long-Term Debt
|--- | --------------



On March 4, 2005, the Company completed a refinancing transaction whereby its newly formed wholly owned subsidiary, Rural/Metro Operating Company, LLC (Rural/Metro LLC), entered into new senior
secured credit facilities (collectively, the 2005 Credit Facility) in an aggregate amount of up to $190.0 million. In addition, Rural/Metro LLC and its newly formed wholly owned subsidiary, Rural/Metro (Delaware) Inc. (Rural/Metro
Inc.) issued $125.0 million aggregate principal amount 9.875% senior subordinated notes due 2015 (the Senior Subordinated Notes) and Rural/Metro Corporation issued $93.5 million aggregate principal amount at maturity (gross
proceeds of $50.2 million) of 12.75% senior discount notes due 2016 (the Senior Discount Notes).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During fiscal 2005, net proceeds from our March 2005 refinancing transaction were used to repay approximately $302.6
million of existing indebtedness. In connection therewith, we recorded $8.2 million of debt extinguishment costs in fiscal 2005. These costs included non-cash charges of $5.6 million related to the write-off of debt issuance costs associated with
the retired debt and $0.1 million related to unamortized discounts as well as cash redemption premiums of $2.5 million.



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



|                                                 |  |                |         |   |      |   |         |  
|------------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                 |  | As of June 30, |        
|                                                 |  | 2006           |         |   | 2005 |  
|Senior Secured Term Loan B due March 2011        |  | $              | 107,000 |   |      | $ | 128,000 |  
|9.875% Senior Subordinated Notes due March 2015  |  |                | 125,000 |   |      |   | 125,000 |  
|12.75% Senior Discount Notes due March 2016      |  |                | 59,170  |   |      |   | 52,275  |  
|Other obligations, at varying rates from 6.0% to |  |                |         |   |      |   |         |  
|12.75%, due through 2013                         |  |                | 204     |   |      |   | 1,700   |  
|                                                 |  |                |         |   |      |   |         |  
|Long-term debt                                   |  |                | 291,374 |   |      |   | 306,975 |  
|Less: Current maturities                         |  |                | (37     | ) |      |   | (1,497  | )
|                                                 |  |                |         |   |      |   |         |  
|Long-term debt, net of current maturities        |  | $              | 291,337 |   |      | $ | 305,478 |  
|                                                 |  |                |         |   |      |   |         |  



Debt Maturities



Aggregate annual maturities on long-term debt as of June 30, 2006 for each of the
fiscal years ending June 30 are as follows (in thousands):



|                                     |  |   |         |  
|------------------------------------ |  | - | ------- | -
|2007                                 |  | $ | 37      |  
|2008                                 |  |   | 40      |  
|2009                                 |  |   | 42      |  
|2010                                 |  |   | 27      |  
|2011                                 |  |   | 107,017 |  
|Thereafter                           |  |   | 218,541 |  
|                                     |  |   |         |  
|Gross principal                      |  |   | 325,704 |  
|Less: Senior discount note accretion |  |   | (34,330 | )
|                                     |  |   |         |  
|Total debt at June 30, 2006          |  | $ | 291,374 |  
|                                     |  |   |         |  



At June 30, 2006, the Company had
outstanding letters of credit which mature during the next twelve months totaling $39.9 million, of which $39.5 million support general liability and workers compensation insurance programs.



2005 Credit Facility



In March 2005, Rural/Metro LLC entered into the 2005 Credit Facility, which provides for a $135.0 million Term Loan B facility maturing in
2011, a $35.0 million Letter of Credit Facility maturing in 2011 and a $20.0 million Revolving Credit Facility maturing in 2010, each of which is described below.



Term Loan B



The Term Loan B bears interest at LIBOR plus 2.25 percent per annum (see Amendment No. 3 discussed below) or, at Rural/Metro LLCs option, the
Alternate Base Rate (ABR), as defined in the 2005 Credit Facility,



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plus 1.50 percent per annum. In the case of the LIBOR option, whereby the contract period is equal to one, two, three or six months from the date of initial
borrowing at Rural/Metro LLCs option, interest on the Term Loan B is payable on the last day of each contract period, subject to a maximum payment term of three months. Interest is payable at the end of each quarter in the case of the ABR
option. As of June 30, 2006, $97.0 million of the outstanding balance was under a LIBOR option six-month contract accruing interest at 7.50 percent per annum, while the remaining $10.0 million was under a LIBOR option three-month contract
accruing interest at 7.40 percent per annum.



The Term Loan B requires an
annual principal payment of 1.0 percent of the original loan amount, payable quarterly beginning on September 30, 2005. Additionally, annual principal payments equal to 75 percent of the fiscal year-end excess cash flow, as defined in the 2005
Credit Facility, are due on September 30th of each year with the first remeasurement period at June 30, 2006.



During fiscal 2006, we made unscheduled principal payments on our Term Loan B totaling $21.0 million. These payments satisfy the excess cash flow sweep requirement under
the Term Loan B facility as of September 2006.



During fiscal 2005, we made a
$7.0 million unscheduled principal payment on our Term Loan B which was applied to the 1 percent annual principal payment requirement; therefore, no principal payments are required until maturity in March 2011.



Rural/Metro LLC capitalized $4.6 million of expenses associated with the Term Loan B and is
amortizing these costs to interest expense over the term of the agreement. Approximately $0.2 million and $0.8 million of deferred financing costs were written-off in relation to the $7.0 million and $21.0 million unscheduled principal payments in
fiscal 2005 and fiscal 2006, respectively. Unamortized deferred financing costs related to Term Loan B were $2.9 million and $4.1 million at June 30, 2006 and 2005, respectively.



Revolving Credit Facility



The Revolving Credit Facility includes a letter of credit sub-line whereby $10.0 million of the $20.0 million total facility can be utilized to issue letters of credit.
The Revolving Credit Facility bears interest at LIBOR plus 3.25 percent per annum or, at Rural/Metro LLCs option, the ABR plus 2.25 percent per annum on all amounts drawn against the line. In the case of the LIBOR option, whereby the contract
period is equal to one, two, three or six months from the date of initial borrowing at Rural/Metro LLCs option, interest on the Revolving Credit Facility is payable on the last day of each contract period, subject to a maximum payment term of
three months. Interest is payable at the end of each quarter in the case of the ABR option. A commitment fee of 0.50 percent is payable on the total undrawn revolving commitment, plus a fronting fee of 0.25 percent on any letter of credit issued
under the sub-line, payable at the end of each quarter. Principal payments prior to maturity are not required. Expenses associated with the Revolving Credit Facility of $0.7 million were capitalized and are being amortized to interest expense over
the term of the agreement. Unamortized deferred financing costs related to the Revolving Credit Facility were $0.5 million and $0.6 million at June 30, 2006 and 2005, respectively. There were no amounts outstanding under the Revolving Credit
Facility at June 30, 2006.



Letter of Credit Facility



The Letter of Credit Facility is available primarily to support and/or replace existing
and future insurance deductible arrangements of the Company, Rural/Metro LLC and the Guarantors. The Letter of Credit Facility bears a participation fee of 2.25 percent (see Amendment No. 3 discussed below) plus an administrative
fee of 0.15 percent for a total of 2.40 percent per annum on the total facility payable quarterly. In addition, Rural/Metro LLC will pay a fronting fee of 0.125 percent per annum on issued letters of credit payable quarterly. Rural/Metro



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



LLC capitalized expenses associated with the Letter of Credit Facility of $1.2 million and is amortizing these costs to interest expense over the term of the
agreement. Unamortized deferred financing costs related to the Letter of Credit Facility were $0.9 million and $1.1 million at June 30, 2006 and 2005, respectively. At June 30, 2006, $38.7 million of the available Letter of Credit Facility
balance was utilized primarily in support of the Companys insurance programs.



Other Terms



The 2005 Credit Facility requires Rural/Metro LLC
and its subsidiaries to meet certain financial tests, including a minimum interest coverage ratio, a maximum total leverage ratio and a minimum fixed charge coverage ratio. The 2005 Credit Facility also contains covenants which among other things
limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset sales, acquisitions, mergers, prepayments of other indebtedness, liens and encumbrances, capital expenditures, business activities limitations on the
Company, as a holding company, and other matters customarily restricted in such agreements. Rural/Metro LLC and its subsidiaries were in compliance with these covenants as of June 30, 2006.



Indebtedness under the 2005 Credit Facility is guaranteed by the Company and each of
Rural/Metro LLCs current and future direct and indirect subsidiaries (the Guarantors) and is secured by a lien on substantially all of Rural/Metro LLCs and the Guarantors current and future property, including all
equity interests in Rural/Metro LLC and its current subsidiaries.



Credit
Facility Amendments



Effective June 30, 2005, the Company executed an
amendment to the 2005 Credit Facility (Amendment No. 1) whereby the definition of the term Fixed Charges was modified to exclude unscheduled principal payments. Additionally, the limitation on capital expenditures for
fiscal year 2005 was increased from $12.25 million to $13.25 million.



On
December 27, 2005, the Company amended certain terms, conditions and covenants contained in its 2005 Credit Facility (Amendment No. 2). Specifically, Amendment No. 2 permits the Company to use net proceeds from the
issuance of qualified equity to repurchase its 12.75% Senior Discount Notes due March 2016 (the Senior Discount Notes) issued by Rural/Metro Corporation and/or its 9.875% Senior Subordinated Notes due March 2015 (the Senior
Subordinated Notes) issued by Rural/Metro LLC and its subsidiary, Rural/Metro (Delaware) Inc. (collectively referred to as the Senior Subordinated Notes Issuers), and further allows the Company to use up to $10.0 million of cash on
hand to purchase any remaining Senior Discount Notes in their entirety. Following any redemption of the Senior Discount Notes, the Companys total leverage ratio may not exceed 4.0 to 1.0.



In addition, Amendment No. 2 modified the existing covenant regarding permitted
acquisitions by increasing the aggregate limit for acquisitions to $40.0 million and the individual limit for permitted acquisitions to $10.0 million, subject to an exception to allow the Company flexibility to exercise an existing option to acquire
a medical transportation services entity in Las Vegas, Nevada within the next two years. The purchase option first becomes exercisable in 2006 for a one-year period at a purchase price that is the greater of $12.0 million or 6.9 times the Las Vegas,
Nevada entitys EBITDA for the 12-month period preceding the purchase date. Amendment No. 2 also modified certain other 2005 Credit Facility covenants including an increase in the permitted level of annual capital expenditures.



On May 5, 2006, the Company amended certain terms and conditions contained in its
2005 Credit Facility (Amendment No. 3). Specifically, Amendment No. 3 reduced the interest rate payable on the Companys Term



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Loan B from LIBOR plus 2.50 percent to LIBOR plus 2.25 percent. Additionally, Amendment No. 3 reduced the interest rate payable on the Companys
Letter of Credit Facility from 2.50 percent to 2.25 percent. As permitted under the original Credit Facility Agreement, the Company also expanded its Letter of Credit Facility from $35.0 million to $45.0 million.



9.875% Senior Subordinated Notes



In March 2005, the Companys two newly formed wholly owned subsidiaries, Rural/Metro
LLC and Rural/Metro Inc. (collectively referred to as the Senior Subordinated Notes Issuers), completed the private placement of the Senior Subordinated Notes. Interest on the Senior Subordinated Notes is payable semi-annually on
September 15 and March 15. The Senior Subordinated Notes have been subsequently registered under the Securities Act of 1933, as amended.



The Senior Subordinated Notes are unsecured senior subordinated obligations of the Senior Subordinated Notes Issuers. They rank junior in right of payment to all of the
Senior Subordinated Notes Issuers existing and future senior indebtedness, including the 2005 Credit Facility, rank pari passu in right of payment with any of the Senior Subordinated Notes Issuers future senior subordinated debt
and rank senior in right of payment to any of the Senior Subordinated Notes Issuers future subordinated debt. Each of the Guarantors, other than Rural/Metro Inc., have guaranteed the Senior Subordinated Notes. These guarantees are unsecured
and will be subordinated to all existing and future senior obligations of the Guarantors, including their guarantees of the 2005 Credit Facility.



At any time prior to March 15, 2008, the Senior Subordinated Notes Issuers may redeem up to 35 percent of the aggregate principal amount of the Senior Subordinated
Notes with the net proceeds from certain equity offerings, subject to application of the first 50 percent of any proceeds to the 2005 Credit Facility, at a redemption price of 109.875 percent of the principal amount of the Senior Subordinated Notes
to be redeemed. At any time prior to March 15, 2010, the Senior Subordinated Notes Issuers may redeem all or a portion of the Senior Subordinated Notes at a price equal to 100 percent of the principal amount of the Senior Subordinated Notes,
plus a make-whole premium. After March 15, 2010, the Senior Subordinated Notes Issuers may redeem all or part of the Senior Subordinated Notes at various redemption prices given the date of redemption as set forth in the indenture governing the
Senior Subordinated Notes. If the Company experiences a change of control, the Senior Subordinated Notes Issuers may be required to offer to purchase the Senior Subordinated Notes at a purchase price equal to 101 percent of the principal amount,
plus accrued and unpaid interest.



Costs related to this issuance totaling $5.3
million were capitalized and are being amortized to interest expense over the term of the Senior Subordinated Notes. Unamortized deferred financing costs related to the Senior Subordinated Notes were $4.6 million and $4.8 million at June 30,
2006 and 2005, respectively.



12.75% Senior Discount Notes



In March 2005, Rural/Metro Corporation completed a private placement of the Senior
Discount Notes and received gross proceeds of $50.2 million. While interest will accrue prior to March 15, 2010, cash interest payments will not be due until September 15, 2010. The Senior Discount Notes had an initial accreted value of
$536.99 per $1,000 principal amount at maturity. The accreted value will increase from the date of issuance until March 15, 2010 at a rate of 12.75 percent per annum compounded semiannually such that the accreted value will equal the principal
amount at maturity of each Senior Discount Note on that date. The accreted value of the Senior Discount Notes was $59.2 million at June 30, 2006 and $52.3 million at June 30, 2005. The Senior Discount Notes have been subsequently
registered under the Securities Act of 1933, as amended.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Senior Discount Notes are unsecured senior obligations of Rural/Metro Corporation and will rank equally in right
of payment with all its existing and future unsecured senior obligations and senior to its subordinated indebtedness. The Senior Discount Notes will be subordinated to the Companys existing and future secured indebtedness, including its
guarantee of the 2005 Credit Facility, to the extent of the assets securing that indebtedness. The Senior Discount Notes are not guaranteed by any of Rural/Metro Corporations subsidiaries and are subordinated to all obligations of Rural/Metro
Corporations subsidiaries, including the Senior Subordinated Notes, the 2005 Credit Facility and the guarantees of the Guarantors.



At any time prior to March 15, 2008, Rural/Metro Corporation may redeem up to 35 percent of the Senior Discount Notes with the proceeds from certain equity
offerings, subject to application of the first 50 percent of any proceeds to the 2005 Credit Facility, at a redemption price of 112.75 percent of the accreted value of the Senior Discount Notes to be redeemed. Prior to March 15, 2010,
Rural/Metro Corporation may redeem all or a portion of the Senior Discount Notes at a price equal to 100 percent of the accreted value of the Senior Discount Notes, plus a make-whole premium. After March 15, 2010, Rural/Metro Corporation may
redeem all or part of the Senior Discount Notes at various redemption prices given the date of redemption as set forth in the indenture governing the Senior Discount Notes. If Rural/Metro Corporation experiences a change of control, it may be
required to offer to purchase the Senior Discount Notes at a purchase price equal to 101 percent of their accreted value, plus accrued and unpaid interest.



The Company capitalized costs totaling $2.2 million related to this issuance and is amortizing these costs to interest expense over the term of the Senior Discount Notes.
Unamortized deferred financing costs related to the Senior Discount Notes were $1.9 million and $2.0 million at June 30, 2006 and 2005, respectively.



Other Terms



The Senior Subordinated Notes and the Senior Discount Notes contain certain covenants that, among other things, limit the Companys and its subsidiaries ability to incur additional debt, pay dividends on
our capital stock or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions, sell certain assets or merge with or into other companies, purchase
fixed assets and prepay certain other indebtedness. The Company was in compliance with these covenants as of June 30, 2006.



Condensed Consolidating Financial Information



The Companys Senior Subordinated Notes are unsecured senior subordinated obligations of the Senior Subordinated Notes Issuers and are fully and unconditionally
guaranteed on a joint and several basis by Rural/Metro Corporation (which is referred to singularly as Parent within the following condensed consolidating financial information) and substantially all of the current and future subsidiaries of
Rural/Metro LLC, excluding Rural/Metro Inc. (the Senior Subordinated Note Guarantors).



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





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The formation of the Senior Subordinated Notes Issuers became effective as of the consummation of the financing
transactions that were completed on March 4, 2005. Therefore, the condensed consolidating statement of operations and the condensed consolidating statement of cash flows for fiscal 2005 consist solely of Rural/ Metro Corporation, the Senior
Subordinated Notes Guarantors, the Non-Guarantor and related eliminations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2006

(unaudited)

(in thousands)



|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|------------------------------------------------------------------ |  | ------ | -------------- | - | -------------------------------- | - | ----------------------------------- |  | - | ------------- |  | - | ------------ | - |  | ----------------------------- | ------ | ------------ |  | - | ----------------------------------- | - |  | - | ------- |  | - | ------ | - |  | - | -------
|                                                                   |  | Parent |                |   | Senior SubordinatedNotes Issuers |   | Senior Subordinated NotesGuarantors |  |   | Non-Guarantor |  |   | Eliminations |   |  | Rural/MetroLLC - Consolidated |        | Eliminations |  |   | Rural/Metro CorporationConsolidated
|                                                                   |  |        | Rural/MetroLLC |   | Rural/MetroInc.                  |   |                                     |  |   |               | 
|ASSETS                                                             |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Current assets:                                                    |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Cash and cash equivalents                                          |  | $      |               |   |                                  | $ |                                    |  | $ |              |  | $ | 1,891        |   |  | $                             | 1,150  |              |  | $ |                                    |   |  | $ | 3,041   |  | $ |       |   |  | $ | 3,041  
|Short-term investments                                             |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 6,201        |   |  |                               |       |              |  |   |                                    |   |  |   | 6,201   |  |   |       |   |  |   | 6,201  
|Accounts receivable, net                                           |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 76,605       |   |  |                               | 6,762  |              |  |   |                                    |   |  |   | 83,367  |  |   |       |   |  |   | 83,367 
|Inventories                                                        |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 13,135       |   |  |                               |       |              |  |   |                                    |   |  |   | 13,135  |  |   |       |   |  |   | 13,135 
|Current portion of deferred tax assets                             |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 9,461        |   |  |                               |       |              |  |   |                                    |   |  |   | 9,461   |  |   |       |   |  |   | 9,461  
|Prepaid expenses and other                                         |  |        |               |   |                                  |   | 75                                  |  |   |              |  |   | 3,623        |   |  |                               | 4      |              |  |   |                                    |   |  |   | 3,702   |  |   |       |   |  |   | 3,702  
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Total current assets                                               |  |        |               |   |                                  |   | 75                                  |  |   |              |  |   | 110,916      |   |  |                               | 7,916  |              |  |   |                                    |   |  |   | 118,907 |  |   |       |   |  |   | 118,907
|Property and equipment, net                                        |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 45,766       |   |  |                               | 204    |              |  |   |                                    |   |  |   | 45,970  |  |   |       |   |  |   | 45,970 
|Goodwill                                                           |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 38,362       |   |  |                               |       |              |  |   |                                    |   |  |   | 38,362  |  |   |       |   |  |   | 38,362 
|Deferred tax asset                                                 |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 69,657       |   |  |                               |       |              |  |   |                                    |   |  |   | 69,657  |  |   |       |   |  |   | 69,657 
|Insurance deposits                                                 |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 2,842        |   |  |                               |       |              |  |   |                                    |   |  |   | 2,842   |  |   |       |   |  |   | 2,842  
|Other assets                                                       |  |        | 1,904          |   |                                  |   | 8,879                               |  |   |              |  |   | 12,146       |   |  |                               | 525    |              |  |   |                                    |   |  |   | 21,550  |  |   |       |   |  |   | 23,454 
|Due from (to) affiliates (1)                                       |  |        |               |   |                                  |   | 154,245                             |  |   | 125,000       |  |   | (151,411     | ) |  |                               | (2,834 | )            |  |   | (125,000                            | ) |  |   |        |  |   |       |   |  |   |       
|Due from (to) Parent Company                                       |  |        | (43,020        | ) |                                  |   | 43,020                              |  |   |              |  |   |             |   |  |                               |       |              |  |   |                                    |   |  |   | 43,020  |  |   |       |   |  |   |       
|LLC investment in subsidiaries                                     |  |        |               |   |                                  |   | 37,817                              |  |   |              |  |   |             |   |  |                               |       |              |  |   | (37,817                             | ) |  |   |        |  |   |       |   |  |   |       
|Parent Company investment in LLC                                   |  |        | 6,814          |   |                                  |   |                                    |  |   |              |  |   |             |   |  |                               |       |              |  |   |                                    |   |  |   |        |  |   | (6,814 | ) |  |   |       
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Total assets                                                       |  | $      | (34,302        | ) |                                  | $ | 244,036                             |  | $ | 125,000       |  | $ | 128,278      |   |  | $                             | 5,811  |              |  | $ | (162,817                            | ) |  | $ | 340,308 |  | $ | (6,814 | ) |  | $ | 299,192
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS EQUITY (DEFICIT) |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Current liabilities:                                               |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Accounts payable                                                   |  | $      |               |   |                                  | $ |                                    |  | $ |              |  | $ | 12,730       |   |  | $                             | 1,227  |              |  | $ |                                    |   |  | $ | 13,957  |  | $ |       |   |  | $ | 13,957 
|Accrued liabilities                                                |  |        |               |   |                                  |   | 5,222                               |  |   |              |  |   | 32,918       |   |  |                               | 454    |              |  |   |                                    |   |  |   | 38,594  |  |   |       |   |  |   | 38,594 
|Deferred revenue                                                   |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 21,342       |   |  |                               |       |              |  |   |                                    |   |  |   | 21,342  |  |   |       |   |  |   | 21,342 
|Current portion of long-term debt                                  |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 37           |   |  |                               |       |              |  |   |                                    |   |  |   | 37      |  |   |       |   |  |   | 37     
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Total current liabilities                                          |  |        |               |   |                                  |   | 5,222                               |  |   |              |  |   | 67,027       |   |  |                               | 1,681  |              |  |   |                                    |   |  |   | 73,930  |  |   |       |   |  |   | 73,930 
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Long-term debt, net of current portion (1)                         |  |        | 59,170         |   |                                  |   | 232,000                             |  |   | 125,000       |  |   | 167          |   |  |                               |       |              |  |   | (125,000                            | ) |  |   | 232,167 |  |   |       |   |  |   | 291,337
|Other liabilities                                                  |  |        |               |   |                                  |   |                                    |  |   |              |  |   | 25,332       |   |  |                               |       |              |  |   |                                    |   |  |   | 25,332  |  |   |       |   |  |   | 25,332 
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Total liabilities                                                  |  |        | 59,170         |   |                                  |   | 237,222                             |  |   | 125,000       |  |   | 92,526       |   |  |                               | 1,681  |              |  |   | (125,000                            | ) |  |   | 331,429 |  |   |       |   |  |   | 390,599
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        
|Minority interest                                                  |  |        |               |   |                                  |   |                                    |  |   |              |  |   |             |   |  |                               |       |              |  |   | 2,065                               |   |  |   | 2,065   |  |   |       |   |  |   | 2,065  
|                                                                   |  |        |                |   |                                  |   |                                     |  |   |               |  |   |              |   |  |                               |        |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |        



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING BALANCE SHEET(Continued)

AS OF JUNE 30, 2006

(unaudited)

(in thousands)



|                                                                        |  |        |                |   |                                  |   |                                     |  |   |               |  |              |         |   |                               |   |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |          |  
|----------------------------------------------------------------------- |  | ------ | -------------- | - | -------------------------------- | - | ----------------------------------- |  | - | ------------- |  | ------------ | ------- | - | ----------------------------- | - | ------------ |  | - | ----------------------------------- | - |  | - | ------- |  | - | ------ | - |  | - | -------- | -
|                                                                        |  | Parent |                |   | Senior SubordinatedNotes Issuers |   | Senior Subordinated NotesGuarantors |  |   | Non-Guarantor |  | Eliminations |         |   | Rural/MetroLLC - Consolidated |   | Eliminations |  |   | Rural/Metro CorporationConsolidated |  
|                                                                        |  |        | Rural/MetroLLC |   | Rural/MetroInc.                  |   |                                     |  |   |               | 
|Stockholders' equity (deficit):                                         |  |        |                |   |                                  |   |                                     |  |   |               |  |              |         |   |                               |   |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |          |  
|Common stock                                                            |  |        | 245            |   |                                  |   |                                    |  |   |              |  |              | 90      |   |                               |   |             |  |   | (90                                 | ) |  |   |        |  |   |       |   |  |   | 245      |  
|Additional paid-in capital                                              |  |        | 153,955        |   |                                  |   |                                    |  |   |              |  |              | 74,770  |   |                               |   | 20           |  |   | (74,790                             | ) |  |   |        |  |   |       |   |  |   | 153,955  |  
|Treasury stock                                                          |  |        | (1,239         | ) |                                  |   |                                    |  |   |              |  |              |        |   |                               |   |             |  |   |                                    |   |  |   |        |  |   |       |   |  |   | (1,239   | )
|Accumulated deficit                                                     |  |        | (246,433       | ) |                                  |   |                                    |  |   |              |  |              | (39,108 | ) |                               |   | 4,110        |  |   | 34,998                              |   |  |   |        |  |   |       |   |  |   | (246,433 | )
|Member equity                                                           |  |        |               |   |                                  |   | 6,814                               |  |   |              |  |              |        |   |                               |   |             |  |   |                                    |   |  |   | 6,814   |  |   | (6,814 | ) |  |   |         |  
|                                                                        |  |        |                |   |                                  |   |                                     |  |   |               |  |              |         |   |                               |   |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |          |  
|Total stockholders equity (deficit)                                    |  |        | (93,472        | ) |                                  |   | 6,814                               |  |   |              |  |              | 35,752  |   |                               |   | 4,130        |  |   | (39,882                             | ) |  |   | 6,814   |  |   | (6,814 | ) |  |   | (93,472  | )
|                                                                        |  |        |                |   |                                  |   |                                     |  |   |               |  |              |         |   |                               |   |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |          |  
|Total liabilities, minority interest and stockholders equity (deficit) |  | $      | (34,302        | ) |                                  | $ | 244,036                             |  | $ | 125,000       |  | $            | 128,278 |   |                               | $ | 5,811        |  | $ | (162,817                            | ) |  | $ | 340,308 |  | $ | (6,814 | ) |  | $ | 299,192  |  
|                                                                        |  |        |                |   |                                  |   |                                     |  |   |               |  |              |         |   |                               |   |              |  |   |                                     |   |  |   |         |  |   |        |   |  |   |          |  

---

Note: The sole purpose of Rural/Metro Inc. was to act
as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations. The Balance Sheet for Rural/Metro Inc. at June 30, 2006 consists of equity and due to affiliates totaling an amount equal to $100.



|(1) | For purposes of this presentation, the Senior Subordinated Notes have been reflected in the balance sheets of both Rural/Metro LLC and Rural/Metro Inc. with the appropriate offset
reflected in the eliminations column. Interest expense has been allocated to Rural/Metro LLC only.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2005

(unaudited)

(in thousands)



|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|------------------------------------------------------------------ |  | ------ | -------------- | - | -------------------------------- | - | ---------------------------------- |  | - | ------------- |  | - | ------------ | - |  | ----------------------------- | ------ | ------------ |  | ---------------------------------- | -------- | - |  | - | ------- |  | - | ----- |  | - | -------
|                                                                   |  | Parent |                |   | Senior SubordinatedNotes Issuers |   | SeniorSubordinated NotesGuarantors |  |   | Non-Guarantor |  |   | Eliminations |   |  | Rural/MetroLLC - Consolidated |        | Eliminations |  | Rural/MetroCorporationConsolidated
|                                                                   |  |        | Rural/MetroLLC |   | Rural/MetroInc.                  |   |                                    |  |   |               | 
|ASSETS                                                             |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Current assets:                                                    |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Cash and cash equivalents                                          |  | $      |               |   |                                  | $ |                                   |  | $ |              |  | $ | 17,031       |   |  | $                             | 657    |              |  | $                                  |         |   |  | $ | 17,688  |  | $ |      |  | $ | 17,688 
|Accounts receivable, net                                           |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 65,791       |   |  |                               | 6,195  |              |  |                                    |         |   |  |   | 71,986  |  |   |      |  |   | 71,986 
|Inventories                                                        |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 12,743       |   |  |                               |       |              |  |                                    |         |   |  |   | 12,743  |  |   |      |  |   | 12,743 
|Current portion of deferred tax assets                             |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 10,110       |   |  |                               |       |              |  |                                    |         |   |  |   | 10,110  |  |   |      |  |   | 10,110 
|Prepaid expenses and other                                         |  |        |               |   |                                  |   | 67                                 |  |   |              |  |   | 9,381        |   |  |                               | 1      |              |  |                                    |         |   |  |   | 9,449   |  |   |      |  |   | 9,449  
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Total current assets                                               |  |        |               |   |                                  |   | 67                                 |  |   |              |  |   | 115,056      |   |  |                               | 6,853  |              |  |                                    |         |   |  |   | 121,976 |  |   |      |  |   | 121,976
|Property and equipment, net                                        |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 41,402       |   |  |                               |       |              |  |                                    |         |   |  |   | 41,402  |  |   |      |  |   | 41,402 
|Goodwill                                                           |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 39,344       |   |  |                               |       |              |  |                                    |         |   |  |   | 39,344  |  |   |      |  |   | 39,344 
|Deferred tax asset                                                 |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 75,551       |   |  |                               |       |              |  |                                    |         |   |  |   | 75,551  |  |   |      |  |   | 75,551 
|Insurance deposits                                                 |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 9,037        |   |  |                               |       |              |  |                                    |         |   |  |   | 9,037   |  |   |      |  |   | 9,037  
|Other assets                                                       |  |        | 1,978          |   |                                  |   | 10,682                             |  |   |              |  |   | 13,633       |   |  |                               | 525    |              |  |                                    |         |   |  |   | 24,840  |  |   |      |  |   | 26,818 
|Due from (to) affiliates (1)                                       |  |        |               |   |                                  |   | 195,134                            |  |   | 125,000       |  |   | (192,389     | ) |  |                               | (2,745 | )            |  |                                    | (125,000 | ) |  |   |        |  |   |      |  |   |       
|Due from (to) Parent Company                                       |  |        | (44,505        | ) |                                  |   | 44,505                             |  |   |              |  |   |             |   |  |                               |       |              |  |                                    |         |   |  |   | 44,505  |  |   |      |  |   |       
|LLC investment in subsidiaries                                     |  |        |               |   |                                  |   | 3,683                              |  |   |              |  |   |             |   |  |                               |       |              |  |                                    | (3,683   | ) |  |   |        |  |   |      |  |   |       
|Parent Company investment in LLC                                   |  |        | (3,841         | ) |                                  |   |                                   |  |   |              |  |   |             |   |  |                               |       |              |  |                                    |         |   |  |   |        |  |   | 3,841 |  |   |       
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Total assets                                                       |  | $      | (46,368        | ) |                                  | $ | 254,071                            |  | $ | 125,000       |  | $ | 101,634      |   |  | $                             | 4,633  |              |  | $                                  | (128,683 | ) |  | $ | 356,655 |  | $ | 3,841 |  | $ | 314,128
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS EQUITY (DEFICIT) |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Current liabilities:                                               |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Accounts payable                                                   |  | $      |               |   |                                  | $ |                                   |  | $ |              |  | $ | 13,342       |   |  | $                             | 1,396  |              |  | $                                  |         |   |  | $ | 14,738  |  | $ |      |  | $ | 14,738 
|Accrued liabilities                                                |  |        |               |   |                                  |   | 4,912                              |  |   |              |  |   | 37,244       |   |  |                               | 171    |              |  |                                    |         |   |  |   | 42,327  |  |   |      |  |   | 42,327 
|Deferred revenue                                                   |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 19,429       |   |  |                               |       |              |  |                                    |         |   |  |   | 19,429  |  |   |      |  |   | 19,429 
|Current portion of long-term debt                                  |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 1,497        |   |  |                               |       |              |  |                                    |         |   |  |   | 1,497   |  |   |      |  |   | 1,497  
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Total current liabilities                                          |  |        |               |   |                                  |   | 4,912                              |  |   |              |  |   | 71,512       |   |  |                               | 1,567  |              |  |                                    |         |   |  |   | 77,991  |  |   |      |  |   | 77,991 
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Long-term debt, net of current portion (1)                         |  |        | 52,275         |   |                                  |   | 253,000                            |  |   | 125,000       |  |   | 203          |   |  |                               |       |              |  |                                    | (125,000 | ) |  |   | 253,203 |  |   |      |  |   | 305,478
|Other liabilities                                                  |  |        |               |   |                                  |   |                                   |  |   |              |  |   | 27,846       |   |  |                               |       |              |  |                                    |         |   |  |   | 27,846  |  |   |      |  |   | 27,846 
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Total liabilities                                                  |  |        | 52,275         |   |                                  |   | 257,912                            |  |   | 125,000       |  |   | 99,561       |   |  |                               | 1,567  |              |  |                                    | (125,000 | ) |  |   | 359,040 |  |   |      |  |   | 411,315
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        
|Minority interest                                                  |  |        |               |   |                                  |   |                                   |  |   |              |  |   |             |   |  |                               |       |              |  |                                    | 1,456    |   |  |   | 1,456   |  |   |      |  |   | 1,456  
|                                                                   |  |        |                |   |                                  |   |                                    |  |   |               |  |   |              |   |  |                               |        |              |  |                                    |          |   |  |   |         |  |   |       |  |   |        



95



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##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING BALANCE SHEET(Continued)

AS OF JUNE 30, 2005

(unaudited)

(in thousands)



|                                                                        |  |        |                |   |                                  |                 |                                    |   |  |               |         |              |   |         |                               |  |   |              |  |                                    |          |   |  |   |         |   |  |   |       |  |   |          |  
|----------------------------------------------------------------------- |  | ------ | -------------- | - | -------------------------------- | --------------- | ---------------------------------- | - |  | ------------- | ------- | ------------ | - | ------- | ----------------------------- |  | - | ------------ |  | ---------------------------------- | -------- | - |  | - | ------- | - |  | - | ----- |  | - | -------- | -
|                                                                        |  | Parent |                |   | Senior SubordinatedNotes Issuers |                 | SeniorSubordinated NotesGuarantors |   |  | Non-Guarantor |         | Eliminations |   |         | Rural/MetroLLC - Consolidated |  |   | Eliminations |  | Rural/MetroCorporationConsolidated |         
|                                                                        |  |        | Rural/MetroLLC |   |                                  | Rural/MetroInc. |                                    |   |  |               |         |             
|Stockholders' equity (deficit):                                         |  |        |                |   |                                  |                 |                                    |   |  |               |         |              |   |         |                               |  |   |              |  |                                    |          |   |  |   |         |   |  |   |       |  |   |          |  
|Common stock                                                            |  |        | 241            |   |                                  |                 |                                   |   |  |               |        |              |   | 90      |                               |  |   |             |  |                                    | (90      | ) |  |   |        |   |  |   |      |  |   | 241      |  
|Additional paid-in capital                                              |  |        | 152,305        |   |                                  |                 |                                   |   |  |               |        |              |   | 74,770  |                               |  |   | 20           |  |                                    | (74,790  | ) |  |   |        |   |  |   |      |  |   | 152,305  |  
|Treasury stock                                                          |  |        | (1,239         | ) |                                  |                 |                                   |   |  |               |        |              |   |        |                               |  |   |             |  |                                    |         |   |  |   |        |   |  |   |      |  |   | (1,239   | )
|Accumulated deficit                                                     |  |        | (249,950       | ) |                                  |                 |                                   |   |  |               |        |              |   | (72,787 | )                             |  |   | 3,046        |  |                                    | 69,741   |   |  |   |        |   |  |   |      |  |   | (249,950 | )
|Member equity                                                           |  |        |               |   |                                  |                 | (3,841                             | ) |  |               |        |              |   |        |                               |  |   |             |  |                                    |         |   |  |   | (3,841  | ) |  |   | 3,841 |  |   |         |  
|                                                                        |  |        |                |   |                                  |                 |                                    |   |  |               |         |              |   |         |                               |  |   |              |  |                                    |          |   |  |   |         |   |  |   |       |  |   |          |  
|Total stockholders equity (deficit)                                    |  |        | (98,643        | ) |                                  |                 | (3,841                             | ) |  |               |        |              |   | 2,073   |                               |  |   | 3,066        |  |                                    | (5,139   | ) |  |   | (3,841  | ) |  |   | 3,841 |  |   | (98,643  | )
|                                                                        |  |        |                |   |                                  |                 |                                    |   |  |               |         |              |   |         |                               |  |   |              |  |                                    |          |   |  |   |         |   |  |   |       |  |   |          |  
|Total liabilities, minority interest and stockholders equity (deficit) |  | $      | (46,368        | ) |                                  | $               | 254,071                            |   |  | $             | 125,000 |              | $ | 101,634 |                               |  | $ | 4,633        |  | $                                  | (128,683 | ) |  | $ | 356,655 |   |  | $ | 3,841 |  | $ | 314,128  |  
|                                                                        |  |        |                |   |                                  |                 |                                    |   |  |               |         |              |   |         |                               |  |   |              |  |                                    |          |   |  |   |         |   |  |   |       |  |   |          |  

---

Note: The sole purpose of Rural/Metro Inc. was to act
as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations. The Balance Sheet for Rural/Metro Inc. at June 30, 2005 consists of equity and due to affiliates totaling an amount equal to $100.



|(1) | For purposes of this presentation, the Senior Subordinated Notes have been reflected in the balance sheets of both Rural/Metro LLC and Rural/Metro Inc. with the appropriate offset
reflected in the eliminations column. Interest expense has been allocated to Rural/Metro LLC only.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



96



---

##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2006

(unaudited)

(in thousands)



|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------ | ------ | - | -------------------------------- | - | --------------------------------- | ---------------- |  | ------------- | - | ------------ | - | ------- | - | ----------------------------- | - | ------ | - |  | - | ----------------------------------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                            |  |        |        |   | Senior SubordinatedNotes Issuers |   | SeniorSubordinatedNotesGuarantors |                  |  | Non-Guarantor |   |              |   |         |   | Rural/Metro LLC -Consolidated |   |        |   |  |   | Rural Metro CorporationConsolidated |  
|                                                                            |  | Parent |        |   | Rural/Metro LLC                  |   |                                   | Rural/Metro Inc. |  |               |   | Eliminations |   |         |   | Eliminations                  |   |       
|Net revenue                                                                 |  | $      |       |   |                                  | $ |                                  |                  |  | $             |  |              | $ | 521,377 |   |                               | $ | 50,882 |   |  | $ | (23,758                             | ) |  | $ | 548,501 |   |  | $ |        |   |  | $ | 548,501 |  
|Operating expenses:                                                         |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Payroll and employee benefits                                               |  |        | 28     |   |                                  |   |                                  |                  |  |               |  |              |   | 268,382 |   |                               |   | 81     |   |  |   |                                    |   |  |   | 268,463 |   |  |   |        |   |  |   | 268,491 |  
|Provision for doubtful accounts                                             |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | 86,482  |   |                               |   | 12,447 |   |  |   |                                    |   |  |   | 98,929  |   |  |   |        |   |  |   | 98,929  |  
|Depreciation and amortization                                               |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | 11,194  |   |                               |   | 3      |   |  |   |                                    |   |  |   | 11,197  |   |  |   |        |   |  |   | 11,197  |  
|Other operating expenses                                                    |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | 106,464 |   |                               |   | 36,882 |   |  |   | (23,758                             | ) |  |   | 119,588 |   |  |   |        |   |  |   | 119,588 |  
|Gain on sale of assets                                                      |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | (1,301  | ) |                               |   | (10    | ) |  |   |                                    |   |  |   | (1,311  | ) |  |   |        |   |  |   | (1,311  | )
|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Total operating expenses                                                    |  |        | 28     |   |                                  |   |                                  |                  |  |               |  |              |   | 471,221 |   |                               |   | 49,403 |   |  |   | (23,758                             | ) |  |   | 496,866 |   |  |   |        |   |  |   | 496,894 |  
|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Operating income (loss)                                                     |  |        | (28    | ) |                                  |   |                                  |                  |  |               |  |              |   | 50,156  |   |                               |   | 1,479  |   |  |   |                                    |   |  |   | 51,635  |   |  |   |        |   |  |   | 51,607  |  
|Equity in earnings of subsidiaries                                          |  |        | 10,655 |   |                                  |   | 34,439                            |                  |  |               |  |              |   |        |   |                               |   |       |   |  |   | (34,439                             | ) |  |   |        |   |  |   | (10,655 | ) |  |   |        |  
|Interest expense (1)                                                        |  |        | (7,110 | ) |                                  |   | (23,784                           | )                |  |               |  |              |   | (131    | ) |                               |   |       |   |  |   |                                    |   |  |   | (23,915 | ) |  |   |        |   |  |   | (31,025 | )
|Interest income                                                             |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | 508     |   |                               |   | 40     |   |  |   |                                    |   |  |   | 548     |   |  |   |        |   |  |   | 548     |  
|Loss on early extinguishment of debt                                        |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   |        |   |                               |   |       |   |  |   |                                    |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Income from continuing operations before income taxes and minority interest |  |        | 3,517  |   |                                  |   | 10,655                            |                  |  |               |  |              |   | 50,533  |   |                               |   | 1,519  |   |  |   | (34,439                             | ) |  |   | 28,268  |   |  |   | (10,655 | ) |  |   | 21,130  |  
|Income tax provision                                                        |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | (10,907 | ) |                               |   |       |   |  |   |                                    |   |  |   | (10,907 | ) |  |   |        |   |  |   | (10,907 | )
|Minority interest                                                           |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   |        |   |                               |   |       |   |  |   | (759                                | ) |  |   | (759    | ) |  |   |        |   |  |   | (759    | )
|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Income from continuing operations                                           |  |        | 3,517  |   |                                  |   | 10,655                            |                  |  |               |  |              |   | 39,626  |   |                               |   | 1,519  |   |  |   | (35,198                             | ) |  |   | 16,602  |   |  |   | (10,655 | ) |  |   | 9,464   |  
|Loss from discontinued operations, net of income taxes                      |  |        |       |   |                                  |   |                                  |                  |  |               |  |              |   | (5,947  | ) |                               |   |       |   |  |   |                                    |   |  |   | (5,947  | ) |  |   |        |   |  |   | (5,947  | )
|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Net income                                                                  |  | $      | 3,517  |   |                                  | $ | 10,655                            |                  |  | $             |  |              | $ | 33,679  |   |                               | $ | 1,519  |   |  | $ | (35,198                             | ) |  | $ | 10,655  |   |  | $ | (10,655 | ) |  | $ | 3,517   |  
|                                                                            |  |        |        |   |                                  |   |                                   |                  |  |               |   |              |   |         |   |                               |   |        |   |  |   |                                     |   |  |   |         |   |  |   |         |   |  |   |         |  

---

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



|(1) | For purposes of this presentation, the Senior Subordinated Notes have been reflected in the balance sheets of both Rural/Metro LLC and Rural/Metro Inc. with the appropriate offset
reflected in the eliminations column. Interest expense has been allocated to Rural/Metro LLC only.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



97



---

##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2005

(unaudited)

(in thousands)



|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------ | --------------- | - | -------------------------------- | ---------------- | --------------------------------- | - | ------------- | - | ------------ |  | - | ------- | ----------------------------- |  | - | ------ |  | - | ---------------------------------- | - |  | - | ------- | - |  | - | -------- | - |  | - | ------- | -
|                                                                            |  | Parent |                 |   | Senior SubordinatedNotes Issuers |                  | SeniorSubordinatedNotesGuarantors |   |               |   |              |  |   |         | Rural/Metro LLC -Consolidated |  |   |        |  |   | Rural MetroCorporationConsolidated |  
|                                                                            |  |        | Rural/Metro LLC |   |                                  | Rural/Metro Inc. |                                   |   | Non-Guarantor |   | Eliminations |  |   |         | Eliminations                  |  |  
|Net revenue                                                                 |  | $      |                |   |                                  | $                |                                  |   |               | $ |             |  | $ | 474,158 |                               |  | $ | 50,223 |  | $ | (22,867                            | ) |  | $ | 501,514 |   |  | $ |         |   |  | $ | 501,514 |  
|Operating expenses:                                                         |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Payroll and employee benefits                                               |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 257,712 |                               |  |   | 25     |  |   |                                   |   |  |   | 257,737 |   |  |   |         |   |  |   | 257,737 |  
|Provision for doubtful accounts                                             |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 68,419  |                               |  |   | 13,597 |  |   |                                   |   |  |   | 82,016  |   |  |   |         |   |  |   | 82,016  |  
|Depreciation and amortization                                               |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 10,608  |                               |  |   |       |  |   |                                   |   |  |   | 10,608  |   |  |   |         |   |  |   | 10,608  |  
|Other operating expenses                                                    |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 99,002  |                               |  |   | 36,408 |  |   | (22,867                            | ) |  |   | 112,543 |   |  |   |         |   |  |   | 112,543 |  
|Loss on sale of assets                                                      |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 72      |                               |  |   |       |  |   |                                   |   |  |   | 72      |   |  |   |         |   |  |   | 72      |  
|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Total operating expenses                                                    |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 435,813 |                               |  |   | 50,030 |  |   | (22,867                            | ) |  |   | 462,976 |   |  |   |         |   |  |   | 462,976 |  
|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Operating income                                                            |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 38,345  |                               |  |   | 193    |  |   |                                   |   |  |   | 38,538  |   |  |   |         |   |  |   | 38,538  |  
|Equity in earnings of subsidiaries                                          |  |        | 118,178         |   |                                  |                  | 95,716                            |   |               |   |             |  |   |        |                               |  |   |       |  |   | (95,716                            | ) |  |   |        |   |  |   | (118,178 | ) |  |   |        |  
|Interest expense                                                            |  |        | (21,677         | ) |                                  |                  | (7,524                            | ) |               |   |             |  |   | (366    | )                             |  |   |       |  |   |                                   |   |  |   | (7,890  | ) |  |   |         |   |  |   | (29,567 | )
|Interest income (1)                                                         |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 282     |                               |  |   | 11     |  |   |                                   |   |  |   | 293     |   |  |   |         |   |  |   | 293     |  
|Loss on early extinguishment of debt                                        |  |        | (8,170          | ) |                                  |                  |                                  |   |               |   |             |  |   |        |                               |  |   |       |  |   |                                   |   |  |   |        |   |  |   |         |   |  |   | (8,170  | )
|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Income from continuing operations before income taxes and minority interest |  |        | 88,331          |   |                                  |                  | 88,192                            |   |               |   |             |  |   | 38,261  |                               |  |   | 204    |  |   | (95,716                            | ) |  |   | 30,941  |   |  |   | (118,178 | ) |  |   | 1,094   |  
|Income tax provision                                                        |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 83,816  |                               |  |   |       |  |   |                                   |   |  |   | 83,816  |   |  |   |         |   |  |   | 83,816  |  
|Minority interest                                                           |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   |        |                               |  |   |       |  |   | (102                               | ) |  |   | (102    | ) |  |   |         |   |  |   | (102    | )
|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Income from continuing operations                                           |  |        | 88,331          |   |                                  |                  | 88,192                            |   |               |   |             |  |   | 122,077 |                               |  |   | 204    |  |   | (95,818                            | ) |  |   | 114,655 |   |  |   | (118,178 | ) |  |   | 84,808  |  
|Income from discontinued operations, net of income taxes                    |  |        |                |   |                                  |                  |                                  |   |               |   |             |  |   | 3,523   |                               |  |   |       |  |   |                                   |   |  |   | 3,523   |   |  |   |         |   |  |   | 3,523   |  
|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Net income                                                                  |  | $      | 88,331          |   |                                  | $                | 88,192                            |   |               | $ |             |  | $ | 125,600 |                               |  | $ | 204    |  | $ | (95,818                            | ) |  | $ | 118,178 |   |  | $ | (118,178 | ) |  | $ | 88,331  |  
|                                                                            |  |        |                 |   |                                  |                  |                                   |   |               |   |              |  |   |         |                               |  |   |        |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  

---

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



|(1) | For purposes of this presentation, the Senior Subordinated Notes have been reflected in the balance sheets of both Rural/Metro LLC and Rural/Metro Inc. with the appropriate offset
reflected in the eliminations column. Interest expense has been allocated to Rural/Metro LLC only.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



98



---

##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2004

(unaudited)

(in thousands)



|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------------------- | - | ------- | ------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - |  | - | ------- | -
|                                                                                   |  | Parent |         |   | SeniorSubordinatedNotesGuarantors |   |         | Non-Guarantor |  |   | Eliminations |   |  | Rural MetroCorporationConsolidated |        
|Net revenue                                                                        |  | $      |        |   |                                   | $ | 440,039 |               |  | $ | 44,376       |   |  | $                                  | (21,869 | ) |  | $ | 462,546 |  
|Operating expenses:                                                                |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Payroll and employee benefits                                                      |  |        |        |   |                                   |   | 240,193 |               |  |   | 48           |   |  |                                    |        |   |  |   | 240,241 |  
|Provision for doubtful accounts                                                    |  |        |        |   |                                   |   | 68,938  |               |  |   | 11,058       |   |  |                                    |        |   |  |   | 79,996  |  
|Depreciation and amortization                                                      |  |        |        |   |                                   |   | 10,471  |               |  |   |             |   |  |                                    |        |   |  |   | 10,471  |  
|Other operating expenses                                                           |  |        | 252     |   |                                   |   | 93,306  |               |  |   | 34,221       |   |  |                                    | (21,869 | ) |  |   | 105,910 |  
|Loss on sale of assets                                                             |  |        |        |   |                                   |   | 32      |               |  |   |             |   |  |                                    |        |   |  |   | 32      |  
|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Total operating expenses                                                           |  |        | 252     |   |                                   |   | 412,940 |               |  |   | 45,327       |   |  |                                    | (21,869 | ) |  |   | 436,650 |  
|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Operating income                                                                   |  |        | (252    | ) |                                   |   | 27,099  |               |  |   | (951         | ) |  |                                    |        |   |  |   | 25,896  |  
|Equity in earnings of subsidiaries                                                 |  |        | 35,521  |   |                                   |   |        |               |  |   |             |   |  |                                    | (35,521 | ) |  |   |        |  
|Interest expense                                                                   |  |        | (29,058 | ) |                                   |   | (185    | )             |  |   |             |   |  |                                    |        |   |  |   | (29,243 | )
|Interest income                                                                    |  |        |        |   |                                   |   | 96      |               |  |   | 1            |   |  |                                    |        |   |  |   | 97      |  
|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Income (loss) from continuing operations before income taxes and minority interest |  |        | 6,211   |   |                                   |   | 27,010  |               |  |   | (950         | ) |  |                                    | (35,521 | ) |  |   | (3,250  | )
|Income tax provision                                                               |  |        |        |   |                                   |   | 225     |               |  |   |             |   |  |                                    |        |   |  |   | 225     |  
|Minority interest                                                                  |  |        |        |   |                                   |   |        |               |  |   |             |   |  |                                    | 475     |   |  |   | 475     |  
|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Income (loss) from continuing operations                                           |  |        | 6,211   |   |                                   |   | 27,235  |               |  |   | (950         | ) |  |                                    | (35,046 | ) |  |   | (2,550  | )
|Income from discontinued operations, net of income taxes                           |  |        |        |   |                                   |   | 8,761   |               |  |   |             |   |  |                                    |        |   |  |   | 8,761   |  
|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Net income (loss)                                                                  |  | $      | 6,211   |   |                                   | $ | 35,996  |               |  | $ | (950         | ) |  | $                                  | (35,046 | ) |  | $ | 6,211   |  
|                                                                                   |  |        |         |   |                                   |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  



99



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##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2006

(unaudited)

(in thousands)



|                                                                              |  |                |       |   |                                 |   |                                    |   |  |               |   |  |              |          |   |                               |   |         |              |  |   |                                    |   |  |   |          |   |  |   |         |   |  |   |          |  
|----------------------------------------------------------------------------- |  | -------------- | ----- | - | ------------------------------- | - | ---------------------------------- | - |  | ------------- | - |  | ------------ | -------- | - | ----------------------------- | - | ------- | ------------ |  | - | ---------------------------------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                              |  | Parent         |       |   | SeniorSubordinatedNotes Issuers |   | Senior SubordinatedNotesGuarantors |   |  | Non-Guarantor |   |  | Eliminations |          |   | Rural/Metro LLC -Consolidated |   |         | Eliminations |  |   | Rural MetroCorporationConsolidated |  
|                                                                              |  | Rural/MetroLLC |       |   | Rural/MetroInc.                 |   |                                    |   |  |               |  
|Cash flows from operating activities:                                         |  |                |       |   |                                 |   |                                    |   |  |               |   |  |              |          |   |                               |   |         |              |  |   |                                    |   |  |   |          |   |  |   |         |   |  |   |          |  
|Net income                                                                    |  | $              | 3,517 |   |                                 | $ | 10,655                             |   |  | $             |  |  | $            | 33,679   |   |                               | $ | 1,519   |              |  | $ | (35,198                            | ) |  | $ | 10,655   |   |  | $ | (10,655 | ) |  | $ | 3,517    |  
|Adjustments to reconcile net income to cash provided by operating activities |  |                |       |   |                                 |   |                                    |   |  |               |   |  |              |          |   |                               |   |         |              |  |   |                                    |   |  |   |          |   |  |   |         |   |  |   |          |  
|Provision for doubtful accounts                                               |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 92,956   |   |                               |   | 12,447  |              |  |   |                                   |   |  |   | 105,403  |   |  |   |        |   |  |   | 105,403  |  
|Depreciation and amortization                                                 |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 11,427   |   |                               |   | 3       |              |  |   |                                   |   |  |   | 11,430   |   |  |   |        |   |  |   | 11,430   |  
|Non-cash adjustments to Insurance claims reserves                             |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | (8,440   | ) |                               |   |        |              |  |   |                                   |   |  |   | (8,440   | ) |  |   |        |   |  |   | (8,440   | )
|Accretion of 12.75% Senior Discount Notes                                     |  |                | 6,895 |   |                                 |   |                                   |   |  |               |  |  |              |         |   |                               |   |        |              |  |   |                                   |   |  |   |         |   |  |   |        |   |  |   | 6,895    |  
|Deferred income taxes                                                         |  |                | (895  | ) |                                 |   |                                   |   |  |               |  |  |              | 6,788    |   |                               |   |        |              |  |   |                                   |   |  |   | 6,788    |   |  |   |        |   |  |   | 5,893    |  
|Amortization of deferred financing costs                                      |  |                | 201   |   |                                 |   | 2,166                              |   |  |               |  |  |              |         |   |                               |   |        |              |  |   |                                   |   |  |   | 2,166    |   |  |   |        |   |  |   | 2,367    |  
|Gain on sale of property and equipment                                        |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | (1,412   | ) |                               |   |        |              |  |   |                                   |   |  |   | (1,412   | ) |  |   |        |   |  |   | (1,412   | )
|Goodwill impairment                                                           |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 982      |   |                               |   |        |              |  |   |                                   |   |  |   | 982      |   |  |   |        |   |  |   | 982      |  
|Earnings of minority shareholder                                              |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              |         |   |                               |   |        |              |  |   | 759                                |   |  |   | 759      |   |  |   |        |   |  |   | 759      |  
|Stock based compensation                                                      |  |                | 28    |   |                                 |   |                                   |   |  |               |  |  |              |         |   |                               |   |        |              |  |   |                                   |   |  |   |         |   |  |   |        |   |  |   | 28       |  
|Changes in assets and liabilities                                            |  |                |       |   |                                 |   |                                    |   |  |               |   |  |              |          |   |                               |   |         |              |  |   |                                    |   |  |   |          |   |  |   |         |   |  |   |          |  
|Accounts receivable                                                           |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | (103,770 | ) |                               |   | (13,014 | )            |  |   |                                   |   |  |   | (116,784 | ) |  |   |        |   |  |   | (116,784 | )
|Inventories                                                                   |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | (392     | ) |                               |   |        |              |  |   |                                   |   |  |   | (392     | ) |  |   |        |   |  |   | (392     | )
|Prepaid expenses and other                                                    |  |                |      |   |                                 |   | (8                                 | ) |  |               |  |  |              | 4,251    |   |                               |   | 2       |              |  |   |                                   |   |  |   | 4,245    |   |  |   |        |   |  |   | 4,245    |  
|Insurance deposits                                                            |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 3,744    |   |                               |   |        |              |  |   |                                   |   |  |   | 3,744    |   |  |   |        |   |  |   | 3,744    |  
|Other assets                                                                  |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 1,833    |   |                               |   |        |              |  |   |                                   |   |  |   | 1,833    |   |  |   |        |   |  |   | 1,833    |  
|Accounts payable                                                              |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | (612     | ) |                               |   | (14     | )            |  |   |                                   |   |  |   | (626     | ) |  |   |        |   |  |   | (626     | )
|Accrued liabilities                                                           |  |                |      |   |                                 |   | (310                               | ) |  |               |  |  |              | 478      |   |                               |   | 283     |              |  |   |                                   |   |  |   | 451      |   |  |   |        |   |  |   | 451      |  
|Deferred revenue                                                              |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 1,913    |   |                               |   |        |              |  |   |                                   |   |  |   | 1,913    |   |  |   |        |   |  |   | 1,913    |  
|Other liabilities                                                             |  |                |      |   |                                 |   |                                   |   |  |               |  |  |              | 5,291    |   |                               |   |        |              |  |   |                                   |   |  |   | 5,291    |   |  |   |        |   |  |   | 5,291    |  
|                                                                              |  |                |       |   |                                 |   |                                    |   |  |               |   |  |              |          |   |                               |   |         |              |  |   |                                    |   |  |   |          |   |  |   |         |   |  |   |          |  
|Net cash provided by operating activities                                     |  |                | 9,746 |   |                                 |   | 12,503                             |   |  |               |  |  |              | 48,716   |   |                               |   | 1,226   |              |  |   | (34,439                            | ) |  |   | 28,006   |   |  |   | (10,655 | ) |  |   | 27,097   |  
|                                                                              |  |                |       |   |                                 |   |                                    |   |  |               |   |  |              |          |   |                               |   |         |              |  |   |                                    |   |  |   |          |   |  |   |         |   |  |   |          |  



100



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##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS(Continued)

FOR THE YEAR ENDED JUNE 30, 2006

(unaudited)

(in thousands)



|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|------------------------------------------------ |  | -------------- | ------- | - | ------------------------------- | - | ---------------------------------- | - |  | ------------- | - |  | ------------ | ------- | ----------------------------- |  | - | ------------ | - | ---------------------------------- | - | ------ |  | - | ------- | - |  | - | ------ |  | - | ------- | -
|                                                 |  | Parent         |         |   | SeniorSubordinatedNotes Issuers |   | Senior SubordinatedNotesGuarantors |   |  | Non-Guarantor |   |  | Eliminations |         | Rural/Metro LLC -Consolidated |  |   | Eliminations |   | Rural MetroCorporationConsolidated |  
|                                                 |  | Rural/MetroLLC |         |   | Rural/MetroInc.                 |   |                                    |   |  |               |  
|Cash flows from investing activities:            |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Purchases of short-term investments              |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | (62,351 | )                             |  |   |             |   |                                    |   |       |  |   | (62,351 | ) |  |   |       |  |   | (62,351 | )
|Sales of short-term investments                  |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | 56,150  |                               |  |   |             |   |                                    |   |       |  |   | 56,150  |   |  |   |       |  |   | 56,150  |  
|Capital expenditures                             |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | (15,970 | )                             |  |   | (204         | ) |                                    |   |       |  |   | (16,174 | ) |  |   |       |  |   | (16,174 | )
|Proceeds from the sale of property and equipment |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | 1,806   |                               |  |   |             |   |                                    |   |       |  |   | 1,806   |   |  |   |       |  |   | 1,806   |  
|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Net cash used in investing activities            |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | (20,365 | )                             |  |   | (204         | ) |                                    |   |       |  |   | (20,569 | ) |  |   |       |  |   | (20,569 | )
|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Cash flows from financing activities:            |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Repayment of debt                                |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | (22,496 | )                             |  |   |             |   |                                    |   |       |  |   | (22,496 | ) |  |   |       |  |   | (22,496 | )
|Tax benefit from the exercise of stock options   |  |                | 895     |   |                                 |   |                                   |   |  |               |  |  |              |        |                               |  |   |             |   |                                    |   |       |  |   |        |   |  |   |       |  |   | 895     |  
|Issuance of common stock                         |  |                | 731     |   |                                 |   |                                   |   |  |               |  |  |              |        |                               |  |   |             |   |                                    |   |       |  |   |        |   |  |   |       |  |   | 731     |  
|Distributions to minority shareholders           |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              |        |                               |  |   | (305         | ) |                                    |   |       |  |   | (305    | ) |  |   |       |  |   | (305    | )
|Distributions to Rural/Metro LLC                 |  |                |        |   |                                 |   | 150                                |   |  |               |  |  |              |        |                               |  |   | (150         | ) |                                    |   |       |  |   |        |   |  |   |       |  |   |        |  
|Due to/from affiliates                           |  |                | (11,372 | ) |                                 |   | (12,653                            | ) |  |               |  |  |              | (20,995 | )                             |  |   | (74          | ) |                                    |   | 34,439 |  |   | 717     |   |  |   | 10,655 |  |   |        |  
|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Net cash used in financing activities            |  |                | (9,746  | ) |                                 |   | (12,503                            | ) |  |               |  |  |              | (43,491 | )                             |  |   | (529         | ) |                                    |   | 34,439 |  |   | (22,084 | ) |  |   | 10,655 |  |   | (21,175 | )
|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Increase in cash and cash equivalents            |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | (15,140 | )                             |  |   | 493          |   |                                    |   |       |  |   | (14,647 | ) |  |   |       |  |   | (14,647 | )
|Cash and cash equivalents, beginning of year     |  |                |        |   |                                 |   |                                   |   |  |               |  |  |              | 17,031  |                               |  |   | 657          |   |                                    |   |       |  |   | 17,688  |   |  |   |       |  |   | 17,688  |  
|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  
|Cash and cash equivalents, end of year           |  | $              |        |   |                                 | $ |                                   |   |  | $             |  |  | $            | 1,891   |                               |  | $ | 1,150        |   |                                    | $ |       |  | $ | 3,041   |   |  | $ |       |  | $ | 3,041   |  
|                                                 |  |                |         |   |                                 |   |                                    |   |  |               |   |  |              |         |                               |  |   |              |   |                                    |   |        |  |   |         |   |  |   |        |  |   |         |  

---

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



101



---

##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2005

(unaudited)

(in thousands)



|                                                                              |  |        |         |                                  |   |                                   |                 |  |               |   |  |              |         |   |                              |   |         |              |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ------ | ------- | -------------------------------- | - | --------------------------------- | --------------- |  | ------------- | - |  | ------------ | ------- | - | ---------------------------- | - | ------- | ------------ |  | - | ---------------------------------- | - |  | - | ------- | - |  | - | -------- | - |  | - | ------- | -
|                                                                              |  |        |         | Senior SubordinatedNotes Issuers |   | SeniorSubordinatedNotesGuarantors |                 |  | Non-Guarantor |   |  | Eliminations |         |   | Rural/MetroLLC -Consolidated |   |         | Eliminations |  |   | Rural MetroCorporationConsolidated |  
|                                                                              |  | Parent |         | Rural/MetroLLC                   |   |                                   | Rural/MetroInc. |  |               |   |  |              |        
|Cash flows from operating activities:                                         |  |        |         |                                  |   |                                   |                 |  |               |   |  |              |         |   |                              |   |         |              |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Net income                                                                    |  | $      | 88,331  |                                  | $ | 88,192                            |                 |  | $             |  |  | $            | 125,600 |   |                              | $ | 204     |              |  | $ | (95,818                            | ) |  | $ | 118,178 |   |  | $ | (118,178 | ) |  | $ | 88,331  |  
|Adjustments to reconcile net income to cash provided by operating activities |  |        |         |                                  |   |                                   |                 |  |               |   |  |              |         |   |                              |   |         |              |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Provision for doubtful accounts                                               |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 74,433  |   |                              |   | 13,597  |              |  |   |                                   |   |  |   | 88,030  |   |  |   |         |   |  |   | 88,030  |  
|Depreciation and amortization                                                 |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 11,630  |   |                              |   |        |              |  |   |                                   |   |  |   | 11,630  |   |  |   |         |   |  |   | 11,630  |  
|Non-cash adjustments to insurance claims reserves                             |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | (6,725  | ) |                              |   |        |              |  |   |                                   |   |  |   | (6,725  | ) |  |   |         |   |  |   | (6,725  | )
|Accretion of 12.75% Senior Discount Notes                                     |  |        | 2,066   |                                  |   |                                  |                 |  |               |  |  |              |        |   |                              |   |        |              |  |   |                                   |   |  |   |        |   |  |   |         |   |  |   | 2,066   |  
|Deferred income taxes                                                         |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | (84,155 | ) |                              |   |        |              |  |   |                                   |   |  |   | (84,155 | ) |  |   |         |   |  |   | (84,155 | )
|Amortization of deferred financing costs                                      |  |        | 1,848   |                                  |   | 756                               |                 |  |               |  |  |              |        |   |                              |   |        |              |  |   |                                   |   |  |   | 756     |   |  |   |         |   |  |   | 2,604   |  
|Loss on sale of property and equipment                                        |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 454     |   |                              |   |        |              |  |   |                                   |   |  |   | 454     |   |  |   |         |   |  |   | 454     |  
|Earnings of minority shareholder                                              |  |        |        |                                  |   |                                  |                 |  |               |  |  |              |        |   |                              |   |        |              |  |   | 102                                |   |  |   | 102     |   |  |   |         |   |  |   | 102     |  
|Non-cash portion of loss on early extinguishment of debt                      |  |        | 5,668   |                                  |   |                                  |                 |  |               |  |  |              |        |   |                              |   |        |              |  |   |                                   |   |  |   |        |   |  |   |         |   |  |   | 5,668   |  
|Tax benefit from the exercise of stock options                                |  |        | 2,202   |                                  |   |                                  |                 |  |               |  |  |              |        |   |                              |   |        |              |  |   |                                   |   |  |   |        |   |  |   |         |   |  |   | 2,202   |  
|Amortization of debt discount                                                 |  |        | 17      |                                  |   |                                  |                 |  |               |  |  |              |        |   |                              |   |        |              |  |   |                                   |   |  |   |        |   |  |   |         |   |  |   | 17      |  
|Changes in assets and liabilities                                            |  |        |         |                                  |   |                                   |                 |  |               |   |  |              |         |   |                              |   |         |              |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Accounts receivable                                                           |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | (82,202 | ) |                              |   | (12,466 | )            |  |   |                                   |   |  |   | (94,668 | ) |  |   |         |   |  |   | (94,668 | )
|Inventories                                                                   |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | (1,005  | ) |                              |   |        |              |  |   |                                   |   |  |   | (1,005  | ) |  |   |         |   |  |   | (1,005  | )
|Prepaid expenses and other                                                    |  |        |        |                                  |   | (67                               | )               |  |               |  |  |              | (2,982  | ) |                              |   |        |              |  |   |                                   |   |  |   | (3,049  | ) |  |   |         |   |  |   | (3,049  | )
|Insurance deposits                                                            |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | (5,311  | ) |                              |   |        |              |  |   |                                   |   |  |   | (5,311  | ) |  |   |         |   |  |   | (5,311  | )
|Other assets                                                                  |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 1,510   |   |                              |   |        |              |  |   |                                   |   |  |   | 1,510   |   |  |   |         |   |  |   | 1,510   |  
|Accounts payable                                                              |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 574     |   |                              |   | 176     |              |  |   |                                   |   |  |   | 750     |   |  |   |         |   |  |   | 750     |  
|Accrued liabilities                                                           |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 3,455   |   |                              |   | 142     |              |  |   |                                   |   |  |   | 3,597   |   |  |   |         |   |  |   | 3,597   |  
|Deferred revenue                                                              |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 1,888   |   |                              |   |        |              |  |   |                                   |   |  |   | 1,888   |   |  |   |         |   |  |   | 1,888   |  
|Other liabilities                                                             |  |        |        |                                  |   |                                  |                 |  |               |  |  |              | 10,919  |   |                              |   |        |              |  |   |                                   |   |  |   | 10,919  |   |  |   |         |   |  |   | 10,919  |  
|                                                                              |  |        |         |                                  |   |                                   |                 |  |               |   |  |              |         |   |                              |   |         |              |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  
|Net cash provided by operating activities                                     |  |        | 100,132 |                                  |   | 88,881                            |                 |  |               |  |  |              | 48,083  |   |                              |   | 1,653   |              |  |   | (95,716                            | ) |  |   | 42,901  |   |  |   | (118,178 | ) |  |   | 24,855  |  
|                                                                              |  |        |         |                                  |   |                                   |                 |  |               |   |  |              |         |   |                              |   |         |              |  |   |                                    |   |  |   |         |   |  |   |          |   |  |   |         |  



102



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##### Table of Contents

RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2005

(unaudited)

(in thousands)



|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|------------------------------------------------ |  | ------ | -------- | - | -------------------------------- | - | -------- | --------------------------------- |  | - | ------------- | - |  | ------------ | ------- | - | ---------------------------- | - | ------ | ------------ |  | ---------------------------------- | -------- | - |  | - | -------- | - |  | - | ------- |  | - | -------- | -
|                                                 |  |        |          |   | Senior SubordinatedNotes Issuers |   |          | SeniorSubordinatedNotesGuarantors |  |   | Non-Guarantor |   |  | Eliminations |         |   | Rural/MetroLLC -Consolidated |   |        | Eliminations |  | Rural MetroCorporationConsolidated |         
|                                                 |  | Parent |          |   | Rural/MetroLLC                   |   |          | Rural/MetroInc.                   |  |   |               |   |  |              |        
|Cash flows from investing activities:            |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Capital expenditures                             |  |        |         |   |                                  |   |         |                                   |  |   |              |   |  |              | (12,521 | ) |                              |   |       |              |  |                                    |         |   |  |   | (12,521  | ) |  |   |        |  |   | (12,521  | )
|Proceeds from the sale of property and equipment |  |        |         |   |                                  |   |         |                                   |  |   |              |   |  |              | 149     |   |                              |   |       |              |  |                                    |         |   |  |   | 149      |   |  |   |        |  |   | 149      |  
|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Net cash used in investing activities            |  |        |         |   |                                  |   |         |                                   |  |   |              |   |  |              | (12,372 | ) |                              |   |       |              |  |                                    |         |   |  |   | (12,372  | ) |  |   |        |  |   | (12,372  | )
|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Cash flows from financing activities:            |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Repayment of debt                                |  |        | (302,555 | ) |                                  |   | (7,000   | )                                 |  |   |              |   |  |              | (1,393  | ) |                              |   |       |              |  |                                    |         |   |  |   | (8,393   | ) |  |   |        |  |   | (310,948 | )
|Issuance of common stock                         |  |        | 3,050    |   |                                  |   |         |                                   |  |   |              |   |  |              |        |   |                              |   |       |              |  |                                    |         |   |  |   |         |   |  |   |        |  |   | 3,050    |  
|Issuance of debt                                 |  |        | 50,209   |   |                                  |   | 260,000  |                                   |  |   | 125,000       |   |  |              |        |   |                              |   |       |              |  |                                    | (125,000 | ) |  |   | 260,000  |   |  |   |        |  |   | 310,209  |  
|Cash paid for debt issuance costs                |  |        | (2,040   | ) |                                  |   | (11,438  | )                                 |  |   |              |   |  |              |        |   |                              |   |       |              |  |                                    |         |   |  |   | (11,438  | ) |  |   |        |  |   | (13,478  | )
|Due to/from affiliates                           |  |        | 151,204  |   |                                  |   | (330,443 | )                                 |  |   | (125,000      | ) |  |              | (33,229 | ) |                              |   | (1,426 | )            |  |                                    | 220,716  |   |  |   | (269,382 | ) |  |   | 118,178 |  |   |         |  
|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Net cash used in financing activities            |  |        | (100,132 | ) |                                  |   | (88,881  | )                                 |  |   |              |   |  |              | (34,622 | ) |                              |   | (1,426 | )            |  |                                    | 95,716   |   |  |   | (29,213  | ) |  |   | 118,178 |  |   | (11,167  | )
|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Increase in cash and cash equivalents            |  |        |         |   |                                  |   |         |                                   |  |   |              |   |  |              | 1,089   |   |                              |   | 227    |              |  |                                    |         |   |  |   | 1,316    |   |  |   |        |  |   | 1,316    |  
|Cash and cash equivalents, beginning of year     |  |        |         |   |                                  |   |         |                                   |  |   |              |   |  |              | 15,942  |   |                              |   | 430    |              |  |                                    |         |   |  |   | 16,372   |   |  |   |        |  |   | 16,372   |  
|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  
|Cash and cash equivalents, end of year           |  | $      |         |   |                                  | $ |         |                                   |  | $ |              |   |  | $            | 17,031  |   |                              | $ | 657    |              |  | $                                  |         |   |  | $ | 17,688   |   |  | $ |        |  | $ | 17,688   |  
|                                                 |  |        |          |   |                                  |   |          |                                   |  |   |               |   |  |              |         |   |                              |   |        |              |  |                                    |          |   |  |   |          |   |  |   |         |  |   |          |  

---

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



103



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2004

(unaudited)

(in thousands)





|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|--------------------------------------------------------------------------------------- |  | ------ | ------ | - | ---------------------------------- | - | ------- | ------------- |  | - | ------------ | - |  | ---------------------------------- | ------- | - |  | - | ------- | -
|                                                                                        |  | Parent |        |   | SeniorSubordinated NotesGuarantors |   |         | Non-Guarantor |  |   | Eliminations |   |  | Rural MetroCorporationConsolidated |        
|Cash flow from operating activities:                                                    |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Net income (loss)                                                                       |  | $      | 6,211  |   |                                    | $ | 35,996  |               |  | $ | (950         | ) |  | $                                  | (35,046 | ) |  | $ | 6,211   |  
|Adjustments to reconcile net income to cash provided by (used in) operating activities |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Provision for doubtful accounts                                                         |  |        |       |   |                                    |   | 80,419  |               |  |   | 11,058       |   |  |                                    |        |   |  |   | 91,477  |  
|Depreciation and amortization                                                           |  |        |       |   |                                    |   | 12,256  |               |  |   |             |   |  |                                    |        |   |  |   | 12,256  |  
|Non-cash adjustments to insurance claims reserves                                       |  |        |       |   |                                    |   | (722    | )             |  |   |             |   |  |                                    |        |   |  |   | (722    | )
|Amortization of deferred financing costs                                                |  |        | 2,753  |   |                                    |   |        |               |  |   |             |   |  |                                    |        |   |  |   | 2,753   |  
|Loss on sale of property and equipment                                                  |  |        |       |   |                                    |   | 39      |               |  |   |             |   |  |                                    |        |   |  |   | 39      |  
|Losses of minority shareholder                                                          |  |        |       |   |                                    |   |        |               |  |   |             |   |  |                                    | (475    | ) |  |   | (475    | )
|Amortization of debt discount                                                           |  |        | 26     |   |                                    |   |        |               |  |   |             |   |  |                                    |        |   |  |   | 26      |  
|Change in assets and liabilities                                                       |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Accounts receivable                                                                     |  |        |       |   |                                    |   | (85,612 | )             |  |   | (10,785      | ) |  |                                    |        |   |  |   | (96,397 | )
|Inventories                                                                             |  |        |       |   |                                    |   | (234    | )             |  |   |             |   |  |                                    |        |   |  |   | (234    | )
|Prepaid expenses and other                                                              |  |        |       |   |                                    |   | (1,001  | )             |  |   |             |   |  |                                    |        |   |  |   | (1,001  | )
|Insurance deposits                                                                      |  |        |       |   |                                    |   | (1,307  | )             |  |   |             |   |  |                                    |        |   |  |   | (1,307  | )
|Other assets                                                                            |  |        |       |   |                                    |   | (7,113  | )             |  |   | (525         | ) |  |                                    |        |   |  |   | (7,638  | )
|Accounts payable                                                                        |  |        |       |   |                                    |   | 365     |               |  |   | (310         | ) |  |                                    |        |   |  |   | 55      |  
|Accrued liabilities                                                                     |  |        | (1,269 | ) |                                    |   | (12,774 | )             |  |   | (28          | ) |  |                                    |        |   |  |   | (14,071 | )
|Deferred revenue                                                                        |  |        |       |   |                                    |   | 1,227   |               |  |   |             |   |  |                                    |        |   |  |   | 1,227   |  
|Other liabilities                                                                       |  |        |       |   |                                    |   | 22,302  |               |  |   |             |   |  |                                    |        |   |  |   | 22,302  |  
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Net cash provided by (used in) operating activities                                     |  |        | 7,721  |   |                                    |   | 43,841  |               |  |   | (1,540       | ) |  |                                    | (35,521 | ) |  |   | 14,501  |  
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Cash flows from investing activities:                                                   |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Capital expenditures                                                                    |  |        |       |   |                                    |   | (8,646  | )             |  |   |             |   |  |                                    |        |   |  |   | (8,646  | )
|Proceeds from the sale of property and equipment                                        |  |        |       |   |                                    |   | 225     |               |  |   |             |   |  |                                    |        |   |  |   | 225     |  
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Net cash used in investing activities                                                   |  |        |       |   |                                    |   | (8,421  | )             |  |   |             |   |  |                                    |        |   |  |   | (8,421  | )
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Cash flows from financing activities:                                                   |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Repayment of debt                                                                       |  |        | (1,000 | ) |                                    |   | (1,248  | )             |  |   |             |   |  |                                    |        |   |  |   | (2,248  | )
|Issuance of common stock                                                                |  |        | 494    |   |                                    |   |        |               |  |   |             |   |  |                                    |        |   |  |   | 494     |  
|Cash paid for debt issuance costs                                                       |  |        | (515   | ) |                                    |   |        |               |  |   |             |   |  |                                    |        |   |  |   | (515    | )
|Due to/from affiliates                                                                  |  |        | (6,700 | ) |                                    |   | (29,599 | )             |  |   | 778          |   |  |                                    | 35,521  |   |  |   |        |  
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Net cash (used in) provided by financing activities                                     |  |        | (7,721 | ) |                                    |   | (30,847 | )             |  |   | 778          |   |  |                                    | 35,521  |   |  |   | (2,269  | )
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Increase (decrease) in cash and cash equivalents                                        |  |        |       |   |                                    |   | 4,573   |               |  |   | (762         | ) |  |                                    |        |   |  |   | 3,811   |  
|Cash and cash equivalents, beginning of year                                            |  |        |       |   |                                    |   | 11,369  |               |  |   | 1,192        |   |  |                                    |        |   |  |   | 12,561  |  
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  
|Cash and cash equivalents, end of year                                                  |  | $      |       |   |                                    | $ | 15,942  |               |  | $ | 430          |   |  | $                                  |        |   |  | $ | 16,372  |  
|                                                                                        |  |        |        |   |                                    |   |         |               |  |   |              |   |  |                                    |         |   |  |   |         |  



104



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|(10) | Income Taxes
|---- | ------------



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



|                                            |  |                      |         |   |      |   |        |      |  |   |      |  
|------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ---- | -
|                                            |  | Years ended June 30, |        
|                                            |  | 2006                 |         |   | 2005 |   |        | 2004 | 
|Current income tax provision                |  | $                    | (1,029  | ) |      | $ | (121   | )    |  | $ | (311 | )
|Deferred income tax (provision) benefit     |  |                      | (6,738  | ) |      |   | 81,795 |      |  |   |     |  
|                                            |  |                      |         |   |      |   |        |      |  |   |      |  
|Total income tax (provision) benefit        |  | $                    | (7,767  | ) |      | $ | 81,674 |      |  | $ | (311 | )
|                                            |  |                      |         |   |      |   |        |      |  |   |      |  
|Continuing operations (provision) benefit   |  | $                    | (10,907 | ) |      | $ | 83,816 |      |  | $ | 225  |  
|Discontinued operations (provision) benefit |  |                      | 3,140   |   |      |   | (2,142 | )    |  |   | (536 | )
|                                            |  |                      |         |   |      |   |        |      |  |   |      |  
|Total income tax (provision) benefit        |  | $                    | (7,767  | ) |      | $ | 81,674 |      |  | $ | (311 | )
|                                            |  |                      |         |   |      |   |        |      |  |   |      |  



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



|                                     |  |                      |         |   |      |   |        |      |  |   |    
|------------------------------------ |  | -------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ---
|                                     |  | Years ended June 30,
|                                     |  | 2006                 |         |   | 2005 |   |        | 2004
|Current:                             |  |                      |         |   |      |   |        |      |  |   |    
|Federal                              |  | $                    | (686    | ) |      | $ | (428   | )    |  | $ |   
|State                                |  |                      | (519    | ) |      |   | 112    |      |  |   | 225
|                                     |  |                      |         |   |      |   |        |      |  |   |    
|Total                                |  |                      | (1,205  | ) |      |   | (316   | )    |  |   | 225
|                                     |  |                      |         |   |      |   |        |      |  |   |    
|Deferred:                            |  |                      |         |   |      |   |        |      |  |   |    
|Federal                              |  |                      | (8,872  | ) |      |   | 79,502 |      |  |   |   
|State                                |  |                      | (830    | ) |      |   | 4,630  |      |  |   |   
|                                     |  |                      |         |   |      |   |        |      |  |   |    
|Total                                |  |                      | (9,702  | ) |      |   | 84,132 |      |  |   |   
|                                     |  |                      |         |   |      |   |        |      |  |   |    
|Total income tax (provision) benefit |  | $                    | (10,907 | ) |      | $ | 83,816 |      |  | $ | 225
|                                     |  |                      |         |   |      |   |        |      |  |   |    



The income tax (provision) benefit
differs from the amount computed by applying the statutory U.S. federal income tax rate of 35 percent to income (loss) from continuing operations before income taxes and minority interest as follows (in thousands):



|                                                         |  |                      |         |   |      |   |        |      |  |   |       |  
|-------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                         |  | Years ended June 30, |        
|                                                         |  | 2006                 |         |   | 2005 |   |        | 2004 | 
|Federal income tax (provision) benefit at statutory rate |  | $                    | (7,396  | ) |      | $ | (1,291 | )    |  | $ | (331  | )
|State taxes, net of federal tax benefit                  |  |                      | (610    | ) |      |   | (982   | )    |  |   | 225   |  
|Change in valuation allowance                            |  |                      | (321    | ) |      |   | 84,923 |      |  |   | (590  | )
|Disallowed interest on Senior Discount Notes             |  |                      | (432    | ) |      |   | (150   | )    |  |   |      |  
|Executive compensation                                   |  |                      | (723    | ) |      |   | (1,029 | )    |  |   | (603  | )
|Other, net                                               |  |                      | (1,425  | ) |      |   | 2,345  |      |  |   | 1,524 |  
|                                                         |  |                      |         |   |      |   |        |      |  |   |       |  
|Total income tax (provision) benefit                     |  | $                    | (10,907 | ) |      | $ | 83,816 |      |  | $ | 225   |  
|                                                         |  |                      |         |   |      |   |        |      |  |   |       |  



During 2006, we updated the effective
income tax rates applicable to the deferred tax assets relating to our state net operating loss carryforwards. This process resulted in an increase in our deferred tax assets of $2.8 million and a corresponding increase in our related valuation
allowance, having no net effect on our income tax provision for the year.



105



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes the components of the Companys deferred tax assets and liabilities (in
thousands):



|                                                   |  |                |         |   |      |   |         |  
|-------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                   |  | As of June 30, |        
|                                                   |  | 2006           |         |   | 2005 |  
|Deferred tax assets:                               |  |                |         |   |      |   |         |  
|Net operating loss carryforwards                   |  | $              | 74,130  |   |      | $ | 80,929  |  
|Minimum tax credit carryforwards                   |  |                | 1,104   |   |      |   | 644     |  
|Capital loss carryforwards                         |  |                | 14,005  |   |      |   | 14,518  |  
|Insurance claim reserves                           |  |                | 10,738  |   |      |   | 10,393  |  
|Accelerated depreciation and amortization          |  |                | 3,181   |   |      |   | 5,002   |  
|Compensation and benefits                          |  |                | 3,270   |   |      |   | 2,893   |  
|Allowance for doubtful accounts                    |  |                | 6,341   |   |      |   | 5,718   |  
|Other                                              |  |                | 5,023   |   |      |   | 3,702   |  
|                                                   |  |                |         |   |      |   |         |  
|Deferred tax assets                                |  |                | 117,792 |   |      |   | 123,799 |  
|                                                   |  |                |         |   |      |   |         |  
|Deferred tax liabilities:                          |  |                |         |   |      |   |         |  
|Partnership losses                                 |  |                | (2,268  | ) |      |   | (3,506  | )
|Other                                              |  |                |        |   |      |   | (2,078  | )
|                                                   |  |                |         |   |      |   |         |  
|Deferred tax liabilities                           |  |                | (2,268  | ) |      |   | (5,584  | )
|                                                   |  |                |         |   |      |   |         |  
|Net deferred tax assets before valuation allowance |  |                | 115,524 |   |      |   | 118,215 |  
|Less: valuation allowance                          |  |                | (36,406 | ) |      |   | (33,204 | )
|                                                   |  |                |         |   |      |   |         |  
|Net deferred tax asset                             |  | $              | 79,118  |   |      | $ | 85,011  |  
|                                                   |  |                |         |   |      |   |         |  



As required by generally accepted
accounting principles, management assesses the recoverability of the Companys deferred tax assets on a regular basis and records a valuation allowance for any such assets where recoverability is determined to be unlikely. Prior to
June 30, 2005, the Company maintained a full valuation allowance against its deferred tax assets, which consist primarily of its federal and state net operating loss carryforwards and its federal capital loss carryforwards, as management had
concluded, based upon the available evidence, that realization was unlikely.



In the fourth quarter of fiscal 2005, the Company released $86.4 million of its deferred tax valuation allowances, primarily those relating to its federal and state net operating loss carryforwards, as a result of managements
determination that realization of the related deferred tax benefits was likely. The Company reflected the related valuation allowance release as a deferred tax benefit in continuing operations of $83.9 million, a credit to additional paid in capital
of $2.1 million, a reduction in goodwill of $1.5 million and a deferred tax charge in discontinued operations of $1.1 million. The portion of the valuation allowance release recorded as a reduction of goodwill relates to acquired net operating
losses for which a related benefit had not previously been recognized. The Company continues to maintain a valuation allowance of $36.4 million for those net operating loss and capital loss carryforwards that management currently expects will expire
prior to utilization.



Beginning in fiscal 2006, the Company is recognizing
deferred income tax expense as the Company utilizes its net operating loss carryforwards to reduce its federal and state taxes currently payable and the associated deferred tax benefits are realized. As a result, minimal current cash payments are
required.



As of June 30, 2006, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $179 million which expire in 2014-2024 and state net operating loss carryforwards of approximately $281 million, which expire in 2007-2026. The Company had capital loss carryforwards of
$36 million, which expire in 2008. The Company also had minimum tax credit carryforwards of $1.1 million for



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



federal income tax purposes. These credits can be carried forward indefinitely, but may only be used to the extent that regular tax exceeds the alternative
minimum tax in any given year. If the Company experiences an ownership change as defined by the Internal Revenue Code, its ability to utilize its carryforwards may be limited.



On February 3, 2006, the Company received notification from the Internal Revenue Service of its intention to examine the Companys
federal income tax return for the year ended June 30, 2004. Although the ultimate outcome is unknown, management believes that it has adequately provided for any potential adjustment that may arise from the current examination and that the
final outcome will not have a material impact on the Companys consolidated financial condition, results of operations or cash flows.



|(11) | Redeemable Nonconvertible Participating Preferred Stock
|---- | -------------------------------------------------------



In connection with amendments to its previous credit agreement, the Company issued 211,549 Series B redeemable nonconvertible participating preferred shares (Series
B Shares) on September 30, 2002 and 283,979 Series C redeemable nonconvertible participating preferred shares (Series C Shares) on September 30, 2003 to certain of its lenders.



The Company recorded the Series B and Series C Shares at their estimated fair values at the
date of issuance ($4.2 million and $3.4 million, respectively) with an offsetting increase in debt issuance costs. At the Companys option, the Series B and Series C Shares could be settled by either the issuance of 2,115,490 and 2,839,790
common shares, respectively, or a cash payment equivalent to the prescribed redemption values. The original value of the Series B and Series C Shares was being accreted to their respective redemption values with an offsetting charge to additional
paid-in capital. Series B and Series C Share accretion totaled $4.8 million and $1.5 million, respectively, for the year ended June 30, 2004.



As a sufficient number of common shares were not available to permit settlement of the Series B and Series C Shares, the Company sought and obtained stockholder approval
at its Annual Meeting of Stockholders held on June 10, 2004 to amend its certificate of incorporation to authorize additional common shares. The amendment increased the Companys authorized common shares from 23,000,000 to 40,000,000.



On June 30, 2004, the Company settled the Series B and Series C Shares by
the issuance of 4,955,278 common shares. In June 2005, the Company registered all of the outstanding common stock issued upon settlement of the Series B and Series C shares with the Securities and Exchange Commission.



As of June 30, 2006 and 2005, there were 2,000,000 shares of preferred stock, par value
$0.01 per share, authorized, none of which were issued and outstanding.



|(12) | Shareholder Rights Plan
|---- | -----------------------



On August 24, 2005, the Company entered into a shareholder rights plan to replace the previous plan that expired on August 23, 2005. The shareholder rights plan
provides for one right to be attached to each share of common stock of the Company. Each right entitles the registered holder to purchase a unit consisting of one one-thousandth of a share (a Unit) of Series A Junior Participating
Preferred Stock, par value $0.01 per share, at a purchase price of $45 per Unit, subject to adjustment. The 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 percent 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 percent or more
of the Companys common stock.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Upon exercise and subject to adjustment, each right will entitle the holder (other than the party seeking to acquire
control of the Company) to acquire a number of shares of common stock of the Company or, in certain circumstances, such acquiring person having a value equal to two times the then applicable purchase price. 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. The shareholder rights plan expires on August 24, 2015.



|(13) | Employee Benefit Plans
|---- | ----------------------



Employee Stock Purchase Plan



The Company established the Employee Stock Purchase Plan (ESPP) through which eligible employees could 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 had reserved 2,150,000 shares of stock for issuance under the ESPP. The
purchase price per share was the lower of 85 percent of the closing price of the Companys common stock on the first day or the last day of the offering period or on the nearest prior day on which trading occurred. Employees purchased 341,430
shares of the Companys common stock under the ESPP during fiscal 2004 at an average per share price of $0.98. The ESPP expired on June 30, 2004. Shares related to the semi-annual period ended June 30, 2004 were issued in July 2004.



1992 Stock Option Plan



The Companys 1992 Stock Option Plan (the 1992 Plan) was adopted in
November 1992 and expired November 5, 2002. The 1992 Plan provided for the granting of up to 6.0 million options to acquire common stock of the Company as well as the granting of common stock, stock appreciation rights or other cash
awards. At June 30, 2006, 2.6 million options had been exercised and 1.7 million options remain outstanding under the 1992 Plan. Options under the 1992 Plan were granted as incentive stock options or non-qualified stock options.



Options under the 1992 Plan were granted only to persons who at the time of
grant were either key personnel of the Company or consultants and independent contractors who provided valuable services to the Company. Incentive stock options could only be granted to key personnel of the Company. Options granted under the 1992
Plan vested over periods not exceeding five years.



2000 Non-Qualified Stock
Option Plan



The Companys 2000 Non-Qualified Stock Option Plan (the
2000 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 2000 Plan was 2.0 million. As
of June 30, 2006, 1.3 million options had been exercised, 0.2 million options remain outstanding and 0.5 million options remain available for grant under the 2000 Plan.



Options under the 2000 Plan may be granted only to persons who at the time of grant are
either regular employees, excluding Directors and Officers, or persons who provide consulting or other services as independent contractors to the Company. Options granted to date vest over periods not exceeding three years. There were no options
granted during fiscal 2006.



To date, the Company has not granted options with
market or performance conditions. All options granted under the 1992 Plan and the 2000 Plan through June 30, 2006 have exercise prices equal to the fair market value of the Companys stock on the date of grant. Options granted under both
plans have a 10 year contractual term. Such term was established by the Board of Directors at the time of grant. Shares issued upon option exercise consist of authorized but unissued shares of the Companys common stock.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following tables summarize stock option activity in the 1992 Plan and the 2000 Plan:



|                                                         |  |                          |   |  |                         |  |                              |      
|-------------------------------------------------------- |  | ------------------------ | - |  | ----------------------- |  | ---------------------------- | -----
|                                                         |  | Year Ended June 30, 2006
|                                                         |  | Number ofShares          |   |  | Exercise PricePer Share |  | WeightedAverageExercisePrice
|Options outstanding at beginning of year                 |  | 2,331,841                |   |  | $0.39 - $36.00          |  | $                            | 8.06 
|Granted                                                  |  |                         |   |  | N/A                     |  |                              | N/A  
|Expired or terminated                                    |  | (97,571                  | ) |  | $1.25 - $32.25          |  | $                            | 15.25
|Exercised                                                |  | (378,019                 | ) |  | $0.39 - $7.81           |  | $                            | 1.84 
|                                                         |  |                          |   |  |                         |  |                              |      
|Options outstanding at end of year                       |  | 1,856,251                |   |  | $0.39 - $36.00          |  | $                            | 8.95 
|                                                         |  |                          |   |  |                         |  |                              |      
|Options exercisable at end of year                       |  | 1,849,583                |   |  | $0.39 - $36.00          |  | $                            | 8.97 
|Options available for grant at end of year               |  | 477,330                  |   |  |                         |  |                              |      
|Weighted average fair value per share of options granted |  |                          |   |  |                         |  |                              | N/A  



|                                                         |  |                          |   |  |                         |  |                              |      
|-------------------------------------------------------- |  | ------------------------ | - |  | ----------------------- |  | ---------------------------- | -----
|                                                         |  | Year Ended June 30, 2005
|                                                         |  | Number ofShares          |   |  | Exercise PricePer Share |  | WeightedAverageExercisePrice
|Options outstanding at beginning of year                 |  | 5,001,952                |   |  | $0.39 - $36.00          |  | $                            | 5.65 
|Granted                                                  |  | 30,000                   |   |  | $1.32 - $4.67           |  | $                            | 3.15 
|Expired or terminated                                    |  | (540,505                 | ) |  | $0.39 - $36.00          |  | $                            | 12.09
|Exercised                                                |  | (2,159,606               | ) |  | $0.39 - $3.45           |  | $                            | 1.39 
|                                                         |  |                          |   |  |                         |  |                              |      
|Options outstanding at end of year                       |  | 2,331,841                |   |  | $0.39 - $36.00          |  | $                            | 8.06 
|                                                         |  |                          |   |  |                         |  |                              |      
|Options exercisable at end of year                       |  | 2,258,282                |   |  | $0.39 - $36.00          |  | $                            | 8.27 
|Options available for grant at end of year               |  | 467,329                  |   |  |                         |  |                              |      
|Weighted average fair value per share of options granted |  |                          |   |  |                         |  | $                            | 2.64 



|                                                         |  |                          |   |  |                         |  |                              |     
|-------------------------------------------------------- |  | ------------------------ | - |  | ----------------------- |  | ---------------------------- | ----
|                                                         |  | Year Ended June 30, 2004
|                                                         |  | Number ofShares          |   |  | Exercise PricePer Share |  | WeightedAverageExercisePrice
|Options outstanding at beginning of year                 |  | 6,130,291                |   |  | $0.39 - $36.00          |  | $                            | 5.25
|Granted                                                  |  | 10,000                   |   |  | $1.89                   |  | $                            | 1.89
|Expired or terminated                                    |  | (859,598                 | ) |  | $0.39 - $32.25          |  | $                            | 4.43
|Exercised                                                |  | (278,741                 | ) |  | $0.39 - $2.00           |  | $                            | 0.65
|                                                         |  |                          |   |  |                         |  |                              |     
|Options outstanding at end of year                       |  | 5,001,952                |   |  | $0.39 - $36.00          |  | $                            | 5.65
|                                                         |  |                          |   |  |                         |  |                              |     
|Options exercisable at end of year                       |  | 4,538,146                |   |  | $0.39 - $36.00          |  | $                            | 6.04
|Options available for grant at end of year               |  | 442,329                  |   |  |                         |  |                              |     
|Weighted average fair value per share of options granted |  |                          |   |  |                         |  | $                            | 1.29



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes options issued under the 1992 Plan and the 2000 Plan that were outstanding and
exercisable at June 30, 2006 (aggregate intrinsic value is based on a closing stock price of $7.00 per share at June 30, 2006, in thousands):



|                        |  |                     |  |                                          |  |                              |       |                         |   |                    |  |                               |  |                         |       |  |   |      
|----------------------- |  | ------------------- |  | ---------------------------------------- |  | ---------------------------- | ----- | ----------------------- | - | ------------------ |  | ----------------------------- |  | ----------------------- | ----- |  | - | -----
|                        |  | Options Outstanding |  | Options Exercisable                     
|Range of Exercise Price |  | OptionsOutstanding  |  | WeightedAverageRemainingContractual Life |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue |   | OptionsExercisable |  | Weighted AverageExercisePrice |  | AggregateIntrinsicValue
|$0.39 - $0.44           |  | 176,218             |  | 5.47                                     |  | $                            | 0.39  |                         | $ | 1,164              |  | 176,218                       |  | $                       | 0.39  |  | $ | 1,164
|$0.84 - $1.32           |  | 185,960             |  | 5.15                                     |  | $                            | 0.87  |                         | $ | 1,140              |  | 182,626                       |  | $                       | 0.86  |  | $ | 1,121
|$1.38 - $1.50           |  | 44,000              |  | 4.10                                     |  | $                            | 1.48  |                         | $ | 243                |  | 44,000                        |  | $                       | 1.48  |  | $ | 243  
|$2.00                   |  | 441,000             |  | 5.00                                     |  | $                            | 2.00  |                         | $ | 2,205              |  | 441,000                       |  | $                       | 2.00  |  | $ | 2,205
|$2.24 - $7.13           |  | 244,250             |  | 3.06                                     |  | $                            | 6.41  |                         | $ | 165                |  | 240,916                       |  | $                       | 6.44  |  | $ | 157  
|$7.56 - $8.00           |  | 383,356             |  | 2.97                                     |  | $                            | 7.92  |                         |   |                   |  | 383,356                       |  | $                       | 7.92  |  |   |     
|$8.25 - $32.25          |  | 305,670             |  | 0.98                                     |  | $                            | 27.03 |                         |   |                   |  | 305,670                       |  | $                       | 27.03 |  |   |     
|$32.50 - $36.00         |  | 75,797              |  | 1.23                                     |  | $                            | 33.94 |                         |   |                   |  | 75,797                        |  | $                       | 33.94 |  |   |     
|                        |  |                     |  |                                          |  |                              |       |                         |   |                    |  |                               |  |                         |       |  |   |      
|$0.39 - $36.00          |  | 1,856,251           |  | 3.55                                     |  | $                            | 8.95  |                         | $ | 4,917              |  | 1,849,583                     |  | $                       | 8.97  |  | $ | 4,890
|                        |  |                     |  |                                          |  |                              |       |                         |   |                    |  |                               |  |                         |       |  |   |      



The Company received $0.7 million,
$3.0 million and $0.2 million in cash proceeds associated with the exercise of stock options and recognized $0.9 million, $2.2 million and $0 of income tax benefits associated with the exercise of such options for the years ended June 30, 2006, 2005
and 2004, respectively. The total intrinsic value of options exercised during the years ended June 30, 2006, 2005 and 2004 was $2.5 million, $8.0 million and $0.3 million, respectively. The total fair value of shares vested during the years ended
June 30, 2006, 2005 and 2004 was $18,000, $0.6 million and $1.0 million, respectively.



The following summarizes non-vested stock option activity in the 1992 Plan and the 2000 Plan:



|                                                    |  |                          |   |  |                                      |     
|--------------------------------------------------- |  | ------------------------ | - |  | ------------------------------------ | ----
|                                                    |  | Year Ended June 30, 2006
|                                                    |  | Number ofShares          |   |  | WeightedAverageGrant Date Fair Value
|Non-vested options outstanding at beginning of year |  | 73,335                   |   |  | $                                    | 1.23
|Granted                                             |  | N/A                      |   |  |                                      | N/A 
|Expired or terminated                               |  | (10,001                  | ) |  | $                                    | 2.28
|Vested                                              |  | (6,666                   | ) |  | $                                    | 2.73
|                                                    |  |                          |   |  |                                      |     
|Non-vested options outstanding at end of year       |  | 56,668                   |   |  | $                                    | 0.87
|                                                    |  |                          |   |  |                                      |     



401(k) Plan



The Company has a defined contribution 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 50 percent of his or her
respective salary, not to exceed the annual statutory limit, except for highly compensated employees, whose contributions are limited to 4 percent. The Company, at its discretion, may elect to make matching contributions 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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



contributions are allocated among participants based on their annual compensation. Each participant has the right to direct the investment of his or her
funds.



Matching contributions of $1.6 million were made to the 401(k) Plan
during each of the fiscal years ended June 30, 2006, 2005 and 2004. The Company did not elect to make a discretionary profit sharing contribution in fiscal years 2006, 2005 or 2004. The Companys 401(k) matching contribution liability was
$1.9 million and $2.3 million at June 30, 2006 and 2005, respectively. The 401 (k) Plan has a December 31 year-end and therefore the matching contribution liability balances at June 30, 2006 and 2005 include approximately 18
months of such contributions.



Defined Benefit Pension Plan



Effective July 1, 2004, the Company established a defined benefit pension plan
covering eligible employees of one of its subsidiaries, primarily those covered by collective bargaining arrangements. Eligibility is achieved upon the completion of one year of service. Participants become fully vested in their accrued benefit
after the completion of five years of service. The amount of benefit is determined using a two-part formula, one of which is based upon compensation and the other which is based upon a flat dollar amount.



The Companys general funding policy is to make annual contributions to the plan as
required by the Employee Retirement Income Security Act (ERISA). Contributions by the Company during fiscal 2006 and 2005 totaled $1.0 million and $0.8 million, respectively. The plans obligations are valued on an annual basis
using a June 30 measurement date.



The following tables provide
reconciliations of the changes in the plans benefit obligation, fair value of assets and prepaid benefit cost for the fiscal year ended June 30, 2006 and 2005 (in thousands):



|                                                |  |                     |       |   |      |   |    
|----------------------------------------------- |  | ------------------- | ----- | - | ---- | - | ---
|                                                |  | Years endedJune 30,
|                                                |  | 2006                |       |   | 2005
|Reconciliation of change in benefit obligation: |  |                     |       |   |      |   |    
|Benefit obligation at beginning of year         |  | $                   | 883   |   |      | $ |   
|Service cost                                    |  |                     | 901   |   |      |   | 726
|Interest cost                                   |  |                     | 44    |   |      |   |   
|Benefits paid                                   |  |                     | (4    | ) |      |   |   
|Administrative expenses paid                    |  |                     | (9    | ) |      |   |   
|Unrecognized actuarial (gain) loss              |  |                     | (503  | ) |      |   | 142
|Plan participants contributions                |  |                     | 16    |   |      |   | 15 
|                                                |  |                     |       |   |      |   |    
|Benefit obligation at end of year               |  | $                   | 1,328 |   |      | $ | 883
|                                                |  |                     |       |   |      |   |    



|                                               |  |                     |       |   |      |   |    
|---------------------------------------------- |  | ------------------- | ----- | - | ---- | - | ---
|                                               |  | Years endedJune 30,
|                                               |  | 2006                |       |   | 2005
|Reconciliation of change in plan assets:       |  |                     |       |   |      |   |    
|Fair value of plan assets at beginning of year |  | $                   | 851   |   |      | $ |   
|Actual return on plan assets                   |  |                     | 101   |   |      |   | 38 
|Employer contributions                         |  |                     | 1,050 |   |      |   | 798
|Benefits paid                                  |  |                     | (4    | ) |      |   |   
|Administrative expenses paid                   |  |                     | (9    | ) |      |   |   
|Plan participants contributions               |  |                     | 16    |   |      |   | 15 
|                                               |  |                     |       |   |      |   |    
|Fair value of plan assets at end of year       |  | $                   | 2,005 |   |      | $ | 851
|                                               |  |                     |       |   |      |   |    



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                 |  |                |        |   |      |   |      |  
|-------------------------------- |  | -------------- | ------ | - | ---- | - | ---- | -
|                                 |  | As of June 30, |       
|                                 |  | 2006           |        |   | 2005 |  
|Reconciliation of funded status: |  |                |        |   |      |   |      |  
|Benefit obligation               |  | $              | (1,328 | ) |      | $ | (883 | )
|Fair value of plan assets        |  |                | 2,005  |   |      |   | 851  |  
|                                 |  |                |        |   |      |   |      |  
|Funded status                    |  |                | 677    |   |      |   | (32  | )
|Unrecognized net (gain) loss     |  |                | (381   | ) |      |   | 127  |  
|                                 |  |                |        |   |      |   |      |  
|Prepaid benefit                  |  | $              | 296    |   |      | $ | 95   |  
|                                 |  |                |        |   |      |   |      |  



Net periodic pension benefit cost for
fiscal 2006 totaled $852,000 and was comprised of service cost of $901,000, interest cost of $44,000 and amortization of unrecognized actuarial losses of $3,000, offset by the expected return on plan assets of $95,000. Net periodic pension benefit
cost for fiscal 2005 totaled $700,000 and was comprised of service cost of $726,000, offset by the expected return on plan assets of $26,000.



The assumptions used to determine the Companys benefit obligation as of June 30, 2006 and 2005 were:



|                                        |  |      |   |  |      |  
|--------------------------------------- |  | ---- | - |  | ---- | -
|                                        |  | 2006 |   |  | 2005 |  
|Discount rate                           |  | 6.48 | % |  | 5.0  | %
|Rate of increase in compensation levels |  | 4.0  | % |  | 2.5  | %



The
assumptions used to determine the Companys net periodic benefit cost for fiscal 2006 and 2005 were:



|                                            |  |      |   |  |      |  
|------------------------------------------- |  | ---- | - |  | ---- | -
|                                            |  | 2006 |   |  | 2005 |  
|Discount rate                               |  | 5.0  | % |  | 6.25 | %
|Rate of increase in compensation levels     |  | 2.5  | % |  | 4.0  | %
|Expected long-term rate of return on assets |  | 7.5  | % |  | 7.5  | %



Assumed discount rates were determined
by applying the spot rates underlying the Citigroup Pension Discount Curve to the plans anticipated cash flows. The discount rate was determined as the level rate compounded annually that produced the same present value as that based upon the
spot rates, with an adjustment to reflect a provision for expenses. The increase in the assumed discount rate as of June 30, 2006 is attributable to increases in market interest rates during fiscal 2006.



For fiscal 2006 and 2005, the Company assumed a long-term rate of return on assets of 7.5
percent. In developing the 7.5 percent expected long-term rate of return assumption, management evaluated input from an independent actuary, including their expectations of asset class return expectations and long-term inflation assumptions.



The Companys pension plan assets at
June 30, 2006 and 2005 by asset category are shown below.



|                  |  |       |   |  |       |  
|----------------- |  | ----- | - |  | ----- | -
|                  |  | 2006  |   |  | 2005  |  
|Equity securities |  | 58.2  | % |  | 59.8  | %
|Debt securities   |  | 33.2  | % |  | 31.9  | %
|Real estate       |  | 8.6   | % |  | 8.3   | %
|                  |  |       |   |  |       |  
|Total             |  | 100.0 | % |  | 100.0 | %
|                  |  |       |   |  |       |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company invests in a diversified portfolio to ensure that adverse or unexpected results from a security class
will not have a detrimental impact on the entire portfolio. The portfolio is diversified by asset type, performance and risk characteristics and number of investments. Asset classes and ranges considered appropriate for investment of the plans
assets are determined by the plans investment committee. The asset classes include domestic and foreign equities, emerging market equities, domestic and foreign investment grade and high-yield bonds and domestic real estate.



Future benefit payments expected to be made from plan assets are summarized below by fiscal
year (in thousands):



|          |  |   |    
|--------- |  | - | ---
|2008      |  | $ | 1  
|2009      |  |   | 4  
|2010      |  |   | 12 
|2011-2015 |  |   | 417



(14) Earnings per Share



The Company calculates earnings per share following the guidance outlined
in SFAS No. 128, Earnings Per Share (SFAS 128), as well as related guidance issued by the EITF and the SEC. As a result of the issuance of its Series B and Series C Shares as discussed in Note 11, the Company
began calculating income (loss) per share using the two-class method whereby net income (loss) for the period was allocated between common shares and other participating securities on the basis of the weighted average number of common
shares and common share equivalents outstanding during a given period. This allocation was also impacted by the accretion of the Series B and Series C Shares to their respective cash redemption values as described in Note 11. As also described in
Note 11, the Company settled the Series B and Series C Shares on June 30, 2004 by exchanging such shares for shares of its common stock. As a result, use of the two-class method was no longer required after that date.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a reconciliation of the numerator and denominator (weighted average number of shares outstanding)
utilized in the basic and diluted earnings per share computations applicable to continuing operations for the years ended June 30, 2006, 2005 and 2004 (in thousands, except per share amounts):



|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | ---- | - | ------ |  | - | ------ | -
|                                                                                                                                               |  | Years Ended June 30, |       
|                                                                                                                                               |  | 2006                 |        | 2005 |   | 2004   | 
|Income (loss) from continuing operations                                                                                                       |  | $                    | 9,464  |      | $ | 84,808 |  | $ | (2,550 | )
|Less: Income (loss) from continuing operations allocated to redeemable nonconvertible participating preferred stock under the two-class
method |  |                      |       |      |   |       |  |   | (1,262 | )
|Less: Accretion of redeemable nonconvertible participating preferred stock                                                                     |  |                      |       |      |   |       |  |   | (6,320 | )
|Add: Credit related to settlement of redeemable nonconvertible participating preferred stock with common stock                                 |  |                      |       |      |   |       |  |   | 10,066 |  
|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|Income (loss) from continuing operations applicable to common stock                                                                            |  | $                    | 9,464  |      | $ | 84,808 |  | $ | (66    | )
|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|Average number of shares outstandingBasic                                                                                                     |  |                      | 24,359 |      |   | 22,674 |  |   | 16,645 |  
|Add: Incremental shares for:                                                                                                                   |  |                      |        |      |   |        |  |   |        |  
|Dilutive effect of stock options                                                                                                               |  |                      | 483    |      |   | 1,431  |  |   | 927    |  
|Settlement of Series B and Series C redeemable nonconvertible participating preferred stock                                                    |  |                      |       |      |   |       |  |   | 4,245  |  
|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|Average number of shares outstandingDiluted                                                                                                   |  |                      | 24,842 |      |   | 24,105 |  |   | 21,817 |  
|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|Income (loss) per shareBasic:                                                                                                                 |  |                      |        |      |   |        |  |   |        |  
|Income (loss) from continuing operations applicable to common stock                                                                            |  | $                    | 0.39   |      | $ | 3.74   |  | $ | 0.10   |  
|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|Income (loss) per shareDiluted:                                                                                                               |  |                      |        |      |   |        |  |   |        |  
|Income (loss) from continuing operations applicable to common stock                                                                            |  | $                    | 0.38   |      | $ | 3.52   |  | $ | (0.12  | )
|                                                                                                                                               |  |                      |        |      |   |        |  |   |        |  



Stock options with exercise prices
above the average market prices during the respective periods have been excluded from the calculation of diluted earnings per share. Such options totaled 0.3 million, 1.5 million and 4.2 million for fiscal 2006, 2005 and 2004,
respectively.



(15) Commitments and Contingencies



Surety Bonds



Certain counties, municipalities, and fire districts require the Company to provide a surety bond or other assurance of financial or
performance responsibility. The Company 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, the Company has surety bonds that are renewable annually. The Company had
$8.6 million of surety bonds outstanding as of June 30, 2006.



Operating Leases



The Company leases various facilities and
equipment under non-cancelable operating lease agreements. Rental expense charged to continuing operations under these leases (including leases with terms of less than one year) was $12.1 million, $10.8 million and $10.1 million in fiscal 2006, 2005
and 2004, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|           |  |   |       
|---------- |  | - | ------
|2007       |  | $ | 9,594 
|2008       |  |   | 8,944 
|2009       |  |   | 7,922 
|2010       |  |   | 7,455 
|2011       |  |   | 5,810 
|Thereafter |  |   | 25,229
|           |  |   |       
|           |  | $ | 64,954
|           |  |   |       



Indemnifications



The Company is a party to a variety of agreements entered into in the ordinary course of
business pursuant to which it may be obligated to indemnify other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by the Company require it to indemnify other
parties against losses due to property damage including environmental contamination, personal injury, failure to comply with applicable laws, the Companys negligence or willful misconduct, or breach of representations and warranties and
covenants.



Additionally, some of the Companys customer agreements
require the Company to provide certain assurances related to the performance of its services. Such assurances, from time to time, obligate the Company to (i) pay penalties for failure to meet response times or other requirements,
(ii) lease, sell or assign equipment or facilities (either temporarily or permanently) in the event of uncured material defaults or other certain circumstances, or (iii) provide surety bonds or letters of credit issued in favor of the
customer to cover costs resulting, under certain circumstances, from an uncured material default. With respect to such surety bonds, the Company is also required to indemnify the surety company for losses paid as a result of any claims made against
such bonds.



The Company and its subsidiaries provide for indemnification of
directors, officers and other persons in accordance with limited liability agreements, certificates of incorporation, by-laws, articles of association or similar organizational documents, as the case may be. The Company maintains directors and
officers insurance, which should enable it to recover a portion of any future amounts paid.



In addition to the above, from time to time the Company provides standard representations and warranties to counterparties in contracts in connection with sales of its securities and the engagement of financial
advisors, and also provides indemnities that protect the counterparties to these contracts in the event they suffer damages as a result of a breach of such representations and warranties, or in certain other circumstances relating to the sale of
securities or their engagement by the Company.



While the Companys future
obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations, and under such agreements it is not possible to predict the maximum potential amount of future payments
due to the conditional nature of the Companys obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under any of these indemnities have not had a material effect on
the Companys business, financial condition, results of operations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the
Companys business, financial condition, results of operations or cash flows.



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RURAL/METRO CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Legal Proceedings



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



The Companys subsidiary, Sioux Falls Ambulance Inc. (Sioux Falls) had been
conducting settlement discussions with the OIG of the HHS regarding alleged improper billing practices in South Dakota. Although Sioux Falls did not admit any liability with respect to the OIGs claims, Sioux Falls, the United States of America
and the OIG entered into a settlement agreement, effective October 25, 2005. Under the terms of the settlement agreement, the government agreed to release Sioux Falls from any civil or administrative monetary claims the government may have had
against Sioux Falls relating to the alleged improper practices. In exchange for such release, Sioux Falls paid the United States $0.5 million on October 28, 2005.



The U.S. government is conducting an investigation into alleged discounts made in violation of the federal Anti-Kickback Statute in
connection with certain of the Companys contracts that were in effect when the Company had operations in the State of Texas. The Company is currently negotiating a settlement with the government regarding these allegations. Although there can
be no assurances that a settlement agreement will be reached, any such settlement agreement may require the Company to make a substantial payment to the government and enter into a Corporate Integrity Agreement. Management believes that the $2.5
million charge recorded during the three months ended March 31, 2006 is adequate to cover any potential losses relating to this matter. If a settlement is not reached, the government has indicated that it will pursue further civil action. There
can be no assurances that this matter will be fully resolved by settlement or that other investigations or legal action related to these matters will not be pursued against the Company in other jurisdictions or for different time frames.



Regulatory Compliance



The Company is subject to numerous laws and regulations of federal, state and local
governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services and Medicare and Medicaid
fraud and abuse. Government activity is ongoing with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. See Legal Proceedings above. Violations of
these laws and regulations could result in exclusion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. The Company believes
that it is substantially in compliance with fraud and abuse statutes and their applicable governmental interpretation.



The Company is from time to time subject to investigations relating to Medicare and Medicaid laws pertaining to its industry. The Company cooperates fully with the
government agencies that conduct these investigations. Such



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



reviews cover periods prior to and following the Companys acquisition of certain operations. Management believes that reserves established for specific
contingencies of $2.9 million and $0.9 million as of June 30, 2006 and 2005, respectively, (including $2.5 million for the Texas matter described above at June 30, 2006 and $0.5 million related to Sioux Falls at June 30, 2005 which was
paid during the second quarter 2006) are adequate based on information currently available.



(16) 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 resulting fair value
estimates.



The carrying values of cash, accounts receivable, accounts payable,
accrued liabilities and other liabilities approximate the related fair values due to the short-term maturities of these instruments. The fair value of the Term Loan B, the 9.875% Senior Subordinated Notes and the 12.75% Senior Discount Notes were
determined by quoted market prices as of June 30, 2006 and 2005.



The
following is a comparison of the fair value and carrying value of the Companys long-term debt (in thousands):



|                                                |  |                |  |               |  |           |  |              
|----------------------------------------------- |  | -------------- |  | ------------- |  | --------- |  | -------------
|                                                |  | As of June 30,
|                                                |  | 2006           |  | 2005         
|                                                |  | FairValue      |  | RecordedValue |  | FairValue |  | RecordedValue
|Senior Secured Term Loan B due March 2011       |  | 107,334        |  | 107,000       |  | 129,600   |  | 128,000      
|9.875% Senior Subordinated Notes due March 2015 |  | 129,219        |  | 125,000       |  | 123,750   |  | 125,000      
|12.75% Senior Discount Notes due March 2016     |  | 67,554         |  | 59,170        |  | 46,750    |  | 52,275       



|(17) | Segment Reporting
|---- | -----------------



The Company provides emergency and non-emergency medical transportation services, private fire protection services, primarily on a subscription fee basis, and a variety of other services. The Company has four
regionally-based reporting segments which correspond with the manner in which the associated operations are managed and evaluated by the Companys senior management. These segments comprise operations within the following areas:



|        |  |                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Segment |  | States                                                                                                                                                                         
|A       |  | Georgia, New York, Northern Ohio, Pennsylvania                                                                                                                                 
|        | 
|B       |  | Alabama, California (fire), Indiana, Kentucky, Louisiana, Mississippi, North Dakota, Northern Florida, New Jersey (fire), Southern Florida, Southern Ohio, Tennessee,
Wisconsin
|        | 
|C       |  | Arizona, New Mexico, Oregon (fire), Utah                                                                                                                                       
|        | 
|D       |  | California (medical transportation), Central Florida, Colorado, Oregon (medical transportation), Nebraska, South Dakota, Washington                                            



Each reportable segment provides
medical transportation services while fire services are predominately centered in Segments B and C.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



The following table summarizes segment information
for fiscal 2006, 2005 and 2004:



|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|------------------------------------- |  | --------- | ------- | --------- | - | --------- |  | --------- | ------- | ----- | - | ------- |  | - | -------
|                                      |  | Segment A |         | Segment B |   | Segment C |  | Segment D |         | Total
|Year ended June 30, 2006              |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Net revenues from external customers; |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Medical transportation                |  | $         | 112,701 |           | $ | 80,686    |  | $         | 156,081 |       | $ | 131,626 |  | $ | 481,094
|Fire and other                        |  |           | 3,788   |           |   | 21,692    |  |           | 41,252  |       |   | 675     |  |   | 67,407 
|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Total net revenue                     |  |           | 116,489 |           |   | 102,378   |  |           | 197,333 |       |   | 132,301 |  |   | 548,501
|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Segment profit                        |  |           | 16,271  |           |   | 9,400     |  |           | 26,977  |       |   | 10,156  |  |   | 62,804 
|Segment assets                        |  |           | 14,725  |           |   | 17,385    |  |           | 29,376  |       |   | 21,881  |  |   | 83,367 
|Year ended June 30, 2005              |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Net revenues from external customers; |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Medical transportation                |  | $         | 110,579 |           | $ | 78,084    |  | $         | 135,302 |       | $ | 115,873 |  | $ | 439,838
|Fire and other                        |  |           | 3,526   |           |   | 20,765    |  |           | 36,102  |       |   | 1,283   |  |   | 61,676 
|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Total net revenue                     |  |           | 114,105 |           |   | 98,849    |  |           | 171,404 |       |   | 117,156 |  |   | 501,514
|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Segment profit                        |  |           | 13,820  |           |   | 7,816     |  |           | 21,904  |       |   | 5,605   |  |   | 49,145 
|Segment assets                        |  |           | 16,711  |           |   | 18,404    |  |           | 18,718  |       |   | 18,153  |  |   | 71,986 
|Year ended June 30, 2004              |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Net revenues from external customers; |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Medical transportation                |  | $         | 112,216 |           | $ | 74,105    |  | $         | 112,857 |       | $ | 107,305 |  | $ | 406,483
|Fire and other                        |  |           | 3,916   |           |   | 19,060    |  |           | 32,699  |       |   | 388     |  |   | 56,063 
|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Total net revenue                     |  |           | 116,132 |           |   | 93,165    |  |           | 145,556 |       |   | 107,693 |  |   | 462,546
|                                      |  |           |         |           |   |           |  |           |         |       |   |         |  |   |        
|Segment profit                        |  |           | 10,644  |           |   | 6,293     |  |           | 16,079  |       |   | 3,351   |  |   | 36,367 
|Segment assets                        |  |           | 14,120  |           |   | 14,755    |  |           | 17,622  |       |   | 18,851  |  |   | 65,348 



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



|                                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                   |  | Years Ended June 30, |        
|                                                                                   |  | 2006                 |         |   | 2005 |   |         | 2004 | 
|Segment profit                                                                     |  | $                    | 62,804  |   |      | $ | 49,146  |      |  | $ | 36,367  |  
|Depreciation and amortization                                                      |  |                      | (11,197 | ) |      |   | (10,608 | )    |  |   | (10,471 | )
|Interest expense                                                                   |  |                      | (31,025 | ) |      |   | (29,567 | )    |  |   | (29,243 | )
|Interest income                                                                    |  |                      | 548     |   |      |   | 293     |      |  |   | 97      |  
|Loss on early extinguishment of debt                                               |  |                      |        |   |      |   | (8,170  | )    |  |   |        |  
|                                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|Income (loss) from continuing operations before income taxes and minority interest |  | $                    | 21,130  |   |      | $ | 1,094   |      |  | $ | (3,250  | )
|                                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A reconciliation of segment assets to total assets is as follows (in thousands):



|                            |  |                |         |      |   |        
|--------------------------- |  | -------------- | ------- | ---- | - | -------
|                            |  | As of June 30,
|                            |  | 2006           |         | 2005
|Segment assets              |  | $              | 83,367  |      | $ | 71,986 
|Cash and cash equivalents   |  |                | 3,041   |      |   | 17,688 
|Short-term investments      |  |                | 6,201   |      |   |       
|Inventories                 |  |                | 13,135  |      |   | 12,743 
|Prepaid expenses and other  |  |                | 3,702   |      |   | 9,449  
|Property and equipment, net |  |                | 45,970  |      |   | 41,402 
|Goodwill                    |  |                | 38,362  |      |   | 39,344 
|Deferred tax asset          |  |                | 79,118  |      |   | 85,661 
|Insurance deposits          |  |                | 2,842   |      |   | 9,037  
|Other assets                |  |                | 23,454  |      |   | 26,818 
|                            |  |                |         |      |   |        
|Total assets                |  | $              | 299,192 |      | $ | 314,128
|                            |  |                |         |      |   |        



(18) Discontinued Operations



Fiscal 2006



During fiscal 2006, the Company discontinued all medical transportation services provided in
the State of New Jersey. The Company based this decision on the fact that its business consisted primarily of non-emergency medical transportation services business and the limited future potential to obtain 911 emergency transportation contracts in
that specific area. As a result of the discontinuation of this service area, the Company wrote-off approximately $1.0 million of goodwill. Additionally, the Company recognized $0.5 million of closure-related costs, primarily severance and lease
termination charges and an additional $2.6 million in provisions for doubtful accounts. The financial results of this service area for fiscal 2006, 2005 and 2004 are included in Segment A income (loss) from discontinued operations.



Also during fiscal 2006, the Company ceased operating in the City of Augusta, Georgia upon
expiration of the Companys exclusive contract to provide medical transportation services to that area. The Company elected not to pursue renewal of this contract based upon the one-year contract term and stipulations that would have been less
beneficial to the Company. As a result of the discontinuation of this service area, the Company recognized $0.3 million of closure-related costs, primarily lease termination charges, and an additional $0.7 million in provisions for doubtful
accounts. The financial results of this service area for fiscal 2006, 2005 and 2004 are included in Segment B income (loss) from discontinued operations.



The additional provisions for doubtful accounts in New Jersey and Augusta discussed above were recorded based upon the Companys experience with declines in accounts
receivable collections for discontinued operations subsequent to exiting service areas.



As discussed in Note 15, during fiscal 2006, the Company recognized a $2.5 million charge related to an ongoing government investigation into certain of the Companys former operations in the State of Texas. This charge has been
included in income (loss) from discontinued operations for fiscal 2006.



Fiscal 2005



During fiscal 2005, the Company ceased operating
in four service areas located in Mississippi, New Jersey, Nebraska and Texas as a result of these service areas not meeting internal operational and profitability measures.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



One of these businesses was sold in April 2005 at a pre-tax gain of $143,000. The Company also ceased operating in one service area in Arizona as part of a
strategic decision to exit as the contracted provider of fire protection services in that service area. The results of these service areas for the years ended June 30, 2005 and 2004 are included in income from discontinued operations.



Fiscal 2004



During fiscal 2004, the Company ceased operating in ten service areas in Maryland, South
Carolina and Texas as a result of these service areas not meeting internal operational and profitability measures. The Company also ceased operating in one service area in New York due to the sale of the service area for a pre-tax gain of $177,000,
one service area in Texas due to the customer filing Chapter 11 and one service area in Arizona due to the city converting the service area to a fire district. In addition, one of the Companys protection services businesses located in Arizona
was classified as held for sale at June 30, 2004 and such sale closed during the first quarter of fiscal 2005 at a loss of $24,000. The results of these service areas for the years ended June 30, 2004 are included in income from
discontinued operations.



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



|                                           |  |                      |        |   |      |   |        |  |   |       
|------------------------------------------ |  | -------------------- | ------ | - | ---- | - | ------ |  | - | ------
|                                           |  | Years Ended June 30,
|                                           |  | 2006                 |        |   | 2005 |   | 2004  
|Net revenue:                               |  |                      |        |   |      |   |        |  |   |       
|Segment A                                  |  | $                    | 4,089  |   |      | $ | 8,929  |  | $ | 12,517
|Segment B                                  |  |                      | 11,949 |   |      |   | 23,553 |  |   | 27,190
|Segment C                                  |  |                      |       |   |      |   | 19,006 |  |   | 19,471
|Segment D                                  |  |                      |       |   |      |   | 9,712  |  |   | 21,749
|                                           |  |                      |        |   |      |   |        |  |   |       
|Net revenue from discontinued operations   |  | $                    | 16,038 |   |      | $ | 61,200 |  | $ | 80,927
|                                           |  |                      |        |   |      |   |        |  |   |       
|                                           | 
|                                           |  | Years Ended June 30,
|                                           |  | 2006                 |        |   | 2005 |   | 2004  
|Income (loss):                             |  |                      |        |   |      |   |        |  |   |       
|Segment A                                  |  | $                    | (256   | ) |      | $ | 468    |  | $ | 193   
|Segment B                                  |  |                      | (4,100 | ) |      |   | 1,458  |  |   | 3,840 
|Segment C                                  |  |                      | 14     |   |      |   | 1,205  |  |   | 3,650 
|Segment D                                  |  |                      | (1,606 | ) |      |   | 392    |  |   | 1,078 
|                                           |  |                      |        |   |      |   |        |  |   |       
|Income (loss) from discontinued operations |  | $                    | (5,948 | ) |      | $ | 3,523  |  | $ | 8,761 
|                                           |  |                      |        |   |      |   |        |  |   |       



Income from discontinued operations is
presented net of income tax (benefit)/provision of ($3.1) million, $2.1 million and $0.5 million for fiscal 2006, 2005 and 2004, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|(19) | Related Party Transactions
|---- | --------------------------



The Company incurred rental expense of $88,000, $84,000 and $84,000 in fiscal 2006, 2005 and 2004 related to leases of fire and medical transportation facilities with the
trustee for the estate of a former director of the Company.



The Company
incurred consulting fees of $15,000 with a director of the Company for the fiscal year ended June 30, 2006. The Company incurred consulting fees of $36,000 with two directors of the Company for the fiscal year ended June 30, 2005.



|(20) | Subsequent Events
|---- | -----------------



On July 25, 2006, the Company was notified by the Town of Paradise Valley that it desired to terminate its contract for fire protection services effective June 30, 2007. The Town cited its location in the
center of a growing urban area and its desire to transition services to the City of Phoenix Fire Department as primary reasons for its decision. The Company currently provides fire protection services on a subscription-fee basis to individual
property owners in Paradise Valley. This business generated net revenue of $2.3 million, $1.9 million and $2.0 million in the fiscal years ended June 30, 2006, 2005 and 2004, respectively.



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|ITEM 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



Not applicable.



|ITEM 9A.Controls | and Procedures
|---------------- | --------------



Evaluation of Disclosure Controls and Procedures



Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Report (June 30, 2006). These disclosure controls and procedures have been designed to ensure
that information required to be disclosed in the reports we file or submit under the Exchange Act (a) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, or persons performing
similar functions, as appropriate, to allow timely decisions regarding required disclosures, and (b) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Management necessarily
applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding managements control objectives.



Management carried out an evaluation as of the end of the period covered by this report,
under the supervision and participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term in defined in Exchange Act Rule
13a-15(e)). Based upon the evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2006, at the reasonable assurance level.



Managements Report on Internal Control Over Financial Reporting



Our management is responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Our management assessed the effectiveness of our internal control over financial reporting as
of June 30, 2006. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control  Integrated Framework. Based on our assessment using those
criteria, our management concluded that our internal control over financial reporting was effective as of June 30, 2006.



Our managements assessment of the effectiveness of our internal control over financial reporting as of June 30, 2006 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears in Part II, Item 8 of this report.



Change in Internal Control Over Financial Reporting



As previously disclosed under Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the
Securities and Exchange Commission on September 28, 2005, management concluded that as of June 30, 2005, we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In such report, we reported a material weakness with respect to the accounting for income taxes.



As of the end of the period covered by this report, we have remediated the material weakness
in our internal control related to the accounting for income taxes. Our remediation focused on hiring of a director of taxation,



122



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improved processes and control procedures used in the preparation and review of the annual and interim tax provisions and the implementation of a
comprehensive training program for accounting and finance personnel with regard to accounting for income taxes. Management has evaluated the design of these new procedures, placed them in operation for a sufficient period of time, and subjected them
to appropriate tests in order to conclude that they are operating effectively. Therefore, management has concluded that the material weakness was remediated as of June 30, 2006.



Other than the remediation of the material weakness, there were no changes in our internal control over financial reporting during the last
fiscal quarter that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.



|ITEM 9B. | Other Information
|-------- | -----------------



None.



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PART III



|ITEM 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



The information required by Item 10 is incorporated herein by reference to the information contained under the headings Proposal
to Elect Directors  Nominees, Code of Ethics, Proposal to Elect Directors  Meetings and Committees of the Board of Directors; Independence and Compliance with Section 16(a) of the Securities
Exchange Act of 1934 as set forth in the Companys definitive proxy statement for its 2006 Annual Meeting of Stockholders.



Our website (www.shareholder.com/ruralmetro/downloads/Code_of_Business_Conduct.pdf) contains the Companys Code of Ethics and Business Conduct (Code of
Ethics), which is the Companys code of business conduct and ethics for its directors and employees, including the Chief Executive Officer and Chief Financial Officer. Any amendment to the Code of Ethics will be posted on the
Companys website.



|ITEM 11. | Executive Compensation
|-------- | ----------------------



The information required by Item 11 relating to directors of the Company is incorporated herein by reference to the information under the heading Proposal to
Elect Directors  Director Compensation and Other Information and the information relating to executive officers of the Company is incorporated herein by reference to the information under the heading Executive Compensation as
set forth in the Companys definitive proxy statement for its 2006 Annual Meeting of Stockholders.



|ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



The information required by Item 12 is incorporated herein by reference to the
information under the heading Security Ownership of Principal Stockholders, Directors and Officers and Related Stockholder Matters as set forth in the Companys definitive proxy statement for its 2006 Annual Meeting of Stockholders.



|ITEM 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



The information required by Item 13 is incorporated herein by reference to the information under the heading Certain Relationships and Related
Transactions as set forth in the Companys definitive proxy statement for its 2006 Annual Meeting of Stockholders.



|ITEM 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



The information required by Item 14 is incorporated herein by reference to the information under the heading Proposal to Elect Directors as set forth in
the Companys definitive proxy statement for its 2006 Annual Meeting of Stockholders.



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PART IV



|ITEM 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



|(a) | List of documents filed as a part of this Form 10-K:
|--- | ----------------------------------------------------



(1) See the Consolidated Financial Statements included in Item 8 hereof.



|(b) | 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; as amended by the
Amended and Restated Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock filed with the Secretary of State of Delaware on August 25, 2005; as amended by the Certificate of Designation, Preferences, and
Rights of Series B Preferred Stock filed with the Secretary of State of Delaware on September 26, 2002; as amended by the Certificate of Designation, Preferences, and Rights of Series C Preferred Stock filed with the Secretary of State of Delaware
on September 26, 2003; as amended by that Certificate of Amendment filed with the Secretary of State of Delaware on June 15, 2004(36)
|            | 
|3.1(b)      |  | Shareholder Rights Agreement, dated as of August 24, 2005, between Rural/Metro Corporation and Computershare Trust Company, Inc., as Rights Agent, which includes thereto the Form of Certificate
of Designation, Preferences and Rights, the Form of Rights Certificate and the Form of Summary of Rights(34)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|3.2(a)      |  | Amended and Restated Bylaws of the Registrant(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|3.2(b)      |  | Second Amended and Restated Bylaws of the Registrant(33)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|4.1         |  | Specimen Certificate representing shares of Common Stock, par value $.01 per share(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.2         |  | Indenture, dated as of March 4, 2005, between Rural/Metro Corporation, as issuer, and Wells Fargo Bank, National Association as trustee (including form of notes)(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.3         |  | Indenture, dated as of March 4, 2005, among Rural/Metro Operating Company, LLC and Rural/Metro (Delaware) Inc., as issuers, Rural/Metro Corporation, as guarantor, the other guarantors party
thereto and Wells Fargo Bank, National Association, as trustee (including form of notes)(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|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(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|4.5         |  | Registration Rights Agreement dated as of September 30, 2002 by and among the Company, Special Value Bond Fund II, LLC, GE Capital CFE, Inc., Continental Casualty Company, Cerberus Partners,
L.P., Pamco Cayman Ltd., and Pam Capital Funding LP(26)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|4.5(a)      |  | Amendment to the Registration Rights Agreement dated as of September 26, 2003 by and among the Company, Tennenbaum & Co., LLC, General Electric Capital Corporation, Highland Crusader
Offshore Partners, L.P., Cerberus Partners, L.P., and Pam Capital Funding LP(28)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|4.6         |  | Registration Rights Agreement, dated as of March 4, 2005, among Rural/Metro Corporation and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|4.7         |  | Registration Rights Agreement, dated as of March 4, 2005, among Rural/Metro Corporation, Rural/Metro Operating Company, LLC, Rural/Metro (Delaware) Inc., the guarantors named therein and
Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.3(a)     |  | 1989 Employee Stock Option Plan of Registrant, adopted August 10, 1989, as amended(1)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                 
|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(12)**                                                                                                                                                                                                                                                                                                      
|            | 
|10.6        |  | Forms of Stock Option Agreements pursuant to the Amended and Restated 1992 Stock Option Plan of Registrant(12)                                                                                                                                                                                                                                                                                         
|            | 
|10.7        |  | 2000 Non-Qualified Stock Option Plan, adopted August 11, 2000(16)                                                                                                                                                                                                                                                                                                                                      
|            | 
|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(o)    |  | Form of Change of Control Agreement by and between the Registrant and the following executive officers: (i) Jack E. Brucker, dated April 25, 2002 and (ii) Michael S. Zarriello, effective June 2,
2004(27)**                                                                                                                                                                                          
|            | 
|10.16(p)    |  | Employment Agreement by and between the Registrant and Jack E. Brucker, effective January 1, 2005(30)**                                                                                                                                                                                                                                                                                                
|            | 
|10.16(q)    |  | Employment Agreement by and between the Registrant and Michael S. Zarriello, effective June 2, 2004(35)**                                                                                                                                                                                                                                                                                              
|            | 
|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       |  | Amended and Restated Employee Stock Ownership Plan and Trust of the Registrant, effective July 1, 1997(12)**                                                                                                                                                                                                                                                                                           
|            | 
|10.21       |  | Retirement Savings Value Plan 401(k) of Registrant, as amended, dated July 1, 1990(1)**                                                                                                                                                                                                                                                                                                                
|            | 
|10.36       |  | Employee Stock Purchase Plan, as amended through November 20, 1997(21)**                                                                                                                                                                                                                                                                                                                               
|            | 
|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(11)                                                                                                                                                                                         
|            | 
|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(10)
|            | 
|10.55       |  | Provisional Waiver and Standstill Agreement dated as of March 14, 2000(14)                                                                                                                                                                                                                                                                                                                             
|            | 
|10.56       |  | First Amendment to Provisional Waiver and Standstill Agreement dated as of April 13, 2000(14)                                                                                                                                                                                                                                                                                                          
|            | 
|10.57       |  | Second Amendment to Provisional Waiver and Standstill Agreement dated as of July 14, 2000(15)                                                                                                                                                                                                                                                                                                          
|            | 
|10.59       |  | Third Amendment to Provisional Waiver and Standstill Agreement dated as of October 16, 2000(7)                                                                                                                                                                                                                                                                                                         
|            | 
|10.60       |  | Fourth Amendment to Provisional Waiver and Standstill Agreement dated as of January 31, 2001(18)                                                                                                                                                                                                                                                                                                       



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.61       |  | Fifth Amendment to Provisional Waiver and Standstill Agreement dated as of April 23, 2001(19)                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|10.62       |  | Sixth Amendment to Provisional Waiver and Standstill Agreement dated as of August 1, 2001(22)                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|10.63       |  | Seventh Amendment to Provisional Waiver and Standstill Agreement dated as of December 4, 2001(24)                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|10.66       |  | Second Amended and Restated Credit Agreement dated as of September 30, 2002 by and among the Company as borrower, certain of its subsidiaries as guarantors, the lenders referred to therein, and
Wachovia Bank National Association, as agent, and related Form of Term Note, Form of Subsidiary Guaranty Agreement, and Form of Intercompany Subordination Agreement(26)                                                                                                           
|            | 
|10.67       |  | Reaffirmation and First Amendment to Second Amended and Restated Credit Agreement dated as of September 26, 2003 by and among the Company as borrower, certain of its subsidiaries as guarantors,
the lenders referred to therein, and Wachovia Bank, National Association, as agent(28)                                                                                                                                                                                             
|            | 
|10.68       |  | Compensation Schedule for Board of Directors of Rural/Metro Corporation(30)                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|10.69       |  | Summary of 2005 Management Incentive Plan(30)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|10.70       |  | Credit Agreement, dated as of March 4, 2005, with the Lenders party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Citigroup
Global Markets Inc. and J.P. Morgan Securities Inc., as Joint Lead Arrangers and Joint Lead Bookrunners(32)                                                                                                                                                                       
|            | 
|10.71       |  | Amendment No. 1 to Credit Agreement, dated as of March 4, 2005, with the Lenders party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as
Syndication Agent, and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as Joint Lead Arrangers and Joint Lead Bookrunners(36)                                                                                                                                                    
|            | 
|10.72       |  | Employment Agreement by and between the Registrant and Kristine A. Ponczak, dated March 21, 2005(31)                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.73       |  | Employment Agreement by and between the Registrant and Barry D. Landon, dated March 21, 2005(31)                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.74       |  | Rural/Metro Corporation 2006 Management Incentive Program Summary(33)                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|10.75       |  | Amendment to No. 2, dated as of December 27, 2005 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company, LLC, as borrower; the lenders party thereto;
Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A. as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead
arrangers and joint lead bookrunners(37)
|            | 
|10.76       |  | Employment Agreement by and between the Registrant and Kurt Krumperman, dated March 21, 2006(38)**                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.77       |  | Employment Agreement by and between the Registrant and Brian Allery, dated April 10, 2006(38)**                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|10.78       |  | Amendment No. 3, dated as of May 5, 2006, to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank,
N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and
joint lead bookrunners(38)         
|            | 
|10.79       |  | Employment Agreement by and between the Registrant and Gregory A. Barber, dated June 1, 2006* **                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|21          |  | Subsidiaries of Registrant*                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|23.1        |  | Consent of PricewaterhouseCoopers LLP*                                                                                                                                                                                                                                                                                                                                                                                                                                               



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|            |  |                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                 
|31.1        |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*                 
|            | 
|31.2        |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*                 
|            | 
|32.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|            | 
|32.2        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

---

|* | Filed herewith.
|- | ---------------

|** | Management contracts or compensatory plan or arrangement.
|-- | ---------------------------------------------------------

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

|(2) | Incorporated by reference to the 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 Form 8-K Current Report filed with the Commission on or about August 28, 1995.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Registrants Form 10-Q Quarterly Report filed with the Commission on or about February 17, 1998.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(8) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | 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.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to the Registrants Form 10-K filed with the Commission on or about September 29, 1998.
|---- | -----------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the Registrants Form 10-Q Quarterly Report filed with the Commission on or about November 10, 1998.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|(13) | 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)).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on April 18, 2000.
|---- | ------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on July 28, 2000.
|---- | -----------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to the Registrants Form S-8 Registration Statement filed with the Commission on October 31, 2000.
|---- | ----------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to the Registrants Form 10-Q Current Report filed with the Commission on November 14, 2000.
|---- | ----------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on February 2, 2001.
|---- | --------------------------------------------------------------------------------------------------------------------



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|(19) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on May 2, 2001.
|---- | ---------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference to the Registrants Form 10-Q filed with the Commission on May 15, 2001.
|---- | --------------------------------------------------------------------------------------------------

|(21) | Incorporated by reference to the Registrants Form S-8 Registration Statement filed with the Commission on May 22, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on August 9, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------

|(23) | Incorporated by reference to the Registrants Form 10-Q filed with the Commission on November 14, 2001.
|---- | -------------------------------------------------------------------------------------------------------

|(24) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on January 22, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------

|(25) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on October 15, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------

|(26) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on October 16, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------

|(27) | Incorporated by reference to the Registrants Form 10-Q filed with the Commission on February 14, 2003.
|---- | -------------------------------------------------------------------------------------------------------

|(28) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on October 2, 2003.
|---- | -------------------------------------------------------------------------------------------------------------------

(29) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on May 14, 2004.

(30) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on February 14, 2005.

(31) Incorporated by reference to the Registrants Form 8-K filed with the Commission on March 25, 2005.

(32) Incorporated by reference to the Registrants Form 8-K/A filed with the Commission on March 11, 2005.

(33) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on February 9, 2006.

(34) Incorporated by reference to the Registrants Form 8-K/A filed with the Commission on August 29, 2005.

|(35) | Incorporated by reference to the Registrants Form 10-K Annual Report for the year ended June 30, 2004 filed with the Commission on September 28, 2004.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(36) | Incorporated by reference to the Registrants Form 10-K Annual Report for the year ended June 30, 2005 filed with the Commission on September 28, 2005.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------

(37) Incorporated by reference to the Registrants Form 8-K filed with the Commission on
December 28, 2005.

(38) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on
May 10, 2006.



|(c) | Not applicable.
|--- | ---------------



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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 CORPORATIONBy:

/s/    JACK E. BRUCKERJack E. Brucker President and Chief Executive Officer




September 22, 2006



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. CLEMENTCor J. Clement            |  | Chairman of the Board of Directors                                                         |  | September 22, 2006
|                                                |  |                                                                                           
|/s/     LOUIS G. JEKELLouis G. Jekel            |  | Vice Chairman of the Board of Directors                                                    |  | September 22, 2006
|                                                |  |                                                                                           
|/s/     HANK WALKERHank Walker                  |  | Vice Chairman of the Board of Directors                                                    |  | September 22, 2006
|                                                |  |                                                                                           
|/s/     JACK E.
BRUCKERJack E.
Brucker          |  | President, Chief Executive Officer and Director (Principal Executive Officer)              |  | September 22, 2006
|                                                |  |                                                                                           
|/s/    MICHAEL S.
ZARRIELLOMichael S.
Zarriello |  | Senior Vice President, Secretary and Chief Financial Officer (Principal Financial Officer) |  | September 22, 2006
|                                                |  |                                                                                           
|/s/    GREGORY A.
BARBERGregory A.
Barber       |  | Vice President and Corporate Controller (Principal Accounting Officer)                     |  | September 22, 2006
|                                                |  |                                                                                           
|/s/     MARY ANNE
CARPENTERMary Anne
Carpenter  |  | Director                                                                                   |  | September 22, 2006
|                                                |  |                                                                                           
|/s/     ROBERT E.
WILSONRobert E.
Wilson        |  | Director                                                                                   |  | September 22, 2006
|                                                |  |                                                                                           
|/s/    CONRAD A.
CONRADConrad A.
Conrad         |  | Director                                                                                   |  | September 22, 2006



130



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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; as amended by the
Amended and Restated Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock filed with the Secretary of State of Delaware on August 25, 2005; as amended by the Certificate of Designation, Preferences, and
Rights of Series B Preferred Stock filed with the Secretary of State of Delaware on September 26, 2002; as amended by the Certificate of Designation, Preferences, and Rights of Series C Preferred Stock filed with the Secretary of State of Delaware
on September 26, 2003; as amended by that Certificate of Amendment filed with the Secretary of State of Delaware on June 15, 2004(36)
|            | 
|3.1(b)      |  | Shareholder Rights Agreement, dated as of August 24, 2005, between Rural/Metro Corporation and Computershare Trust Company, Inc., as Rights Agent, which includes thereto the Form of Certificate
of Designation, Preferences and Rights, the Form of Rights Certificate and the Form of Summary of Rights(34)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|3.2(a)      |  | Amended and Restated Bylaws of the Registrant(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|3.2(b)      |  | Second Amended and Restated Bylaws of the Registrant(33)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|4.1         |  | Specimen Certificate representing shares of Common Stock, par value $.01 per share(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.2         |  | Indenture, dated as of March 4, 2005, between Rural/Metro Corporation, as issuer, and Wells Fargo Bank, National Association as trustee (including form of notes)(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.3         |  | Indenture, dated as of March 4, 2005, among Rural/Metro Operating Company, LLC and Rural/Metro (Delaware) Inc., as issuers, Rural/Metro Corporation, as guarantor, the other guarantors party
thereto and Wells Fargo Bank, National Association, as trustee (including form of notes)(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|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(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|4.5         |  | Registration Rights Agreement dated as of September 30, 2002 by and among the Company, Special Value Bond Fund II, LLC, GE Capital CFE, Inc., Continental Casualty Company, Cerberus Partners,
L.P., Pamco Cayman Ltd., and Pam Capital Funding LP(26)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|4.5(a)      |  | Amendment to the Registration Rights Agreement dated as of September 26, 2003 by and among the Company, Tennenbaum & Co., LLC, General Electric Capital Corporation, Highland Crusader
Offshore Partners, L.P., Cerberus Partners, L.P., and Pam Capital Funding LP(28)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|4.6         |  | Registration Rights Agreement, dated as of March 4, 2005, among Rural/Metro Corporation and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|4.7         |  | Registration Rights Agreement, dated as of March 4, 2005, among Rural/Metro Corporation, Rural/Metro Operating Company, LLC, Rural/Metro (Delaware) Inc., the guarantors named therein and
Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.(32)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|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(12)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|10.6        |  | Forms of Stock Option Agreements pursuant to the Amended and Restated 1992 Stock Option Plan of Registrant(12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                 
|10.7        |  | 2000 Non-Qualified Stock Option Plan, adopted August 11, 2000(16)                                                                                                                                                                                                                                                                                                                                      
|            | 
|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(o)    |  | Form of Change of Control Agreement by and between the Registrant and the following executive officers: (i) Jack E. Brucker, dated April 25, 2002 and (ii) Michael S. Zarriello, effective June 2,
2004(27)**                                                                                                                                                                                          
|            | 
|10.16(p)    |  | Employment Agreement by and between the Registrant and Jack E. Brucker, effective January 1, 2005(30)**                                                                                                                                                                                                                                                                                                
|            | 
|10.16(q)    |  | Employment Agreement by and between the Registrant and Michael S. Zarriello, effective June 2, 2004(35)**                                                                                                                                                                                                                                                                                              
|            | 
|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       |  | Amended and Restated Employee Stock Ownership Plan and Trust of the Registrant, effective July 1, 1997(12)**                                                                                                                                                                                                                                                                                           
|            | 
|10.21       |  | Retirement Savings Value Plan 401(k) of Registrant, as amended, dated July 1, 1990(1)**                                                                                                                                                                                                                                                                                                                
|            | 
|10.36       |  | Employee Stock Purchase Plan, as amended through November 20, 1997(21)**                                                                                                                                                                                                                                                                                                                               
|            | 
|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(11)                                                                                                                                                                                         
|            | 
|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(10)
|            | 
|10.55       |  | Provisional Waiver and Standstill Agreement dated as of March 14, 2000(14)                                                                                                                                                                                                                                                                                                                             
|            | 
|10.56       |  | First Amendment to Provisional Waiver and Standstill Agreement dated as of April 13, 2000(14)                                                                                                                                                                                                                                                                                                          
|            | 
|10.57       |  | Second Amendment to Provisional Waiver and Standstill Agreement dated as of July 14, 2000(15)                                                                                                                                                                                                                                                                                                          
|            | 
|10.59       |  | Third Amendment to Provisional Waiver and Standstill Agreement dated as of October 16, 2000(7)                                                                                                                                                                                                                                                                                                         
|            | 
|10.60       |  | Fourth Amendment to Provisional Waiver and Standstill Agreement dated as of January 31, 2001(18)                                                                                                                                                                                                                                                                                                       
|            | 
|10.61       |  | Fifth Amendment to Provisional Waiver and Standstill Agreement dated as of April 23, 2001(19)                                                                                                                                                                                                                                                                                                          
|            | 
|10.62       |  | Sixth Amendment to Provisional Waiver and Standstill Agreement dated as of August 1, 2001(22)                                                                                                                                                                                                                                                                                                          
|            | 
|10.63       |  | Seventh Amendment to Provisional Waiver and Standstill Agreement dated as of December 4, 2001(24)                                                                                                                                                                                                                                                                                                      
|            | 
|10.66       |  | Second Amended and Restated Credit Agreement dated as of September 30, 2002 by and among the Company as borrower, certain of its subsidiaries as guarantors, the lenders referred to therein, and
Wachovia Bank National Association, as agent, and related Form of Term Note, Form of Subsidiary Guaranty Agreement, and Form of Intercompany Subordination Agreement(26)                             



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.67       |  | Reaffirmation and First Amendment to Second Amended and Restated Credit Agreement dated as of September 26, 2003 by and among the Company as borrower, certain of its subsidiaries as guarantors,
the lenders referred to therein, and Wachovia Bank, National Association, as agent(28)                                                                                                                                                                                             
|            | 
|10.68       |  | Compensation Schedule for Board of Directors of Rural/Metro Corporation(30)                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|10.69       |  | Summary of 2005 Management Incentive Plan(30)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|10.70       |  | Credit Agreement, dated as of March 4, 2005, with the Lenders party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Citigroup
Global Markets Inc. and J.P. Morgan Securities Inc., as Joint Lead Arrangers and Joint Lead Bookrunners(32)                                                                                                                                                                       
|            | 
|10.71       |  | Amendment No. 1 to Credit Agreement, dated as of March 4, 2005, with the Lenders party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as
Syndication Agent, and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as Joint Lead Arrangers and Joint Lead Bookrunners(36)                                                                                                                                                    
|            | 
|10.72       |  | Employment Agreement by and between the Registrant and Kristine A. Ponczak, dated March 21, 2005(31)                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.73       |  | Employment Agreement by and between the Registrant and Barry D. Landon, dated March 21, 2005(31)                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.74       |  | Rural/Metro Corporation 2006 Management Incentive Program Summary(33)                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|10.75       |  | Amendment to No. 2, dated as of December 27, 2005 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company, LLC, as borrower; the lenders party thereto;
Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A. as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead
arrangers and joint lead bookrunners(37)
|            | 
|10.76       |  | Employment Agreement by and between the Registrant and Kurt Krumperman, dated March 21, 2006(38)**                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.77       |  | Employment Agreement by and between the Registrant and Brian Allery, dated April 10, 2006(38)**                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|10.78       |  | Amendment No. 3, dated as of May 5, 2006, to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank,
N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and
joint lead bookrunners(38)         
|            | 
|10.79       |  | Employment Agreement by and between the Registrant and Gregory A. Barber, dated June 1, 2006* **                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|21          |  | Subsidiaries of Registrant*                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|23.1        |  | Consent of PricewaterhouseCoopers LLP*                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.1        |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.2        |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|32.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                                                                                              
|            | 
|32.2        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                                                                                              



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##### Table of Contents

---

|* | Filed herewith.
|- | ---------------

|** | Management contracts or compensatory plan or arrangement.
|-- | ---------------------------------------------------------

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

|(2) | Incorporated by reference to the 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 Form 8-K Current Report filed with the Commission on or about August 28, 1995.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Registrants Form 10-Q Quarterly Report filed with the Commission on or about February 17, 1998.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(8) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | 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.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to the Registrants Form 10-K filed with the Commission on or about September 29, 1998.
|---- | -----------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the Registrants Form 10-Q Quarterly Report filed with the Commission on or about November 10, 1998.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|(13) | 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)).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on April 18, 2000.
|---- | ------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on July 28, 2000.
|---- | -----------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to the Registrants Form S-8 Registration Statement filed with the Commission on October 31, 2000.
|---- | ----------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to the Registrants Form 10-Q Current Report filed with the Commission on November 14, 2000.
|---- | ----------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on February 2, 2001.
|---- | --------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on May 2, 2001.
|---- | ---------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference to the Registrants Form 10-Q filed with the Commission on May 15, 2001.
|---- | --------------------------------------------------------------------------------------------------

|(21) | Incorporated by reference to the Registrants Form S-8 Registration Statement filed with the Commission on May 22, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on August 9, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------

|(23) | Incorporated by reference to the Registrants Form 10-Q filed with the Commission on November 14, 2001.
|---- | -------------------------------------------------------------------------------------------------------

|(24) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on January 22, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(25) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on October 15, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------

|(26) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on October 16, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------

|(27) | Incorporated by reference to the Registrants Form 10-Q filed with the Commission on February 14, 2003.
|---- | -------------------------------------------------------------------------------------------------------

|(28) | Incorporated by reference to the Registrants Form 8-K Current Report filed with the Commission on October 2, 2003.
|---- | -------------------------------------------------------------------------------------------------------------------

(29) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on May 14, 2004.

(30) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on February 14, 2005.

(31) Incorporated by reference to the Registrants Form 8-K filed with the Commission on March 25, 2005.

(32) Incorporated by reference to the Registrants Form 8-K/A filed with the Commission on March 11, 2005.

(33) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on February 9, 2006.

(34) Incorporated by reference to the Registrants Form 8-K/A filed with the Commission on August 29, 2005.

|(35) | Incorporated by reference to the Registrants Form 10-K Annual Report for the year ended June 30, 2004 filed with the Commission on September 28, 2004.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(36) | Incorporated by reference to the Registrants Form 10-K Annual Report for the year ended June 30, 2005 filed with the Commission on September 28, 2005.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------

(37) Incorporated by reference to the Registrants Form 8-K filed with the Commission on
December 28, 2005.

(38) Incorporated by reference to the Registrants Form 10-Q filed with the Commission on
May 10, 2006.