10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2005

OR

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

For the transition period from              to             

Commission file number 0-22056

Rural/Metro Corporation

(Exact Name of Registrant as Specified in Its Charter)

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

9221 East Via de Ventura, Scottsdale, Arizona 85258

(Address of Principal Executive Offices) (ZipCode)

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

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

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

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

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

There were 24,399,515 shares of the registrant’s Common Stock outstanding on February 6, 2006.

RURAL/METRO CORPORATION

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

DECEMBER 31, 2005

			Page
Part I.	Financial Information
	Item 1.	Financial Statements (unaudited):
		Consolidated Balance Sheet	3
		Consolidated Statement of Operations	4
		Consolidated Statement of Changes in Stockholders’ Equity (Deficit)	5
		Consolidated Statement of Cash Flows	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.	Controls and Procedures	53
Part II.	Other Information
	Item 4.	Submission of Matters to a Vote of Security Holders	55
	Item 6.	Exhibits	55
	Signatures		56

2

Part I. Financial Information

Item 1. Financial Statements

RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEET

(unaudited)

(in thousands, except share data)

	December 31, 2005			June 30, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	1,485		$	17,688
Short-term investments		7,600			—
Accounts receivable, net		84,878			71,986
Inventories		12,748			12,743
Deferred tax assets		10,832			10,110
Prepaid expenses and other		7,081			9,449
Total current assets		124,624			121,976
Property and equipment, net		44,761			41,402
Goodwill		39,344			39,344
Deferred tax assets		69,575			75,551
Insurance deposits		7,258			9,037
Other assets		24,702			26,818
Total assets	$	310,264		$	314,128
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		14,485			14,738
Accrued liabilities		35,670			42,327
Deferred revenue		19,745			19,429
Current portion of long-term debt		781			1,497
Total current liabilities		70,681			77,991
Long-term debt, net of current portion		301,805			305,478
Other liabilities		27,257			27,846
Total liabilities		399,743			411,315
Minority interest		1,771			1,456
Stockholders’ equity (deficit):
Preferred stock, $0.01 par value, 2,000,000 shares authorized, zero shares issued and outstanding at both December 31, 2005 and June 30, 2005		—			—
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,396,238 and 24,117,499 shares issued and outstanding at December 31, 2005 and June 30, 2005, respectively		244			241
Additional paid-in capital		153,349			152,305
Treasury stock, 96,246 shares at both December 31, 2005 and June 30, 2005		(1,239	)		(1,239	)
Accumulated deficit		(243,604	)		(249,950	)
Total stockholders’ equity (deficit)		(91,250	)		(98,643	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	310,264		$	314,128

See accompanying notes

3

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended December 31,						Six Months Ended December 31,
	2005			2004			2005			2004
Net revenue	$	141,461		$	126,621		$	280,225		$	252,531
Operating expenses:
Payroll and employee benefits		69,096			66,540			137,551			132,063
Provision for doubtful accounts		25,009			19,684			48,741			40,442
Depreciation and amortization		2,846			2,541			5,599			5,377
Other operating expenses		30,878			28,417			61,430			54,347
(Gain) loss on sale of assets		35			5			(1,307	)		3
Total operating expenses		127,864			117,187			252,014			232,232
Operating income		13,597			9,434			28,211			20,299
Interest expense		(7,748	)		(7,513	)		(15,256	)		(14,831	)
Interest income		172			48			325			176
Income from continuing operations before income taxes and minority interest		6,021			1,969			13,280			5,644
Income tax provision		(2,524	)		(260	)		(6,168	)		(336	)
Minority interest		(153	)		337			(315	)		28
Income from continuing operations		3,344			2,046			6,797			5,336
Income (loss) from discontinued operations, net of income taxes		(577	)		1,011			(451	)		2,138
Net income	$	2,767		$	3,057		$	6,346		$	7,474
Income per share
Basic -
Income from continuing operations	$	0.14		$	0.09		$	0.28		$	0.24
Income (loss) from discontinued operations		(0.03	)		0.05			(0.02	)		0.10
Net income	$	0.11		$	0.14		$	0.26		$	0.34
Diluted-
Income from continuing operations	$	0.13		$	0.09		$	0.27		$	0.23
Income (loss) from discontinued operations		(0.02	)		0.04			(0.02	)		0.09
Net income	$	0.11		$	0.13		$	0.25		$	0.32
Average number of common shares outstanding - Basic		24,330			22,241			24,281			22,100
Average number of common shares outstanding - Diluted		25,298			24,022			25,280			23,351

See accompanying notes

4

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

(in thousands, except share amounts)

	Number of Shares	Common Stock		Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Total
Balance at June 30, 2005	24,117,499		241		152,305		(1,239	)		(249,950	)		(98,643	)
Issuance of common stock due to options excercised under Stock Option Plans	278,739		3		592		—			—			595
Tax benefit from options excercised under Stock Option Plans	—		—		436		—			—			436
Stock-based compensation expense	—		—		16		—			—			16
Comprehensive income, net of tax:
Net income	—		—		—		—			6,346			6,346
Comprehensive income													6,346
Balance at December 31, 2005	24,396,238	$	244	$	153,349	$	(1,239	)	$	(243,604	)	$	(91,250	)

See accompanying notes

5

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

(in thousands)

	Six Months Ended December 31,
	2005			2004
Cash flows from operating activities:
Net income	$	6,346		$	7,474
Adjustments to reconcile net income to net cash provided by operating activities -
Provision for doubtful accounts		50,827			42,079
Deferred income taxes		5,254			—
Depreciation and amortization		5,720			5,928
Accretion of 12.75% Senior Discount Notes		3,349			—
Insurance adjustments		(2,387	)		(636	)
(Gain) loss on sale of property and equipment		(1,307	)		3
Amortization of deferred financing costs		1,100			1,339
Earnings (losses) of minority shareholder		315			(28	)
Stock based compensation		16			—
Amortization of debt discount		—			13
Tax benefit from the exercise of stock options		—			129
Change in assets and liabilities -
Accounts receivable		(63,719	)		(44,152	)
Inventories		(5	)		(279	)
Prepaid expenses and other		2,368			159
Insurance deposits		1,779			2,791
Other assets		1,738			622
Accounts payable		(2,359	)		(4,313	)
Accrued liabilities		(6,196	)		(8,184	)
Deferred revenue		316			358
Other liabilities		380			(3,211	)
Net cash provided by operating activities		3,535			92
Cash flows from investing activities:
Purchases of short-term investments		(37,700	)		—
Sales of short-term investments		30,100			—
Capital expenditures		(9,096	)		(6,994	)
Proceeds from the sale of property and equipment		1,559			81
Net cash used in investing activities		(15,137	)		(6,913	)
Cash flows from financing activities:
Repayment of debt		(7,738	)		(610	)
Book overdraft		2,261			—
Distributions to minority shareholders		(155	)		—
Tax benefit from the exercise of stock options		436			—
Issuance of common stock		595			1,168
Net cash (used in) provided by financing activities		(4,601	)		558
Decrease in cash and cash equivalents		(16,203	)		(6,263	)
Cash and cash equivalents, beginning of period		17,688			16,372
Cash and cash equivalents, end of period	$	1,485		$	10,109
Supplemental cash flow information:
Cash paid for interest	$	10,997		$	13,294
Cash paid for income taxes, net		420			50

See accompanying notes

6

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rural/Metro Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) is a leading provider of both 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 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the unaudited consolidated financial statements for the three and six months ended December 31, 2005 and 2004 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the consolidated financial position and results of operations. The results of operations for the three and six months ended December 31, 2005 are not necessarily indicative of the results of operations for the full fiscal year.

These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission (“SEC”) on November 14, 2005. Certain financial information for prior periods has been reclassified to conform to the current presentation.

(1) Significant Accounting Policies

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, outstanding checks are classified as accounts payable within the consolidated balance sheet and the change in the related balances is reflected in financing activities on the consolidated statement of cash flows.

Overdraft balances were $2.3 million at December 31, 2005 which are included in accounts payable in the Company’s consolidated balance sheet. 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 $7.6 million at December 31, 2005. 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.

7

(2) Liquidity

The Company’s ability to service its long-term debt, to remain in compliance with the various restrictions and covenants contained in its debt agreements and to fund working capital, capital expenditures and business development efforts will depend on its ability to generate cash from operating activities which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory and other conditions, some of which may be beyond 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 will be able to 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 and short-term investment balances and amounts available under the Company’s revolving 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 December 31, 2006. 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) Accounting for Stock Based Compensation

At December 31, 2005, the Company had two stock compensation plans, the Amended and Restated 1992 Stock Option Plan (the “1992 Plan”) and the 2000 Non-Qualified Stock Option Plan (the “2000 Plan”). The 1992 Plan expired November 5, 2002 and therefore the Company is no longer issuing options under that plan. The 1992 Plan was the only plan under which the Company could provide stock compensation to its executive officers and Board of Directors. The 2000 Plan had 477,330 common shares available for issuance at December 31, 2005.

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 $7,000 and $16,000 of stock based compensation expense in the statement of operations for the three and six months ended December 31, 2005, respectively. At December 31, 2005, there was unrecognized stock based compensation expense totaling $19,000 related to unvested awards which will be recognized over the remaining weighted average vesting period of 14 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. There were no stock options granted during the six months ended December 31, 2005.

Prior to July 1, 2005, the Company accounted for its plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. Consistent with 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 an exercise price 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 three and six months ended December 31, 2004 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):

	Three Months Ended December 31, 2004			Six Months Ended December 31, 2004
Net income	$	3,057		$	7,474
Deduct: Stock based employee compensation determined under the fair value method for all awards, net of tax effect		(15	)		(76	)
Pro forma net income	$	3,042		$	7,398
Income per share:
Basic - As reported	$	0.14		$	0.34
Basic - Pro forma	$	0.14		$	0.33
Diluted - As reported	$	0.13		$	0.32
Diluted - Pro forma	$	0.13		$	0.32

8

(4) General Liability and Workers’ Compensation Programs

General Liability

The Company has historically maintained insurance policies for comprehensive general liability, automobile liability and professional liability (referred to collectively as “general liability”). These policies are typically renewed annually. Management periodically reviews its general liability claim reserves and engages its independent actuaries to assist with the assessment of reserve adequacy. The Company adjusts its claim reserves with an associated charge or credit to expense as new information on the underlying claim is obtained.

The Company engaged its independent actuaries to perform an updated valuation of its general liability claim reserves as of December 31, 2005. Based on this analysis, the Company increased its general liability claim reserves by $0.2 million during the second quarter of fiscal 2006. The related expense is reflected in other operating expenses for the three and six months ended December 31, 2005.

Workers’ Compensation

The Company has historically maintained insurance policies for workers’ compensation and employer’s liability. The Company is required by law and by most of its operational contracts to maintain minimum statutory limits of workers’ compensation insurance. These policies are typically renewed annually. Management periodically reviews its workers’ compensation claim reserves and engages its independent actuaries to assist with the assessment of reserve adequacy. The Company adjusts its claim reserves with an associated charge or credit to expense as new information on the underlying claim is obtained.

The Company engaged its independent actuaries to perform updated valuations of its related claim reserves as a result of the resolution of certain workers’ compensation claims during the six month periods ended December 31, 2005 and 2004. Based on these analyses, the Company reduced its workers compensation claim reserves by $1.5 million and $0.6 million during the second quarter of fiscal 2006 and 2005, respectively. The related reductions are reflected as a reduction of payroll and employee benefits.

Additionally, the Company recognized estimated premium refunds and reserve adjustments totaling $1.1 million as a reduction of payroll and employee benefits for the three and six month periods ended December 31, 2005 based upon an updated loss assessment prepared by its independent actuaries. Of this amount, $0.8 million pertained to policy years ended April 30, 2004 and 2003 and was reflected as an increase in other assets. The remaining $0.3 million pertained to the policy year ended April 30, 2005 and was reflected as a reduction to the Company’s workers’ compensation claim reserves. The Company has recorded loss reserves for claims expected to be incurred during this policy period as the risk of loss was not effectively transferred to the insurer.

9

(5) Long-term Debt

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

	December 31, 2005			June 30, 2005
Senior Secured Term Loan B due March 2011	$	121,000		$	128,000
9.875% Senior Subordinated Notes due March 2015		125,000			125,000
12.75% Senior Discount Notes due March 2016		55,624			52,275
Revolving Credit Facility, undrawn		—			—
Capital lease and other obligations, at varying rates from 6.0% to 12.75%, due through 2013		962			1,700
Long-term debt		302,586			306,975
Less: Current maturities		(781	)		(1,497	)
Long-term debt, net of current maturities	$	301,805		$	305,478

The Senior Secured Term Loan B due March 2011 (the “Term Loan B”) bears interest at LIBOR plus 2.50% per annum based on contractual periods from one to six months in length at the Company’s option. At December 31, 2005, $100.0 million of the outstanding Term Loan B balance was accruing interest at 7.10% per annum, and $21.0 million was accruing interest at 6.86% based on the interest rate contracts in effect at that time. At June 30, 2005, $123.0 million of the outstanding Term Loan B balance was accruing interest at 6.04% per annum, and the remaining $5.0 million outstanding debt balance was accruing interest at 5.84% based on the interest rate contracts in effect at that time.

The Company originally capitalized $13.3 million of expenses associated with obtaining its outstanding debt and is amortizing these costs to interest expense over the terms of the respective agreements. Unamortized deferred financing costs were $12.0 million at December 31, 2005 and are included in other assets in the consolidated balance sheet.

On October 11, 2005, the Company, through its wholly owned subsidiary, Rural/Metro Operating Company, LLC (“Rural/Metro LLC”), made a $7.0 million unscheduled principal payment on its Term Loan B. The Company wrote-off approximately $0.2 million of deferred financing costs during the second quarter of fiscal 2006 as a result of this payment. Inception-to-date unscheduled principal payments totaling $14.0 million have been applied towards Rural/Metro LLC’s fiscal 2006 annual principal payment requirement equal to 75% of the fiscal year Excess Cash Flow, as defined in the 2005 Credit Facility, payable in September 2006. From time to time, Rural/Metro LLC may make additional unscheduled payments at its discretion.

At December 31, 2005, letters of credit totaling $33.2 million were utilized, primarily in support of insurance deductible arrangements. At December 31, 2005, the Company had $12.9 million available under its 2005 Credit Facility, including $10.0 million available under its Revolving Credit Facility letter of credit sub-line.

Credit Facility Amendment

On December 27, 2005, the Company amended certain terms, conditions and covenants contained in its 2005 Credit Facility (the “Amendment”). Specifically, the Amendment 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.

10

In addition, the Amendment modifies 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 an 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.

The Amendment also modifies certain other Credit Facility covenants including an increase in the permitted level of annual capital expenditures.

The Company was in compliance with all of its covenants at December 31, 2005.

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 schedules presented in this Note 5) 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”.

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 for the three and six months ended December 31, 2004 and the condensed consolidating statement of cash flows for the six months ended December 31, 2004 consist solely of Rural/Metro Corporation, the Senior Subordinated Notes Guarantors, the Non-Guarantor and related eliminations.

11

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2005

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers				Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural/Metro LLC - Consolidated		Eliminations			Rural/Metro Corporation Consolidated
				Rural/ Metro LLC		Rural/ Metro Inc.
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	—	$	1,274		$	211		$	—		$	1,485	$	—		$	1,485
Short-term investments		—			—		—		7,600			—			—			7,600		—			7,600
Accounts receivable, net		—			—		—		78,540			6,338			—			84,878		—			84,878
Inventories		—			—		—		12,748			—			—			12,748		—			12,748
Deferred tax assets		—			—		—		10,832			—			—			10,832		—			10,832
Prepaid expenses and other		—			17		—		7,062			2			—			7,081		—			7,081
Total current assets		—			17		—		118,056			6,551			—			124,624		—			124,624
Property and equipment, net		—			—		—		44,556			205			—			44,761		—			44,761
Goodwill		—			—		—		39,344			—			—			39,344		—			39,344
Deferred tax assets		—			—		—		69,575			—			—			69,575		—			69,575
Insurance deposits		—			—		—		7,258			—			—			7,258		—			7,258
Other assets		1,990			9,998		—		12,189			525			—			22,712		—			24,702
Due from (to) affiliates (1)		—			177,940		125,000		(175,440	)		(2,500	)		(125,000	)		—		—			—
Due from (to) Parent		(43,587	)		43,587		—		—			—			—			43,587		—			—
Rural/Metro LLC investment in subsidiaries		—			25,111		—		—			—			(25,111	)		—		—			—
Parent Company investment in Rural/Metro LLC		5,971			—		—		—			—			—			—		(5,971	)		—
Total assets	$	(35,626	)	$	256,653	$	125,000	$	115,538		$	4,781		$	(150,111	)	$	351,861	$	(5,971	)	$	310,264
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—	$	—	$	13,546		$	939		$	—		$	14,485	$	—		$	14,485
Accrued liabilities		—			4,682		—		30,688			300			—			35,670		—			35,670
Deferred revenue		—			—		—		19,745			—			—			19,745		—			19,745
Current portion of long-term debt		—			—		—		781			—			—			781		—			781
Total current liabilities		—			4,682		—		64,760			1,239			—			70,681		—			70,681
Long-term debt, net of current portion (1)		55,624			246,000		125,000		181			—			(125,000	)		246,181		—			301,805
Other liabilities		—			—		—		27,257			—			—			27,257		—			27,257
Total liabilities		55,624			250,682		125,000		92,198			1,239			(125,000	)		344,119		—			399,743
Minority interest		—			—		—		—			—			1,771			1,771		—			1,771
Stockholders’ equity (deficit):
Common stock		244			—		—		90			—			(90	)		—		—			244
Additional paid-in capital		153,349			—		—		74,770			20			(74,790	)		—		—			153,349
Treasury stock		(1,239	)		—		—		—			—			—			—		—			(1,239	)
Accumulated deficit		(243,604	)		—		—		(51,520	)		3,522			47,998			—		—			(243,604	)
Member equity		—			5,971		—		—			—			—			5,971		(5,971	)		—
Total stockholders’ equity (deficit)		(91,250	)		5,971		—		23,340			3,542			(26,882	)		5,971		(5,971	)		(91,250	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(35,626	)	$	256,653	$	125,000	$	115,538		$	4,781		$	(150,111	)	$	351,861	$	(5,971	)	$	310,264

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 December 31, 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.

12

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2005

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural/Metro LLC - Consolidated			Eliminations		Rural/Metro Corporation Consolidated
				Rural/Metro LLC			Rural/Metro Inc.
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	—	$	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
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.

13

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non- Guarantor		Eliminations			Rural/Metro LLC - Consolidated			Eliminations			Rural Metro Corporation Consolidated
				Rural/Metro LLC			Rural/Metro Inc.
Net revenue	$	—		$	—		$	—	$	134,423		$	12,711	$	(5,673	)	$	141,461		$	—		$	141,461
Operating expenses:
Payroll and employee benefits		7			—			—		69,064			25		—			69,089			—			69,096
Provision for doubtful accounts		—			—			—		21,708			3,301		—			25,009			—			25,009
Depreciation and amortization		—			—			—		2,844			2		—			2,846			—			2,846
Other operating expenses		—			—			—		27,464			9,087		(5,673	)		30,878			—			30,878
Loss on sale of assets		—			—			—		35			—		—			35			—			35
Total operating expenses		7			—			—		121,115			12,415		(5,673	)		127,857			—			127,864
Operating income		(7	)		—			—		13,308			296		—			13,604			—			13,597
Equity in earnings of subsidiaries		4,538			10,525			—		—			—		(10,525	)		—			(4,538	)		—
Interest expense		(1,764	)		(5,987	)		—		3			—		—			(5,984	)		—			(7,748	)
Interest income		—			—			—		162			10		—			172			—			172
Income from continuing operations before income taxes and minority interest		2,767			4,538			—		13,473			306		(10,525	)		7,792			(4,538	)		6,021
Income tax provision		—			—			—		(2,524	)		—		—			(2,524	)		—			(2,524	)
Minority interest		—			—			—		—			—		(153	)		(153	)		—			(153	)
Income from continuing operations		2,767			4,538			—		10,949			306		(10,678	)		5,115			(4,538	)		3,344
Loss from discontinued operations, net of income taxes		—			—			—		(577	)		—		—			(577	)		—			(577	)
Net income	$	2,767		$	4,538		$	—	$	10,372		$	306	$	(10,678	)	$	4,538		$	(4,538	)	$	2,767

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 December 31, 2005 consists of equity and due to affiliates totaling an amount equal to $100.

14

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2004

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural Metro Corporation Consolidated
Net revenue	$	—		$	120,934		$	11,777		$	(6,090	)	$	126,621
Operating expenses:
Payroll and employee benefits		—			66,530			10			—			66,540
Provision for doubtful accounts		—			16,695			2,989			—			19,684
Depreciation and amortization		—			2,541			—			—			2,541
Other operating expenses		—			25,053			9,454			(6,090	)		28,417
Loss on sale of assets		—			5			—			—			5
Total operating expenses		—			110,824			12,453			(6,090	)		117,187
Operating income		—			10,110			(676	)		—			9,434
Equity in earnings of subsidiaries		10,538			—			—			(10,538	)		—
Interest expense		(7,481	)		(32	)		—			—			(7,513	)
Interest income		—			46			2			—			48
Income (loss) from continuing operations before income taxes and minority interest		3,057			10,124			(674	)		(10,538	)		1,969
Income tax provision		—			(260	)		—			—			(260	)
Minority interest		—			—			—			337			337
Income (loss) from continuing operations		3,057			9,864			(674	)		(10,201	)		2,046
Income from discontinued operations, net of income taxes		—			1,011			—			—			1,011
Net income (loss)	$	3,057		$	10,875		$	(674	)	$	(10,201	)	$	3,057

15

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors			Non- Guarantor		Eliminations			Rural/Metro LLC - Consolidated			Eliminations			Rural Metro Corporation Consolidated
				Rural/Metro LLC			Rural/ Metro Inc.
Net revenue	$	—		$	—		$	—	$	266,427		$	25,172	$	(11,374	)	$	280,225		$	—		$	280,225
Operating expenses:
Payroll and employee benefits		16			—			—		137,501			34		—			137,535			—			137,551
Provision for doubtful accounts		—			—			—		42,381			6,360		—			48,741			—			48,741
Depreciation and amortization		—			—			—		5,597			2		—			5,599			—			5,599
Other operating expenses		—			—			—		54,643			18,161		(11,374	)		61,430			—			61,430
Gain on sale of assets		—			—			—		(1,307	)		—		—			(1,307	)		—			(1,307	)
Total operating expenses		16			—			—		238,815			24,557		(11,374	)		251,998			—			252,014
Operating income (loss)		(16	)		—			—		27,612			615		—			28,227			—			28,211
Equity in earnings of subsidiaries		9,812			21,583			—		—			—		(21,583	)		—			(9,812	)		—
Interest expense		(3,450	)		(11,771	)		—		(35	)		—		—			(11,806	)		—			(15,256	)
Interest income		—			—			—		310			15		—			325			—			325
Income from continuing operations before income taxes and minority interest		6,346			9,812			—		27,887			630		(21,583	)		16,746			(9,812	)		13,280
Income tax provision		—			—			—		(6,168	)		—		—			(6,168	)		—			(6,168	)
Minority interest		—			—			—		—			—		(315	)		(315	)		—			(315	)
Income from continuing operations		6,346			9,812			—		21,719			630		(21,898	)		10,263			(9,812	)		6,797
Loss from discontinued operations, net of income taxes		—			—			—		(451	)		—		—			(451	)		—			(451	)
Net income	$	6,346		$	9,812		$	—	$	21,268		$	630	$	(21,898	)	$	9,812		$	(9,812	)	$	6,346

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 December 31, 2005 consists of equity and due to affiliates totaling an amount equal to $100.

16

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2004

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural Metro Corporation Consolidated
Net revenue	$	—		$	240,692		$	23,672		$	(11,833	)	$	252,531
Operating expenses:
Payroll and employee benefits		—			132,039			24			—			132,063
Provision for doubtful accounts		—			34,555			5,887			—			40,442
Depreciation and amortization		—			5,377			—			—			5,377
Other operating expenses		—			48,361			17,819			(11,833	)		54,347
Loss on sale of assets		—			3			—			—			3
Total operating expenses		—			220,335			23,730			(11,833	)		232,232
Operating income (loss)		—			20,357			(58	)		—			20,299
Equity in earnings of subsidiaries		22,248			—			—			(22,248	)		—
Interest expense		(14,774	)		(57	)		—			—			(14,831	)
Interest income		—			174			2			—			176
Income (loss) from continuing operations before income taxes and minority interest		7,474			20,474			(56	)		(22,248	)		5,644
Income tax provision		—			(336	)		—			—			(336	)
Minority interest		—			—			—			28			28
Income (loss) from continuing operations		7,474			20,138			(56	)		(22,220	)		5,336
Income from discontinued operations, net of income taxes		—			2,138			—			—			2,138
Net income (loss)	$	7,474		$	22,276		$	(56	)	$	(22,220	)	$	7,474

17

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers
	Parent			Rural/Metro LLC			Rural/ Metro Inc.		Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural/Metro LLC -Consolidated			Eliminations			Rural Metro Corporation Consolidated
Cash flows from operating activities:
Net income	$	6,346		$	9,812		$	—	$	21,268		$	630		$	(21,898	)	$	9,812		$	(9,812	)	$	6,346
Adjustments to reconcile net income to cash provided by operating activities -
Provision for doubtful accounts		—			—			—		44,467			6,360			—			50,827			—			50,827
Deferred income taxes		—			—			—		5,254			—			—			5,254			—			5,254
Depreciation and amortization		—			—			—		5,718			2			—			5,720			—			5,720
Accretion of 12.75% Senior Discount Notes		3,349			—			—		—			—			—			—			—			3,349
Insurance adjustments		—			—			—		(2,387	)		—			—			(2,387	)		—			(2,387	)
Gain on sale of property and equipment		—			—			—		(1,307	)		—			—			(1,307	)		—			(1,307	)
Amortization of deferred financing costs		101			999			—		—			—			—			999			—			1,100
Earnings of minority shareholder		—			—			—		—			—			315			315			—			315
Stock based compensation		16			—			—		—			—			—			—			—			16
Changes in assets and liabilities -
Accounts receivable		—			—			—		(57,216	)		(6,503	)		—			(63,719	)		—			(63,719	)
Inventories		—			—			—		(5	)		—			—			(5	)		—			(5	)
Prepaid expenses and other		—			50			—		2,317			1			—			2,368			—			2,368
Insurance deposits		—			—			—		1,779			—			—			1,779			—			1,779
Other assets		—			—			—		1,738			—			—			1,738			—			1,738
Accounts payable		—			—			—		(2,057	)		(302	)		—			(2,359	)		—			(2,359	)
Accrued liabilities		—			(230	)		—		(6,095	)		129			—			(6,196	)		—			(6,196	)
Deferred revenue		—			—			—		316			—			—			316			—			316
Other liabilities		—			—			—		380			—			—			380			—			380
Net cash provided by operating activities		9,812			10,631			—		14,170			317			(21,583	)		3,535			(9,812	)		3,535
Cash flows from investing activities:
Purchases of short-term investments		—			—			—		(37,700	)		—			—			(37,700	)		—			(37,700	)
Sales of short-term investments		—			—			—		30,100			—			—			30,100			—			30,100
Capital expenditures		—			—			—		(8,891	)		(205	)		—			(9,096	)		—			(9,096	)
Proceeds from the sale of property and equipment		—			—			—		1,559			—			—			1,559			—			1,559
Net cash used in investing activities		—			—			—		(14,932	)		(205	)		—			(15,137	)		—			(15,137	)
Cash flows from financing activities:
Repayment of debt		—			—			—		(7,738	)		—			—			(7,738	)		—			(7,738	)
Book overdraft		—			—			—		2,261			—			—			2,261			—			2,261
Distributions to minority shareholders		—			—			—		—			(155	)		—			(155	)		—			(155	)
Distributions to Rural/Metro LLC		—			155			—		—			(155	)		—			—			—			—
Due to/from affiliates		(10,843	)		(10,786	)		—		(9,518	)		(248	)		21,583			1,031			9,812			—
Tax benefit from the exercise of stock options		436			—			—		—			—			—			—			—			436
Issuance of common stock		595			—			—		—			—			—			—			—			595
Net cash used in financing activities		(9,812	)		(10,631	)		—		(14,995	)		(558	)		21,583			(4,601	)		9,812			(4,601	)
Decrease in cash and cash equivalents		—			—			—		(15,757	)		(446	)		—			(16,203	)		—			(16,203	)
Cash and cash equivalents, beginning of period		—			—			—		17,031			657			—			17,688			—			17,688
Cash and cash equivalents, end of period	$	—		$	—		$	—	$	1,274		$	211		$	—		$	1,485		$	—		$	1,485

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 December 31, 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.

18

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2004

(unaudited)

(in thousands)

	Parent			Senior Subordinated Notes Guarantors			Non- Guarantor			Eliminations			Rural Metro Corporation Consolidated
Cash flow from operating activities:
Net income (loss)	$	7,474		$	22,276		$	(56	)	$	(22,220	)	$	7,474
Adjustments to reconcile net income to cash provided by operating activities -
Provision for doubtful accounts		—			36,192			5,887			—			42,079
Depreciation and amortization		—			5,928			—			—			5,928
Amortization of deferred financing costs		1,339			—			—			—			1,339
Loss on sale of property and equipment		—			3			—			—			3
Losses of minority shareholder		—			—			—			(28	)		(28	)
Insurance adjustments		—			(636	)		—			—			(636	)
Amortization of debt discount		13			—			—			—			13
Tax benefit from the exercise of stock options		129			—			—			—			129
Change in assets and liabilities -
Accounts receivable		—			(38,990	)		(5,162	)		—			(44,152	)
Inventories		—			(279	)		—			—			(279	)
Prepaid expenses and other		—			160			(1	)		—			159
Insurance deposits		—			2,791			—			—			2,791
Other assets		—			622			—			—			622
Accounts payable		—			(4,009	)		(304	)		—			(4,313	)
Accrued liabilities		3,201			(11,358	)		(27	)		—			(8,184	)
Deferred revenue		—			33			325			—			358
Other liabilities		—			(3,211	)		—			—			(3,211	)
Net cash provided by operating activities		12,156			9,522			662			(22,248	)		92
Cash flows from investing activities:
Capital expenditures		—			(6,994	)		—			—			(6,994	)
Proceeds from the sale of property and equipment		—			81			—			—			81
Net cash used in investing activities		—			(6,913	)		—			—			(6,913	)
Cash flows from financing activities:
Repayment of debt		—			(610	)		—			—			(610	)
Issuance of common stock		1,168			—			—			—			1,168
Due to/from affiliates		(13,324	)		(8,481	)		(443	)		22,248			—
Net cash used in financing activities		(12,156	)		(9,091	)		(443	)		22,248			558
Increase (decrease) in cash and cash equivalents		—			(6,482	)		219			—			(6,263	)
Cash and cash equivalents, beginning of period		—			15,942			430			—			16,372
Cash and cash equivalents, end of period	$	—		$	9,460		$	649		$	—		$	10,109

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(6) Income Taxes

In the fourth quarter of fiscal 2005, the Company released $83.9 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. Beginning in fiscal 2006, the Company is recognizing deferred income tax expense, which does not require a current cash payment, 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. Deferred income tax expense recognized during the three and six months ended December 31, 2005 approximated $2.1 million and $5.3 million, respectively.

The Company recorded a $2.5 million and $6.2 million income tax provision related to continuing operations during the three and six months ended December 31, 2005, respectively, and a $0.4 million and $0.3 million income tax benefit related to discontinued operations during the three and six months ended December 31, 2005, respectively. These amounts include the previously mentioned deferred income taxes of $2.1 million and $5.3 million. The effective tax rate for the three and six months ended December 31, 2005 for continuing operations was 41.9% and 46.4%, respectively, which differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to the Company’s 12.75% Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. Cash payments for income taxes for the three and six months ended December 31, 2005 were $40,000 and $0.4 million, respectively, primarily consisting of federal alternative minimum taxes and state income taxes.

During each of the three and six months ended December 31, 2004, the Company recorded income tax provisions of $0.3 million, resulting in effective tax rates of 13.2% and 6.0%, respectively. This rate differs from the federal statutory rate of 35.0% primarily as a result of the release of valuation allowances relating to the utilization of a portion of the Company’s net operating loss carryforwards partially offset by federal alternative minimum taxes and state income taxes. The Company also recorded an income tax provision of $0.2 million related to discontinued operations during the three and six months ended December 31, 2004. The Company received income tax refunds of $0.1 million and made income tax payments of $0.1 million for the three and six months ended December 31, 2004, respectively.

(7) Gain On Sale of Assets

On August 19, 2005, the Company sold real estate in Arizona for cash proceeds of $1.6 million. This transaction generated a pre-tax gain of $1.3 million which has been included in (gain) loss on sale of assets in the consolidated statement of operations for the six months ended December 31, 2005.

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(8) Net Income Per Share

A reconciliation of the numerators and denominators (weighted average number of shares outstanding) utilized in the basic and diluted income per share computations for the three and six months ended December 31, 2005 and 2004 is as follows (in thousands, except per share amounts):

	Three Months Ended December 31,				Six Months Ended December 31,
	2005		2004		2005		2004
Income from continuing operations	$	3,344	$	2,046	$	6,797	$	5,336
Average number of shares outstanding - Basic		24,330		22,241		24,281		22,100
Add: Incremental shares for dilutive effect of stock options		968		1,781		999		1,251
Average number of shares outstanding - Diluted		25,298		24,022		25,280		23,351
Income per share - basic	$	0.14	$	0.09	$	0.28	$	0.24
Income per share - diluted	$	0.13	$	0.09	$	0.27	$	0.23

Option shares with exercise prices above the average market prices during the respective periods have been excluded from the calculation of diluted income per share. Such options totaled 1.1 million and 2.3 million for the three months ended December 31, 2005 and 2004, respectively, and 1.1 million and 2.7 million for the six months ended December 31, 2005 and 2004, respectively.

(9) Segment Reporting

The Company provides emergency and non-emergency medical transportation and related services, fire protection services, primarily on a subscription fee basis, and a variety of other services.

The Company reevaluated its segment disclosures in fiscal year 2005 in light of the issuance of Emerging Issues Task Force Issue 04-10, “Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.” As a result of this guidance, the Company has revised its segment disclosures to present four regionally-based reporting segments which correspond with the manner in which the associated operations are managed and evaluated by the Chief Executive Officer. 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, Southern Florida, Southern Ohio, Tennessee, Wisconsin
C	Arizona, New Mexico, Oregon (fire)
D	California (medical transportation), Central Florida, Colorado, Oregon (medical transportation), Nebraska, South Dakota, Washington

Each reporting segment provides medical transportation and related services while the Company’s fire services are predominately centered in Segments B and C.

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. Prior year segment disclosures have been reclassified to conform with the current year presentation.

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The following table summarizes segment net revenue from continuing operations and profit from continuing operations information (in thousands):

	Segment A		Segment B		Segment C			Segment D		Total
Three months ended December 31, 2005
Net revenues from continuing operations:
Medical transportation	$	27,661	$	23,913	$	39,856		$	32,836	$	124,266
Fire and other		1,066		5,550		10,454			125		17,195
Total net revenue	$	28,727	$	29,463	$	50,310		$	32,961	$	141,461
Segment profit from continuing operations	$	3,855	$	2,992	$	6,867		$	2,729	$	16,443
Three months ended December 31, 2004
Net revenues from continuing operations:
Medical transportation	$	27,192	$	23,787	$	32,514		$	27,943	$	111,436
Fire and other		837		5,395		8,798			155		15,185
Total net revenue	$	28,029	$	29,182	$	41,312		$	28,098	$	126,621
Segment profit from continuing operations	$	3,860	$	2,417	$	5,129		$	569	$	11,975
Six months ended December 31, 2005
Net revenues from continuing operations:
Medical transportation	$	56,363	$	49,390	$	76,687		$	64,051	$	246,491
Fire and other		1,931		10,990		20,621			192		33,734
Total net revenue	$	58,294	$	60,380	$	97,308		$	64,243	$	280,225
Segment profit from continuing operations	$	8,269	$	6,586	$	14,655		$	4,300	$	33,810
Six months ended December 31, 2004
Net revenues from continuing operations:
Medical transportation	$	55,094	$	47,965	$	62,653		$	55,890	$	221,602
Fire and other		1,735		10,636		17,585			973		30,929
Total net revenue	$	56,829	$	58,601	$	80,238		$	56,863	$	252,531
Segment profit from continuing operations	$	7,855	$	4,974	$	9,627	*	$	3,219	$	25,676

* Segment C profit for the six months ended December 31, 2005 includes a $1.3 million gain on the sale of real estate located in Arizona.

A reconciliation of segment profit from continuing operations to income from continuing operations before income taxes and minority interest is as follows (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2005			2004			2005			2004
Segment profit from continuing operations	$	16,443		$	11,975		$	33,810		$	25,676
Depreciation and amortization		(2,846	)		(2,541	)		(5,599	)		(5,377	)
Interest expense		(7,748	)		(7,513	)		(15,256	)		(14,831	)
Interest income		172			48			325			176
Income from continuing operations before income taxes and minority interest	$	6,021		$	1,969		$	13,280		$	5,644

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Segment assets consist solely of accounts receivable. The following table summarizes segment asset information (in thousands):

	December 31, 2005		June 30, 2005
Segment A	$	16,979	$	16,983
Segment B		19,438		16,615
Segment C		27,952		20,592
Segment D		20,509		17,796
Total segment assets	$	84,878	$	71,986

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

	December 31, 2005		June 30, 2005
Segment assets	$	84,878	$	71,986
Cash		1,485		17,688
Short-term investments		7,600		—
Inventories		12,748		12,743
Prepaid expenses and other		7,081		9,449
Property and equipment, net		44,761		41,402
Goodwill		39,344		39,344
Deferred tax assets		80,407		85,661
Insurance deposits		7,258		9,037
Other assets		24,702		26,818
Total assets	$	310,264	$	314,128

(10) Discontinued Operations

During the second quarter of 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. The financial results of this service area for the three and six months ended December 31, 2005 and 2004 are included in income from discontinued operations. Additionally, the results of service areas where the Company ceased operations during fiscal 2005 are included in income from discontinued operations in the statement of operations for the three and six months ended December 31, 2004.

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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. 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 is shown by segment in the tables below (in thousands):

	Three Months Ended December 31,					Six Months Ended December 31,
	2005			2004		2005			2004
Net revenue:
Segment A	$	1,948		$	2,230	$	4,090		$	4,465
Segment B		—			717		—			1,441
Segment C		—			4,657		—			9,459
Segment D		—			3,003		—			5,927
Net revenue from discontinued operations	$	1,948		$	10,607	$	4,090		$	21,292
	Three Months Ended December 31,					Six Months Ended December 31,
	2005			2004		2005			2004
Income (loss):
Segment A	$	(577	)	$	171	$	(451	)	$	347
Segment B		—			45		—			91
Segment C		—			433		—			1,046
Segment D		—			362		—			654
Income (loss) from discontinued operations	$	(577	)	$	1,011	$	(451	)	$	2,138

(11) Defined Benefit Plan

The following table presents the components of net periodic benefit cost for the three and six months ended December 31, 2005 and 2004 (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2005			2004			2005			2004
Service cost	$	225		$	181		$	451		$	363
Interest cost		11			—			22			—
Expected return on plan assets		(23	)		(6	)		(47	)		(13	)
Net periodic pension benefit cost	$	213		$	175		$	426		$	350

The following table presents the assumptions used in the determination of net periodic benefit cost for the three and six months ended December 31, 2005 and 2004:

	2005		2004
Discount rate	5.00	%	6.25	%
Rate of increase in compensation levels	2.5	%	4.0	%
Expected long-term rate of return on assets	7.5	%	7.5	%

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The Company contributed approximately $0.3 million and $0.2 million during the three months ended December 31, 2005 and 2004, respectively, and $0.5 million and $0.4 million during the six months ended December 31, 2005 and 2004, respectively. The Company’s fiscal 2006 contributions are anticipated to approximate $1.0 million.

(12) Commitments and Contingencies

Legal Proceedings

From time to time, the Company is subject to litigation and regulatory investigations arising in the ordinary course of business. The Company believes that the resolution of currently pending claims or legal proceedings will not have a material adverse effect on its business, financial condition, results of operations or cash flows. However, the Company is unable to predict with certainty the outcome of pending litigation and regulatory investigations. In some pending cases, insurance coverage may not be adequate to cover all liabilities in excess of its deductible or self-insured retention arising out of such claims. Unfavorable resolutions of pending or future litigation, regulatory reviews and/or investigations, either individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

The Company’s subsidiary, Sioux Falls Ambulance Inc. (“Sioux Falls”) had been conducting settlement discussions with the Office of the Inspector General of the Department of Health and Human Services (“OIG”) 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 government had provided the Company with information relating to its investigation and had asked the Company to respond. The Company is in periodic discussions with the government regarding its investigation. The liability for this matter, if any, is not estimable at this point in time and, therefore, no accrual has been recorded.

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 reviews cover periods prior to and following the Company’s acquisition of certain operations. Management believes that reserves established for specific contingencies of $0.4 million as of December 31, 2005 and $0.9 million as of June 30, 2005 (including $0.5 million related to Sioux Falls paid during the second quarter 2006) are adequate based on information currently available.

(13) Subsequent Events

On February 7, 2006, the Company, through its wholly owned subsidiary, Rural/Metro LLC, made a $9.0 million unscheduled principal payment on its Term Loan B.

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

Forward-Looking Statements

Statements in this Report that are not historical facts are hereby identified as “forward-looking statements” as that term is used under the securities laws. We caution readers that such forward-looking statements, including those relating to our future business prospects, working capital, accounts receivable collection, liquidity, cash flow, 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 SEC.

Forward-looking statements are found throughout this Report. Additionally, the discussions herein under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are susceptible to the risks and uncertainties discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005. Moreover, we may from time to time make forward-looking statements about matters described herein or other matters concerning us. We disclaim any intent or obligation to update forward-looking statements.

All references to “we,” “our,” “us,” or “Rural/Metro” refer to Rural/Metro Corporation, and its predecessors, operating divisions, direct and indirect subsidiaries and affiliates. Rural/Metro Corporation 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. Information contained on the website is not a part of this Report.

This Report should be read in conjunction with our audited consolidated financial statements and footnotes thereto included in our Current Report on Form 8-K/A filed with the SEC on November 14, 2005.

Executive Summary

We provide both emergency and non-emergency medical transportation services to approximately 365 communities in 22 states. We provide these medical transportation services under contracts with governmental entities, hospitals, nursing homes and other healthcare facilities and organizations. As of December 31, 2005, we have approximately 100 exclusive contracts to provide 911 emergency medical transportation services and approximately 650 contracts to provide non-emergency medical transportation services.

We believe that providing a mix of emergency and non-emergency medical transportation services diversifies our revenue base and permits us to utilize our medical transportation vehicles and personnel more efficiently. We derive revenue from our medical transportation services through reimbursements we receive from private 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. In addition, under certain of our 911 emergency medical transportation contracts we receive local government subsidies to offset the cost of providing uncompensated care to their respective communities.

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Our medical transport revenue depends on various factors, including the mix of payers, the mix of rates within existing markets and the mix of activity between emergency medical transportation services and non-emergency transportation services, as well as other competitive factors. Results of operations are discussed below on the basis of actual transports because transports are more directly related to revenue.

We are also a provider of 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 16 sites located in 11 states. Our fire protection services consist primarily of fire suppression, fire prevention and first responder medical care.

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 daily deposits (see further discussion in Liquidity and Capital Resources), days sales outstanding, Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”, see further discussion in Liquidity and Capital Resources) and medical transport volume, among others.

The following is a summary of certain key operating statistics. Medical transports and net/net EMS APC statistics have been adjusted to eliminate discontinued operations. Average Days Sales Outstanding (“DSO”) has not been adjusted to eliminate discontinued operations.

	Three Months Ended December 31,				Six Months Ended December 31,
	2005		2004		2005		2004
Medical Transports (1)		270,861		258,433		541,154		517,106
Net/Net EMS APC (2)	$	343	$	326	$	341	$	323
Average Days Sales Outstanding (3)		51		45		51		45

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

(2) 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.

(3) The 6 day increase in DSO from December 31, 2004 to December 31, 2005 was partially due to the fiscal 2005 exit from fixed fee contracts in Scottsdale, Arizona and Fort Worth, Texas, which contributed to a three-day increase in DSO as well as differences in the timing of revenue growth as compared to the growth in the average account receivable balances. A slowdown in processing by certain governmental intermediaries primarily due to their implementation of new billing platforms as well as the consolidation of several of the Company’s billing centers and a 7.3 percent increase in transports in the month of December 2005 compared to November 2005 also contributed to the increase in DSO at December 31, 2005.

Factors Affecting Our Operating Results

Our fiscal 2006 second quarter and year-to-date results reflect our continued focus on growing and strengthening our base of core operations. We continued our 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 had an impact on our financial condition and results of operations or are likely to have an impact on our financial condition and results of operations in the future.

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Insurance Programs

Throughout fiscal 2006 we have continued to close worker’s compensation insurance-related claims as soon as possible. We have also worked to minimize future insurance-related losses through proactive risk management and workplace safety initiatives. Our efforts have given rise to favorable historical claims experience, which, in part, resulted in a $2.6 million reduction in our worker’s compensation insurance cost in the second quarter of fiscal 2006.

Income Taxes

In the fourth quarter of fiscal 2005, we released $83.9 million of our deferred tax valuation allowances, primarily those relating to our federal and state net operating loss carryforwards, as a result of management’s determination that realization of the related deferred tax benefits was likely. Beginning in fiscal 2006, we are recognizing deferred income tax expense, which does not require a current cash payment, as we utilize our net operating loss carryforwards to reduce our federal and state taxes currently payable and the associated deferred tax benefits are realized. See Income Tax Provision section of Results of Operations for further discussion.

Gain on Sale of Real Estate

On August 19, 2005, we sold real estate in Arizona for cash proceeds of $1.6 million resulting in a pre-tax gain of $1.3 million for the three months ended September 30, 2005.

Contract Activity

New Contracts

Contract activities for the first half of fiscal 2006 include our new five-year contract for exclusive emergency and non-emergency medical transportation services to the City of Salem, Oregon, which became effective July 1, 2005. We also commenced our new 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. We estimate that these new contracts will generate annual net revenue of approximately $5.0 million and $1.8 million, respectively, from emergency and non-emergency medical transportation services.

New contracts also included a new three-year contract that commenced September 10, 2005 to assume all non-emergency medical transportation services from Orlando Regional Healthcare System, one of Central Florida’s largest healthcare providers. Our contract enabled us to acquire Orlando Regional’s existing fleet of ambulances and hire all eligible medical personnel. We estimate that this new contract will generate annual net revenue of approximately $7.0 million from non-emergency medical transportation services.

During the second quarter of fiscal 2006, we were awarded an exclusive contract to provide emergency medical transportation services in Salt Lake City, Utah. The contract, which is scheduled to commence on April 3, 2006, has an initial four-year term, followed by two four-year renewal periods and is expected to generate annual net revenue of approximately $5.5 million from emergency medical transportation services.

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Contract Renewals

Contract renewals awarded during the first half of fiscal 2006 included a two-year renewal of our long standing contract as the 911 medical transportation services provider in Aurora, Colorado, a five-year renewal of our contract to provide 911 medical transportation services in Blount County, Tennessee, a two-year renewal contract to continue as the preferred provider of non-emergency medical transportation services for St. Vincent Hospital and Health Services in Indianapolis and a six-year renewal contract to continue providing fire and first responder emergency medical services in the Town of Paradise Valley, Arizona. These contracts generated combined net revenue totaling approximately $12.3 million during fiscal 2005.

Contract Non-Renewals

In an effort to strengthen our base of core operations, we often perform periodic 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 net income, respectively, during fiscal 2005. Net income 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, in a competitive bidding process we were not selected to continue as the 911 emergency medical transportation provider to the City of Scottsdale, Arizona. We have been notified by the City of Scottsdale that our services contract will end on February 17, 2006. This contract generated approximately $6.0 million and ($0.4) million in net revenue and net loss, respectively, during fiscal 2005.

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 net income, respectively, during fiscal 2005. At this time, we cannot reasonably estimate the future financial impact of the new service area in Chandler.

We will continue to service the non-emergency medical transportation markets throughout Scottsdale and Chandler.

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 $7,000 and $16,000 of stock based compensation expense in the statement of operations for the three and six months ended December 31, 2005, respectively. See Note 3 to the consolidated financial statements for additional information.

In November 2005, the Financial Accounting Standards Board (the “FASB”) issued FASB 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.

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Results of Operations

Consolidated Statement of Operations

Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004

(In Thousands, Except Per Share Amounts):

	2005			% of Net Revenue		2004			% of Net Revenue		$ Change			% Change
Net revenue	$	141,461		100.0	%	$	126,621		100.0	%	$	14,840		11.7	%
Operating expenses:
Payroll and employee benefits		69,096		48.8	%		66,540		52.6	%		2,556		3.8	%
Provision for doubtful accounts		25,009		17.7	%		19,684		15.5	%		5,325		27.1	%
Depreciation and amortization		2,846		2.0	%		2,541		2.0	%		305		12.0	%
Other operating expenses		30,878		21.8	%		28,417		22.4	%		2,461		8.7	%
Loss on sale of assets		35		0.0	%		5		—			30		—
Total operating expenses		127,864		90.4	%		117,187		92.5	%		10,677		9.1	%
Operating income		13,597		9.6	%		9,434		7.5	%		4,163		44.1	%
Interest expense		(7,748	)	(5.5	)%		(7,513	)	(5.9	)%		(235	)	3.1	%
Interest income		172		0.1	%		48		0.0	%		124		—
Income from continuing operations before income taxes and minority interest		6,021		4.2	%		1,969		1.6	%		4,052		—
Income tax provision		(2,524	)	(1.8	)%		(260	)	(0.2	)%		(2,264	)	—
Minority interest		(153	)	(0.1	)%		337		0.3	%		(490	)	—
Income from continuing operations		3,344		2.4	%		2,046		1.6	%		1,298		63.4	%
Income (loss) from discontinued operations, net of income taxes		(577	)	—			1,011		0.8	%		(1,588	)	—
Net income	$	2,767		2.0	%	$	3,057		2.4	%	$	(290	)	(9.5	)%
Income per share
Basic -
Income from continuing operations	$	0.14				$	0.09				$	0.05
Income (loss) from discontinued operations		(0.03	)				0.05					(0.08	)
Net income	$	0.11				$	0.14				$	(0.03	)
Diluted-
Income from continuing operations	$	0.13				$	0.09				$	0.04
Income (loss) from discontinued operations		(0.02	)				0.04					(0.06	)
Net income	$	0.11				$	0.13				$	(0.02	)
Average number of common shares outstanding - Basic		24,330					22,241					2,089
Average number of common shares outstanding - Diluted		25,298					24,022					1,276

Note > Variances over 100% not displayed.

30

Net revenue growth of $14.8 million, or 11.7 percent, resulted from a $12.8 million or 11.5 percent increase in medical transportation and related services revenue and a $2.0 million or 13.2 percent increase in fire and other services revenue.

As a percentage of net revenue, operating expenses were 210 basis points lower for the three months ended December 31, 2005 compared to the prior period primarily due to a 380 basis point decline in payroll and employee benefits and an 60 basis point decline in other operating expenses, both as a percentage of net revenue, partially offset by a 220 basis point increase in 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 for the three months ended December 31, 2005 includes the impact of recording income tax provisions at a 41.9% effective rate, as discussed in further detail in the income tax section below, and an increase in the average number of diluted shares outstanding during the period from 24.0 million shares at December 31, 2004 to 25.3 million shares at December 31, 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.

Net Revenue

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

	Three Months Ended December 31,
	2005		2004		$ Change		% Change
Medical transportation and related services	$	124,266	$	111,436	$	12,830	11.5	%
Fire and other services		17,195		15,185		2,010	13.2	%
Total net revenue	$	141,461	$	126,621	$	14,840	11.7	%

Medical Transportation and Related Services

Approximately $7.2 million of the increase in medical transportation and related services revenue is due to an increase in rates and approximately $5.6 million is due to an increase in the number of transports. Same service area revenue accounted for $9.9 million of the increase, while the remaining $2.9 million of the increase resulted from revenues generated under new contracts in Salem, Oregon, Roswell, New Mexico and the Orlando Regional Medical Center.

A comparison of transports is included in table below:

	Three Months Ended December 31,
	2005	2004	Transport Change	% Change
Medical transportation	270,861	258,433	12,428	4.8	%
Alternative transportation	21,985	20,444	1,541	7.5	%
Total transports from continuing operations	292,846	278,877	13,969	5.0	%

Medical transports in areas that we served in both three months ended December 31, 2005 and 2004 increased by approximately 5,500 transports, or 2.1 percent, 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. Additionally, medical transports related to new contracts in Salem, Oregon, Roswell, New Mexico and the Orlando Regional Medical Center totaled approximately 6,900 for the three months ended December 31, 2005.

31

Consolidated net/net EMS APC for the three months ended December 31, 2005 was $343 compared to $326 for the three months ended December 31, 2004. The 5.2 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 contracts to provide EMS services as well as a change in payer mix in select markets.

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 $64.9 million and $54.3 million for the three months ended December 31, 2005 and 2004, respectively. Such discounts represented 35.3 percent and 33.9 percent of gross medical transportation and alternative transportation service fees for the three months ended December 31, 2005 and 2004, respectively. The increase of 140 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 $1.0 million, or 10.9 percent, of which $0.6 million was related to higher subscription rates and $0.5 million was related to an increase in the number of subscribers. Additionally, master fire fees increased by $0.4 million due to increases in various master fire contract rates and other revenue increased $0.5 million due to revenue associated with Hurricanes Rita and Katrina relief efforts.

Operating Expenses

Payroll and Employee Benefits

The overall increase in payroll and employee benefits is primarily due to greater medical transport activity, including higher salary expense of $0.7 million related to the impact of new service areas in Salem, Oregon, Roswell, New Mexico and the new Orlando Regional Medical Center contract, a $1.1 million increase in fill-in wages associated with employees needed to replace those utilized in the hurricane disaster recovery efforts and coverage of open positions, a $0.7 million increase in management incentives and general wage rate increases. These increases were partially offset by a $2.6 million reduction in workers’ compensation expense related to improved claims history and continuing overall favorable insurance trends.

Payroll and employee benefits as a percentage of net revenue decreased primarily due to the reduction in worker’s compensation expense described above.

Provision for Doubtful Accounts

The provision for doubtful accounts as a percentage of net medical transportation and related services revenue was 20.8 percent and 19.0 percent for the three months ended December 31, 2005 and 2004, respectively. The 180 basis point increase primarily resulted from a slight rise in the overall uncollectible percentage in certain markets driven by a change in payer mix. Our decision to expand certain of our 911 emergency medical transportation markets provided opportunities to achieve greater resource utilization and leverage of our fixed asset base, despite a somewhat higher associated provision expense. This strategy to expand and solidify our market share and maximize utilization, combined with rate increases in certain markets, contributed to the rise in operating income during the three months ended December 31, 2005.

32

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 2004 and 2005.

Other Operating Expenses

The increase in other operating expenses was primarily due to higher professional fees of $1.3 million related to our efforts to comply with Section 404 of the Sarbanes-Oxley Act as well as fees related to an amendment of our credit facility during the second quarter of fiscal 2006. Additional factors contributing to the increase in other operating expenses included a $0.6 million increase in fuel expense driven by an overall increase in the cost of fuel, greater vehicle maintenance expense of $0.4 million due to an increase in the number of vehicles as well as preventative maintenance efforts, higher contractual service and franchise fees totaling $0.4 million related to the increased number of transports, and increases in other miscellaneous operating expenses, none of which was individually significant. These increases were partially offset by a $1.2 million decrease in general liability insurance costs resulting from favorable historical claims experience in recent years.

Interest Expense

Interest expense increased primarily due to a higher average effective interest rate including non-cash interest expense of $1.7 million related to the accretion of our 12.75% Senior Discount Notes.

Income Tax Provision

In the fourth quarter of fiscal 2005, we released $83.9 million of our deferred tax valuation allowances, primarily those relating to our federal and state net operating loss carryforwards, as a result of management’s determination that realization of the related deferred tax benefits was likely. Beginning in fiscal 2006, we have been recognizing deferred income tax expense, which does not require a current cash payment, as we utilize our net operating loss carryforwards to reduce our federal and state taxes currently payable and the associated deferred tax benefits are realized. Deferred income tax expense recognized during the three months ended December 31, 2005 approximated $2.1 million.

During the three months ended December 31, 2005, we recorded a $2.5 million income tax provision related to continuing operations and a $0.4 million income tax benefit related to discontinued operations. These amounts include the previously mentioned deferred income taxes of $2.1 million, resulting in an effective tax rate of 41.9%. The effective tax rate for the second quarter of fiscal 2006 declined compared to the rate used in the first quarter primarily due to revisions to estimates of full-year taxable income. This rate differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to our 12.75% Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. Cash payments for income taxes for the three months ended December 31, 2005 were $40,000, primarily consisting of federal alternative minimum taxes and state income taxes.

During the three months ended December 31, 2004, we recorded a $0.3 million income tax provision, resulting in an effective tax rate of 13.2%. This rate differs from the federal statutory rate of 35.0% primarily as a result of the release of valuation allowances relating to the utilization of a portion of our net operating loss carryforwards partially offset by federal alternative minimum taxes and state income taxes. We also recorded $0.2 million in income tax provisions related to discontinued operations during the three months ended December 31, 2004. We received income tax refunds of $0.1 million during the three months ended December 31, 2004.

33

Discontinued Operations

During the second quarter of fiscal 2006, 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 the three months ended December 31, 2005 and 2004 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 the three months ended December 31, 2004.

For the three months ended December 31, 2005 and 2004, net revenue associated with these discontinued service areas totaled $1.9 million and $10.6 million, respectively. Net loss for the three months ended December 31, 2005 was $0.6 million, which includes an income tax benefit of $0.4 million. Net income for the three months ended December 31, 2004 was $1.0 million, which includes an income tax provision of $0.2 million. A net loss was generated during the current period due to the recognition of $0.3 million of closure-related costs, primarily lease termination charges, and an additional $0.7 million in provisions for doubtful accounts. The additional provisions were recorded based upon the Company’s experience with accounts receivable collections for discontinued operations compared to historically levels. Net income 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.

34

Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004 - Segments

Overview

We provide emergency and non-emergency medical transportation services, 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 the Chief Executive Officer. 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, Southern Florida, Southern Ohio, Tennessee, Wisconsin
C	Arizona, New Mexico, Oregon (fire)
D	California (medical transportation), Central Florida, Colorado, Oregon (medical transportation), Nebraska, South Dakota, Washington

Each reporting segment provides medical transportation services while our 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.

35

Segment A

The following table presents financial results and key operating statistics for Segment A for the three months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC and medical transports):

	Three Months Ended December 31,						$ Change			% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	27,661		$	27,192		$	469		1.7	%
Other services		1,066			837			229		27.4	%
Total net revenue	$	28,727		$	28,029		$	698		2.5	%
Segment profit	$	3,855		$	3,860		$	(5	)	(0.1	)%
Operating margin		13.4	%		13.8	%
Medical transports		71,016			71,513			(497	)	(0.7	)%
Net/net EMS APC	$	302		$	298		$	4		1.2	%

Medical transportation rate increases contributed to approximately $0.7 million of the increase in net medical transportation revenue while a decline in the number of medical transports contributed to a $0.2 million decrease in net medical transportation revenue. Segment A’s net revenue also increased as a result of one-time revenue of $0.2 million associated with Hurricane Katrina relief efforts, through Segment A’s New York operations.

The 40 basis point decline in operating margin was principally due to higher provisions for doubtful accounts as a percentage of net revenue, increased general liability insurance costs and contractual service fees, partially offset by a reduction in payroll-related expenses as a percentage of net revenue.

Payroll-related expense as a percentage of net revenue decreased from 52.0 percent in the second quarter of fiscal 2005 to 49.2 percent in the second quarter of fiscal 2006 primarily due to reductions in scheduled overtime, health insurance costs and workers’ compensation expense partially offset by fill-in wages. Provision for doubtful accounts as a percentage of net revenue increased from 14.3 percent in the second quarter of fiscal 2005 to 16.7 percent in the second quarter of fiscal 2006 primarily due to a change in payer mix in certain markets. The change in payer mix partially resulted from our decision to expand certain of our 911 emergency medical transportation markets to provide opportunities to achieve greater resource utilization and leverage of our fixed asset base, despite a somewhat higher associated provision expense. Other operating expenses as a percentage of revenue grew from 16.3 percent in the second quarter of fiscal 2005 to 17.9 percent in the second quarter of fiscal 2006 primarily driven by a $0.3 million increase in general liability insurance costs and a $0.1 million increase in fuel costs, partially offset by declines in other miscellaneous operating costs, none of which were individually significant.

The increase in net/net EMS APC was primarily a result of rate increases and the change in payer mix in certain markets, and contributed to net revenue improvement in the current quarter.

36

Segment B

The following table presents financial results and key operating statistics for Segment B for the three months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC, medical transports and fire subscriptions):

	Three Months Ended December 31,						$ Change			% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	23,913		$	23,787		$	126		0.5	%
Fire and other services		5,550			5,395			155		2.9	%
Total net revenue	$	29,463		$	29,182		$	281		1.0	%
Segment profit	$	2,992		$	2,417		$	575		23.8	%
Operating margin		10.2	%		8.3	%
Medical transports		67,842			70,417			(2,575	)	(3.7	)%
Net/net EMS APC	$	264		$	263		$	1		0.5	%
Fire subscriptions at period end		34,912			35,218			(306	)	(0.9	)%

Medical transportation rate increases contributed to approximately $1.0 million of the increase in net medical transportation revenue while a decline in the number of medical transports contributed to a $0.9 million decrease in net medical transportation revenue. The decline in medical transports was primarily due to a reduction in non-emergency transports as a result of improved call screening and greater competition in certain markets. Higher master fire contract fees and fire subscription fees also contributed to net revenue growth.

Payroll related expense as a percentage of net revenue decreased from 55.1 percent in the second quarter of fiscal 2005 to 53.1 percent in the second quarter of fiscal 2006 primarily due to reductions in workers’ compensation expense partially offset by increased overtime expense. Provision for doubtful accounts as a percentage of net revenue increased from 12.4 percent in the second quarter of fiscal 2005 to 15.9 percent for the second quarter of fiscal 2006 primarily due to a change in payer mix in certain markets. Other operating expenses as a percentage of revenue declined from 20.8 percent in the second quarter of fiscal 2005 to 18.0 percent in the second quarter of fiscal 2006 primarily driven by a $0.5 million decrease in general liability insurance costs and declines in other miscellaneous operating costs, none of which were individually significant.

The increase in operating margin is due to medical transportation rate increases and operating efficiencies achieved during the second quarter of fiscal 2006, primarily resulting from lower payroll related costs and other operating expenses as a percentage of net revenue.

37

Segment C

The following table presents financial results and key operating statistics for Segment C for the three months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC, medical transports and fire subscriptions):

	Three Months Ended December 31,						$ Change		% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	39,856		$	32,514		$	7,342	22.6	%
Fire and other services		10,454			8,798			1,656	18.8	%
Total net revenue	$	50,310		$	41,312		$	8,998	21.8	%
Segment profit	$	6,867		$	5,129		$	1,738	33.9	%
Operating margin		13.6	%		12.4	%
Medical transports		65,871			58,250			7,621	13.1	%
Net/net EMS APC	$	510		$	467		$	43	9.3	%
Fire subscriptions at period end		81,512			75,968			5,544	7.3	%

Approximately $4.2 million of the increase in net medical transportation revenue is a result of a greater number of medical transports including our new service area in Roswell, New Mexico and approximately $3.1 million is a result of an increase in rates. 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 and the new Roswell, New Mexico service area, which contributed approximately 1,100 additional transports during the second quarter of fiscal 2006. The increase in fire and other services revenue is primarily due to a greater number of fire subscriptions, higher fire subscription rates, increased forestry fees and one-time Hurricane Rita relief revenue of $0.5 million recorded in the second quarter of fiscal 2006.

Operating margins improved due primarily as a result of operating efficiencies driven by a decrease in payroll related costs as a percentage of net revenue partially offset by higher provision for doubtful accounts and other operating costs as a percentage of net revenue.

Payroll related expense decreased from 52.1 percent in the second quarter of fiscal 2005 to 49.2 percent in the second quarter of fiscal 2006 primarily due to a reduction in workers’ compensation expense. Provision for doubtful accounts as a percentage of net revenue increased from 11.3 percent in the second quarter of fiscal 2005 to 12.3 percent in the second quarter of fiscal 2006 primarily due to a change in payer mix. Other operating expenses as a percentage of revenue increased from 20.7 percent in the second quarter of fiscal 2005 to 22.0 percent in the second quarter of fiscal 2006 primarily driven by a $0.5 million increase in vehicle maintenance costs associated with a greater number of vehicles, increased fuel costs of $0.3 million and a $0.3 million increase in professional fees associated with contract negotiations, partially offset by declines in other miscellaneous operating costs, none of which were individually significant.

The increase in net/net EMS APC is a result of rate increases in certain markets as well as net revenue improvement in the current quarter.

38

Segment D

The following table presents financial results and key operating statistics for Segment D for the three months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC and medical transports):

	Three Months Ended December 31,						$ Change			% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	32,836		$	27,943		$	4,893		17.5	%
Other services		125			155			(30	)	(19.2	)%
Total net revenue	$	32,961		$	28,098		$	4,863		17.3	%
Segment profit	$	2,729		$	569		$	2,160		—
Operating margin		8.3	%		2.0	%
Medical transports		66,132			58,253			7,879		13.5	%
Net/net EMS APC	$	308		$	295		$	13		4.4	%

The increase in Segment D’s net revenue is primarily due to 13.5 percent growth in the number of transports and medical transportation rate increases. Approximately $3.8 million of the increase in net medical transportation revenue was due to a greater number of medical transports while the remainder was due to higher rates. Our new service area in Salem, Oregon and the new Orlando Regional Medical Center contract resulted in approximately 2,900 and 3,500 additional transports, respectively, for the three months ended December 31, 2005.

The increase in Segment D’s profit was primarily due to a substantial improvement in operating margins driven by a reduction in payroll related costs and other operating expenses, both 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.

Payroll related expense as a percentage of net revenue decreased from 41.2 percent in the second quarter of fiscal 2005 to 37.6 percent in the second quarter of fiscal 2006 primarily due to the disproportionate increase in net revenue as compared to overall payroll and employee benefits as well as a $0.3 million decrease in expenses associated with the San Diego contract renewal recorded in the second quarter of fiscal 2005. Provision for doubtful accounts as a percentage of net revenue increased from 26.7 percent in the second quarter of fiscal 2005 to 29.6 percent in the second quarter of fiscal 2006 primarily due to a change in payer mix in certain markets. The change in payer mix partially resulted from our decision to expand certain of our 911 emergency medical transportation markets to provide opportunities to achieve greater resource utilization and leverage of our fixed asset base, despite a somewhat higher associated provision expense. Other operating expenses as a percentage of revenue decreased from 27.5 percent in the second quarter of fiscal 2005 to 22.6 percent in the second quarter of fiscal 2006 primarily driven by a $0.5 million decrease in general liability insurance costs and decreases in other miscellaneous operating costs, none of which were individually significant, partially offset by a $0.2 million increase in contractual service and franchise fees and a $0.2 million increase in operating supplies due to the increase in the number of transports.

The increase in net/net EMS APC can primarily be attributed to a change in payer mix.

39

Consolidated Statement of Operations

Six Months Ended December 31, 2005 Compared to Six Months Ended December 30, 2004

(In Thousands, Except Per Share Amounts):

	2005			% of Net Revenue		2004			% of Net Revenue		$ Change			% Change
Net revenue	$	280,225		100.0	%	$	252,531		100.0	%	$	27,694		11.0	%
Operating expenses:
Payroll and employee benefits		137,551		49.1	%		132,063		52.3	%		5,488		4.2	%
Provision for doubtful accounts		48,741		17.4	%		40,442		16.0	%		8,299		20.5	%
Depreciation and amortization		5,599		2.0	%		5,377		2.1	%		222		4.1	%
Other operating expenses		61,430		21.9	%		54,347		21.5	%		7,083		13.0	%
(Gain) loss on sale of assets		(1,307	)	(0.5	)%		3		0.0	%		(1,310	)	—
Total operating expenses		252,014		89.9	%		232,232		91.9	%		19,782		8.5	%
Operating income		28,211		10.1	%		20,299		8.0	%		7,912		39.0	%
Interest expense		(15,256	)	(5.4	)%		(14,831	)	(5.9	)%		(425	)	2.9	%
Interest income		325		0.1	%		176		0.1	%		149		84.7	%
Income from continuing operations before income taxes and minority interest		13,280		4.7	%		5,644		2.2	%		7,636		—
Income tax provision		(6,168	)	(2.2	)%		(336	)	(0.1	)%		(5,832	)	—
Minority interest		(315	)	(0.1	)%		28		0.0	%		(343	)	—
Income from continuing operations		6,797		2.4	%		5,336		2.1	%		1,461		27.4	%
Income (loss) from discontinued operations, net of income taxes		(451	)	—			2,138		0.8	%		(2,589	)	—
Net income	$	6,346		2.3	%	$	7,474		3.0	%	$	(1,128	)	(15.1	)%
Income per share
Basic -
Income from continuing operations	$	0.28				$	0.24				$	0.04
Income (loss) from discontinued operations		(0.02	)				0.10					(0.12	)
Net income	$	0.26				$	0.34				$	(0.08	)
Diluted-
Income from continuing operations	$	0.27				$	0.23				$	0.04
Income (loss) from discontinued operations		(0.02	)				0.09					(0.11	)
Net income	$	0.25				$	0.32				$	(0.07	)
Average number of common shares outstanding - Basic		24,281					22,100					2,181
Average number of common shares outstanding - Diluted		25,280					23,351					1,929

Note > Variances over 100% not displayed.

40

Net revenue growth of $27.7 million or 11.0 percent is primarily a result of a $24.9 million or 11.2 percent increase in medical transportation and related services revenue.

As a percentage of net revenue, operating expenses were 200 basis points lower for the six months ended December 31, 2005 compared to the prior period primarily due to a 320 basis point decline in payroll and employee benefits as a percentage of net revenue partially offset by a 140 basis point increase in provision for doubtful accounts as a percentage of net revenue. Additionally, the recognition of a $1.3 million pre-tax gain from the sale of real estate in Arizona resulted in a 50 basis point decrease in total operating expenses as a percentage of net revenue. These fluctuations are described in further detail below.

Income from continuing operations per diluted share for the six months ended December 31, 2005 includes the impact of recording income tax provisions at a 46.4% effective rate, as discussed in further detail in the income tax section below, a $1.3 million pretax gain on the sale of real estate in Arizona and an increase in the average number of diluted shares outstanding during the period from 23.4 million shares at December 31, 2004 to 25.3 million shares at December 31, 2005. The increase in the average number of shares outstanding is 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.

Net Revenue

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

	Six Months Ended December 31,
	2005		2004		$ Change		% Change
Medical transportation and related services	$	246,491	$	221,602	$	24,889	11.2	%
Fire and other services		33,734		30,929		2,805	9.1	%
Total net revenue	$	280,225	$	252,531	$	27,694	11.0	%

Medical Transportation and Related Services

Approximately $13.9 million of the increase in medical transportation and related services revenue is due to an increase in rates and approximately $11.0 million is due to an increase in the number of transports. Same service area revenue accounted for $19.2 million of the increase, while the remaining $5.7 million of the increase resulted from revenues generated under new contracts in Salem, Oregon, Tacoma, Washington, Roswell, New Mexico and the Orlando Regional Medical Center.

A comparison of transports is included in table below:

	Six Months Ended December 31,
	2005	2004	Transport Change	% Change
Medical transportation	541,154	517,106	24,048	4.7	%
Alternative transportation	44,230	40,719	3,511	8.6	%
Total transports from continuing operations	585,384	557,825	27,559	4.9	%

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Medical transports in areas that we served in both six months ended December 31, 2005 and 2004 increased by approximately 10,900 transports, or 2.1 percent, 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. Additionally, medical transports related to new contracts in Salem, Oregon, Tacoma, Washington, Roswell, New Mexico and the Orlando Regional Medical Center totaled approximately 13,100 for the six months ended December 31, 2005.

Consolidated net/net EMS APC for the six months ended December 31, 2005 was $341 compared to $323 for the six months ended December 31, 2004. The 5.6 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 contracts to provide EMS services as well as a change in payer mix in selected markets.

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 $126.1 million and $107.6 million for the six months ended December 31, 2005 and 2004, respectively. Such discounts represented 34.9 percent and 33.8 percent of gross medical transportation and alternative transportation service fees for the six months ended December 31, 2005 and 2004, respectively. The increase of 110 basis points is primarily a result of a 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 $2.0 million, or 10.5 percent, of which $1.1 million was related to higher subscription rates and $0.9 million was related to an increase in the number of subscribers. Master fire fees increased by $0.7 million due to increases in various master fire contract rates, and other revenue increased by $0.1 million due to a more active forest fire season and revenue associated with Hurricanes Rita and Katrina relief efforts, partially offset by one-time consulting fees recognized in the prior year.

Operating Expenses

Payroll and Employee Benefits

The overall increase in payroll and employee benefits is primarily due to greater medical transport activity, including higher salary expense of $2.1 million related to the impact of new service areas in Salem, Oregon, Tacoma, Washington, Roswell, New Mexico and the new Orlando Regional Medical Center contract, higher management incentive expense of $1.1 million and general wage rate increases. These increases were partially offset by a $2.6 million reduction in workers’ compensation expense due to improved claims history and continuing overall favorable insurance trends and a $1.9 million decline in health insurance expense as a result of a shift in costs from employer to employee as well as the timing of claim processing resulting from a change in our third party administrator.

Payroll and employee benefits as a percentage of net revenue decreased primarily due to the reduction in worker’s compensation expense described above.

Provision for Doubtful Accounts

The provision for doubtful accounts as a percentage of net medical transportation and related services fees was 20.6 percent and 19.4 percent for the six months ended December 31, 2005 and 2004, respectively. The 120 basis point increase primarily resulted from a slight rise in the overall uncollectible percentage in certain markets driven by a change in payer mix. Our decision to expand certain of our 911 emergency medical transportation markets provided opportunities to achieve greater resource utilization and leverage of our fixed asset base, despite a somewhat higher associated provision expense. This strategy to expand and solidify our market share and maximize utilization, combined with rate increases in certain markets, contributed to the rise in operating income during the six months ended December 31, 2005.

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Depreciation and Amortization

The decrease in depreciation and amortization is primarily due to a $0.3 million write-off of a non-compete covenant in the prior year partially offset by higher depreciation expense as a result of increased capital expenditures during fiscal 2004 and 2005.

Other Operating Expenses

The increase in other operating expenses was principally due to higher professional fees of $3.2 million primarily related to our efforts to comply with Section 404 of the Sarbanes-Oxley Act as well as a one-time $0.5 million fee paid during the second quarter of fiscal 2006 related to an amendment of our credit facility, a $1.5 million increase in fuel expense primarily driven by an overall increase in the cost of fuel, higher contractual service and franchise fees totaling $1.4 million related to the increased number of transports, and increases in other miscellaneous operating expenses, none of which was significant. These increases were partially offset by a $2.4 million decrease 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

Interest expense increased primarily due to a higher average effective interest rate driven by non-cash interest expense of $3.3 million related to the accretion of our 12.75% Senior Discount Notes.

Income Tax Provision

In the fourth quarter of fiscal 2005, we released $83.9 million of our deferred tax valuation allowances, primarily those relating to our federal and state net operating loss carryforwards, as a result of management’s determination that realization of the related deferred tax benefits was likely. Beginning in fiscal 2006, we have been recognizing deferred income tax expense, which does not require a current cash payment, as we utilize our net operating loss carryforwards to reduce our federal and state taxes currently payable and the associated deferred tax benefits are realized. Deferred income tax expense recognized during the six months ended December 31, 2005 approximated $5.3 million.

During the six months ended December 31, 2005, we recorded a $6.2 million income tax provision related to continuing operations and a $0.3 million income tax benefit related to discontinued operations. These amounts include the previously mentioned deferred income taxes of $5.3 million, resulting in an effective tax rate of 46.4%. This rate differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to our 12.75% Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. Cash payments for income taxes for the six months ended December 31, 2005 were $0.4 million and consisted primarily of federal alternative minimum taxes and state income taxes.

During the six months ended December 31, 2004, we recorded a $0.3 million income tax provision, resulting in an effective tax rate of 6.0%. This rate differs from the federal statutory rate of 35.0% primarily as a result of the release of valuation allowances relating to the utilization of a portion of our net operating loss carryforwards partially offset by federal alternative minimum taxes and state income taxes. The Company made income tax payments of $0.1 million during the six months ended December 31, 2004.

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Discontinued Operations

As previously mentioned, we ceased operating in the City of Augusta, Georgia upon expiration of our exclusive contract to provide medical transportation services to that area effective December 31, 2005. 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 the six months ended December 31, 2005 and 2004 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 the six months ended December 31, 2004.

For the six months ended December 31, 2005 and 2004, net revenue associated with these discontinued service areas totaled $4.1 million and $21.3 million, respectively. Net loss for the six months ended December 31, 2005 was $0.5 million, which includes an income tax benefit of $0.3 million. Net income for the six months ended December 31, 2004 was $2.1 million, which includes an income tax provision of $0.2 million. A net loss was generated during the current period due to the recognition of $0.3 million of closure-related costs, primarily lease termination charges, and an additional $0.7 million in provisions for doubtful accounts. The additional provisions were recorded based upon the Company’s experience with accounts receivable collections for discontinued operations compared to historically levels. Net income 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.

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Six Months Ended December 31, 2005 Compared to Six Months Ended December 31, 2004 - Segments

Segment A

The following table presents financial results and key operating statistics for Segment A for the six months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC and medical transports):

	Six Months Ended December 31,						$ Change			% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	56,363		$	55,094		$	1,269		2.3	%
Other services		1,931			1,735			196		11.3	%
Total net revenue	$	58,294		$	56,829		$	1,465		2.6	%
Segment profit	$	8,269		$	7,855		$	414		5.3	%
Operating margin		14.2	%		13.8	%
Medical transports		144,997			145,327			(330	)	(0.2	)%
Net/net EMS APC	$	302		$	298		$	4		1.3	%

Medical transportation rate increases contributed to approximately $1.4 million of the increase in net medical transportation revenue while a decline in the number of medical transports contributed to a $0.1 million decrease in net medical transportation revenue. Segment A’s net revenue increased primarily as a result of a change in payer mix in certain markets.

Operating margins improved principally due to lower payroll related costs as a percentage of net revenue partially offset by higher provisions for doubtful accounts and other operating expenses, both as a percentage of net revenue.

Payroll related expense as a percentage of net revenue decreased from 51.9 percent in the first half of fiscal 2005 to 49.0 percent in the first half of fiscal 2006 primarily due to reductions in scheduled overtime, temporary staffing, health insurance costs and workers’ compensation expense partially offset by higher training wages. Provision for doubtful accounts as a percentage of net revenue increased from 14.2 percent in the first half of fiscal 2005 to 15.9 percent in the first half of fiscal 2006 primarily due to a change in payer mix in certain markets. The change in payer mix partially resulted from our decision to expand certain of our 911 emergency medical transportation markets to provide opportunities to achieve greater resource utilization and leverage of our fixed asset base, despite a somewhat higher associated provision expense. Other operating expenses as a percentage of revenue grew from 16.2 percent in the first half of fiscal 2005 to 17.5 percent in the first half of fiscal 2006 primarily driven by a $0.4 million increase in fuel costs and a $0.7 million increase in general liability insurance costs partially offset by declines in other miscellaneous operating costs, none of which were individually significant.

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Segment B

The following table presents financial results and key operating statistics for Segment B for the six months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC, medical transports and fire subscriptions):

	Six Months Ended December 31,						$ Change			% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	49,390		$	47,965		$	1,425		3.0	%
Fire and other services		10,990			10,636			354		3.3	%
Total net revenue	$	60,380		$	58,601		$	1,779		3.0	%
Segment profit	$	6,586		$	4,974		$	1,612		32.4	%
Operating margin		10.9	%		8.5	%
Medical transports		138,231			141,305			(3,074	)	(2.2	)%
Net/net EMS APC	$	268		$	260		$	8		3.0	%
Fire subscriptions at period end		34,912			35,218			(306	)	(0.9	)%

Medical transportation rate increases contributed to approximately $2.4 million of the increase in net medical transportation revenue while a decline in the number of medical transports contributed to a $1.0 million decrease in net medical transportation revenue. The decline in medical transports was primarily due to a reduction in non-emergency transports as a result of improved call screening and greater competition in certain markets. Higher master fire contract fees also contributed to net revenue growth.

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

Payroll related expense as a percentage of net revenue decreased from 54.1 percent in the first half of fiscal 2005 to 52.2 percent in the first half of fiscal 2006 primarily due to a reduction in workers’ compensation expense partially offset by higher scheduled overtime and fill-in wages. Provision for doubtful accounts as a percentage of net revenue increased from 13.4 percent in the first half of fiscal 2005 to 15.5 percent for the first half of fiscal 2006 primarily due to a change in payer mix in certain markets. Other operating expenses as a percentage of revenue declined from 20.3 percent in the first half of fiscal 2005 to 18.3 percent in the first half of fiscal 2006 primarily driven by a $0.9 million decrease in general liability insurance costs and declines in other miscellaneous operating costs, none of which were individually significant, partially offset by a $0.3 million increase in fuel costs.

Net/net EMS APC increased 3.0 percent from $260 for the six months ended December 31, 2004 to $268 for the six months ended December 31, 2005 primarily as a result of rate increases and the change in payer mix in certain markets.

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Segment C

The following table presents financial results and key operating statistics for Segment C for the six months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC, medical transports and fire subscriptions):

	Six Months Ended December 31,						$ Change		% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	76,687		$	62,653		$	14,034	22.4	%
Fire and other services		20,621			17,585			3,036	17.3	%
Total net revenue	$	97,308		$	80,238		$	17,070	21.3	%
Segment profit	$	14,655		$	9,627		$	5,028	52.2	%
Operating margin		15.1	%		12.0	%
Medical transports		127,994			114,819			13,175	11.5	%
Net/net EMS APC	$	504		$	458		$	46	10.1	%
Fire subscriptions at period end		81,512			75,968			5,544	7.3	%

Approximately $7.2 million of the increase in net medical transportation revenue is a result of a greater number of medical transports, including our new service area in Roswell, New Mexico and approximately $6.8 million is a result of an increase in rates. 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 and the new Roswell, New Mexico service area, which contributed approximately 2,100 additional transports during the first half of fiscal 2006. The increase in fire and other services revenue is primarily due to a greater number of fire subscriptions, higher fire subscription rates, increased forestry fees and one-time Hurricane Rita relief revenue of $0.5 million recorded in the second quarter of fiscal 2006.

The increase in Segment C’s profit included 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 increased from 12.0 percent for the six months ended December 31, 2004 to 13.7 percent for the six months ended December 31, 2005 primarily as a result of operating efficiencies driven by a decrease in payroll related costs as a percentage of net revenue partially offset by higher provision for doubtful accounts and other operating costs as a percentage of net revenue.

Payroll related expense decreased from 51.8 percent in the first half of fiscal 2005 to 49.6 percent in the first half of fiscal 2006 primarily due to a decrease in workers’ compensation expense. Provision for doubtful accounts as a percentage of net revenue increased from 11.3 percent in the first half of fiscal 2005 to 12.0 percent in the first half of fiscal 2006 primarily due to a change in payer mix in certain markets. Other operating expenses as a percentage of revenue increased from 21.0 percent in the first half of fiscal 2005 to 21.7 percent in the first half of fiscal 2006 primarily driven by a $0.9 million increase in vehicle maintenance expense due to an increase in the number of vehicles year over year, a $0.8 million increase in professional fees associated with contract negotiations, a $0.6 million increase in fuel costs and a $0.4 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.

The increase in net/net EMS APC is a result of rate increases in certain markets as well as year to date net revenue improvement.

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Segment D

The following table presents financial results and key operating statistics for Segment D for the six months ended December 31, 2005 and 2004 (in thousands, except net/net EMS APC and medical transports):

	Six Months Ended December 31,						$ Change			% Change
	2005			2004
Net Revenue
Medical transportation and related services	$	64,051		$	55,890		$	8,161		14.6	%
Other services		192			973			(781	)	(80.3	)%
Total net revenue	$	64,243		$	56,863		$	7,380		13.0	%
Segment profit	$	4,300		$	3,219		$	1,081		33.6	%
Operating margin		6.7	%		5.7	%
Medical transports		129,932			115,655			14,277		12.3	%
Net/net EMS APC	$	305		$	296		$	9		3.2	%

The increase in Segment D’s net revenue is primarily due to 12.3 percent growth in the number of transports and medical transportation rate increases. Approximately $6.9 million of the increase in net medical transportation revenue was due to a greater number of medical transports while the remainder was due to higher rates. Our new service areas in Salem, Oregon and Tacoma, Washington and our new Orlando Regional contract resulted in approximately 5,600 and 3,400 additional transports, respectively, for the six months ended December 31, 2005. 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 payroll related expenses and 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.

Payroll related expense as a percentage of net revenue decreased from 38.8 percent in the first half of fiscal 2005 to 38.3 percent in the first half of fiscal 2006 primarily due to a decrease in workers’ compensation expense, partially offset by an increase in headcount related to our new Salem, Oregon operation as well as our joint venture with the City of San Diego. Provision for doubtful accounts as a percentage of net revenue increased from 27.2 percent in the first half of fiscal 2005 to 29.4 percent in the first half of fiscal 2006 primarily due to rate increases and a change in payer mix in certain markets. The change in payer mix partially resulted from our decision to expand certain of our 911 emergency medical transportation markets to provide opportunities to achieve greater resource utilization and leverage of our fixed asset base, despite a somewhat higher associated provision expense. Other operating expenses as a percentage of revenue decreased from 25.8 percent in the first half of fiscal 2005 to 23.7 percent in the first half of fiscal 2006 primarily driven by a $0.9 million decrease in general liability insurance costs and decreases in other miscellaneous operating costs, none of which were individually significant, partially offset by a $1.1 million increase in contractual service and franchise fees, a $0.3 million increase in operating supplies and a $0.3 million increase in fuel costs.

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Liquidity and Capital Resources

Our liquidity needs are primarily to service long-term debt and fund 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 the $20.0 million Revolving Credit Facility and the $35.0 million Letter of Credit Facility will be adequate to fund our operating and capital needs through December 31, 2006. 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 periodically experience significant outflows of cash for debt service, insurance premiums, 401(k) matching contributions, defined benefit pension plan contributions and management bonuses. These outflows include $6.2 million in semi-annual interest payments on our 9.875% Senior Subordinated Notes due March 2015 payable on September 15 and March 15, as well as estimated quarterly interest payments on our Term Loan B of approximately $2.1 million.

Deposits on our annual workers’ compensation and general liability insurance premiums as well as self-insurance retentions are paid in the fourth quarter of the fiscal year. These deposits totaled $5.8 million and $7.3 million in fiscal 2005 and 2004, respectively. During fiscal 2005, we began using letters of credit in place of cash deposits to fund anticipated self-insurance retention obligations.

During the six months ended December 31, 2005 we made an unscheduled principal payment on our Term Loan B totaling $7.0 million, made payments under the 2005 Management Incentive Program of $4.0 million, paid a settlement in conjunction with a legal matter in Sioux Falls, South Dakota of $0.5 million and paid fees associated with an amendment to our credit facility. These combined cash outflows contributed to the $8.6 million decline in cash and short-term investments at December 31, 2005. Additionally, we expect to make a Company matching contribution to the 401(k) Plan in the amount of $1.6 million and defined benefit pension plan payments totaling approximately $0.5 million during the second half of fiscal 2006.

The table below summarizes cash flow information for the six months ended December 31, 2005 and 2004 (in thousands):

	Six Months Ended December 31,
	2005			2004
Net cash provided by operating activities	$	3,535		$	92
Net cash used in investing activities		(15,137	)		(6,913	)
Net cash (used in) provided by financing activities		(4,601	)		558

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Operating Activities

Net cash provided by operating activities for the six months ended December 31, 2005 was $3.5 million compared to $92,000 for the six months ended December 31, 2004. Net income for the current period includes $5.3 million of non-cash deferred income tax expense relating to the utilization of a portion of our net operating loss carryforwards. Net income also includes $3.3 million of accretion on our 12.75% Senior Discount Notes which represents non-cash interest expense that is included in net income but does not require cash payments during the current period. Net operating assets and liabilities balances increased by $65.7 million from June 30, 2005 to December 31, 2005 as compared to an increase of $56.2 million from June 30, 2004 to December 31, 2004, resulting in additional net cash used in operations of $9.5 million during the six months ended December 31, 2005 compared to the previous year. This additional cash usage was primarily a result of our $7.0 million unscheduled principal payment on our Term Loan B and our 2005 Management Incentive Plan payment of $4.0 million discussed above. In the normal course of business, these accounts can vary significantly due to the amount and timing of various payments.

Average daily cash deposits totaled $1.8 million for both six month periods ended December 31, 2005 and 2004. There are several variables regarding the timing and amount of cash collected during any period. While management believes that we have a predictable method of determining the realizable value of our accounts receivable, based upon the complexities of determining healthcare reimbursements, there can be no assurance that there will not be additional provisions for doubtful accounts required in the future.

We had working capital of $53.9 million at December 31, 2005, including cash and short-term investments of $9.1 million, compared to working capital of $44.0 million, including cash of $17.7 million, at June 30, 2005. The increase in working capital as of December 31, 2005 is primarily related to higher net accounts receivable combined with lower accrued liabilities and current debt partially offset by lower prepaid expenses. These changes were primarily driven by higher operating income during the period as well as the impact of non-cash interest expense, non-cash insurance adjustments and the gain on the sale of real estate located in Arizona during the first quarter of fiscal 2006. Book overdrafts of $2.3 million have been netted against accounts payable and reclassified as cash provided from financing activities. See Financing Activities section below.

Investing Activities

Cash used in investing activities includes net purchases of short-term investments, capital expenditures and proceeds from the sale of property and equipment. During the six months ended December 31, 2005, we began investing excess funds in highly liquid, short-term auction rate securities with net purchases totaling $7.6 million during the period. We had capital expenditures totaling $9.1 million and $7.0 million for the six months ended December 31, 2005 and 2004, respectively. The $2.1 million increase in current year capital expenditures is primarily due to fiscal 2006 new operations in Salem, Oregon and Las Vegas, New Mexico partially offset by capital expenditures related to our fiscal 2005 new operation in Tacoma, Washington. Additionally, during the three months ended September 30, 2005, we received proceeds from the sale of property and equipment of $1.6 million primarily due to the sale of real estate in Arizona.

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Financing Activities

Financing activities include the issuance and repayment of debt, book overdrafts, minority shareholder distributions, tax benefits from the exercise of stock options and proceeds from the issuance of common stock. During the six months ended December 31, 2005, we made an unscheduled principal payment on

our Term Loan B totaling $7.0 million. We anticipate annual interest savings of approximately $0.4 million as a result of this payment. Additionally, we made a $0.2 million distribution 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 $0.6 million decrease in cash provided by the issuance of common stock, which was partially offset by a $0.4 million increase in the tax benefit realized from the exercise of such options. Book overdrafts of $2.3 million represent the change in amounts related to outstanding checks in cash balances where no right of offset exists. Under our cash management practices, outstanding checks are netted against cash when there is a sufficient balance of cash available in our bank accounts to cover the outstanding amount and the right of offset exists. Where there is no right of offset against cash balances, outstanding checks are classified as liabilities within the consolidated balance sheet, and the change in the related balances is reflected in financing activities on the consolidated statement of cash flows.

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.

On December 27, 2005, we amended certain terms, conditions and covenants contained in our 2005 Credit Facility (the “Amendment”). Specifically, the Amendment 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, the Amendment modifies 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 an 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.

The Amendment also modifies certain other Credit Facility covenants including an increase in the permitted level of annual capital expenditures.

We were in compliance with all of our covenants at December 31, 2005.

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 three and six months ended December 31, 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):

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	Three Months Ended December 31,						Six Months Ended December 31,
	2005			2004			2005			2004
Net income	$	2,767		$	3,057		$	6,346		$	7,474
Add back:
Depreciation and amortization		2,907			2,691			5,720			5,928
Interest expense		7,748			7,513			15,256			14,831
Interest income		(172	)		(48	)		(325	)		(176	)
Income tax provision		2,165			428			5,887			523
EBITDA	$	15,415		$	13,641		$	32,884		$	28,580
Increase (decrease):
Interest expense		(7,748	)		(7,513	)		(15,256	)		(14,831	)
Interest income		172			48			325			176
Income tax provision		(2,165	)		(428	)		(5,887	)		(523	)
Provision for doubtful accounts		26,396			20,491			50,827			42,079
Deferred income taxes		2,088			—			5,254			—
Accretion of 12.75% Senior Discount Notes		1,709			—			3,349			—
(Gain) loss on sale of property and equipment		35			5			(1,307	)		3
Amortization of deferred financing costs		665			669			1,100			1,339
Earnings (losses) of minority shareholder		153			(337	)		315			(28	)
Stock based compensation		7			—			16			—
Tax benefit from the exercise of stock options		—			129			—			129
Insurance adjustments		(2,387	)		(636	)		(2,387	)		(636	)
Amortization of debt discount		—			7			—			13
Changes in operating assets and liabilities		(35,798	)		(21,111	)		(65,698	)		(56,209	)
Net cash provided by (used in) operating activities	$	(1,458	)	$	4,965		$	3,535		$	92

For the three months ended December 31, 2005, the $1.8 million or 13.0 percent increase in EBITDA is primarily due to an 11.7 percent increase in consolidated net revenue, a $2.6 million benefit in workers’ compensation expense partially offset by a 220 basis point increase in the provision for doubtful accounts as a percentage of net revenue.

For the six months ended December 31, 2005, the increase of $4.3 million or 15.1 percent in EBITDA is primarily due to an 11.0 percent increase in consolidated net revenue, a $2.6 million benefit in workers’ compensation expense partially offset by a 140 basis point increase in the provision for doubtful accounts as a percentage of net revenue. Additionally, a gain on the sale of real estate located in Arizona contributed $1.3 million to EBITDA in fiscal 2006.

Subsequent Events

On February 7, 2006, the Company, through its wholly owned subsidiary, Rural/Metro LLC, made a $9.0 million unscheduled principal payment on its Term Loan B.

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Item 3. Quantitative and Qualitative Disclosures About Market Risks

Our primary exposure to market risk consists of changes in interest rates on our borrowing activities. Under our 2005 Credit Facility, amounts outstanding under Term Loan B bear interest at LIBOR plus 2.50% and amounts drawn under our Revolving Credit Facility bear interest at LIBOR plus 3.25%. Based on amounts outstanding under Term Loan B at December 31, 2005, a 1% increase in the LIBOR rate would increase our interest expense on an annual basis by approximately $1.2 million. The remainder of our debt is primarily at fixed interest rates. We monitor the risk associated with interest rate changes and may enter into hedging transactions, such as interest rate swap agreements, to mitigate the related exposure. In addition, we are exposed to the risk of interest rate changes on our short-term investment activities. Based on amounts invested in auction rate securities at December 31, 2005, a 1% decrease in interest rates would decrease our interest income on an annual basis by approximately $0.1 million.

Item 4. Controls and Procedures

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 (December 31, 2005). 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 along with the Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2005 because of the material weaknesses described below.

Changes 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.

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Specifically, personnel in the accounting and finance areas had inadequate knowledge relating to deferred tax asset valuation allowances resulting in errors in accounting for deferred income tax benefits. This control deficiency resulted in audit adjustments to the fourth quarter of the fiscal 2005 consolidated financial statements. Additionally, this control deficiency could result in a misstatement of the income tax accounts that would result in a material misstatement to annual or interim financial statements that would not be prevented or detected. This control deficiency constitutes a material weakness. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements, including the related disclosures, will not be prevented or detected. Management is in the process of implementing a comprehensive training program for accounting and finance personnel with regard to accounting for income taxes. Subsequent to December 31, 2005, we have hired a director of taxation and improved processes and procedures used in the preparation of the annual and interim tax provisions. Based on these actions, we believe that this material weakness will be remediated by the end of the third quarter of fiscal 2006.

Additionally, as of September 30, 2005, we determined that we did not maintain effective control over the completeness and accuracy of our condensed consolidating financial information, including the identification of our guarantor subsidiaries. Specifically, our supervisory review and approval controls did not detect that certain guarantor subsidiaries had been incorrectly classified as non-guarantor subsidiaries in the condensed consolidating financial information. This control deficiency made it necessary to restate Note 10 of the Consolidated Financial Statements for fiscal 2005 included in the Current Report on Form 8-K that we filed on October 28, 2005. In addition, this control deficiency could result in a misstatement to the condensed consolidating financial information that would result in a material misstatement to annual or interim financial statements that would not be prevented or detected. Accordingly, management has concluded that this control deficiency constituted a material weakness in internal control over financial reporting. Management has implemented additional controls and procedures relating to the preparation of the condensed consolidating financial information and expects that this material weakness will be remediated by the end of the third quarter of fiscal 2006.

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Part II. Other Information.

Item 4. Submission of Matters to a Vote of Security Holders

On December 1, 2005, we held our annual meeting of stockholders. The only matter before the meeting was:

The election of two directors to serve a three-year term or until their successors are elected.

All nominees for director were elected. The table below lists the votes cast or withheld.

Election of Directors	For	Withheld
Louis G. Jekel	17,311,565	3,921,761
Robert E. Wilson	17,099,424	4,133,902

Item 6. Exhibits

Exhibits
3.2	Second Amended and Restated Bylaws*
10.1	Rural/Metro Management Incentive Plan Program Summary*
31.1	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+

* Filed herewith.

+ Furnished but not filed.

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SIGNATURES

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

	RURAL/METRO CORPORATION
Dated: February 9, 2006	By:	/s/ Jack E. Brucker
		Jack E. Brucker, President & Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Michael S. Zarriello
		Michael S. Zarriello, Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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Exhibit Index
3.2	Second Amended and Restated Bylaws*
10.1	Rural/Metro Management Incentive Plan Program Summary*
31.1	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+

* Filed herewith.

+ Furnished but not filed.

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EX-3.2

Exhibit 3.2

SECOND AMENDED AND RESTATED

BYLAWS

OF

RURAL/METRO CORPORATION

a Delaware corporation

Originally adopted as of April 26, 1993

Amended and restated as of May 14, 1993

Amended and restated as of September 21, 1994

RURAL/METRO CORPORATION

SECOND AMENDED AND RESTATED

BYLAWS

TABLE OF CONTENTS

ARTICLE I
Offices
Section 1.01.	Principal Office	1
Section 1.02.	Other Offices	1
ARTICLE II
Meetings of Stockholders
Section 2.01.	Place of Meetings	1
Section 2.02.	Annual Meetings	1
Section 2.03.	Business Conducted at Annual Meetings	1
Section 2.04.	Nominations for Directors	3
Section 2.05.	Special Meetings	4
Section 2.06.	Notice and Purpose of Meetings; Waiver	5
Section 2.07.	Voting List, Right to Examine	5
Section 2.08.	Adjournments	5
Section 2.09.	Quorum	5
Section 2.10.	Organization	6
Section 2.11.	Voting	6
Section 2.12.	Inspectors of Election	7
Section 2.13.	Consent of Stockholders in Lieu of Meeting	8
ARTICLE III
Board of Directors
Section 3.01.	Powers	8
Section 3.02.	Number, Term of Office and Vacancies	8
Section 3.03.	Annual Organizational Meeting	8
Section 3.04.	Regular and Special Meetings	9
Section 3.05.	Quorum; Interested Directors	9
Section 3.06.	Committees	10
Section 3.07.	Action of Directors in Lieu of Meeting	10
Section 3.08.	Attendance Via Telecommunications	10
Section 3.09.	Compensation	11

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TABLE OF CONTENTS

(continued)

		Page
ARTICLE IV
Notice - Waivers – Meetings
Section 4.01.	Notice, What Constitutes	11
Section 4.02.	Waiver of Notice	11
ARTICLE V
Officers
Section 5.01.	Number, Qualifications and Resignation	12
Section 5.02.	Term of Office	12
Section 5.03.	Subordinate Officers, Committees and Agents	12
Section 5.04.	The President	12
Section 5.05.	The Vice President	12
Section 5.06.	The Secretary	13
Section 5.07.	The Assistant Secretaries	13
Section 5.08.	The Treasurer	13
Section 5.09.	The Assistant Treasurers	13
Section 5.10.	The Chairman of the Board	13
Section 5.11.	The Chief Executive Officer	14
ARTICLE VI
Certificates of Stock
Section 6.01.	Issuance	14
Section 6.02.	Subscriptions for Shares	14
Section 6.03.	Transfers	14
Section 6.04.	Share Certificates	14
Section 6.05.	Record Holder of Shares	14
Section 6.06.	Lost, Destroyed, Mutilated or Stolen Certificates	15
Section 6.07.	Transfer Agent and Registrar	15
Section 6.08.	Record Date	15
ARTICLE VII
Indemnification
Section 7.01.	Right to Indemnification	16
Section 7.02.	Prepayment of Expenses	16
Section 7.03.	Claims	16
Section 7.04.	Nonexclusivity of Rights	17

ii

TABLE OF CONTENTS

(continued)

		Page
Section 7.05.	Other Indemnification	17
Section 7.06.	Amendment or Repeal	17
ARTICLE VIII
Amendments
ARTICLE IX
Miscellaneous
Section 9.01.	Reserves	17
Section 9.02.	Authorized Signer	17
Section 9.03.	Fiscal Year	17
Section 9.04.	Corporate Seal	18
Section 9.05.	Severability	18

iii

SECOND AMENDED AND RESTATED

BYLAWS

OF

RURAL/METRO CORPORATION

ARTICLE I

Offices

Section 1.01. Principal Office. The registered office of the Corporation shall be 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801. The name of the Corporation’s registered agent is The Corporation Trust Company.

Section 1.02. Other Offices. The Corporation may have other offices at such other places within and without the State of Delaware as the board of directors may from time to time determine or as the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

Section 2.01. Place of Meetings. Meetings of stockholders shall be held at the place, within or without the State of Delaware, as shall be designated from time to time by the board of directors.

Section 2.02. Annual Meetings. Annual meetings of stockholders shall, unless otherwise provided by the board of directors, be held on the first Thursday of February of each calendar year, commencing in 1994, if not a legal holiday, and if a legal holiday, then on the next full business day following, at 8:00 a.m., at which time they shall elect a board of directors and transact the other business as may properly be brought before the meeting.

Section 2.03. Business Conducted at Annual Meetings.

(a) Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting of the stockholders except in accordance with the procedures hereinafter set forth in this Section 2.03; provided, however, that nothing in this Section 2.03 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedures.

(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of

directors; (ii) otherwise properly brought before the meeting by or at the direction of the board of directors; or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a stockholder’s notice must be received at the principal executive offices of the Corporation: (i) not less than sixty (60) days in advance of such meeting if such meeting is to be held on a day which is within thirty (30) days preceding the anniversary of the previous year’s annual meeting, or ninety (90) days in advance of such meeting if such meeting is to be held on or after the anniversary of the previous year’s annual meeting; and (ii) with respect to any other annual meeting of stockholders, on or before the close of business on the fifteenth (15) day following the date (or the first date, if there be more than one) of public disclosure of the date of such meeting. For the purposes of this section, the date of public disclosure of a meeting shall include, but not be limited to, the date on which disclosure of the date of the meeting is made in a press release reported by the Dow Jones News Services, Associated Press or comparable national news service, or in a document publicly filed by the Corporation with the Securities and Exchange commission pursuant to Sections 13, 14 or 15(d) (or the rules and regulations thereunder) of the Securities Exchange Act of 1934, as amended. A stockholder’s notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting; (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name, age and business and residential address, as they appear on the Corporation’s records, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation that are beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth herein.

(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at an annual meeting shall be announced at the meeting by the person presiding over the meeting. The board of directors of the Corporation may to the extent not prohibited by law adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the board of directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the board of directors or prescribed by the chairman of the meeting, may to the extent not prohibited by law include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement

2

thereof, and (v) limitations on the time allotted to questions or commencements by participants. Unless, and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

(d) The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.03, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

Section 2.04. Nominations for Directors.

(a) Notwithstanding anything in these Bylaws to the contrary, only persons who are nominated in accordance with the procedures hereinafter set forth in this Section 2.04 shall be eligible for election as directors of the Corporation.

(b) Subject to the rights of any class or series of stock having a preference over the common stock as to dividends or upon liquidation to elect directors under specified circumstances, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as director at a meeting only if timely written notice of such stockholder’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the Corporation. To be timely, a stockholder’s notice must be received at the principal executive offices of the Corporation: (i) not less than sixty (60) days in advance of such meeting if such meeting is to be held on a day that is within thirty (30) days preceding the anniversary of the previous year’s annual meeting or ninety (90) days in advance of such meeting if such meeting is to be held on or after the anniversary of the previous year’s annual meeting; and (ii) with respect to any other annual meeting of stockholders, on or before the close of business on the fifteenth (15) day following the date (or the first date, if there be more than one) of public disclosure of the date of such meeting. For the purposes of this section, the date of public disclosure of a meeting shall include, but not be limited to, the date on which disclosure of the date of the meeting is made in a press release reported by the Dow Jones News Services, Associated Press or comparable national news service, or in a document publicly filed by the Corporation with the Securities and Exchange commission pursuant to Sections 13, 14 or 15(d) (or the rules and regulations thereunder) of the Securities Exchange Act of 1934, as amended. Each such notice shall set forth: (i) the name, age and business and residential address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between stockholder and each nominee and any

3

other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the board of directors; and (v) the written consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting shall refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

Section 2.05. Special Meetings.

(a) Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the chairman of the board of directors, or the board of directors. Special meetings of the stockholders of the Corporation may not be called by any other person or persons.

(b) At any time, upon written request to the secretary of the Corporation by any person or persons authorized to call a special meeting of stockholders, which written request shall state the purposes for the special meeting, the secretary of the Corporation shall set the place, date and time of the special meeting and shall deliver notice of the special meeting in accordance with section 2.06 hereof. If the secretary fails to set the place, date and time of the meeting or deliver the notice, the person calling the meeting may do so.

(c) Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

(d) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a special meeting shall be announced at the meeting by the person presiding over the meeting. The board of directors of the Corporation may to the extent not prohibited by law adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the board of directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the board of directors or prescribed by the chairman of the meeting, may to the extent not prohibited by law include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants.

4

Unless, and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 2.06. Notice and Purpose of Meetings; Waiver.

(a) Written notice stating the place, date and time of meetings of stockholders and, in case of a special meeting of stockholders, the purpose or purposes for which the meeting is called, shall be delivered to each stockholder of record entitled to vote at the meeting at his or her address of record, at least ten (10) but not more than sixty (60) days prior to the date of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the stock transfer books of the Corporation.

(b) No action taken at any meeting of stockholders shall be void because the action was not specified as a purpose of the meeting in the applicable notice of the meeting provided the meeting is not a special meeting and if, in the notice of the meeting, it is stated that the purpose of the meeting shall also be to consider all other matters that could properly be brought before the meeting.

Section 2.07. Voting List, Right to Examine. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order with the address of and the number of voting shares registered in the name of each. The list shall be open for ten (10) days to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is to be held, and shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 2.08. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 2.09. Quorum. Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes that could be cast by the holders of all outstanding shares of stock entitled to vote at

5

the meeting shall be necessary and sufficient to constitute a quorum. If, however, the quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time in the manner provided in Section 2.08 hereof without notice other than announcement at the meeting if the adjournment is not for more than thirty (30) days and a new record date is not fixed for the adjourned meeting, until a quorum shall be present or represented. If a quorum shall be present or represented at the adjourned meeting, any business may be transacted that might have been transacted at the original meeting. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its stock, held by it in a fiduciary capacity.

Section 2.10. Organization.

(a) The chairman of the board, or in his or her absence the president, or in their absence any vice president, shall call to order meetings of stockholders and shall act as chairman of such meetings. The board of directors or, if the board fails to act, the stockholders may appoint any stockholder, director or officer of the Corporation to act as chairman of any meeting in the absence of the board, the president, and all vice presidents.

(b) The secretary of the Corporation shall act as secretary of all meetings of stockholders, but, in the absence of the secretary, the chairman of the meeting may appoint any other person to act as secretary of the meeting.

Section 2.11. Voting.

(a) When a quorum is present at any meeting, the affirmative vote of the holders of shares of stock having a majority of the votes that could be cast by the holders of all shares of stock entitled to vote thereon that are present at such meeting, either in person or by proxy, shall decide any question brought before the meeting, unless the question is one upon which by express provision of the statutes, the Certificate of Incorporation or these Bylaws a different vote is required, in which case the express provision shall govern and control the decision of the question.

(b) Subject to the provisions of the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of the capital stock having voting power held by the stockholder.

(c) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states

6

that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the secretary of the Corporation.

(d) The vote on any matter, including the election of directors, need not be by written ballot.

Section 2.12. Inspectors of Election.

(a) Before any meeting of stockholders, the board of directors may appoint inspectors of election, who need not be stockholders, to act at that meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of the meeting shall appoint inspectors of election upon the demand of any stockholder or his or her proxy present at the meeting and before voting begins. The number of inspectors of election shall be either one (1) or, upon demand of a stockholder, three (3), as to be determined in the case of inspectors of election appointed by a vote of the majority of the shares of the voting common stock of the Corporation present and entitled to vote at the meeting, whether in person or by proxy. If there are three (3) inspectors of election, the decision, act or certification of a majority of those inspectors shall be effective in all respects as the decision, act or certification of all.

(b) No person who is a candidate for an office to which the election relates may act as an inspector of election.

(c) In case any person appointed as an inspector of election fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the board of directors before the meeting is convened, or by the chairman of the meeting during a meeting.

(d) If inspectors of election are appointed pursuant to this section, they shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, and the validity and effect of proxies. The inspectors of election shall also receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result, and do those other acts as may be proper to conduct and tally the vote or election with fairness to all stockholders.

(e) On request of the chairman of the meeting or of any stockholder or his or her proxy, the inspectors of election shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate setting forth any fact found by them.

7

Section 2.13. Consent of Stockholders in Lieu of Meeting. No action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by the board of directors.

ARTICLE III

Board of Directors

Section 3.01. Powers. The business and affairs of the Corporation shall be managed by or under the direction of its board of directors which shall exercise all the powers of the Corporation and do all the lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

Section 3.02. Number, Term of Office and Vacancies.

(a) Subject to the provisions of the Certificate of Incorporation, the board of directors shall consist of not less than one (1) or more than fifteen (15) members. The directors shall be elected at the annual meeting of stockholders, except as provided in paragraph (b) of this section, and each director shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.

(b) Except as otherwise provided for or fixed pursuant to the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director.

(c) Except as otherwise provided for or fixed pursuant to the Certificate of Incorporation, any director or the entire board of directors may be removed from office at any time, but only for cause and only by the affirmative vote of sixty-six and two-thirds percent (66-2/3%) or more of the total voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

Section 3.03. Annual Organizational Meeting. The first meeting of each newly elected board of directors shall be held within thirty (30) days after the adjournment of the annual meeting of stockholders. No notice of the meeting shall need be given to the directors in order legally to constitute the meeting, provided a quorum shall be present and provided the organizational meeting is held generally at the time and

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at the place of the meeting of stockholders at which the board of directors were elected. In the event the meeting is not so held, the meeting may be held at the time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors.

Section 3.04. Regular and Special Meetings. The board of directors of the Corporation or any committee thereof may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the board of directors may be held without notice at the time and at the place as shall from time to time be determined by the board of directors. Special meetings of the board of directors may be called by the chairman of the board of directors or the president, and the president or the secretary shall call a special meeting upon request of two directors. Notice may be given personally, by telephone, facsimile, first class mail or telegram. If given personally, by telephone, facsimile or telegram, the notice shall be given at least twenty-four (24) hours prior to the meeting. Notice may be given by mail if it is mailed at least five (5) days before the meeting. The notice need not specify the business to be transacted.

Section 3.05. Quorum; Interested Directors.

(a) At meetings of the board of directors, a majority of the directors at the time in office shall constitute a quorum for the transaction of business and, except as set forth in the Certificate of Incorporation or in these Bylaws, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

(b) No contract or transaction shall be void or voidable solely because the contract or transaction is between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, nor shall any contract or transaction be void or voidable solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for the purpose, if:

(i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

(ii) the material facts as to his or her relationship or interest and as to the contractor transaction are disclosed or are known to the stockholders

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entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or

(iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders.

Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee that authorizes the contract or transaction.

Section 3.06. Committees.

(a) The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees of the board of directors, each committee to consist of one or more of the directors of the Corporation, which, to the extent provided by law and in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the Corporation. The committee or committees shall have the name or names as may be determined from time to time by resolution adopted by the board of directors.

(b) Unless the board of directors designates one or more directors as alternate members of any committee, who may replace an absent or disqualified member at any meeting of the committee, the members of any committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the board of directors to act at the meeting in the place of any absent or disqualified member of the committee. At meetings of any committee, a majority of the members or alternate members of the committee shall constitute a quorum for the transaction of business and the act of a majority of members or alternate members present at any meeting at which there is a quorum shall be the act of the committee.

(c) The committees shall keep regular minutes of their proceedings.

Section 3.07. Action of Directors in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the board or of the committee, as the case may be, and the written consent is filed with the minutes of proceedings of the board or committee.

Section 3.08. Attendance Via Telecommunications. The members of the board of directors or any committee thereof may participate in a meeting of the board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. The

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participation shall constitute presence in person at the meeting for purposes of determining a quorum and for voting.

Section 3.09. Compensation. The directors may be paid their expenses of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like reimbursement and compensation for attending committee meetings.

ARTICLE IV

Notice – Waivers – Meetings

Section 4.01. Notice, What Constitutes. Whenever written notice is required to be given to any person under the provisions of the Certificate of Incorporation, these Bylaws, or the General Corporation Law of the State of Delaware, as amended from time to time (the “GCL”), it may be given to that person, either personally or by sending a copy thereof through the mail, or by telegraph, charges prepaid, or by facsimile to his or her address appearing on the books of the Corporation, or supplied by him or her in writing to the Corporation for the purpose of notice. Except as otherwise expressly set forth in the Certificate of Incorporation, these Bylaws, or the GCL, if the notice is sent by mail, it shall be deemed to have been given to the person entitled thereto forty-eight (48) hours after it is deposited in the United States mail, postage prepaid, return receipt requested, or, if sent by telegraph, twenty-four (24) hours after it is deposited with a telegraph office for transmission to the person entitled thereto, or, if sent by facsimile, twelve (12) hours after it has been transmitted to the person, as the applicable case may be.

Section 4.02. Waiver of Notice.

(a) Whenever any written notice is required to be given under the provisions of the Certificate of Incorporation, these Bylaws, or the GCL, as amended from time to time, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated herein, shall be deemed equivalent to the giving of the notice.

(b) Attendance of a person (in the case of a stockholder, either in person or by proxy) at any meeting shall constitute a waiver of notice of the meeting, except when a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

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ARTICLE V

Officers

Section 5.01. Number, Qualifications and Resignation. The officers of the Corporation shall be chosen by the board of directors at its first meeting, and thereafter after each annual meeting of stockholders. The officers to be elected shall include a president, a vice president, a secretary and a treasurer. The board of directors may also choose a chief executive officer and one or more vice presidents and additional officers or assistant officers as it may deem advisable. Any number of offices may be held by the same person, except the offices of president and secretary. Officers may, but need not, be directors or stockholders of the Corporation. The board of directors may elect from its membership a chairman of the board of directors and a vice-chairman of the board of directors who shall be officers of the Corporation.

Section 5.02. Term of Office. The officers of the Corporation shall hold office at the pleasure of the board of directors. Each officer shall hold his or her office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the board of directors may be removed at any time by the board of directors, with or without cause. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the board of directors.

Section 5.03. Subordinate Officers, Committees and Agents. The board of directors may elect any other officers and appoint any committees, employees or other agents as it desires who shall hold their offices for the terms and shall exercise the powers and perform the duties as shall be determined from time to time by the board of directors to be required by the business of the Corporation. The board of directors may delegate to any officer or committee the power to elect subordinate officers and retain or appoint employees or other agents.

Section 5.04. The President. Unless the board of directors has designated a chief executive officer pursuant to Section 5.11 hereof, the president shall be the chief executive officer of the Corporation, shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall execute on behalf of the Corporation and may affix the seal or cause the seal to be affixed to all instruments requiring the execution, except to the extent the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation.

Section 5.05. The Vice President. The vice president or vice presidents, as the case may be, shall act under the direction of the president and in the absence or disability of the president shall perform the duties and exercise the powers of the president. They shall perform the other duties and have the other powers as the president

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or the board of directors may from time to time prescribe. The board of directors may designate one or more executive vice presidents or may otherwise specify the order of seniority of the vice presidents, and in that event, the duties and powers of the president shall descend to the vice presidents in the specified order of senior

Section 5.06. The Secretary. The secretary shall act under the direction of the president. Subject to the direction of the president, the secretary shall attend all meetings of the board of directors and all meetings of stockholders and record the proceedings in a book to be kept for that purpose and shall perform like duties for the committees designated by the board of directors when required. The secretary shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the board of directors, and shall perform the other duties as may be prescribed by the president or the board of directors or as are incident to his office. The secretary shall keep in safe custody the seal of the Corporation, if one exists, and cause it to be affixed to any instrument requiring it.

Section 5.07. The Assistant Secretaries. The assistant secretaries in the order of their seniority, unless otherwise determined by the president or the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary. They shall perform the other duties and have the other powers as the president or the board of directors may from time to time prescribe.

Section 5.08. The Treasurer. The treasurer shall act under the direction of the president. Subject to the direction of the president, the treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in the depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the Corporation as may be ordered by the president or the board of directors, taking proper vouchers for the disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his or her transactions as treasurer and of the financial condition of the Corporation. The treasurer shall perform such other duties as may be prescribed by the president or the board of directors or as are incident to his or her office.

Section 5.09. The Assistant Treasurers. The assistant treasurers in the order of their seniority, unless otherwise determined by the president or the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. They shall perform the other duties and have the other powers as the president or the board of directors may from time to time prescribe.

Section 5.10. The Chairman of the Board. The chairman of the board of directors or in his or her absence, the president shall preside at all meetings of the stockholders and the board of directors, and shall perform all other duties as may from time to time be requested of him or her by the board of directors.

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Section 5.11. The Chief Executive Officer. The board of directors may designate a chief executive officer who shall perform all other duties as from time to time may be requested of him or her by the board of directors. In the absence of the designation, the president shall serve as the chief executive officer.

ARTICLE VI

Certificates of Stock

Section 6.01. Issuance. The interest of each stockholder in the Corporation shall be evidenced by certificates for shares of stock. The share certificates of the Corporation shall be numbered and registered in the share ledger and transfer books of the Corporation as they are issued. They shall be signed by the chairman of the board or the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and may bear the corporate seal, which may be a facsimile, engraved or imprinted; but where the certificate is signed by a transfer agent or a registrar, the signature of any corporate officer upon the certificate may be a facsimile, engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon any share certificate shall have ceased to be an officer because of death, resignation or otherwise before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be an officer because of death, resignation or otherwise as of the date of its issue.

Section 6.02. Subscriptions for Shares. Unless the subscription agreement provides otherwise, subscriptions for shares, regardless of the time when they are made, shall be paid at that time as shall be specified by the board of directors. All calls for payments on subscriptions shall carry the same terms with regard to all shares of the same class.

Section 6.03. Transfers. Transfers of shares of the capital stock of the Corporation shall be made on the books of the Corporation by the registered owner thereof, or by his or her duly authorized attorney, with a transfer clerk or transfer agent appointed as provided in section 6.07 hereof, and upon surrender of the certificate or certificates for the shares properly endorsed and with all taxes thereon paid.

Section 6.04. Share Certificates. Certificates for shares of the Corporation shall be in the form provided by statute and approved by the board of directors. The share record books and the blank share certificate books shall be kept by the secretary of the Corporation or by any agency designated by the board of directors for that purpose. Every certificate exchanged or returned to the Corporation shall be marked “Cancelled,” with the date of cancellation noted thereon.

Section 6.05. Record Holder of Shares. The Corporation shall be entitled to treat the person in whose name any share or shares of the Corporation stand on the books of the Corporation as the absolute owner thereof, and shall not be bound to recognize any equitable or other claim to, or interest in, the share or shares on the part of

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any other person. However, if any transfer of shares is made only for the purpose of furnishing collateral security, and that fact is made known to the secretary of the Corporation, or to the Corporation’s transfer clerk or transfer agent, an entry of the transfer shall record that fact.

Section 6.06. Lost, Destroyed, Mutilated or Stolen Certificates. The holder of any shares of the Corporation shall immediately notify the Corporation of any loss, destruction, mutilation or theft of the certificate therefor, and the board of directors may, in its discretion, cause a new certificate or certificates to be issued to him or her, in case of mutilation of the certificate, upon the surrender of the mutilated certificate, or, in case of loss, destruction or theft of the certificate, upon satisfactory proof of the loss, destruction or theft, and, if the board of directors shall so determine, the submission of a properly executed lost security affidavit and indemnity agreement, or the deposit of a bond in the form and in the sum, and with the surety or sureties, as the board of directors directs.

Section 6.07. Transfer Agent and Registrar. The board of directors may appoint one (1) or more transfer agents or transfer clerks and one (1) or more registrars, and may require all certificates for shares to bear the signature or signatures of any of them.

Section 6.08. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted and which record date shall, unless otherwise required by law, (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the board of directors; and (c) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed, (x) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is to be held; (y) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the board of directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken as delivered to the Corporation in accordance with applicable law, or, if prior action by the board of directors is required by law, shall be at the close of business on the day on which the board of directors adopts the resolution taking such

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prior action; and (z) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

ARTICLE VII

Indemnification

Section 7.01. Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans (an “indemnitee”), against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such indemnitee. The Corporation shall not be obligated to indemnify an indemnitee (a) with respect to a proceeding (or part thereof) initiated or brought voluntarily by such indemnitee and not by way of defense; (b) for any amounts paid in settlement of an action indemnified against by the Corporation without the proper written consent of the Corporation; or (c) in connection with any event in which the indemnitee did not act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation.

Section 7.02. Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys’ fees) incurred by an indemnitee in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Article or otherwise.

Section 7.03. Claims. If a claim for indemnification or payment of expenses under this Article is not paid in full within sixty days after a written claim therefor by the indemnitee has been received by the Corporation, the indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the indemnitee was not entitled to the requested indemnification or payment of expenses under applicable law.

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Section 7.04. Nonexclusivity of Rights. The rights conferred on any person by this Article VII shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

Section 7.05. Other Indemnification. The Corporation’s obligation, if any, to indemnify and advance expenses to any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification or advancement from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise.

Section 7.06. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

ARTICLE VIII

Amendments

In addition to any affirmative vote required by law, any alteration, amendment, repeal or recision of any provision of these Bylaws may be adopted (i) by the board of directors; or (ii) by the stockholders by the affirmative vote of the holders of at least sixty-six and two-thirds (66-2/3%) of the combined voting power of the then outstanding shares of stock entitled to vote thereon, voting together as a single class.

ARTICLE IX

Miscellaneous

Section 9.01. Reserves. There may be set aside out of any funds of the Corporation available for dividends the sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for the purchase of additional property, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any reserve.

Section 9.02. Authorized Signer. All checks or demands for money and notes of the Corporation shall be signed by the officer or officers or the other person or persons as the board of directors may from time to time designate by resolution.

Section 9.03. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the board of directors.

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Section 9.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed, affixed or in any other manner reproduced.

Section 9.05. Severability. If any provision of these Bylaws shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions of these Bylaws shall not in any way be affected or impaired thereby and to the fullest extent possible, the provisions of these Bylaws shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

Certification

I hereby certify that the foregoing Second Amended and Restated Bylaws were adopted at a meeting of the board of directors of the Corporation on September 21, 1994.

/s/ Louis G. Jekel

Louis G. Jekel, Secretary

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EX-10.1

Exhibit 10.1

Rural/Metro Management Incentive Program Summary

Purpose of Plan

Rural/Metro’s Management Incentive Program (MIP) is an annual cash incentive plan for the key executive positions as designated below. The MIP is designed to promote, recognize, and financially reward exceptional performance. This is accomplished by:

• Establishing goals to encourage and influence superior performance and a high degree of accountability

• Communicating to eligible employees the importance of performance excellence, of substantially exceeding budget expectations, and of achieving other objectives annually agreed to as “soft goals”

• Aligning executive accountability and corporate goals

Discretionary Nature of Plan

This Plan summary document does not establish enforceable employee rights, contractual or otherwise, and does not establish an employment relationship enforceable by the participant. The annual amounts, budgeted expectations, and soft goals require review and approval by the Board of Directors. Further, the MIP is discretionary and subject to change or termination by the Board of Directors at any time without notice.

Sliding Scale

In an effort to maximize participant performance, the Company has established a base award, as reflected in the 100% “Percentage of Goal” row in the table below, with adjustments to the base award via a “sliding scale” award system. The amount of incentive compensation that can be earned by application of the sliding scale is determined by performance relative to hard goals, currently “Budgeted Net Income from Continuing Operations”, in the case of corporate executives and “Regional Budgeted Operating Income from Continuing Operations”, in the case of Group Presidents.

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The application of the sliding scale to the portion of a participant’s incentive compensation that is based upon achievement of hard goals is shown in the table below. The application of the sliding scale to soft goals is illustrated under the heading “Application of Sliding Scale: Soft Goals” below.

Percentage of Goal *	CEO		Executive Vice President		Senior Vice President		Corporate Vice President		Group Presidents		Managing Director
90%	50.00	%	31.00	%	31.00	%	28.00	%	28.00	%	25.00	%
100%	80.00	%	50.00	%	50.00	%	45.00	%	45.00	%	40.00	%
125%	100.00	%	62.50	%	62.50	%	56.25	%	56.25	%	50.00	%
150%	125.00	%	75.00	%	75.00	%	67.50	%	67.50	%	60.00	%

* The budget is considered a stretch goal for the company. Eighty percent of budget is considered to be meeting expectations as defined by the bank covenant requirements; ninety percent and above is considered to be exceeding expectations.

The potential award is adjusted incrementally for goal achievements between 90% and 150%.

Application of the Sliding Scale: Soft Goals

If a participant’s award is partially based upon achievement of hard goals and partially upon achievement of soft goals, and the portion of the award based upon achievement of the hard goals is adjusted based on application of the “sliding scale” as illustrated above, then a similar adjustment shall be applied to the portion of the award that is based upon achievement of soft goals. However, no award is payable to a participant based upon achievement of soft goals unless a participant is entitled to receive an award based upon the participant’s achievement of hard goals.

For example: If the Company achieved 125% of goal in a plan year when a Senior Vice-President’s base award is 50% (divided into 70% defined as hard goals and 30% defined as soft goals), the portion of the SVP’s award based upon achievement of hard goals would be calculated as the base award of 50% multiplied by the hard goal 70% multiplied by the 125%, which would equal 43.75%. Similarly – and assuming the SVP accomplished all of the soft goals – the portion of the SVP’s award based upon achievement of soft goals would be calculated as the base award 50% multiplied by the soft goal 30% multiplied by the 125%, which would equal 18.75%. These two calculations would be combined bringing the total award to 62.50%.

Administration

• The Compensation Committee of the Board of Directors, under the leadership of the Chair, is responsible for the overall administration of the MIP. The Compensation Committee is, therefore, defined as the “Plan Administrator”.

• The CEO and the company’s Vice President & Treasurer serve as staff to the Plan Administrator to provide reports, make recommended design modifications, and ensure accuracy of reporting.

• The Plan Administrator resolves any disputes concerning the plan, including payout disputes.

• The Board of Directors approves any or all recommendations made by the Compensation Committee before they are considered to be adopted.

Duration of the Plan

The MIP is measured in terms of hard and soft goals. Hard goals are measured from July 1^st to June 30^th of the respective fiscal year, and soft goals are measured from January 1^st to November

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30^th of the respective calendar year. The MIP is, by design and intent, fully discretionary and the provisions may be modified at any time to meet specific business objectives of the Company.

The MIP is designed as a calendar year plan; however, audited June 30th fiscal year–end financial statements available by September 30th are utilized to substantiate hard goal achievements.

Eligibility

To participate in the MIP, certain eligibility requirements apply in addition to the position titles designated above, i.e., throughout the duration of the specific MIP period as defined above, the participant must:

• Not be functioning under any corrective action plan;

• Not terminate (or give notice to terminate) his/her employment with the company (unless otherwise agreed to in a separate employment agreement); and

• Unless specifically exempted by the Plan Administrator, have continuously functioned in an eligible position until the MIP payout date.

Determination of Scoring Criteria

• Awards are calculated utilizing the predetermined relative value scoring criteria established for each annual goal. Ultimately, however, the eligibility for, and payment of, any and all incentive compensation under the MIP is entirely discretionary and subject to the recommendation of the Plan Administrator and approval of the Board of Directors.

• The MIP allows the Chief Executive Officer in conjunction with the Compensation Committee to recommend an incentive award that may be in excess of 100% of the projected relative value scoring criteria based on individual achievements of hard and soft goals.

• Participants who are hired, transferred or promoted into or out of an eligible position or whose employment ends due to death, disability, retirement or separation under the Corporation’s Severance Policy, may, but need not be, considered for a prorated incentive award based on the actual number of months worked.

• In the case of a participant transferring from one eligible position to another eligible position, past performance is considered in determining an award.

Development of Scoring Criteria

• Unless otherwise stipulated by an employment agreement, each participant develops, in cooperation with their Supervisor, specific scoring criteria including hard and soft goals. The ‘percentage of goal’ to be applied is primarily based on “Net Income from Continuing Operations”, or in the case of Group Presidents on “Regional Operating Income from Continuing Operations” as adjusted for cost of capital and goodwill impairment charges, if any. The Board of Directors, at its discretion, can adjust the Consolidated Net Income from Continuing Operations calculation to consider Board actions taken in the best long-term interest of the Company. Hard goals are then weighted at 70% and soft goals are weighted at 30% of the overall award. Soft goals are specific to regional or corporate directives with emphasis on accountability related to each individual participant.

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• The Plan Scoring Criteria Form (“PSCF”) outlines specific goals with an assigned relative value weighting. This relative value weighting is reviewed and recommended by the Plan Administrator with final approval of the Board of Directors.

• It is envisioned that the MIP relative value scoring criteria will total 100%; however, at the recommendation of the Plan Administrator and by approval of the Board of Directors this award may exceed 100%.

Payout Conditions

• A preliminary report is given to the Board of Directors in October presenting the audited numbers for the hard goals and the preliminary expectations on the soft goals. The majority of the soft goals are completed by October, therefore, it is possible to provide a reasonable estimate. Any necessary updates on soft goals completed after the October Board meeting will be provided during the December meeting.

• It is the intention of this Plan that the Board of Directors will receive the appropriate information at the December Board Meeting to review and approve the awards and the awards would be paid as soon as possible after each December Board Meeting but in no case later than December 31^st.

• Incentive awards are calculated using the participants’ annual base pay at the time of the award payout.

• Incentive awards are subject to normal payroll withholding.

4

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Jack E. Brucker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rural/Metro Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2006

/s/ Jack E. Brucker

President and Chief Executive Officer

Rural/Metro Corporation

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Michael S. Zarriello, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rural/Metro Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2006

/s/ Michael S. Zarriello

Senior Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Rural/Metro Corporation

EX-32.1

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,

UNITED STATES CODE)

In connection with the Quarterly Report of Rural/Metro Corporation, a Delaware corporation (the “Company”) on Form 10-Q for the three and six months ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack E. Brucker, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2006

/s/ Jack E. Brucker

Jack E. Brucker

President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,

UNITED STATES CODE)

In connection with the Quarterly Report of Rural/Metro Corporation, a Delaware corporation (the “Company”) on Form 10-Q for the three and six months ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael S. Zarriello, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2006

/s/ Michael S. Zarriello

Michael S. Zarriello

Senior Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)